Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue

[2012] NSWADTAP 25

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation:	Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue (RD) [2012] NSWADTAP 25
Hearing dates:	23 April 2012
Decision date:	16 July 2012
Before:	Judge K P O'Connor, President A Verick, Judicial Member J Butlin, Non-judicial Member
Decision:	Appeal Dismissed
Catchwords:	STATE REVENUE - Land Tax - Non Rural Land - Primary Production Exemption - Appeal from Tribunal - Meaning of 'land' - Whether 'use' confined to actual physical use of land - Whether comparison involved in deciding the 'dominant use' is confined to actual physical uses - Tribunal held not so confined, and held that the dominant use was of a business nature unrelated to primary production - no error: Land Tax Management Act 1956, s 10AA(3). Tribunal's holding in alternative that the commerciality test is satisfied - considered, Land Tax Management Act 1956, s 10AA(2).
Legislation Cited:	Land Tax Management Act 1956
Cases Cited:	Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 Australian Football League v Commissioner of State Revenue [2004] VCAT 1882 Colusso and ors v Chief Commissioner of State Revenue [2008] NSWADT 79 Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493 Greenville Pty Ltd v Commissioner of Land Tax (NSW) 7 ATR 278 House v The King [1936] HCA 40; (1936) 55 CLR 499 Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867 Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366 Minister Administering the Crown Lands Act v NSW Aboriginal Land Council [2008] HCA 48 NSW Aboriginal Land Council v Minister Administering the Crown Lands Act [2007] NSWCA 281; (2007) 157 LGERA 18 Reysson Pty Ltd v Chief Commissioner of State Revenue (RD) [2009] NSWADTAP 17 Saville v Commissioner of Land Tax (NSW) (1980) 81 ATC 4,373 The Council of the City of Parramatta v Brickworks Ltd (1972) 128 CLR 1
Category:	Principal judgment
Parties:	Ashleigh Developments Pty Ltd (Appellant) Chief Commissioner of State Revenue (Respondent)
Representation:	Counsel A Rider (Appellant) I Young (Respondent) A Sandeman, Hicksons Lawyers (Appellant) S Gordon, Crown Solicitor's Office (Respondent)
File Number(s):	119054
Decision under appeal	Citation: Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 Date of Decision: 2011-11-02 00:00:00 Before: Revenue Division File Number(s): 096105

REASONS FOR DECISION

1. The Chief Commissioner has assessed the appellant taxpayer's land as liable for land tax for the years 2007 to 2010. The Tribunal has upheld the assessment, and the taxpayer now appeals.

1. Land tax is charged on land as owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied: Land Tax Management Act 1956 (LTMA), s 8.

1. Land that is used for primary production is exempt: see s 10AA. There are different criteria for land that is not rural land, as compared to land which is rural land. What is rural land is addressed by sub-section (4). The Chief Commissioner and the Tribunal have rejected the taxpayer's submission that the land qualifies for exemption. It is accepted that the land is not rural land. Therefore the provisions of s 10AA which are applicable are sub-sections (2) and (3) which relevantly provide:

(2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land:

(a) has a significant and substantial commercial purpose or character, and

(b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made).

(3) For the purposes of this section, land used for primary production means land the dominant use of which is for: ...

(b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, ...

1. The land under notice comprises 15 hectares in the Milton district on the South Coast of New South Wales and has been zoned in a non-rural category for many years, presently the zoning is 'residential (c)'. The taxpayer has planning permission to divide the land into residential lots, and intends in due course to develop and sell the lots.

1. In the meantime the taxpayer has given a lease at a peppercorn consideration ($1.00 a year) to the farmer from whom it purchased the land (Mr Porter) allowing him to use the land. He has continued its prior use, grazing beef cattle, as part of his general farming operations. Those operations are spread over 295 hectares of land in the Milton district, including about 45 hectares that are directly opposite the subject land.

