Property developers win in a new Supreme Court ruling on the ‘primary production’ land tax exemption

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By Aaron Gadiel, Partner

The Office of State Revenue’s campaign to stop NSW property developers claiming the ‘primary production’ land tax exemption has suffered a major setback.  The Supreme Court has upheld a property developer’s claim that its land bank was exempt from the tax.


Greenfield property developers often acquire agricultural lands on the edge of existing urban areas and hold them as a ‘land bank’ for future development.  Primary production activities (commonly cattle grazing) can continue through leasing or agistment arrangements.

It is a longstanding feature of the land tax system that primary production land is generally not taxed.  As a result, property developers have traditionally claimed an exemption from land tax when their land bank is being used for cattle grazing.

In the last seven years or so, the Office of State Revenue (OSR) has embarked on an aggressive program of revenue maximisation.  It has refused the primary production exemption to many property developers and has hit them with sizeable, unexpected, land tax assessments.  The OSR has been telling some developers that the exemption did not apply because:

  • the ‘dominant use’ of the relevant land was not for primary production; and/or
  • the primary production use of the land did not have a ‘significant and substantial commercial purpose or character’; and/or
  • the primary production was not been carried out for the purpose of profit.

The 2012 decision that went against property developers

The OSR’s campaign has been boosted by a series of wins against property developers in the Administrative Decisions Tribunal and the Supreme Court.

Controversially, in one 2012 tribunal decision (Ashleigh Developments v Chief Commissioner of State Revenue) a property developer was refused the exemption because:

  • it held land as trading stock; and
  • it had received tax benefits arising from changes in the land’s value.

In that case, the land was being used for primary production and no construction works had been carried out by the developer.  The tribunal decided that:

  • the favourable financial benefits that the developer had received was a ‘use’ of land; and
  • this ‘use’ was significant enough to overshadow the cattle grazing that was actually taking place on the land.

As a result, the property developer lost the benefit of the primary production exemption and had to pay land tax.

The new Supreme Court decision — a win for property developers

However, it now seems that the OSR has finally been called into line.

A new Supreme Court decision has just been handed down:  (Metricon Qld Pty Limited v Chief Commissioner of State Revenue (No. 2). This decision has effectively reversed the 2012 tribunal decision and clarified key aspects of the law.

In the latest decision, the property developer held a land bank at Terranora in the Tweed Valley.  While the developer had been actively seeking various approvals for the urban development of the land, no actual construction or earthworks had been carried out.  The land was being used by professional cattle producers under an agistment agreement.

The Court ruled that the holding of the lands by the developer as part of its stock-in trade was not a ‘use of land’.

The Court did decide that the land was ‘used’ for commercial land development.  There had been surveying and exploratory drilling (for which expenses were incurred) in connection with the development of the land.  These activities were minor, but the OSR nonetheless sought to conflate them with an overall $2.2 million spend by the developer on securing approvals and planning for the land’s future development.  The OSR said that this expenditure, together with the activities of the developer’s consultants on the land, was enough to mean that cattle grazing was not the ‘dominant use’.

The Court ruled that merely holding land as part of a developer’s trading stock is not a ‘use’ of land, because, at that point, the trading stock has not yet been used.  The Court accepted that the ‘use’ of the land bank for obtaining planning approvals was not a sufficiently intense use to displace primary production as the dominant use.  The Court said that when a developer merely engages consultants to prepare reports for the purposes of obtaining approvals (where the work involves no physical use of the land) the developer’s primary production exemption is not put at risk.

While the developer enjoyed the benefit of tax deductions, these deductions simply arose from the way in which it financed its acquisition of the lands.  The Court said that the claiming of available deductions was not a ‘use of land’.  This meant claiming deductions did not have impact on whether the land could benefit from the primary production exemption.

The bottom line

In short, the OSR has been reined in.  The practical effect of the OSRs recent approach has been to deny almost any property developer the benefit of the primary production exemption.  This near-blanket approach is no longer viable.

Some developers who previously thought that they may not be able to secure a primary production exemption may now wish to review their situation.

The Mills Oakley planning and environment team has considerable experience in assisting property developers in relation to land tax exemptions (and land valuation issues associated with land tax).

For further information, please do not hesitate to contact us.

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