Annat v Commissioner of State Revenue
[2020] VSC 108
•11 March 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST
S ECI 2019 02857
| ANNAT PTY LTD (ACN 099 312 099) as trustee for the ANNAT FAMILY TRUST | Appellant |
| v | |
| COMMISSIONER OF STATE REVENUE | Respondent |
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JUDGE: | Kennedy J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11-12 February 2020 |
DATE OF JUDGMENT: | 11 March 2020 |
CASE MAY BE CITED AS: | Annat v Commissioner of State Revenue |
MEDIUM NEUTRAL CITATION: | [2020] VSC 108 |
TAXATION – Land Tax – Exemption for primary production – Whether Land used primarily for the business of primary production – Whether a beneficiary of the appellant was normally engaged in a substantially full-time capacity in the business of primary production – Whether part of the Land should be regarded as a separate parcel – Evidence not reliable – Appellant has not discharged onus of proof – Assessments confirmed – Abbott v Commissioner of Land Tax [1985] VR 164 applied – Sections 64, 67 and 70(2) Land Tax Act 2005 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr N F Orow Alexandria D Lustro | WL Lawyers |
| For the Defendant | Daryl Williams QC David Morgan | Solicitor for the Commissioner of State Revenue |
HER HONOUR:
This appeal raises an issue as to whether the property located at 161 Grices Road, Clyde North (‘Land’) was exempt land for the purposes of the Land Tax Act 2005 (Vic) (‘the Act’) in respect of the 2015, 2016, and 2017 tax years.
The principal issue for the Court was whether an exemption for land tax applied by reason that the Land was used primarily for the business of primary production in the relevant years.
The parties accepted that the appeal was a hearing de novo.[1]
[1]Mould v Commissioner of State Revenue (2014) 98 ATR 579, 589 [41]; Transcript of Proceedings, (11 February 2020), 1. This will be subject to s 109 of the Taxation Administration Act 1997 (Vic) (‘TAA’) which is set out below at n 32.
More particularly, the parties agreed that the following issues arose for resolution:
(a) Whether the Land was used primarily for the business of primary production in the 2015-2017 land tax years?
(b) Whether Stipo Sekic (‘Stipo’), as the relevant specified beneficiary of Annat Pty Ltd (‘the appellant’), was engaged in a substantially full-time capacity in the business of primary production of the type carried on on the Land in the 2015-2017 land tax years?
(c) If necessary, whether the preconditions in s 70(2) of the Act were satisfied in the 2015-2017 land tax years so that the part of the Land used and occupied by the daughter of Stipo should be regarded as a separate parcel of land?[2]
Statutory Provisions[3]
[2]An order was made on the first day of trial granting leave pursuant to s 109 of the TAA to rely on s 70(2) of the Act at the hearing of the appeal.
[3]The parties agreed that the applicable provisions were contained in version 56 of the Act.
The Act imposes land tax in respect of each year on all taxable land in Victoria.[4] Under s 8, the owner of that land is liable to pay the land tax. By reason of the definition of ‘year’ in s 3, land tax is assessed based on calendar years, not financial years.
[4]See the Act s 7.
Section 36(1) of the Act provides that in a tax year, a taxpayer is to be assessed for land tax on the total taxable value of all taxable land owned by the taxpayer as at midnight on 31 December of the immediately preceding calendar year.
Under s 3 ‘taxable land’ means all land that is not exempt land.
A number of classes of exempt land are created by the Act. Of relevance to this proceeding is that created by Division 2 of Part 4, entitled ‘Primary production land’. Section 67 of the Act creates an exemption for ‘Primary production land in an urban zone in greater Melbourne’ and provides:
(1) Land is exempt land if the Commissioner determines that -
(a) the land comprises one parcel that is –
(i) wholly or partly in greater Melbourne; and
(ii) wholly or partly in an urban zone; and
(iii)used solely or primarily for the business of primary production; and
(b) the owner of the land is a person specified in subsection (2).
(2) The owner of the land must be –
(a) …
(d) a trustee of a discretionary trust of which –
(i)the principal business must be primary production of the type carried on on the land; and
(ii)either -
(A) each specified beneficiary is a natural person; or
…. and
(iii) either –
(A)at least one of the specified beneficiaries is a natural person who is normally engaged in a substantially full-time capacity in the business of primary production of the type carried on on the land; or
(B) …
‘Primary Production’ is relevantly defined in s 64(1) as including:
(a)cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state); or
(b)the maintenance of animals or poultry for the purpose of selling them or their natural increase or natural bodily produce; …
…
Evidence
The appellant relied on affidavits of Stipo and his children, Tomislav Sekic (‘Tomislav’) and Natalie Klafuric (formerly Sekic) (‘Natalie’).[5] Each of the deponents was cross examined.
[5]These affidavits were the following: Affidavit of Stipo, sworn 19 September 2019; Affidavit of Tomislav, sworn 19 September 2019; Affidavit of Natalie, sworn 12 February 2020.
The respondent relied on documents lodged pursuant to rule 7.06 of the Supreme Court Miscellaneous Rules 2018 which largely consisted of financial and other documents adduced in support of the objections filed on behalf of the appellant. These documents provide the objective background against which the oral evidence is to be assessed.
Background
People
The appellant is the trustee of the Annat Family Trust (‘Trust’). The trust deed for that trust establishes a class of specified beneficiaries, which includes Stipo, his wife Vesna Sekic (‘Vesna’), Tomislav, and Natalie. Vesna is the sole director and shareholder of the appellant.
Stipo was aged 55 in December 2014. He is the sole director and shareholder of Profine Constructions Pty Ltd (‘Profine’). He holds a commercial builder’s licence and a domestic builder’s licence, and is the only person associated with Profine who does so. Stipo is the person that the appellant claims was engaged in a substantially full time capacity in the business of primary production on the Land.
Profine’s website of 3 July 2019 describes Profine as an Australian building company that has been servicing Melbourne for over 20 years. It is said to be entirely owned and operated by the same family since the company's beginning. The website also suggests that Profine is ‘averaging’ 100 homes per year.
The website further reads:
With Profine, you will have the peace of mind that comes from having the Managing Director personally overseeing the build. Our Managing Director makes regular visits to each building site to ensure the construction meets our own high quality standards. (the relevant statement)
Founder Stipo Sekic, who to this day still manages the company and takes pride in house construction and detail. Our motto is simple, for most a house is peoples (sic) biggest asset and we believe this asset should be protected by a builder who takes pride in somebody else’s joy: ‘your home’. (emphasis added)
It was generally accepted that, as sole director, the ‘managing director’ was Stipo.
A more updated version of the website as at 16 September 2019 was produced by Tomislav. It states that Profine consciously restricts its output to around 50 homes per year but also contains a substantially similar version of the relevant statement above.
The Land
The appellant became the sole registered proprietor of the Land on 28 February 2004.