1. To establish that the land is exempt, the taxpayer must show:

(i) First, that the land is 'used for primary production'. In this case, the taxpayer relies on category (b) of sub-s (3), i.e. that the land is for the maintenance of animals, here domesticated animals (cattle), for the purpose of selling them (for their beef).

(ii) Secondly, that the use of the land 'has a significant and substantial commercial purpose or character', and 'the use is engaged in for the purpose of profit on a continuous or repetitive basis' (the requirements of sub-s (2)). In this case the taxpayer relied on evidence provided by Mr Porter to satisfy these criteria.

1. The Chief Commissioner joined issue in respect of both matters. In his opinion, the land was not being used for primary production. He considered that its dominant use was for another purpose, as trading stock in respect of a land development venture; and the farming activity that was occurring on the land was merely a convenient, transitional arrangement that assisted in protecting the land from unauthorised entry, and kept it neat. In the alternative, he considered that the level of farming activity that was occurring on the land did not meet the commerciality criteria of sub-section (2).

1. The Tribunal upheld the Chief Commissioner's case in respect of 'dominant use' but disagreed with the case in the alternative: Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 (2 November 2011).

1. The taxpayer's appeal is against the Tribunal's principal (and determinative) ruling. The Chief Commissioner has cross-appealed the ruling in the alternative, a matter of significance if the Appeal Panel were to uphold the taxpayer's appeal against the primary ruling.

1. In its reasons the Tribunal gave close attention to a decision of the Supreme Court (Gzell J) in Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867. In that case Gzell J rejected an appeal against an assessment of liability to land tax in circumstances that bore some similarity with the present case. The developer held land that was not rural land for development purposes but was conducting grazing operations on the land pending further development. On 29 November 2011 the Court of Appeal dismissed an appeal from Gzell J's decision: Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366.

The Principal Appeal

The 'Land' Issue

1. The first question of law raised by the notice of appeal is whether the meaning of land for the purposes of s 10AA is restricted to the particular land which falls subject to land tax under s 8 of the Act.

1. It is submitted by the taxpayer that the Tribunal erred at paras [10]-[18] of its reasons by confining the meaning of 'land' when examining the s 10AA issues to land owned by the taxpayer. This error, it is said, meant that the Tribunal confined its attention to the state of activity on the subject land, Lot 35, rather than giving proper regard to the role that lot played in the overall farming operation.

1. We can discern no error.

1. The land to which s 8 refers and the land to which any exemption category refers must, in our view, be the same land. In this case it is Lot 35 that is the subject of the notice of assessment, similarly therefore it is that lot which is the subject of the claim for exemption. The taxpayer's liability is defined by the boundaries of its ownership, those boundaries being discerned from a practical standpoint, and that can involve a parcel comprised by several title deeds (cf. The Council of the City of Parramatta v Brickworks Ltd (1972) 128 CLR 1 at [23] per Gibbs J).

1. As submitted for the Chief Commissioner, if sub-sections (2) and (3) are combined to read as a continuous whole it becomes obvious that the land to which reference is being made is the land which is the locus of the tax liability. That does not mean that the taxpayer is to be denied the benefit of the conclusions as to its use that flow from looking at the activities in the farming operation as a whole, especially where there is a mix of land-holding arrangements such as outright ownership and leasing.

1. We do not consider that the Tribunal's approach involved any misunderstanding of Colusso and ors v Chief Commissioner of State Revenue [2008] NSWADT 79. That case dealt with the former s 10(1)(p) of the Act which was replaced by s 10AA. In that case, the Tribunal properly took into account the totality of the taxpayer's primary production operations made up of the subject land, the two lots owned by the taxpayer, and a further lot leased from the Crown. This was consistent with the terms of the exemption as then expressed - land 'used for primary production in the course of carrying on a business of primary production'.

1. Here the Tribunal clearly took account of the entirety of the farming operation when looking at the commerciality issues. It did not exclude from consideration the wider farming operation in reaching a view as to whether the statutory criteria are satisfied. The Tribunal did not misunderstand the relationship between the two provisions.

