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Court of Appeal says neigh: no land tax exemption for “integrated” horse breeding and racing activities

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Landowners claiming the primary production exemption for land tax have a new reason to carefully consider the activities undertaken on their properties.

In CCSR v Godolphin, the New South Wales Court of Appeal has denied the primary production exemption to a taxpayer that ran integrated horse breeding and racing activities on two properties.

Read the full decision here.

The recent increase in land tax valuations across Australia is resulting in a more significant tax burden for Australian landowners. At the same time, there is greater scrutiny of exempt land in many jurisdictions. The decision in Godolphin threatens the primary production exemption for land on which activities are undertaken for more than one purpose. This follows the Victorian SRO’s recent revenue rulings addressing similar issues for primary production land in that state.

Brief summary of the primary production exemption

The Land Tax Management Act 1956 (NSW) exempts rural land that is used for ‘primary production’. Amongst other things, that includes ‘the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce’. There is a stricter exemption for non-rural land which requires the activities to have a higher standard of commercial character and profit-making purpose.

The legislation does not allow for partial exemptions but does tax ‘parcels’ of land separately, which is an undefined concept. In practice, the Commissioner assesses parcels of land as identified by the Valuer-General and given separate parcel identification numbers.

The case

The taxpayer, Godolphin, ran a business on rural land involving the breeding, sale and racing of thoroughbred horses. Godolphin’s business involved two main activities: the sale of ‘covering’ services by stallions and of progeny (the sales purpose), and the breeding, educating and training of thoroughbred horses for racing (the racing purpose). Only the sales purpose qualifies as ‘primary production’.

The dispute centred on whether the sales purpose was the dominant purpose of the activities undertaken on the land. Whilst Godolphin viewed them as ‘complementary or mutually reinforcing’ purposes such that the sales purpose dominated, the Commissioner sought to distinguish between the two activities with the result that the exemption was unavailable.

At first instance, the Supreme Court upheld Godolphin’s objection on the basis that the two properties were used as part of an integrated operation in which the preparation of horses for racing was with the overall dominant purpose of increasing the revenue from covering services and from the sale of progeny of broodmares.

On appeal, the Court (by majority) found in favour of the Commissioner, deciding that, while a significant use of the two properties was for the sales purpose, it did not dominate. It did not matter that the two purposes aided each other, nor that the sales purpose was more profitable. Godolphin also had to pay the Commissioner’s costs.

In reaching its conclusion, the Court took a multifactorial approach, considering the whole of the activities carried on by Godolphin on the land. This included the extent of the area, resources and intensity of activity directed to each purpose. Although relevant, it was not enough that the breeding and sale activities generated more revenue or were more profitable than the racing activities. Balancing these factors, the majority concluded that the activities in pursuit of the sales purpose were not the dominant use of the land.

Key takeaways

  • There is an increased burden on landowners to delve into a multifactorial analysis of their business when ancillary or secondary purposes may exist.
  • The integrated nature of a business does not mean that the two activities should be labelled with one overall purpose.
  • Where the land is used for multiple purposes, the dominant use of the land must be for the exempt purpose.
  • Account must be taken of the money spent or assets deployed for each activity, and the cost, nature and intensity of competing uses, as well as the size of physical areas on which activities are conducted and the time and labour spent on those activities. Economic value derived from the activities conducted on the land is relevant but not decisive.
  • The reality that these factors change from year to year further complicates the burden on landowners with multifaceted or vertically integrated operations.


In the current climate of increased land valuations, land tax is a more significant impost on landowners. Godolphin highlights the need for landowners to consider the whole of the activities carried out on their property to determine whether the dominant purpose of the land falls within the primary production exemption. While these cases are highly fact-dependant, this decision does provide guidance as to what Revenue NSW, and other state revenue authorities, will consider in its assessment.

Taxpayers whose land may not be exempt because of other activities on the land or a variety of different purposes for those activities should seek advice.

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