The Land comprises a single parcel of some 21 hectares (51.89 acres) of a rectangle shape situated between Grices Road (to the north) and Pound Road (to the south). Photographs depict a picture of largely vacant land surrounded by residential dwellings (on 3 sides).
The appellant alleged that the Land had essentially been broken up into two parts. First, were the larger paddocks situated at the Pound Road end (paddocks 22, 23 & 24) which accounted for 55.38% of the property. In the other half were a number of smaller paddocks (paddocks 1-21) accounting for some 38.48% together with some ancillary land accounting for 6.14% (which included a private home, sand-based horse arena and driveway). A site map annexed to the affidavit of Stipo shows that horse boxes , a sand based area and a residence are located in the ‘top half’ of the Land containing paddocks 1-21.
The appellant claimed that the Land was put to the uses of cattle grazing as part of the business of cattle farming; the production of hay for sale; horse agistment; and private use – as a home. The appellant conceded that horse agistment and the private use (for a home) do not fall within the definition of primary production.[6] It also conceded that the Land was not used ‘solely’ for the business of primary production.[7]
[6]Appellant’s submissions, 29 November 2019, 9 [21].
[7]Ibid 9 [20].
A site usage map provided to the Commissioner (‘the respondent’) through the objection process (and approved as correct by Stipo) (‘tab 60 document’) suggested that paddocks 22-24 were devoted to hay cultivation and cattle. More particularly, the map suggests that there were only two areas concerned with cattle: a front small loading area near the front entrance of the property and paddocks 22, 23 and 24. The remaining smaller paddocks were designated as being used for horse paddocks; by Stipo’s daughter; and for ‘resting paddocks.’
Subsequent to the years in question it appears that construction on the residential development scheme known as ‘Aspen on Clyde’ commenced on the Land on 5 June 2018 following a planning permit issued on 8 September 2017.
Financial documents
The Trust's income tax returns for the 2015 and 2016 financial years describe its main business activity as ‘beef cattle farming (specialised)’. For the 2015 year, they record that the Trust's total business income was $99,273 and its total expenses were $339,482. For the 2016 year, the Trust's total business income was $52,851 and its total expenses were $117,614. Accordingly, in both years, the Trust made significant losses. Although the actual income tax return for 2014 was not before the Court, there was evidence that suggested it listed all income and expenses as being referable to non-primary production.[8]
[8]Document 4 ‘Email string for the period 2 December 2015 to 8 December 2015 between the Appellant and the Respondent’.
Personal tax returns for Stipo were in evidence in respect of 2014, 2015 and 2016 financial years. His occupation for the 2016 year is listed as managing director; for the other years no occupation is given. In each year, his income was primarily a large dividend from Profine, (in the order of $500,000 in 2016) with a further small sum being a distribution from the Sekic Property Unit Trust. He did not derive any income from the Trust or otherwise from the appellant or the Land.
Various financial statements for the Trust were adduced. In respect of the 2015 year the sales of livestock are $41,385,00 with no separate identification of sales of hay/agistment income. In respect of 2016 the delineation was as follows: Sales of livestock are $20,000.00; agistment sales are $11,709.77; sales of hay are $2,513.20; and sales of grass are $17,316.41. The appellant highlighted that the income from sales of livestock and hay ($22,513.20) was greater than income from agistment ($11,709.77). This was also true in respect of 2017. [9] However, this characterisation takes no account of the costs of purchasing cattle.
[9]In respect of this year livestock sales were $38,180.00, no hay sales were recorded, sales of grass were $9,373.72, and agistment sales were $6,530.81.
The parties also made reference to profit and loss statements provided in respect of the financial years 2013-2014 and 2014-2015. Each showed that sales from hay and livestock exceeded sales of agistment. Thus, for example, in respect of the 2014-5 year, the sales of livestock were $41,385; agistment sales were $14,971.21 and sales of hay were $22,811.72. However, the costs of sales at $32,410.03 meant the gross profit was modest at $50,704.70 only. A large proportion of these costs also appeared to relate to the purchase of livestock.
The taxpayer had also provided the respondent with a detailed ‘various lists of account transactions’ document in respect of each of financial years 2013-4 and 2014-5. These purported to detail the ‘account transactions’ in respect of the relevant sales of agistment, hay, and cattle reflected by the totals given in the profit and loss statements. Thus, they recorded a sale identification number; a date; the name of the payee; and an amount (of credit or debit) in respect of each transaction constituting the total agistment sales of $14,971.21 and total hay sales of $22,811.72 in respect of the 2014-5 year.
Critically, Senior Counsel informed the court that the appellant’s calculations showed that every sale of hay that was recorded was coincidental with the sale of an agistment service to the same customer (with the same identification number, date and payee). Further, that the ratio derived was approximately 60% hay and 40% agistment.[10] This position was not challenged by the appellant. More particularly Stipo accepted that this seemed to be what had happened.
[10]Document 28 ‘Profit and Loss Statement of Annat Pty Ltd for 2013-2014 financial year and various lists of account transactions of Annat Pty Ltd for 2013-2014 financial year’; Document 29 ‘Profit and Loss Statement for 2014-2025 financial year and various lists of account transactions of Annat Pty Ltd for 2014-2015 financial year.’ See for example in Document 29 which contains the figures from 2014 to 2015, Sale 09CRO08, Sandy Croft of 24 July 2014 shows a sale of $86.55 for Agistment and a sale of $129.81 for hay.
It therefore appears that, in respect of the financial years for which the appellant produced details of account transactions (being financial years ended 2014 and 2015):
·That hay sales were generally provided as part of an agistment service;
·That the amount allocated to hay was higher than that allocated to agistment with a ratio of approximately 60/40.
Assessment process
On 22 September 2017 assessments were issued to the company for land tax in respect of calendar years 2015 ($267,862.50) and 2016 ($256,725.00).
By objection dated 10 November 2017 the appellant objected to these assessments.
On 20 March 2019, the respondent disallowed the objection in relation to the 2015 and 2016 land tax assessments, giving notice of his reasons for doing so.
In his correspondence the respondent accepted a number of matters pursuant to the Act including that the Land was located within greater Melbourne (s 67(1)(a)(i)); the Land was in an urban zone (s 67(1)(a)(ii)); the principal business of the trust was of primary production (s 67(2)(d)(i)); and the specified beneficiaries of the discretionary trust were natural persons (s 67(2)(d)(ii)).
However, the respondent found:
•In the present matter, based on the evidence available to the Commissioner, he cannot be satisfied that the Company (as trustee for the Trust) has met its burden of proof that the Land was solely or primarily used for a business of primary production for the 2015 and 2016 land tax years (s 67(1)(a)(iii));
•… In the present matter, the Commissioner cannot be satisfied that the Trust has discharged its burden of proof in proving that Mr Sekic was normally engaged in a substantially full-time capacity in the business of primary production of the type carried on on the Land for the 2015 and 2016 land tax years (s 67(2)(d)(iii)).