1. The first ground of appeal is dismissed.

The 'Dominant Use' Issue

1. The second, third and fourth grounds of appeal are that the Tribunal erred in its interpretation of sub-section (3):

• in finding that 'use' is not limited to actual physical activity that occurs on land;
• in finding that 'use' includes considerations not related to actual physical activity that occurs on land; and
• in finding that 'dominant' includes considerations not related to actual physical activity that occurs on land.

1. The evidence before the Tribunal was that the taxpayer had set aside the land for the time being, and its commercial interests were assisted by having the land in some form of active use. It had not reached the point where it was necessary to take over the land for earthworks and other activities necessary to turn the land into residential lots for sale. In the short term it was, according to its evidence, incurring losses on the holding by way of write down of capital value, and those losses were being converted to tax losses in the company's wider operating accounts.

1. The three grounds essentially rework a single point, does the term 'use' in sub-section (3) embrace non-physical, intangible uses of land. The taxpayer's submission is sub-s (3) properly construed is only concerned with physical, tangible uses of land, not such matters as the business purposes for which land may be owned. It follows therefore that the comparison entailed by the use of the words 'dominant use' is one that is confined to alternative physical uses of land.

1. The Tribunal reviewed in some detail the case law seen by the parties as relevant. The cases belonged to a wide variety of statutory schemes.

1. In each of the grounds of appeal raising questions of law the assertion is repeated that the Tribunal's error involved a finding 'contrary to authority, and without citing any authority'. This proposition was only faintly pressed at hearing.

1. It is plain, we consider, that none of the many authorities to which the Tribunal and the parties referred is a binding authority. All can be distinguished either on the basis that the statutory provision in which the term 'use' is found is one other than s 10AA or, in the few cases where s 10AA is the subject, the circumstances are markedly different. The Tribunal, in our opinion, engaged in an appropriate process in considering leading cases where the word 'use' had fallen for interpretation in a taxing or similar context, drawing some general principles and using them to inform its approach to the task in this case.

1. Statements in two cases appear to have most influenced the thinking of the Tribunal in favour of the conclusion that the meaning of 'use' and the comparison entailed by the words 'dominant use' are not be confined to active physical uses of land.

1. The first case is Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493. Here the issue was whether an exemption from council rates for land 'used or occupied by the hospital' applied to a parcel of land owned by the hospital upon which no active use was seen as occurring. The land was a 'buffer' area between the hospital buildings and the surrounding residential community. The High Court allowed the exemption by 3 (Taylor, Webb, Williams JJ) to 2 (Kitto, Fullagar JJ dissenting). Williams J decided the case on the occupation point. The other four judges were evenly divided as to whether the word 'use' referred to an active physical use of the land as a hospital. Taylor J's statement (with whom Webb J agreed) below has been favourably cited in subsequent authority. His Honour said at 515:

11. The word "used" is, of course, a word of wide import and its meaning in any particular case will depend to a great extent upon the context in which it is employed. The uses to which property of any description may be put are manifold and what will constitute "use" will depend to a great extent upon the purpose for which it has been acquired or created. Land, it may be said, is no exception and s. 132 itself shows plainly enough that the "use" of land will vary with the purpose for which it has been acquired and to which it has been devoted. It may be used for a public cemetery, for a common, for a public reserve, in connexion with a church or school and so on. Each of the forms of user referred to in the section relate to use by the owner and some of them, no doubt, contemplate a use which is synonymous with actual physical occupation and enjoyment. Others contemplate a use in a less direct form. But where an exemption is prescribed by reference to use for a purpose or purposes it is sufficient, in my opinion, if it be shown that the land in question has been wholly devoted to that purpose even though, the fulfilment of the purpose does not require the immediate physical use of every part of the land. In my opinion where a hospital acquires or sets apart, for a project which may properly be described as a purpose of a public hospital, a tract of land which it considers is the minimum requirement for its contemplated project and thereupon proceeds to carry out that project it, thereby, uses the whole of the land. How its purposes shall be fulfilled is, within reason, for it to decide and, as I have already said, it is nothing to the point to say that it has employed in the project more land than may, upon the views of others, be thought to have been necessary, or that in fact, it has derived no benefit or advantage therefrom in the fulfilment of its purposes. (at p 515)

