Dominant use, dominant evidence: NSW Tribunal raises the evidentiary bar for landowners seeking a primary production land tax exemption

Introduction

Building on our previous Alert (“Significant use” not enough - Taxpayer’s High Court Appeal dismissed in Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2024] HCA 20) on the High Court's decision in Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2024] HCA 20 (Godolphin), three recent decisions of the NSW Civil and Administrative Tribunal (Tribunal) have further affirmed the strict burden of proof on taxpayers seeking a primary production land tax exemption under section 10AA of the Land Tax Management Act 1956 (NSW) (Land Tax Management Act).

In each case, the taxpayer failed to establish, on the balance of probabilities, that the dominant use and dominant purpose of its land fell within section 10AA(3) of the Land Tax Management Act. In weighing up the dominant use, the Tribunal had regard to the following factors, as confirmed by the High Court in Godolphin (at [34]):

• The amount of land used for this purpose (as a percentage of the total land area);
• The nature and intensity of the various uses of land;
• The time, labour and resources spent in using the land;
• The financial gain from a given activity; and
• The conclusion reached by an objective observer viewing the land as a whole.

The primary production exemption - section 10AA in brief

Section 10AA of the Land Tax Management Act exempts land from land tax where it is used for 'primary production'. Under section 10AA(3), land used for primary production means land the dominant use of which is for one of the categories listed. Section 10AA(3) provides:

“(3) For the purposes of this section, land used for primary production means land the dominant use of which is for-

a. cultivation, for the purpose of selling the produce of the cultivation, or

b. the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, or

c. commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals, or

d. the keeping of bees, for the purpose of selling their honey, or

e. commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or

f. the propagation for sale of mushrooms, orchids or flowers.”

For land that is not rural land, section 10AA(2) imposes two additional requirements: the primary production use must (a) have “a significant and substantial commercial purpose or character”; and (b) be “engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)”.

Applying the dominant use test in three recent NSW land tax decisions

E-Synergies.com Pty Ltd Pty Ltd v Chief Commissioner of State Revenue (NSW) [2025] NSWCATAD 262

E-Synergies was assessed for land tax for the 2020 to 2025 land tax years. It claimed the primary production exemption on the basis that the land was used for grazing cattle, growing bamboo and other native trees for timber, and growing fruits, vegetables, herbs and roots. The land also had several competing uses: a café/restaurant (2019 to 2021), a bottled mineral water business (from 2022), and two residential rental properties, all of which generated substantial income for the taxpayer.

Although at least 80% of the land area was used for activities that could constitute primary production (comprising 60% for cattle grazing and 20% for fruit and greens), the Tribunal found that land area alone was not determinative. Weighing the nature, extent and intensity of all competing uses alongside the relative financial returns, the Tribunal held that primary production was not the dominant use.

On a year-by-year basis, the Tribunal found the café/restaurant was the dominant use in 2020–2021 and residential rental was dominant in 2022–2025. Income from primary production was minimal across all relevant years, and expenditure on primary production was negligible compared to the café/restaurant (in 2020 and 2021) and residential rental use (in 2022 to 2025). The Tribunal confirmed that dominant use is assessed objectively by reference to the physical use of the land and the purpose for which it is actually deployed - not the owner’s subjective intention (at [31]-[32], applying Metricon at [61]).

The Tribunal also rejected E-Synergies' argument that the land should be apportioned between primary production and non-primary production uses. The Land Tax Management Act contains no apportionment mechanism – that is, the exemption applies to the whole of the land or not at all.

Zonadi Holdings Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCATAD 84

Zonadi Holdings challenged five land tax assessments (2020 to 2024) in respect of an approximately 11-hectare property at Pokolbin, New South Wales, used for wine grape cultivation. Around 38% of the land was planted with vines. The property also included a cellar door for wine tasting and sales, a wine storage area, a residence and tourist accommodation. A portion of the wine grapes produced were sold directly and the remainder were used to make wine off-site, which was then sold at the cellar door.