He also found that the Land could not be separated into separate parcels of Land for the purposes of s 70(2)(b) because the ownership conditions set out in s 67(2) were not satisfied.
The letter also contained the following finding:
In this case, on the evidence available to the Commissioner, the Commissioner accepts that the Farming Activities constitute a business of primary production.
This letter earlier refers to ‘Farming Activities’ as being the use of the Land ‘for the maintenance of cattle for sale and the cultivation of hay.’[11]
[11]Document 2, ‘Notice of determination dated 20 March 2019 from the Respondent to the Appellant Disallowing the Appellant’s objection’ 7, see also 3.
On 26 April 2019, the appellant requested the respondent to treat the objections as an appeal and cause them to be set down for hearing before the Court.
By assessment of 22 September 2017 the respondent then issued an assessment in respect of the 2016 calendar year at $274,725.00.
On 10 November 2017 the taxpayer lodged an objection which was disallowed on 17 June 2019. In reasons for this decision, the respondent made substantially identical findings as contained in the letter of 20 March 2019 as to the application of the various statutory provisions.
He further stated:
In this case, based on the evidence available the Commissioner accepts that the Farming Activities constitute a business of primary production[12] (where ‘Farming Activities’ were defined as using the land for the maintenance of cattle for sale and the cultivation of hay).[13]
[12]Document 2, ‘Notice of determination dated 17 June 2019 from the Respondent to the Appellant disallowing the Appellant’s objection’, 6.
[13]Ibid 2, 5.
On 28 June 2019, the appellant requested the respondent to treat the objection for the 2017 year as an appeal and cause it to be set down for hearing before the Court.
Evidence of witnesses
Stipo Sekic
Stipo was the primary witness for the appellant. His evidence was often argumentative and he appeared ready to provide tailored evidence to assist the appellant’s case, rather than evidence which was responsive and accurate. Thus, Stipo was a beneficiary of the appellant whose interests were advanced if the appeal is successful.
As will be seen below, Stipo’s evidence was also unsatisfactory in relation to two particular aspects: first, as to the website of Profine; secondly as to the account transactions underlying the appellant’s profit and loss statements. His knowledge of the Land also appeared to be inconsistent with his alleged level of engagement. By way of example, at one point in his evidence he (wrongly) suggested that there was a paddock numbered ‘56.’
Having had the opportunity to observe his demeanour and consider his answers, I am generally unable to rely on his evidence absent objective support.
Notwithstanding that his wife was the sole director and shareholder of the appellant, Stipo swore that he was authorised to make his affidavit ‘for and on behalf of the appellant.’ He further took it upon himself to produce financial statements for the appellant and provide responses to the respondent during the objection processes.
In his affidavit Stipo gave evidence about the use of the Land in the 2015-2017 land tax years. He claimed that some paddocks were used for grazing and others allowed to rest. The paddocks were not of equal size and were rotated over time. He said that the Land was used to its ‘maximum capacity’ and provided paddock measurements (pre compulsory acquisition) as follows:
a. Total land size 21 hectares or 51.89 acres;
b. Paddocks 22, 23, 24 total 11.63 hectares or 28.73 acres;
c. Paddocks 1 to 21 total 8.08 hectares or 19.97 acres;
d. The land on which his daughters house is erected including surrounding land, driveways and access ways, total 0.88 hectares or 2.18 acres; and
e. The sand based horse arena including the tree line, total 0.24 hectares or 0.59 acres.
f. There is some land between the perimeter of the fences and the boundary of the land which totals the remaining 0.17 hectares or 0.41 acres.
Save for the portion where his daughter’s house was located he claimed that ‘the whole land’ was used for cattle grazing. He further stated that the process of cattle farming involved buying young steers, having them graze for 12 months and then, if ready, an agent would take them to the market for sale.
Paddocks 22, 23, and 24 were used for cattle grazing and hay production; however he also said that those paddocks were locked away at the end of winter to allow hay to grow for later harvest.
He claimed that paddocks 1-21 were also used for cattle grazing on a ‘rotation basis’, as well as for agistment, to grow hay and to rest. However, it was ‘not possible’ to say exactly how much of paddocks 1-21 were used for horse agistment, cattle grazing and resting during the relevant years or any other year. He also said that ‘cattle were often moved to paddocks used for horse agistment to eat grass that horses do not eat.’
His evidence was that ‘cattle trading and numbers over the years ranged 60-80’ and produced a numbers summary document in support of this statement.
In terms of hay production he claimed paddocks 22, 23 and 24 were used for hay production. However, ‘at times’ other paddocks were also allegedly used to produce hay, but Stipo did ‘not recall’ which ones were used for this purpose.
In terms of horses, he claimed that cattle and horses were kept in different paddocks and the paddocks were rotated. The land had 11 shelters over a number of paddocks for horse agistment (though he only specified 8 paddocks) and in the 2014-2017 years he claimed that it was his practice to use paddocks that had horse boxes for agistment.
He stated that horses ate ‘mainly hay’ which was sold to the owner by the appellant as well as grains provided by their owners. Horses normally left a significant amount of food on the land to be consumed by cattle.
His evidence was that on average over the 2014-6 years he had 9-11 horses per month agisting on the Land , but in 2017 the numbers went down to less than 6 by the middle of the year.
He claimed that the sand-based horse arena was used as a common area for horse riding and to treat cattle as required.
Stipo’s daughter lived in a house on the land which included land for the house, shed and kids’ play area. There was a common driveway used by his daughter and for farming purposes. At any point in time she also used one of the surrounding paddocks (1-6) to maintain 10 sheep, which the appellant owned, and 12 chickens, which she owned. He estimated her total use was only about 0.6 hectares.
In terms of Stipo’s time spent on the Land, he stated that ‘primary production’ required a lot of labour and time which was not consistently spread over ordinary working hours, and that he was the only person who carried out primary production activities on the Land.
His tasks included electric fence management; water trough management; animal shelter management; cattle management; paddock maintenance; use of tractor to stack hay bales (he used contractors to cultivate and bail), repairs, pest control and water tank maintenance. He engaged contractors to undertake tasks he could not do such as put up fences and repair pipes. He also engaged an agent to conduct buying and selling of steers.
Stipo claimed that he attended the farm and to farm related matters ‘about 35 hours per week spread over 7 days’, though there were times he needed to work ‘approximately 70 hours per week.’
In terms of Profine he said that this was a construction company that builds homes and that in recent years its business had ‘grown substantially.’