1. The second case is Minister Administering the Crown Lands Act v NSW Aboriginal Land Council [2008] HCA 48. The High Court dismissed an appeal from the NSW Court of Appeal's decision in NSW Aboriginal Land Council v Minister Administering the Crown Lands Act [2007] NSWCA 281; (2007) 157 LGERA 18. State aboriginal land rights law excepted from claim any Crown land that was 'lawfully used and occupied' by a department. The government claimed that land against which a claim had been made fell within this exception. The land had a long history of departmental uses, but in recent years had been left unused. During that time the department had taken various administrative steps to allow the land to be developed and sold for residential purposes.

1. The submission was that the land was being held as part of a process of 'preparing the land for sale'. The primary judge found that it was vacant and unused in its present state, but accepted that the Minister's intended use was sufficient to fall within the meaning of the exception. The Court of Appeal reversed the decision, and the High Court rejected the appeal from its decision. The higher courts considered that the proposed use was too notional and inexact to be regarded as falling within the meaning of the term. The law was a beneficial one, and exceptions should be construed narrowly.

1. For present purposes the relevant matters are observations of Mason P in the Court of Appeal who spoke at [32] of the 'protean' nature (i.e. exceedingly variable nature) of the word 'use', and the development of that view by Hayne, Heydon, Crennan and Kiefel JJ who said:

69. No matter whether the question is framed in the statutory terms ("not lawfully used or occupied") or, as here, is framed more narrowly as one about use, attention must be given to identifying the acts, facts, matters and circumstances which are said to deprive the land of the characteristic of being "not lawfully used or occupied". Of course, it is necessary to measure those acts, facts, matters and circumstances against an understanding of what would constitute use or occupation of the land. But three points should be made. First, nothing that was said in the earlier decisions of the Court of Appeal, and nothing that is said in these reasons, should be understood as attempting some exhaustive definition of when land is not lawfully used or occupied or of what is relevant use or occupation that will take lands outside the definition of claimable Crown lands. Secondly, as Mason P rightly said[83], "use" is a protean word. Thirdly, recurring physical acts on the land, by which the land is made to serve some purpose[84], will usually constitute a use of the land. And a combination of legal possession, conduct amounting to actual possession, and some degree of permanence or continuity[85] will usually constitute occupation of the land. But while these propositions may sufficiently identify the most common cases where it can be said that there is use or occupation of the land, they are not propositions that chart the metes and bounds of those ideas. As the decision[86] in Council of the City of Newcastle v Royal Newcastle Hospital ("the City of Newcastle Case") shows, land adjoining hospital grounds and purposely kept in its natural state to provide clean air and quiet undeveloped surroundings, can be said to be "used or occupied by the hospital for the purposes thereof".

70. Hence the importance of directing attention to what are the acts, facts, matters and circumstances which are said to show that land does not meet the description of "not lawfully used or occupied". It is the specification of those acts, facts, matters and circumstances which will provide the greatest help in deciding whether land meets the relevant description. And in the present case, the appellant contended that it was the steps taken towards sale of the land that prevented characterisation of the land as "not lawfully used".

1. Their reasons engaged with the possibility of commercial 'use' of land in the following passages:

74. There can be no doubt that sale of the land would amount to exploitation of the land as an asset of the owner. Nor can there be any doubt that there are uses of land which can be described as exploitation of the land. It by no means follows, however, that exploitation, by sale, amounts to lawful use of the land let alone its lawful occupation. And it likewise does not follow that the preliminary steps that are inevitably required in order to effect a sale, whether considered separately or together, will amount to lawful use, even if they could be described as steps directed to exploiting the land by selling it.

