Conexa and statutory severance: when a pipeline is 'land'

A turning point for statutory severance? 11 min read

'Statutory severance' provisions have a significant impact on the application of tax laws to owners of built infrastructure. The New South Wales Court of Appeal's recent decision in Conexa Sydney Holdings Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCA 20 (Conexa) adds nuance to the potential consequences of these provisions and challenges assumptions that may previously have been held by revenue authorities and taxpayers.

In this Insight, we explore the impact of Conexa and how it can be reconciled with the existing case law.

Key takeaways 

• 'Statutory severance' broadly refers to circumstances where legislation deems an asset that would otherwise be a fixture to be owned separately from the land to which it is affixed.
• Conexa displaces the presumption that a 'severed' fixture will be a chattel upon severance. The effect of statutory severance will depend on the language used in the statute or instrument in question.
• The Conexa decision does not overturn earlier case law on statutory severance—it distinguishes it. Conexa clarifies the nature and operation of statutory severance in the specific context of water industry infrastructure and NSW landholder duty. Even so, Conexa may influence future interpretations of statutory severance provisions across various industries, eg in relation to electricity and gas infrastructure,¹ and telecommunications infrastructure.²
• Conexa will have limited future implications for landholder duty. That is because all states have now enacted 'fixed to the land' provisions. These broaden the definition of 'land' to include anything fixed to the land, irrespective of whether it is a fixture at law.³
• This decision may have significant implications for income tax, eg for the classification of assets as 'real property' under Division 855 of the Income Tax Assessment Act 1997 (Cth). Division 855 does not currently have rules deeming assets that are fixed to land, but not fixtures at law, to be 'taxable Australian real property'.

Background

In 2019, Conexa Sydney Holdings Pty Ltd (Conexa) acquired all the shares in SGSP Rosehill Network Pty Ltd (Rosehill). At the time of the acquisition, Rosehill owned a 19km underground water pipeline used to distribute recycled water to large industrial sites. Approximately 95% of the pipeline was buried under Crown land. The remainder was located on land owned by Rosehill or on third-party land where Rosehill held various leases, licences, easements, and access rights. However, Rosehill did not hold a lease or licence over the Crown land. Instead, it relied on the statutory severance provision in section 64 of the Water Industry Competition Act 2006 (NSW) (WIC Act), which provided that Rosehill owned the pipeline 'whether or not the land in, on or over which it is situated is owned' by Rosehill.⁴

The dispute arose over the Chief Commissioner's assessment of landholder duty on the basis that Rosehill's interest in the pipeline was subject to duty either as an 'interest in land' or 'goods' within the meaning of s155 of the Duties Act 1997 (NSW) (the Duties Act). Conexa objected to the assessment, arguing that the pipeline was neither 'land' nor 'goods' for duty purposes. After the objections process was unsuccessful, Conexa appealed to the Supreme Court of NSW.

At first instance, Justice Richmond upheld the Chief Commissioner’s assessment.⁵ Following existing authority on statutory severance, his Honour found that, by operation of s64 of the WIC Act, the pipeline was legally severed from the land and retained its character as 'goods' for the purposes of the Duties Act. Justice Richmond dismissed the appeal, and Conexa sought further review in the NSW Court of Appeal.

In separate but agreeing judgments, the Court of Appeal unanimously dismissed the appeal. The Court held that, on a proper construction of the Duties Act and the WIC Act, Conexa's interest in the pipeline was an 'interest in land' for the purposes of the Duties Act; or, in the alternative, it was an interest in 'goods'. The statutory severance under s64 of the WIC Act did not create a 'novel property right' that was neither an 'interest in land' nor 'goods' for the purposes of the Duties Act, as the appellant sought to argue.⁶

The Court held that 'land' under the Duties Act must be interpreted in light of its statutory context and purpose, rather than strictly according to common law principles. As the pipeline was affixed to the land and intended to be permanent, it would ordinarily be a fixture at common law and form part of the land. The WIC Act did not disrupt this characterisation by providing that the pipeline was owned separately from the surrounding land.

The Court was of the view that s64 of the WIC Act had the effect of granting exclusive possession in respect of the stratum that the pipeline occupied (or that the pipeline was itself a stratum, by virtue of being a fixture), which therefore amounted to an 'interest in land' in that part of the land for Duties Act purposes.⁷

This construction was supported by the later introduction in 2009 of s64(3) of the WIC Act, which is a provision that overrides the indefeasibility of title granted under s42 of the Real Property Act.⁸ The Court determined that, although s64(3) was introduced later, it was intended to clarify the original purpose of s64(1), namely 'to confirm that the unrecorded statutory interest in land created by section 64(1) would override the interest in that land recorded pursuant to section 42 of the Real Property Act.'⁹ The Court reasoned that s64(3) would not have been required if s64(1) did not create an interest in land that was capable of binding the registered proprietor of the land.