In oral evidence he accepted that he held both a domestic building licence and a commercial building licence which meant he was responsible for compliance with standards. However, his affidavit read:
Whilst I am the shareholder and director of the company, it is run by my son and daughter. In addition, it employs bookkeepers, building managers and support staff. I am not involved in the day to day operations of the company. I attend the office to check how things are going. My son and daughter brief me on the projects but I otherwise have limited personal involvement with the projects. I might go and have a look but that is minimal and can be done at any time of the day. That could take 2-3 hours per week.
I hold the DBU license and hence I must remain a director. I do not draw a wage from the company. I receive about $2,000 per week which the accountant treats as director loan and at the end of the year when dividend is distributed, the dividend is used to repay the loan.
During the relevant years, he was also a director/shareholder of a number of other companies but claimed to have a minimal involvement with these.[14]
[14]These include SVS Enterprises Pty Ltd, Aspen Homes (Vic) Pty Ltd, Carda Investments Pty Ltd, Sekic Investments Pty Ltd. See Affidavit of Stipo, sworn 19 September 2019, 10-12 [40]-[44].
Under cross examination Stipo was taken to the tab 60 document which failed to identify that any cattle grazing was occurring outside paddocks 22-24. He accepted that ‘that’s what I wrote.’
Stipo did shortly thereafter give evidence about the rotation of paddocks to enable them to rest. He stated that you had to remove animals to let the paddocks rest. He explained that horses were ‘very, very funny’ and did not ‘eat anything.’ Further, that cattle were let in to horse paddocks ‘to chew up the grass horses will not touch.’ Therefore when the horse owner would tell him that there were weeds and all sorts of grass they would move the horse to another paddock. He continued: ‘we would put our cattle in there to chew up the - the all sorts of grass that’s actually grown and the horse won’t touch.’ He agreed that sending the cattle in therefore made it ‘okay for horse use again.’
He claimed that his responsibility in respect of horses was for watering and fencing only, not feeding. He outlined that people came in the morning and at night to feed their horses; that kids came to ride the horses with their parents and also used the sand based arena for that purpose. He also agreed that there were structures being used for horses (the horse boxes) but that cows did not need shelters.
Stipo also claimed that he sold hay to people who owned animals such as horses as well as individuals who came by ‘word of mouth’ and paid $5 and $10 a bale. He agreed that they would invoice for the bales. He also claimed that he used to feed his animals with the hay.
However, when the detailed accounts set out above were put to him he claimed that the bookkeeper might have allocated the 60% proportion to hay ‘on their own accord.’ When it was suggested that the journals reported no separate sales of hay to anyone who happened to buy bales of hay separate to the agistment service he was unable to provide an explanation, claiming that he did not do the books. He also rejected the suggestion that hay was just an input into the agistment business enabling the appellant to sell agistment services to horse owners (whereby horses also had access to hay). He said he never had an agreement with any of the agisters to include feed and suggested the explanation was due to ‘lazy bookkeeping.’
The allocation of the higher 60% ratio to hay was in the interests of the appellant given the provision of agistment services did not involve primary production. I am unable to accept the explanation of Stipo that a bookkeeper arbitrarily allocated 60% of the turnover of sales (of agistment and hay) to hay ‘of their own accord.’ Rather, I consider that such allocation must have been done on instructions from someone on behalf of the appellant and/or with that person’s knowledge. If necessary to find, I consider that such instructions were likely to have originated with Stipo given his evident control. Regardless of whether this is so, however, the absence of any explanation by way of evidence from the book-keeper or otherwise, as to how the 60/40 split was derived means that the Court cannot be satisfied that the financial records of the appellant can be relied upon, particularly as to the composition of the turnover figures.
Stipo was also generally cross examined about the profitability of the primary production activities as identified in the accounts. He agreed that the running of the farming activities, let alone the cattle business activities, was not an economic proposition.
He also gave unsatisfactory evidence in relation to the relevant statement in Profine’s website entry which suggested that he ‘personally oversaw’ the build and made ‘regular visits to each building site.’
His explanation was that the roles had changed over the years and that he was not aware of the content of the website until late last year - attributing blame to his daughter. However, he nevertheless sought to justify the entry as a ‘marketing ploy’.
The difficulty with this evidence is that, even if the Court accepts that Stipo’s role within Profine has been reduced to some extent, there appeared to be a readiness to justify misleading behaviour as a mere ‘marketing ploy.’ This tends to confirm that Stipo’s evidence ought to be treated with the utmost caution.
Under cross examination his evidence was also vague about his routine at the Land. At one point it was put to Stipo that going in the morning and the evening in winter would mean going to the Land in the dark. Stipo responded it ‘makes no difference, when you get into a routine’ but shortly afterwards claimed there was ‘no set routine’ and that he went to the Land in the mornings and evenings, or as he needed to.
He was taken to other estimates he had given of his alleged primary production hours. Thus in December 2015 he was asked for details of the number of hours spent on a weekly basis on primary production activities and responded:
This can vary from day to day
Inspect property in the morning and again evening 4x7Days = 28 HR P/W
At times I would need to be present during the day 10HR P/W
I would say that I spent approximately 38HR P/W
Stipo agreed that he would not go during the day to the Land if he had no reason. Stipo also agreed that he could have been at his office at Profine during the day, as he was when he wrote the aforementioned email.
Stipo was also taken to a statutory declaration made on 26 October 2017 wherein he made the following statement: ‘Some weeks I work up to 70 hours or more. Generally, my working day which includes the PPBusiness [primary production] starts at or about 5 am and at times finishes at late as 9 pm to 10 pm.’
He sought to explain the reference to 70 hours (absent from the earlier document) by suggesting that 2017 was a busy year but also said his memory was ‘not that great anymore.’ During the main part of the day he also said he ‘could’ve gone into the office, had a chat, I could’ve gone home, had a rest.’
He did not ‘believe’ he was working pretty much full time for Profine. He disagreed that the cows were a hobby before and after work.
Tomislav Sekic
In his affidavit Tomislav claimed to be one of two managers of Profine. Tomislav deposed that in or around 2010 his father started to hand over management of Profine to Tomislav and his sister and that, since at least 2013, his father had not been involved in the day to day business of Profine. Tomislav further claimed that they employed site supervisors, project/construction managers and other support staff. As a result, his father was not relied on as the ‘head’ of Profine ‘except for as required by the Domestic Builder’s Licence.’
He claimed that his father came into the office as he ‘feels like’ with no set routines and described his role as a consultant.
In relation to the website entry he stated:
This is a marketing device intended to assure our customers of our hands on approach and quality assurance. All it means is that my father will occasionally have a look at the project, which can sometimes involve a site visit of a short duration. He is consulted as required throughout the build in accordance with the requirements of the Domestic Builders Licence. He is not regularly engaged at the building sites, and his oversight is limited to consultation with Natalie and me. (emphasis added)
Under cross examination he said that the references in the website should have been ‘fixed up’ because things have changed over time. Tomislav also said the website was not his responsibility but that of his sister and rejected the suggestion that the website was ‘misleading.’