The Tribunal held that the dominant purpose of Zonadi's cultivation did not fall within section 10AA(3)(a) for the following reasons, focusing on actual, not hypothetical, production and sales achieved in each relevant land tax year:

• Although cultivation was accepted as a dominant activity in a general sense, section 10AA(3)(a) requires cultivation for the purpose of selling the produce of that cultivation. The wine grapes used to make wine were never sold – such that the ownership never changed hands. The Tribunal held that wine is a product of secondary production: selling wine is not the same as selling the produce of cultivation within section 10AA(3)(a).
• Although most of the land was used for cultivation, wine sales dominated the financial picture - constituting 80% to 94% of total gross revenue across each of the five relevant land tax years. Income from direct wine grape sales was minimal. The overwhelming preponderance of revenue from wine sales was a significant indicator that the dominant purpose of cultivation was winemaking, not the direct sale of grapes.
• Zonadi's stated intention to sell all wine grapes produced did not assist its case. The Tribunal confirmed that land tax liability is determined by reference to the actual circumstances of each relevant land tax year, not future intentions (at [88]) or hypothetical production volumes (at [79]).
• The Tribunal confirmed the Chief Commissioner's assessment, concluding that Zonadi had not demonstrated that the dominant purpose of its cultivation was for the sale of wine grapes within section 10AA(3)(a).

T & A Skills Care Service Pty Ltd v Chief Commissioner of State Revenue (NSW) [2025] NSWCATAD 18

T & A Skills Care Service contested land tax assessments for the 2019-2022 land tax years. It claimed the primary production exemption on the basis that the land (a 16.8-hectare property at Badgerys Creek) was used for bamboo cultivation for timber and goat breeding. The claim was initially advanced on the basis of bamboo shoots, but that limb was abandoned at the hearing. The land was zoned rural (RU4) for the 2019 and 2020 land tax years, before being rezoned to non-rural (Enterprise) in October 2020 as part of the Badgerys Creek aerotropolis development.

The Tribunal held that T & A Skills Care Service had not discharged its burden of proof. The key findings were:

• Bamboo cultivation not established: T & A Skills Care Service initially claimed a bamboo shoots business but abandoned this on Day 2 of the hearing, conceding there were no sales from the land in any relevant year. The sales figures cited in its witness statement related to a separate property at Nardoo Road, Peats Ridge. Expert evidence from Ms Snyders confirmed that the bamboo on the land had not been maintained in accordance with good commercial husbandry practices.
• Goat breeding not established: T & A Skills Care Service purchased four female Boer goats in April 2022, claiming to have commenced a goat breeding business from 2021. The Tribunal found no sufficient evidence that the land was used for the maintenance of goats for the purpose of sale. There were no sales records, no contemporaneous business plan, and no evidence of goat breeding activities actually conducted on the land during the relevant years. The only business plan in evidence was dated May 2023 - well after the relevant land tax years - and its authorship was unverified.
• Commerciality test (section 10AA(2)) not met: For the 2021 and 2022 land tax years (when the land was no longer rural land), T & A Skills Care Service was also required to demonstrate that its activities had a significant and substantial commercial purpose or character, and were engaged in for the purpose of profit on a continuous or repetitive basis. The Tribunal found, as an additional conclusion, that this more stringent test was not satisfied either - given the absence of sales, the paucity of business records, and the expert evidence of Mr Winter and Ms Snyders.

What this means for taxpayers with primary production land

These decisions, together with Godolphin, send a clear message: holding land that is predominantly used for primary production by area is not enough. Taxpayers must be able to demonstrate, with contemporaneous evidence, that the dominant use and purpose of the land (assessed objectively across all uses) is primary production. In practical terms, taxpayers should consider the following:

• maintain thorough records of primary production activities, including time, labour, expenditure and income for each use of the land, on a year-by-year basis;
• ensure that the financial returns from primary production are commensurate with the scale of the primary production activity relative to other uses of the land;
• do not rely on stated intentions or future business plans alone - the Tribunal will assess what is actually happening on the land during each relevant land tax year; and
• obtain specialist and tailored land tax advice before asserting the primary production exemption where the land has multiple uses or has been recently rezoned.

How the Mallesons Tax Team can assist

The Mallesons Tax Team has extensive experience advising landowners, investors and primary producers on the application of land tax across all Australian States and Territories.

Please contact the Mallesons Tax Team to discuss how these decisions may affect your land holdings or for assistance with a land tax exemption or objection to a land tax assessment. In particular, we can assist you with:

• advising on whether the requirements for a primary production exemption (or any other land tax exemption) are satisfied in respect of your land holdings, including reviewing your current land use, income mix and record-keeping practices in light of the recent land tax decisions;
• preparing and lodging submissions to State and Territory Revenue Offices seeking a land tax exemption on your behalf or objecting to existing land tax assessments where an exemption is available; and
• advising on the land tax implications of acquiring, holding, developing or disposing of land with multiple uses, including where land may be rezoned or where primary production activities are being established or wound down.