Wine and taxes: only one certainty for small producers

Under the shade of a weeping willow on the banks of a sparkling dam, wine lovers can overlook a vast national park while sipping chilled Chardonnay.

Located in the heart of the NSW Hunter Valley wine region, Wombat Crossing Vineyard members can also stay in a cozy lodge with a fireplace, aptly named The Burrows.

Growing grapes is known to be an extremely dangerous business, so producer Ian Napier knew he had to branch out and offer single vineyard wine, tastings and accommodation to diversify his income.

“Blind Freddy can see that grapes are not a product in high demand,” he told AAP.

“If you want to do good, you have to add value to them.”

Things were going well in August 2023 when Mr Napier received notice from Revenue NSW stating that his property may be subject to land tax because its primary use was no longer primary production.

The ministry then sent an assessment in 2024 saying growers owed five years of land tax, from which they are typically exempt because they produce food and fibre.

Mr Napier spent more than $100,000 in legal fees to challenge the finding in court. NSW Civil and Administrative TribunalHe decided in favor of the revenue administration.

The court found that the land tax exemption only applies if the grown product (grapes) is sold.

It determined that the primary use of the land was the production and sale of wine, based in part on an analysis of revenue from wine sales compared to grape sales.

Mr Napier says the state government’s “rapacious land tax grab” is punishing producers for exactly what they are encouraged to do: innovate and diversify.

“This is the heart of many small winemaking businesses,” he says.

“I could achieve the same result by ripping up all my vineyards, buying grapes, having a winemaker turn them into wine, and then selling the wine.

“Is this really what we want to achieve?

“Do we want primary manufacturers…to get rid of the primary production part and just focus on the part that actually makes money?”

Mr Napier’s situation has become a canary in the coal mine for other small producers in the state.

An apple orchard owner who turned poor quality fruit into juice and sold it has lost his tax exemption after Revenue NSW found his land was not predominantly used for primary production.

A cherry and apricot grower has been threatened with penalties after launching a popular “pick your own” initiative that was deemed a rival use of land.

The classification and packaging of products on the farm as “processing” also affected the tax exemption.

This assessment was ultimately overturned due to the short fruit harvest and the short tourist season.

NSW Farmers last week issued a warning to small and medium-sized producers, including those with cellar doors and fruit stands, saying they were under the radar of the revenue office.

The organization is calling on the government to expand the meaning of primary production in the province’s tax legislation, which has remained unchanged for decades.

He argues that the law acts as a disincentive for farmers to add value to their products and diversify their income in an industry that is increasingly prone to disruption due to weather, disasters and geopolitics.

“We want to see a slightly fairer system,” NSW Farmers business, economic and trade committee chairman John Lowe told AAP.

“We want to see our farmers have the opportunity to make money and diversify and reinvent agricultural production without being penalized the moment they cross an imaginary line.”

The NSW Farmers position paper states that the definition of primary producer could be expanded to include income from converting produce into a value-added product.

This would bring NSW closer to: Other states like VictoriaThis considers products to be in a “natural, processed or transformed state.”

Under the proposed changes, agritourism may also be considered a legitimate primary production activity.

While some farmers accuse the government of opportunistic revenue generation, Finance Minister Courtney Houssos I told the parliament before The law has been applied consistently for a long time.

Ms Houssos says she meets with producers regularly to understand the support they need.

“It is encouraging to see manufacturers seeking new opportunities to grow their businesses in the face of challenging economic conditions and natural disasters,” he added in a statement to AAP.

“Under current legislation, producers who diversify their operations will continue to receive the primary production land exemption as long as primary production remains the dominant use of the land.”

NSW Revenue Service officials have met with farmers throughout 2025, with further meetings planned for 2026.

Land tax thresholds are due to be reviewed in 2027.

Mr Napier has significantly scaled back his enterprise in Pokolbin and no longer sells grapes, instead using all the produce he grows to make wine.

Under the harsh summer sun of January, workers harvest Shiraz grapes for wine, which are eventually sold at the cellar door.

Mr Napier opted not to launch an expensive appeal against the court’s decision and was forced to pay annual land tax.

Saying his last words, he says, “This victory of the government is not a gain for us.”

“And that’s certainly not a win for agriculture or the primary producer.”

Australia’s Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national news channel and has been providing accurate, reliable and fast-paced news content to the media industry, government and corporate sector for 85 years. We inform Australia.