Again, Tomislav’s evidence that his father’s role had diminished over the years was consistent with the evidence of his father and sister. However, his readiness to dismiss the misleading material in that website entry as a mere ‘marketing device’ suggests his evidence should also be treated with caution.
Natalie Klafuric
Natalie gave evidence which was unsatisfactory in many respects.
In her affidavit she gave the following evidence about the Profine website entry:
I have read Tom’s affidavit and I refer to the advertisement that my brother Tom has exhibited to his affidavit at TS-1. That advertisement was prepared in accordance with the original website designed for the Company in the early 2000’s. The information from this website was copied over into a new website on or around 2010, I am not sure of the exact year. I did not review it at the time it was copied over.
I first came across this advertisement a few days ago when my brother brought it to my attention that the advertisement is not correct.
I accept that from 2010 onwards this advertisement was incorrect. Stipo was not acting as a Managing Director at this time and management of the Company was Tom’s responsibility and mine. I should have reviewed the website material, unfortunately I did not and I accept that it was misleading. (emphasis added)
Under cross examination she accepted that she was responsible for giving instructions to the ‘website person.’ She gave evidence that, although changes were made to the website over the years some five times, she had not looked at the relevant statement. She claimed that she had not done a complete review since back in the early 2000s.
Such evidence was unsatisfactory. If, as she maintained, her father’s role had substantially diminished, it was completely inappropriate to maintain (what she conceded to be) a ‘misleading’ statement made to the public on a website. Such lack of attention to accuracy casts great doubt on the reliability of her evidence generally.
In terms of Stipo’s work, her evidence was that she had lived on the farm between 2011 and 2018. She left home every morning between 7.00 am and 8 am and was back home between 3.30 and 6 pm. She stated:
I know my father spent a number of hours every day on the property. I would not see him all the time because of the size of the farm, but I would see his car in the driveway. I might see him down in the paddocks, on the tractor, sometimes around the cattle.
Sometimes he would come before I leave for work, sometimes he would still be there when I come home from work. It wasn’t particularly structured. I would see his car and know he was there. On Saturdays I would take the kids to basketball and weekend activities, I would see him in the afternoon.
Under cross examination, she further suggested that she ‘never’ saw her father in the horse part of the property. I reject this evidence as implausible given the horse paddocks were located near to her house and given her father’s own evidence was that he attended to the water and fencing for horses.
She also gave evidence regarding the managing of the horse agistment services on the property. She attached an unexecuted ‘template agreement’ to her affidavit. Clause 2 provides for the payment of agistment fees set out as the Schedule to be rendered monthly (at $238.00 for a private agistment and $191.00 for a shared agistment) with provision to pay extra for private stables ($10.00 plus GST a day). Pursuant to clause 6 of the template agreement the agistor’s obligation also did not extend beyond the provision of a paddock and the supply of water to the paddock.
However, given no completed agreements were adduced, nor were any agisters called, I am unable to give significant weight to this document as shedding light on the precise arrangements between the appellant and the agisters.
Under cross examination, she outlined her assistance with agistment services: that when people came she would provide them with details and the form; they would put their horses on a paddock and she would provide documents to the bookkeeper. She claimed that the agisters would be responsible for feeding whether once or twice a day or once a week. She said they would have to either bring their own hay or purchase hay.
Despite her involvement and location, however, she also claimed to be unable to provide any evidence as to the billing arrangements, claiming she was not looking after the accounts.
Summary
The evidence led on behalf of the appellant was unsatisfactory for reasons identified above. Each of the witnesses was also a beneficiary of the appellant such that there was a strong self-interest in a positive outcome on this appeal.
Overall, I am generally unable to accept the oral evidence absent objective foundation.
Whether the Land was used primarily for the business of primary production in the 2015-17 land tax years
Legal principles
The key issue is whether the land was used primarily for the business of primary production. In this case, that is for the business of the maintenance of animals for the purpose of selling them; alternatively for cultivation for the purpose of selling the produce of cultivation.
Both parties made reference to parts of a number of cases.
Having read the relevant decisions, I consider that the relevant principles may be summarised as follows.
First, the burden of proof is on the appellant. [15] In CDPV Pty Ltd v Commissioner of State Revenue Croft J observed that the burden of proof can be an important aspect of primary production cases,[16] and that self-serving, non-contemporaneous statements made by taxpayers must be treated with caution - especially statements that are ‘general, vague and lack[ing] detail required’ to prove the facts in issue.[17] Croft J also observed that the respondent is ‘at an evidentiary disadvantage inasmuch as those who are seeking an exemption have within their control almost all of the evidence in relation to what is occurring on the Land … ‘.[18]
[15]See s 110 and s 127 of the TAA.
[16](2016) 103 ATR 385 (‘CDPV’), 397-8 [35]; note that an appeal in relation to this decision was dismissed in CDPV Pty Ltd v Commissioner of State Revenue (Vic) [2017] VSCA 89.
[17]CDPV (n 16) 397-8 [35] (citations omitted).
[18]Ibid 400 [45].
Secondly, the applicability of the exemption is to be determined as at midnight on 31 December of the preceding year (i.e. 31 December 2014, 2015 and 2016) taking into account circumstances during a period not over long or short on either side of that point in time.[19]
[19]The Act s 36; CDPV (n 16) 388 [14].
Thirdly, there are a number of principles which provide assistance on the concept of whether the land is ‘used primarily’ for the business of primary production:
·all the circumstances bearing on the degree, extent and intensity of the uses are to be considered, and the question is one of fact and degree to be approached on a broad, common-sense basis;[20]
·this issue is to be determined by looking at all the activities together with the surrounding circumstances of the taxpayer’s evident purpose in carrying out those activities.[21]
·The concept of ‘use’ is one of physical deployment of the physical mass[22] with deployment understood as including not only activity but also inactivity deliberately adopted as a means of obtaining advantage from the land.[23]
·If there are multiple uses it is necessary to weigh the respective uses against one another in order to ascertain which is the ‘dominant use.’[24] The classification is an evaluative task which may be approached in a number of ways. It involves questions of degree on which minds can reasonably differ. There are several possible methods of quantification and, except in glaringly obvious cases, no one conclusion will be correct to the exclusion of others. Hence, figures for income and expenses may not necessarily provide a clear guide as to the relative level of the extent and intensity of the different uses;[25]
·However, a key question of characterisation is whether the use for primary production was the predominant use of the land so as to impart to the whole of the land the necessary character.[26]
Submissions
Appellant
[20]Safety Beach Estate Pty Ltd v Commissioner of Land Tax (NSW) (1979) 9 ATR 451, 457 in which Rath J cites himself in Sonter v Commissioner of Land Tax (NSW) (1976) 7 ATR 30, 35.
[21]CDPV (n 16) 391 [22] citing Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2011) 85 ATR 775, 784 [24].