Further, even if s64 of the WIC Act did not create an interest in land, the WIC Act did not create a 'novel' property right beyond the scope of the landholder duty regime. The pipeline would instead be taxable as 'goods'.¹⁰ That is, there was no 'third, distinct, category being neither an interest in land or goods' in the Duties Act;¹¹ or even if there were, it would be caught by the broad concept of 'goods' in the Duties Act.¹²

Interestingly, the taxpayer had not sought to argue that, if the pipeline were goods, it could rely on s163G. This section gives the Chief Commissioner a discretion to disregard goods in determining duty, where the goods comprise at least 90% of the total value of the landholdings and goods of the landholder.

In his separate judgment, Acting Justice of Appeal Basten placed additional emphasis on the pipeline’s physical connection to land. His Honour reasoned in four steps.

First, he emphasised the inclusive concepts of 'interest' and 'land' in the Duties Act. The former included a 'proprietary right', and the latter included a 'stratum', meaning 'divisions of space, usually in a horizontal plane'.¹³

Second, he noted that fixtures ordinarily become part of the 'land' to which they are affixed, but that this result could be 'avoided' either by statute or contract. ¹⁴

Third, he held that the WIC Act did not 'deem' a fixture (here, the pipeline) to be a chattel (and thus not 'land'). Rather, it reversed 'the general law presumption as to the ownership' of that fixture. It conferred statutory rights in both:

• the pipeline, which was a fixture at general law and hence part of the 'land'; and
• the three-dimensional space (or 'stratum') occupied by that pipeline.¹⁵

These rights were 'proprietary' because they imposed a 'limitation on the title of the owner of the surrounding land', as demonstrated by s64 prevailing over s42 of the Real Property Act.¹⁶

Finally, on this basis, Rosehill had an 'interest' in 'land' and was therefore a 'landholder' for the purposes of the Duties Act.

What is statutory severance?

Statutory severance provisions, such as section 64 of the WIC Act, play a significant role in the infrastructure industry by delineating property rights where infrastructure is owned separately to the land to which it is affixed.

Broadly, statutory severance refers to a situation where an asset that would ordinarily be considered a fixture is deemed to be owned separately from the land due to specific legislative provisions. At common law, when an asset is affixed to land with the objective intention of permanently improving that land, it may be classified as a fixture and form part of the land owned by the landowner.¹⁷ However, 'statutory severance' can override this outcome by treating the asset as owned separately from the land on which it is situated.

A number of cases have held that upon statutory severance, the affixed item regains its legal status as a 'chattel' which can be owned separately to the land, despite physical annexation to the land.¹⁸ In Conexa, the Court reviewed a number of cases which Conexa argued stood in the way of finding that 'the ownership interest conferred and protected by the WIC Act is an “interest in land”'.¹⁹

This analysis is important in assessing the view held by some that there is a general principle that, if a statutory severance provision treats a person other than the landowner as the owner of the relevant item of infrastructure, it follows that the item ceases to be land and is instead a chattel or good. Several of the key cases are summarised below.

The Court in Conexa did not overturn or disagree with the reasoning in these cases. However, it held that these cases were 'clearly distinguishable' because each depended on the specific wording of the statutory severance provision and the broader statutory framework.

Unless appealed and overturned, Conexa provides authority for a statutory severance not having a single outcome. It cannot be assumed that an item statutorily severed from the surrounding land will cease to be 'land', at least for duty purposes. Each statutory severance provision must be analysed to determine its effect.

The resulting uncertainty is important to consider. Conexa turned on the text, context and purpose of the WIC Act and the Duties Act. Arguably, the implications of this case are confined to water infrastructure governed by that legislation. Given Justice of Appeal Payne's comments, it seems unlikely that this decision would change the treatment of statutory severances under the relevant statute the subject of cases such as Vopak and Epic Energy. However, this development of the law on statutory severance may provide an opening for a similar interpretation to be made in other contexts and in respect of other legislation.

Broader tax implications of Conexa

The relevant acquisition in Conexa occurred before NSW broadened its definition of 'land' for landholder duty purposes to include anything fixed to the land, irrespective of whether it is a fixture at law, owned separately from the land, or it is legally severed from the land by any Act or law.²² Equivalent 'fixed to the land' provisions have been introduced in all states in recent years.²³ The 'fixed to the land' provisions would leave little room for the circumstances in Conexa to arise again.

However, Conexa may have significant implications for the classification of assets under Division 855 of the Income Tax Assessment Act 1997 (Cth), which do not yet have the announced statutory extensions to the meaning of land.²⁴ It is expected the definition of land will be expanded to include assets with a close economic connection with Australian land or natural resources, including infrastructure and machinery installed on Australian land, however, the scope is yet to be confirmed. Ultimately, Conexa may make it more difficult for a taxpayer to argue that its infrastructure assets are not 'real property' simply because of a relevant statutory severance provision; rather the specific effect of that provision needs to be interpreted and analysed in its statutory context.