This article is co-authored by Kay Kim.
Land tax is a State-based tax on certain landholdings where the land value exceeds the relevant threshold. Exemptions generally include land used as a principal place of residence and for primary production.
There are various primary production uses which qualify for the land tax exemption including cultivation, maintenance of animals, commercial fishing, keeping bees, etc. In this article we look at some of the issues arising when applying the New South Wales land tax primary production exemption for cultivation, as referred to in the recent Zonardi Case (Zonadi Holdings Pty Ltd ATF Wombat Investment Trust v Chief Commissioner of State Revenue [2025] NSWCATAD 84 (11 April 2025) ). We also compare this to the equivalent primary production cultivation exemption in Victoria.
Cultivation for the prescribed purpose
New South Wales
Broadly, to qualify for primary production exemption in NSW, the land in question must be “rural land” (a defined term) that is “land used for primary production” (also a defined phrase in section 10AA(3) of the Land Tax Management Act 1956 (LTMA). The relevant provision states as follows:
‘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 that cultivation … ‘.
Zonadi highlights the importance of identifying all uses of the land, the dominant use and the factors to consider when assessing this use.
The Zonadi Case
The land in question was situated in the Hunter Valley in NSW (at Polkolbin) and contained a vineyard from which wine grapes were produced, a cellar door at which sales of wine occurred, a wine storage area, a residence and tourist accommodation. The total area of the land was about 11ha of which about 4.2ha (or 38%) was occupied by the vineyard, 1.56ha used for cellar door, the storage area, the residence and tourist accommodation, and 2.4ha comprised trees and a paddock (case did not mention what made up the balance of the land, but it would have included driveways and other areas to get between the vineyard, residence, etc). The land was rural land as a consequence of its zoning.
During the relevant five land tax years in dispute, a portion of the wine grape crop grown on the land was sold, and the remainder was used to make wine for sale. The wine itself was made off the land with the wine later brought back onto the land for tastings and sales through the cellar door. The Taxpayer remained the owner of the wine grapes used to make wine. The Taxpayer derived income from wine sales, wine grape sales and tourist accommodation in each of the relevant land tax years.
Given that the land had multiple uses-namely cultivation for the purpose of selling wine grapes, cultivation for the purpose of using the wine grapes to make and sell wine, use as a residence and for the provision of tourist accommodation-it was necessary for the Tribunal to determine which was the dominant use.
In determining the dominant use of the land, the judicially considered approach includes factors such as:
- actual and physical use of the land;
- the nature, extent and intensity of each use;
- the time, labour and resources spent in conducting the different uses;
- the money spent and assets deployed in each use; and
- the relative financial gain generated from each use.
There is no single factor that can determine the dominant use to the exclusion of other relevant factors. It is a question of fact and degree, viewing all the relevant facts as a whole, to arrive at the decision an objective observer would reach from viewing the land as a whole.
In Zonadi, the proportion of land used for tourist accommodation and as a residence, including time and investment for these uses, was not significant. In contrast the land used for cultivation (and activities related to cultivation) included most of the physical area of the land. The time, labour and resources spent using the land for cultivation was also significant. The evidence was that cultivation of the land, taken as a whole was the dominant use of the land. However, the question for s.10AA(3)(a) to apply, was not whether cultivation was the dominant use of the land, but whether the dominant use was cultivation for the purpose of selling the produce of cultivation. In this regard, the issues were:
(1) whether the cultivation of the land for the purposes of producing wine grapes to make and sell wine was ‘primary production’; and
(2) whether the cultivation of the land for the purposes of selling wine grapes was the dominant use of the land.
Whilst the activity of growing wine grapes amounted to cultivation within the meaning of s.10AA(3)(a), and also amounts to “primary production” in its ordinary meaning, the Tribunal concluded that the cultivation of wine grapes to make and sell wine failed to satisfy the statutory prescribed purpose (i.e., cultivation for the purpose of selling the produce from that cultivation). The sale of wine is not a sale of the product of cultivation in its natural state; rather it is a sale of the product in a converted state. Based on this, the Tribunal also concluded that wine grapes used to make wine was not ‘primary production’, but ‘secondary production’.
Even though the tonnage of wine grapes sold exceeded the tonnage used for wine making in certain land tax years, the Tribunal placed greater emphasis on the significantly greater financial return from the making and selling of wine. Wine sales accounted for between 80% and 94% of total gross revenue in each of the relevant land tax years. The presence of the cellar door and wine storage area, although not determinative on its own, when considered together with the relative financial gains from that use, supported and reinforced the conclusion that the dominant use of the land was cultivation for the purpose of producing wine grapes in order to make and sell wine.
Based on this, the Tribunal confirmed the Commissioner’s decision to disallow the land tax primary production exemption.
Comparison to Victoria
In the context of land used for cultivation, the Victorian primary production land tax exemption is broader. Section 64(1) of the Land Tax Act 2005 (Vic) defines primary production, relevantly as:
‘(a) cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state)’
The legislation explicitly acknowledges that it does not matter what form the produce from the cultivation is sold, as long as the purpose of cultivation is to sell what is grown on the land-this could be in its natural state (e.g., wine grapes), processed (e.g., dried grapes) or in a converted state (e.g., grapes turned into wine).
In so far as characterising whether the use of the land is for primary production, unlike NSW, where the test focuses on the “dominant use”, in Victoria the relevant “use test” varies depending on where the land is situated. Broadly, the tests are:
- for land located outside greater Melbourne, or that is wholly or partly in greater Melbourne none of which is within an urban zone – the land must be used primarily for primary production;
- for land located wholly or partly in greater Melbourne and wholly or partly in an urban zone – the land must be used solely or primarily for the business of primary production.
A detailed analysis of the various “use” tests between NSW and Victoria is beyond this article. Suffice to say when making an enquiry as to whether the use of the land satisfies the relevant use test, it is based on the approach adopted judicially (as outlined in Zonadi).
Timing of use
In the context of NSW and Victoria, the taxable status of the land is determined as at midnight on 31 December of the preceding land tax year. However, it is worth noting that the inquiry is not limited to the use to which the land is put on the relevant date, but can extend to a consideration of its use during a reasonable period preceding and following the relevant date. In Zonadi, six months before and after the relevant date was considered to be a reasonable time period of inquiry.
Conclusion
As Zonadi illustrates, the availability of the primary production land tax exemption for land used for cultivation requires more than simply demonstrating cultivation was the dominant use.In NSW the dominant purposes must be cultivation for the purpose of selling the produce of that cultivation in its natural state. In contrast, Victoria adopts a more expansive approach, and had Zonadi been decided under Victoria land tax law, we consider it would have led to a different outcome.
Practitioners advising on land tax exemptions for primary production must therefore give careful attention to the statutory language, the specific nature and purpose, and the factual use of the land over time.