[22]This was a definition of land articulated by Issacs J in Commonwealth v New South Wales (1923) 33 CLR 1 as ‘the concrete physical mass, commencing at the surface of the earth and extending downwards to the centre of the earth, which is called “land”’, cited in Chief Commissioner of State Revenue v Metricon Qld Pty Ltd (2017) 105 ATR 11 (‘Metricon’), 27 [55] (Bartlett AJA, MacFarlan and Ward JJA agreeing).
[23]Metricon (n 22) 29 [61] (Barrett AJA, MacFarlan and Ward JJA agreeing).
[24]Ibid 26 [48] (Barrett AJA, MacFarlan and Ward JJA agreeing).
[25]Metricon (n 22) 32-3 [72]-[79] (Barrett AJA, MacFarlan and Ward JJA agreeing).
[26]Abbott v CSR [1985] VR 164 (‘Abbott’), 164-5 (Young CJ), 165-6 (Crockett J), 169-70 (King J); CPDV Pty Ltd v Commissioner of State Revenue [2017] VSCA 89, [51] (McLeish JA, Santamaria and Tate JJA agreeing).
As a preliminary matter the appellant submitted that the respondent had accepted that the principal business of the appellant was ‘primary production.’ Accordingly, the only issue which arose was whether the land was used ‘primarily’ for this business.
More particularly the appellant submitted that the respondent had accepted that the ‘farming activities’ constituted a business of primary production, where ‘farming activities’ meant the use of the land for the maintenance of cattle for sale and the cultivation of hay. Accordingly, the respondent could not now suggest that cultivating hay was really part of the provision of agistment services.
The appellant then submitted that the ‘primarily’ concept was satisfied here on two bases: first, on the basis of a comparison between the numbers of animals; secondly, on the basis of the income figures provided.
In terms of the ‘numbers’ approach, the appellant submitted that cattle numbers as at December 2014-2017 were 62, 78, 82 & 97. In contrast, horse numbers as at December 2014-2017 were 10, 12, 7 & 1. That is, the cattle numbers exceeded horse numbers by a ratio of 6:1 to 9:1. It also suggested that the horses were allowed to agist on only eight of paddocks 1-21 (7,9,10,11 and 18-21).
It followed that the use of paddocks 1-21 (which were used for both primary production and non-primary production) would suggest that primary production use would be six-nine times greater than non-primary use which gave a non-primary production percentage of between 5.5% to 4%.
The appellant then concluded its submission:
Given that paddocks 22, 23 and 24, which comprise approximately 11.63 hectares, were used solely for cattle grazing and hay production – that is 55.38% of the Land, it must follow that the primary production use of the Land is approximately 95%. It further follows that on any conception of the expression “primarily” the primary use of the Land in the 2015-2017 land tax years was primary production.
In terms of an income approach Counsel highlighted that in 2016 the income figure for agistment was $11,709.77 which amounted to only 22% of the total income. This figure was only 12% in 2017 based on the same approach.
Accordingly, on the basis of either approach the ‘primarily’ concept was satisfied.
In terms of the issue of the arbitrary allocation of a 60/40 split between hay and agistment income, the appellant emphasized that the respondent had accepted that the hay production was for the purpose of sale so this matter was not relevant. In any event, this was a choice of the bookkeeper and the accounts for July 2013 - June 2014 were irrelevant in any event. The evidence of Stipo and Natalie as well as the template document, was also that the horses were given a paddock only as part of the agistment services (not hay).
The appellant also submitted that cattle take more from the land than horses given they eat what is on the land.
The respondent
The respondent highlighted that the majority of primary production cases are heard by VCAT and that these decisions focus on the quality and extent of the taxpayer’s evidence.
An example given was the case of Urban Land Corridorv Commissioner of State Revenue[27] where the evidence of the primary production activities was said to be scant, conclusory in nature, and with no supporting material.[28] The VCAT member, R Tang, concluded that, because of the paucity of the evidence, he could not be satisfied that the exemption was established.[29] This could be compared with Australian Investment and Development Pty Ltd v Commissioner of State Revenue[30] where the evidence included business plans, a plan which suggested site remediation and evidence of sales.
[27][2018] VCAT 1983 (‘Urban Land Corridor’).
[28]Ibid [30].
[29]Ibid [38]-[42].
[30][2017] VCAT 1418 (‘AID’). Affirmed Australian Investment & Development Pty Ltd v Commissioner of State Revenue [2018] VSC 154 and Australian Investment and Development Pty Ltd v Commissioner of State Revenue [2019] VSCA 69. Special leave refused: Australian Investment and Development Pty Ltd v Commissioner of State Revenue [2019] HCASL 293.
The respondent emphasized that in this case there were no records in evidence showing purchases or sales of cattle, feed or equipment. Further, that there were no records showing sales of hay or purchase of seed and equipment or income from horse agistment. There was also no evidence as to the capacity of the Land.
The respondent submitted, citing Abbott v Commissioner of State Revenue,[31] that the suggested exempt use must give to the whole of the Land the necessary character. In this case the evidence did not permit the Court to say that the two uses relied on (hay production and cattle grazing) gave to the whole of the Land the character of primary production despite the other uses to which the Land was put (the agistment of horses and the keeping of chickens and sheep).
[31]Abbott (n 26).
In terms of the suggestion that the respondent had made a binding finding he did not seek to enlarge the grounds on which the objection was disallowed under s 109 of the Taxation Administration Act1997 (Vic).[32] Rather, he submitted that just because the respondent did not contest that the taxpayer was conducting a business of primary production did not mean he accepted each and every particular. Accordingly, he was not prevented from saying hay production was not for the purposes of sale where the evidence established that there was no separate business of hay production at all. He further submitted that, if the production of hay was only incidental to agistment, then this also went to the question of whether the primary production activity imparted its character to the whole of the land.
[32]s 109 of the TAA provides as follows: ‘On a review or an appeal – (a) the taxpayer’s case is limited to the grounds of the objection; and (b) the Commissioner’s case is limited to the grounds on which the objection was disallowed – unless the Tribunal or Court otherwise orders.’
The respondent submitted that the income figures relied upon were also wrong since the agistment sales were understated. Further, that the Court should reject Stipo’s evidence that there were hay sales to persons who came onto the property (separate to the provision of agistment services). He also submitted that there was a trap with using the income approach in this case where the appellant only looked at the sales and not the cost of sales. Thus it was inappropriate to compare the income of a cattle operation (which is a buy-sell situation) with income from agistment (which was a service operation). Such a comparison did not compare ‘apples with apples.’
In terms of the ‘numbers’ approach, the respondent submitted that the appellant’s approach presumed that a cow was necessarily ‘equal to’ a horse. It also was inappropriate as it presumed cows were in that ‘top half’ (paddocks 1-21) all the time. He highlighted that the suggestion that cows were in the horse areas was contrary to the site useage map provided (the tab 60 document). In any event, if the cows were sent to that area it was only ancillary to the horse use given they were let in only after horses had eaten what they will eat i.e. the cattle were performing a clean up role to restore the paddocks for the horses.
