Revenue NSW issued a public ruling in 2015 that the primary production exemption applied for those using land to maintain and sell horses, but not if they were kept for racing or recreational riding.
Godolphin challenged land tax assessments for 2014 to 2019. It argued it ran an integrated business, which involved racing and selling horses.
However, the High Court identified two distinct business operations – breeding and racing for prizemoney.
The all-blue silks of Godolphin in action. Getty
The lead judgment of Justice Michelle Gordon, Justice James Edelman and Justice Simon Steward said Godolphin had shown “a significant use” was keeping and selling animals.
“But it did not thereby demonstrate that this was the dominant use of the land … the dominant use of each parcel was to maintain horses for the purpose of racing.”
Tax lawyer Matthew Cridland, of K&L Gates, said the case had been closely watched by the industry and would affect all thoroughbred studs that had combined breeding and racing operations.
“Any additional land tax impost will likely flow through to the cost of thoroughbred horses and stud services,” he said.
Mr Cridland said the court had made an important distinction between “significant use” and “dominant use”, and the ruling would have broader implications for those claiming primary producer exemptions.
“Where rural land is developed to make way for new housing, it is common for the redevelopment to occur in stages,” he said.
“Often the stages that will be developed last will continue to be used for primary production activities, which are exempt from land tax, whilst the earliest stages are used for non-exempt development purposes.”