For wine producers and vineyard owners, the recent New South Wales Civil and Administrative Tribunal (Tribunal) decision in Zonadi Holdings Pty Ltd ATF Wombat Investment Trust v Chief Commissioner of State Revenue [2025] NSWCATAD 84 (Zonadi) may spell trouble for their current primary production land tax exemptions.
While it is common for wine producers and vineyard owners to conduct ancillary activities on the land including operating restaurants, cellar doors for wine tasting, sale of wine and event hosting, the Zonadi case is a welcome reminder for those taxpayers to consider whether the dominant use of the land is for primary production purposes.
Background to Tribunal decision
The taxpayer and Applicant is a Hunter Valley-based vineyard with a ‘paddock to glass’ offering. The Applicant's land contained vineyards for growing wine grapes, a cellar door for wine tastings and wine sales, a residence used by a director on weekends, and tourist accommodation for hire.
The wine sold by the Applicant and used for wine tastings was produced exclusively from grapes grown on the land. An overwhelming majority of the Applicant’s gross revenue was derived from wine sales. The remaining revenue was comprised of wine grape sales to third parties and tourist accommodation.
On 23 January 2024, the Chief Commissioner issued five land tax assessments imposing land tax for the 2020-2024 inclusive land tax years. The Applicant objected to the assessments on the basis the land was used for primary production. The objection was disallowed by the Chief Commissioner and the Applicant subsequently sought review of the decision at the Tribunal.
Relevant legislative provision - Section 10AA Exemption for land used for primary production
Section 10AA(1) of the Land Tax Management Act 1956 (NSW) states land that is rural land is exempt from taxation if it is land used for primary production.
The taxpayer relied on section 10AA(3)(a), that land used for primary production means land the dominant use of which is for “cultivation, for the purpose of selling the produce of the cultivation”.
Findings
The Tribunal Member held that for land to be exempt under section 10AA(3)(a) of the Land Tax Management Act 1956 (NSW), cultivation must be for the purpose of selling the cultivation (emphasis added).
Based on evidence before the Tribunal, although the Tribunal Member accepted that growing grapes was "cultivation" of land within the meaning of section 10AA(3)(a), he found that in respect of grapes used to produce the Applicant’s wine, there was no sale of grapes to satisfy the requirement of cultivation for the purpose of sale within the meaning of section 10AA(3)(a). Rather, what was sold was the wine made from the grapes produced on the land. The Tribunal found that the wine sold was a different product to the grapes as the grapes underwent a process to be converted into wine.
Although the Tribunal found that the physical area used for cultivating grapes was greater than the area used for other purposes and significant investment and labour went into the cultivation of grapes pointed in favour of the dominant use of land being for cultivating grapes, when balanced against other factors, such as the relative importance of most of the gross revenue being derived from wine sales, the Tribunal ultimately determined that the dominant use of the land was the sale of wine.
Comparison to other jurisdictions
It is useful to compare the primary production exemption provisions in other jurisdictions.
In Victoria, the equivalent provision for the primary production exemption under the Land Tax Act 2005 (VIC) differs to New South Wales. In Victoria, primary production is defined as “cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state)”.
Unlike New South Wales, the Victorian provision is explicit in extending the definition of produce of cultivation to include "secondary produce" e.g. cultivated produce in its processed or converted state.
Although based on the fact pattern in this case, the taxpayer would not have been successful in obtaining the exemption, the Victorian primary production exemption is more generous in what satisfies cultivation for the purpose of selling the produce of cultivation compared to its New South Wales counterpart.
Key takeaways
This case serves as a warning that a strict interpretation is applied to what satisfies the legislative requirements for land used for cultivation for the purpose of selling. It is not sufficient to sell products that use the product cultivated on the land, it must be selling of the product itself that is cultivated and produced from the land.
For wine producers and vineyard owners who undertake other activities apart from growing grapes, these landowners need to carefully consider if the dominant or primary use of the land is for the cultivation for the purpose of sale of the grapes produced on the land or whether other ancillary or secondary production activities are the dominant use of the land.
This may mean that existing land tax exemptions may not apply, and taxpayers could be liable for land tax in the prospective land tax years. A retrospective application of land tax could also apply if the taxpayer becomes the subject of a land tax investigation.
Taxpayers are encouraged to review their existing primary production land tax exemptions and seek advice on whether the exemption should apply.
For further assistance or if you have any questions regarding the primary production land tax exemption, please reach out to a Grant Thornton team member today.
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