In terms of the suggestion that a cow was ‘equal’ to a horse, the respondent also highlighted that there was nothing to suggest cow use was more intense than that of a horse. To the contrary, the evidence suggested that the top half of the Land was much more intensively settled. Thus, the use of the Land by horses involved more fencing (which was obvious given the smaller size of paddocks). There were also structures on the land relevant to horses not cattle (e.g. the sand based area and the little boxes). The provision of agistment services further involved people coming and going on the Land given they needed to execute agreements and feed their animals. This could be compared with the use by cattle which were simply fattened and sold rather than needing daily attention.
Looking at the matter overall, then, the respondent submitted that the evidence established that roughly half of the land was being used for cows and hay and half for horses. However, the hay was really connected to the horses. This was before consideration was even given to the residence which was a competing private use. The fact that the residence only took up a small part of the land was also not determinative.[33]
Analysis
[33]Newcastle City Council v The Royal Newcastle Hospital (1959) 100 CLR 1.
This case turns largely on the taxpayer’s onus in circumstances where, as highlighted already, the respondent is not in control of the relevant documentation. As also determined, I am generally unable to rely on the self- serving statements from the appellant’s witnesses in this case absent objective support.
Turning to the two approaches identified by the taxpayer, the approach based on simple numbers of animals was unsatisfactory. There was nothing to suggest a cow was ‘equal to’ a horse in terms of use of all of the Land. To the contrary, the evidence of Stipo was that the cows were sent in to clean up the top paddocks for the benefit of the horses.
The approach based on income was also unsatisfactory. First, while cattle sales involved costs of purchase, agistment services did not. I am not satisfied that a fair comparison can be made solely based on turnover in such circumstances. Secondly the only relevant available evidence as to the detail of the composition of turnover suggested that the attribution to hay income was arbitrary and unexplained. In particular, no person responsible for producing the accounts was called to give evidence. In these circumstances I consider that it is unsafe to place any reliance on alleged income proportions. Finally, the objective evidence supporting the alleged sales was virtually non-existent. Thus, the appellant failed to provide appropriate source documents, sale dockets and/or executed agistment contracts. Nor were any of the agisters called to give evidence.
In all of the circumstances the taxpayer has therefore not demonstrated, on either suggested approach, that the Land was primarily used for the business of primary production.
It remains to be considered whether the taxpayer has otherwise demonstrated that the Land was primarily used for the business of primary production by considering the degree, extent and intensity of the uses, based on the evidence of physical deployment of the Land.
It will be recalled that the evidence of Stipo was that paddocks 22, 23 and 24 were used for cattle grazing and hay production - being 55.38% of the Land. His vague suggestion that ‘at times’ other paddocks were used to produce hay is to be rejected. He was unable to recall which ones, and there was no suggestion that there was hay cultivation on any other paddocks in the site useage map provided to the respondent (the tab 60 document).
Stipo also claimed that paddocks 1-21 were used for horse agistment, cattle grazing and resting but that it was ‘not possible’ to say how much was used for each. This was said to total 38.48% of the Land.
Finally, he claimed that there was an ancillary section totalling 6.14% of the Land which included the private home and the sand-based horse arena which is claimed to be used for ‘mixed purposes.’
I accept that paddocks 22, 23 and 24 were used for primary production by reason of cattle grazing and hay production (consistent with the concession of the respondent).
An issue then remains as to whether this primary production use is such as to lend its character to the whole of the Land. This could be by reason of the maintenance and sale of cattle or of the cultivation and sale of hay.
In terms of hay production, I am unable to be satisfied that this characterised the ‘whole’ Land. I am prepared to accept (without deciding) that the respondent was bound by his factual finding that hay production was primary production i.e. that there was cultivation of hay for the purpose of sale. However, given the evidence suggested that most, if not all, of the hay went to the benefit of (the non primary production use ) of horse consumption, any hay sales did not impart the requisite primary production character to the rest of the Land.
Insofar as the cattle was concerned, I am unable to be satisfied that the maintenance of cattle for sale was the predominant use of the Land such that it imparted the whole of the Land with the necessary character.
First, I am unable to accept that it imparted the ‘ancillary’ part of the Land with the character of primary production. Although it was suggested that the driveway was used for farming purposes, the evidence of Stipo was that this part was ‘mainly’ used by his daughter and her family. Stipo also accepted that the sand based arena was used for horse purposes. The evidence suggests that this ancillary part was predominantly devoted to private use.
I am further unable to accept that it was appropriate to characterise paddocks 1-21 as predominantly concerned with cattle grazing. First, I consider that the smaller paddocks 1-6 were largely used for private use given the evidence was that the daughter used them to maintain sheep and chicken, and given their proximity to the residence. Secondly, the contemporaneous document produced to the respondent through the objection process (the tab 60 document) fails to identify that any cattle grazing was occurring on paddocks 1-21. Thirdly, to the extent that it was suggested that cattle were in these paddocks at all that evidence was vague, imprecise, and self-serving. Fourthly, insofar as cattle were there and thereby eating what was on the Land, the evidence of Stipo as to the use of cattle in this area suggested that they were largely there to clean up for the horses. Finally, there was the evidence of the intensity of the use of these paddocks. This suggested that the paddocks were intensely used for agistment, which included the addition of horse boxes, more concentrated fencing, and people coming and going to feed and manage agistment services.
The taxpayer has thereby not discharged its onus in satisfying me that the Land was used primarily for the business of primary production. More particularly, although I accept that around 50% of the Land was used for primary production, such use was not such as to impart the whole of the Land with the requisite character.
Given this conclusion, the appellant cannot succeed and the assessments should be confirmed. However, I will go on to consider the other issue raised concerning the engagement of Stipo in the business of primary production.
Whether Stipo was normally engaged in a substantially full-time capacity in the business of primary production in the relevant years
Submissions
The appellant relied on the evidence of each of Stipo, Tomislav and Natalie. It submitted that the statutory requirements would be satisfied where the relevant person was engaged in the business of primary production between 20 - 25 hours per week on average. The appellant also submitted that it did not matter what Stipo did in the middle of the day given the hours could be based on work in the mornings and evenings.
The appellant submitted that, on the facts in this case, Stipo was engaged in approximately 30 hours per week, and possibly longer in certain times of the year . He had no fixed commitment to any other income producing vocation. Further, the farm (given its size and number of animals it can sustain) was used to its full capacity. The statutory test does not mandate that the relevant person must remain on the farm even if there is nothing to be done.
The appellant highlighted that there were no entries in the books which related to labour costs or contractor fees and that the land was used to maximum capacity. It also submitted that, given it was accepted that the appellant was conducting a business of primary production, it followed that such a business requires a significant amount of work on a regular basis and mandates trading.
