Australia: Primary production land tax alert: Not going down without a fight

What does the 2023 Melbourne Cup Winner (Without A Fight) have to do with the High Court of Australia and Primary Production Land Tax Exemptions?

Without a Fight may have won the 2023 Melbourne Cup without much of a fight, however the owners, Godolphin Australia Pty Ltd, are still in with a fight in their primary production land tax legal dispute against the NSW Chief Commissioner of State Revenue.

The High Court of Australia (HCA) granted the taxpayer, Godolphin Australia Pty Ltd (Godolphin) special leave to appeal the judgment of the New South Wales Court of Appeal (NSWCA) in Chief Commissioner of State Revenue v Godolphin Australia Pty Ltd [2023] NSWCA 44.

At stake in this HCA appeal is whether an integrated horse racing and thoroughbred stud operation satisfies the primary production land tax exemption for non-rural land in New South Wales. The appeal will however have broader ramifications for equivalent primary production land tax exemptions in other Australian states where similar equine-related operations are carried out.

More broadly, the appeal will clarify the approach to be taken for land tax matters where the primary production undertaken has varying purposes, especially some of which may be interdependent. For example, preparation of prize bulls for cattle shows, which are also then subsequently sold for a premium to breeders/farmers or used to charge a premium fee for servicing other cows for desirable progeny.

"Breed to Race", "Race to Breed"

The crux of the issue in dispute at first instance in the New South Wales Supreme Court (NSWSC) in Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 430, NSWCA and soon the HCA, is whether the integrated racing operation and thoroughbred stud operation carried out by Godolphin satisfies the New South Wales primary production land tax exemption for non-rural land contained in section 10AA of the Land Tax Management Act 1956 (NSW).

The majority of the NSWCA agreed with the Chief Commissioner's contentions (overturning the NSWSC decision) that the sale of horses was incidental to the dominant purpose of breeding for the purpose of generating prizemoney from thoroughbred racing.

Significance for Primary Production Land Tax Exemptions – Non-Rural (NSW) and Greater Melbourne in an Urban Zone (VIC)

Firstly, the decisions of the NSWSC and NSWCA provide support for the proposition that the maintenance of horses can satisfy the "maintenance" requirement in the primary production land tax exemptions. While this may appear non-controversial, in our experience dealing with revenue authorities, when horses are the subject of the type of primary production undertaken, the prevailing views are unfortunately that horses are not maintained, merely agisted; for use in hobby farms; or for mere recreational purposes.

Secondly, both the NSWSC decision, the NSWCA's split decision and now the special leave granted by the HCA reveal the significant difficulties involved in establishing for primary production land tax purposes whether the maintenance of animals are carried out for a dominant purpose (NSW) or primarily for the business of primary production (VIC).

Thirdly, the Godolphin dispute also brings to light the position of the respective revenue authorities that even though there may be significant sales (here in the millions), it does not mean that the relevant primary production land tax exemptions for land located in non-rural areas (NSW) and in Greater Melbourne in an urban zone (VIC) will be granted.

Primary Production Land Tax Disputes

With most primary production land tax disputes, the critical first step of the dispute process is the preliminary audit/investigation stage.

Not only do taxpayers have the onus of proof to satisfy the revenue authorities that the relevant land tax exemptions apply, but also to satisfy the revenue authorities that relief should be granted in what is usually a highly fact-driven exercise.

Our state taxes team can assist you with understanding whether the relevant land tax primary production exemptions apply, provide representation in investigations and audits as well as preparation of objections to land tax assessments, including representation in litigation proceedings at the courts and tribunals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.