75. As Fullagar J correctly pointed out[87], in his dissenting opinion in the City of Newcastle Case, "[t]he root of the fallacy lies in the assumption that deriving an advantage from the ownership of land is the same thing as using the land". That is, while it is probably true to say that a person who uses land derives an advantage from it, the converse proposition, that deriving an advantage from ownership of the land is using the land, is false[88]. In particular, taking steps towards selling the land may be directed to the owner deriving the advantages of disposing of an asset and receiving the proceeds of sale. But identifying that the owner seeks to derive these advantages does not show that the land is being used. Rather, what are the acts, facts, matters and circumstances which are said to show that the land is being used?

1. The Tribunal summed up its thinking, as follows:

Summary in relation to "use"

53 When one considers the breadth of the word "use" (the Macquarie Dictionary (Federation Edition, 2001) contains 14 separate definitions of the word "use" as a noun, including "the act of employing or using, or putting into service"; "an instance or way of employing or using something"; "a way of being employed or used; a purpose for which something is used"; and "the enjoyment of property, as by employment, occupation, or exercise of it; the benefit or profit of property (lands and tenements) in the possession of another who simply holds them for the beneficiary"), and also its "protean" nature (Aboriginal Land Council case, at [69]), there would surely need to be very powerful indicators, either in the decided cases, the context surrounding the relevant provisions, or the overall purpose and object of the LTM Act, that an examination of the "use" of land should be confined to physical activities "on" the land, before it could be accepted that this is so. I have identified no such indicators.

54 In fact, just as it was in the Aboriginal Land Council case, so it is here with Ashleigh: it is necessary to identify the "acts, facts, matters and circumstances" by reference to which it can be said that the primary production use of the land is, or is not, the dominant use of the land. And there is no warrant, either in any of the cases on which the Applicant relies, or in the context or purpose of the LTM Act, to exclude from that enquiry any acts, facts, matters or circumstances that relate to something other than physical activities conducted on the land.

55 I agree, therefore, with part of the Chief Commissioner's contention at [32](a) of his submissions, as referred to in [22] above, namely that "use" is not limited to actual physical activity that occurs "on" land and can include an indirect use of land. But there is a further proposition that the Chief Commissioner puts forward, and that is that one such "indirect use" is the Applicant's use of the land as trading stock. That is not such a straightforward proposition.

56 I had some initial doubts as to whether an entity's holding of property as trading stock truly amounts to a use of that property within the meaning of that word in s 10AA(3) of the LTM Act. Whether or not that doubt is well founded, there was more than a mere "holding" here. There was a significant write-down in the value of the land, which provided an initial, and an ongoing and very substantial, financial benefit - to such an extent that all, or almost all, of the profits of the joint venture were extinguished with the result that no tax, or almost no tax, was paid on the joint venture's other activities. I fail to see how that financial treatment of the land - a treatment that commenced virtually as soon as the put and call option was entered into - is not properly to be regarded as a "use" of the land.

57 In this case there are, as the Chief Commissioner submits, three relevant uses of the land during the relevant years. First there is the physical use of the land by Mr Porter as a property for the grazing of cattle. Next there is the use of the land by the Applicant as the subject of a lease to Mr Porter, and from which the Applicant derives income of $1.00 per year. Then there is the use of the land by the Applicant, on behalf of the joint venturers, as an item of trading stock in the joint venture's property development business, and in respect of which significant amounts of money have been expended: see [18]-[19] above.