In oral submission Counsel highlighted that all witnesses gave evidence that Stipo’s role at Profine had changed from 2010, consistent with him stepping back and allowing his children to run the company for him. The evidence supported that the entry in the Profine website was out of date and should have been updated. This was also supported by the daughter’s evidence that she saw Stipo on the land.
The ‘objective evidence’ which supported this claim was said to include that there were ‘substantial’ heads of cattle on the Land (60-87); that a business was being carried on; that there was no labour of anyone else (subject to some exceptions); and that Profine had appointed his children under power of attorneys (general and limited) consistent with his reduced role at Profine.
In written submission, the respondent submitted that Stipo’s primary employment was as a builder and that he was the managing director, sole director and sole shareholder of Profine, which he disclosed as his main occupation. He personally oversaw all of Profine's builds, which is unsurprising since he was the only employee or officer of Profine who held a building licence. He made regular visits to each building site. His income was almost entirely derived from Profine.
The respondent also submitted that, by contrast, there is little evidence of Stipo working at the Land other than his own self-interested assertions. He derived no income from the Land which was run at a loss. What little supporting evidence had been produced did not corroborate that he was involved in any of the primary production activities that took place on the Land.
The respondent submitted that the Court could not be satisfied that Stipo was engaged in a substantially full-time capacity in the business of primary production.
In oral submissions, the respondent submitted that, even if Stipo had stepped back from his building business, this did not establish he was devoting hours and hours every morning and evening to a small loss making cattle fattening business when his economic future, and that of his family, depended on his building business (built from scratch).
Ultimately, the respondent submitted that even if Stipo was not at the office as much, the evidence did not allow a finding that Stipo was engaged substantially full time in primary production (including in the dark in winter) as opposed to working with horse agistment, inspecting building sites, or simply resting .
Analysis
I was advised that there has been no judicial consideration of the phrase ‘normally engaged in a substantially full-time capacity.’ However, in Damon v Commissioner of Land Tax[34] the VCAT Member, G Gibson, considered that the phrase connotes ‘regular participation in the business for a considerable part of the time of the owner’.[35] I consider that this description is sufficient for present purposes, and no further precision is appropriate where much must depend on the particular context.
[34](1985) 17 ATR 278.
[35]Ibid 281 [11].
Turning first to the appellant’s submissions, I am unable to give any weight to Stipo’s self-serving statements that the land was used to ‘maximum capacity’ in the absence of other objective evidence in this case. Nor am I able to draw any inferences simply from the fact that there were some 60-87 cattle involved. Thus, I am unable to be satisfied that buying and selling some 80 cattle would necessary require substantial full-time work in the absence of some other objective verification.
It is also not true that Stipo had no other income producing vocation. Thus, even if his day to day involvement had been reduced with Profine, it was Profine which supplied his income.
The fact that the respondent had accepted that there was a ‘business’ says nothing about Stipo’s participation and hours. A business may generally be run even without extensive hours of engagement.
Additionally, the absence of entries for contractors in the books is not persuasive given the issues raised with the financial records in this case. The limited use of contractors also says nothing about the hours Stipo did and/or needed to undertake.
The powers of attorney take the matter nowhere given they are dated in 2002 and 2004, prior to the time Stipo claims to have reduced his role.
Even if I accept that there may have been some lessening of Stipo’s role at Profine such a finding does not greatly assist the appellant particularly given it is unclear precisely what Stipo’s role had previously been. More significantly, the children’s evidence could not establish exactly how Stipo was spending his time when he was not at the Profine office, which may have included time with agistment and/or leisure activities. Even the daughter was unable to be precise about when she saw him at the Land. I have also rejected her evidence that Stipo was never with the horses.
Overall, I am simply unable to be satisfied that Stipo was regularly engaged for a ‘considerable’ part of his time in the business of primary production. I cannot be satisfied that Stipo worked 35 hours as he claimed; in fact I am unable to be satisfied that he worked 20 hours or more even if, as the appellant claimed, this was sufficient. I say this for the following reasons.
First, I am unable to accept his evidence without objective corroboration. I say this by reason of the difficulties with his evidence already cited above. The character of this part of his evidence also appeared to be particularly vague and conclusory and even varied at different times. Thus, although he maintained a figure of 35 hours a week in his affidavit (reaching 70 hours at ‘times’) he also gave figures of 28 and 38.
Secondly, the evidence of his children was also unsatisfactory, particularly that of his daughter (whose evidence I have in part rejected).
Thirdly, even if the evidence of the children is taken at its highest, it did not substantiate that Stipo was necessarily engaged in primary production as opposed to other activities (e.g. such as agistment, building- related activities concerning Profine out of the office and/or other leisure activities).
Finally, the objective evidence in the case all suggested that Stipo was still very engaged with, and committed to, Profine. This not only included the website entry, but also the tax returns which evidenced a real economic incentive to further the interests of Profine rather than a small loss making enterprise. It was also only Stipo who was the holder of the relevant building licences which meant that he was responsible for compliance with relevant standards.
I am therefore not satisfied that Stipo was normally engaged in a substantially full-time capacity in the business of primary production. It follows that the appellant must fail on this additional basis.
Section 70(2)
Section 70(2) provides that, for the purposes of s 67, a part of a parcel of land is to be regarded as a separate parcel of land if (a) that part is occupied separately from or is obviously adapted to being occupied separately from other land in the parcel; and (b) the owner of the parcel of land is the owner of the land within the meaning of s 67(2).
The appellant submitted that if the part of the Land used by the daughter takes the appellant below the threshold of ‘primary’ use for primary production, then it should be treated as a separate parcel of land for the purposes of s 70(2). Thus, Counsel for the appellant clarified that he was only relying on this provision if the Land would meet s 67(1) if the part containing the house was excised.
I have not found that- apart from the part containing the private home - the Land would otherwise meet s 67. It is therefore unnecessary to consider the appellant’s submission.
Pursuant to s 70(2)(b) the owner of the Land must satisfy s 67(2). Given the appellant has not satisfied s 67(2) the appellant cannot succeed under s 70(2) in any event.
There did appear to be sound grounds for the respondent’s submission that the alleged ‘parcel’ was also insufficiently identified given it was described as ‘less than .884 hectares.’ There was also merit in the submission that the farmhouse ought not be treated separately from the rest of the farm, given the evidence of overlapping functions, including that the daughter used some of the surrounding paddocks for the sheep and chickens.
However, given the findings above, it is unnecessary to consider these issues further. It is also unnecessary to consider the respondent’s ‘construction’ submission that the reference to ‘land’ in sub-paragraph (b) must be a reference to the part of the land said to be separate.
The claim under s 70(2) does not arise and cannot succeed in any event.
Conclusion
The assessments should be confirmed.
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