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6 Mar 13
Increased NSW land tax exposure for mining companies

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It is not uncommon for mining companies to acquire land from primary producers and then enter into arrangements whereby the primary producer continues to carry on farming activities on the majority of land.

For land tax purposes, the new landowner may seek to claim an exemption on the basis the land continues to be used for primary production purposes, however a consideration is required of not only physical uses of the land, but also non-physical uses of the land such as holding the land as buffer zones for mining purposes.

Caution needs to be exercised in determining whether the exemption can validly be claimed to ensure a landowner is not inadvertently exposing its directors, senior management and the entity itself to potentially significant penalties and interest.

Land tax exemption – NSW

The primary production exemption is available in New South Wales on land which is ‘used primarily’ for primary production purposes, regardless of whether that use is by the landholder, a lessee or licensee.

Primary production purposes include the cultivation of land for the purpose of selling the produce produced, or the maintenance of animals for the purpose of selling them, selling their bodily produce or their natural increase.

Where land is used for more than one purpose, the primary production exemption will only apply if the character of the land indicates it is used mainly for primary production – determined by reference to the level of primary production activity conducted on the land.  Relevant factors include:

  1. the degree, extent and intensity of each use;
  2. the area of land allocated to each use;
  3. the capital investment in each use;
  4. the income generated by each use; and
  5. the use both before and after the taxing date.

In instances where mining companies acquire land from primary producers and enter into arrangements whereby the vendor continues to use the land for primary production purposes, there is a risk the landowner will assume the primary production exemption can still be claimed regarding the land.  This assumption may be incorrect – depending on any physical and non-physical use of the land that can be identified.

Recognition of non-physical uses as relevant factors

In 2012, the New South Wales Administrative Decisions Tribunal (Tribunal) issued a decision in Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue (RD) [2012] NSWADTAP 25.  The decision contemplates a wider definition of ‘use’ by taking into account both physical and non-physical uses.  The decision specifically relates to the New South Wales primary production land tax exemption provisions, but there is potential for the approach to be adopted in other jurisdictions.

The decision concerned a property developer who acquired land of a primary producer.  The primary producer then entered into a ‘peppercorn’ (nominal rent) lease with the developer to allow the primary producer to continue using the land as part of his primary production activities.  The historical approach would have been only to examine the activities of the lessee.  However, the Tribunal denied the developer the benefit of a primary production exemption on the basis the main ‘use’ of the land was the developer holding the land as trading stock.  

It appears that the New South Wales Chief Commissioner is continuing to adopt this approach, by considering both physical and non-physical use of land, in audit activities particularly regarding mining companies to determine whether a primary production exemption should apply.  Possible other uses of land held by mining companies which may impact on the availability of claiming a primary production exemption include:

  1. holding land as ‘buffer zones’ for mining activity;
  2. holding land for purposes such as to enable supporting infrastructure (access roads, water pipelines, rail access etc) for mining activities; and
  3. residential and hobby farm activities by licensees or lessees.

To validly claim an exemption, consideration must be given not only to the various ‘uses’ of the land but also to what evidence is available to support that the main use of the land is primary production activity.


It is important that landowners exercise a reasonable level of care and diligence before claiming any land tax exemption.  For the primary production exemption, this will now entail having a complete understanding of both the physical and non-physical activities being undertaken by the landowner and by the lessee or licensee conducting the primary production business.

Where there has been a failure to exercise a reasonable level of care, or failure to disclose all the facts and circumstances affecting a landowner’s liability, civil penalties may apply.  In the case of corporate landowners, the penalties are executive liability offences attracting liability for directors and other persons involved in the management of the landowner.  

If a primary production exemption is incorrectly claimed and shortfalls arise then penalties can be applied, which depending on the circumstances may be up to 90% of any shortfall.  Interest at rates in excess of 10% will also apply so that, in addition to the potential personal exposure of directors and senior management, an incorrect primary production claim can have a significant financial impact on the landowning entity.


Accordingly, it is important to seek appropriate land tax advice:

  1. before claiming an exemption based on activities conducted by persons other than the landowner; and
  2. to consider strategies to manage potential future exposure to land tax. 
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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