1. In our view, and contrary to the taxpayer's submission, the Court of Appeal decision in Leda Manorstead does not qualify or diminish the force of the Tribunal's reasoning. We refer in particular to the following passage from Allsop P's reasons at [24] (Whealy JA agreeing):

There must be a present use for which the land is being used. That does not deny, however, the proper evaluation of any given circumstances. The appropriate task is the one which the primary judge undertook. Upon evaluation of all the material he asked himself what the people who owned the land were actually using it for. Or, to put the matter another way, what was the purpose of what the owner was doing on the land so that the question as to what the land was being used for could be answered? Here, looking at all the activities together with the surrounding circumstances of Leda's evident purpose in carrying out those activities, it could be concluded (and was concluded by the primary judge, rightly, in my view) that the land was being used for commercial land development. The fact that the land was, at that time, at the stage of earthworks does not deny the present use of the land for commercial land development. It does not matter, in my view, that the residential housing estates likely to be built in due course had not yet been completed, had not yet been sold and had not yet taken their place in a completed residential development.

1. After reviewing authorities said to be relevant but each involving different statutory contexts, Allsop P concluded this section of his reasons as follows:

40 It can be accepted that for the resolution of this appeal used "for" is to be seen as a present use. Leda was using the land for two purposes: cattle grazing and commercial land development. The question was whether the former was the dominant use so as to attract or satisfy s 10AA(3).

1. Campbell JA concluded:

51 The judge was right to conclude that, at the relevant time for imposition of the tax in question, the land was used for commercial land development. It was used for commercial land development even though using it for commercial land development at that time was preparatory to its eventual use, when subdivided, as a vendible commodity, and to its eventual use, by people other than Leda, for residential purposes.

1. In our view, the Tribunal's approach was not inconsistent with the above statements. The Tribunal was not obliged by the words of the statute to confine its attention to acts, facts, matters or circumstances that related only to the physical, tangible use of the land. It could look at use in a 'protean' way so as to have regard to the commercial purpose of the owner that use of the land on an interim basis for cattle grazing might serve. It could then move to making a finding as to which of the identified uses was dominant.

1. We do not accept the taxpayer's submission that it is essential that there be some physical manifestation of the use that competes with primary production use. It is true that in Leda Manorstead significant earthworks had been undertaken on the subject land (593 hectares) while the farming activity continued. We do not read Allsop P's observations as confined in that way, nor those of Campbell JA.

1. There was debate in the proceedings over whether the Appeal Panel decision in Reysson Pty Ltd v Chief Commissioner of State Revenue (RD) [2009] NSWADTAP 17 had been misapplied. This was a case arising under the predecessor provision, s 10(1)(p). This decision merely illustrates, as we see it, the point that under the statute as it was then expressed the primary production activity said to be occurring on the subject land can take account of relevant activity taking place outside the subject land. In this case it was the activity of bees external to the subject land as it related to the maintenance of beehives and the production of honey for sale. This decision does not pass upon the question that has arisen in this case, of mixed purposes one involving evident physical activity and the other a commercial purpose for which relative dormancy in the activity on the land was desirable.

1. In relation to the asserted authority of Greenville Pty Ltd v Commissioner of Land Tax (NSW) 7 ATR 278, we agree with the Chief Commissioner's submissions that the dicta of Helsham CJ in Equity at 280 do not go so far as to suggest that any physical primary production use of land, however minor, is sufficient to qualify the use as one to which an exemption for primary production use should flow. To similar effect, see Saville v Commissioner of Land Tax (NSW) (1980) 81 ATC 4,373 per Roden J at 4,377.

1. Nor does the holding of the Victorian Civil and Administrative Tribunal in Australian Football League v Commissioner of State Revenue [2004] VCAT 1882 affect our view. There the Tribunal recognised that in common parlance land may be described as 'used' for a commercial purpose such as land redevelopment, but the issue in that case was whether the land was being used for specified physical purposes of 'outdoor sporting recreation' or 'cultural purposes'. We agree with the Chief Commissioner's submission that the Tribunal correctly saw this authority as unhelpful.

1. We dismiss the second, third and fourth grounds of appeal. The application for leave to extend to the merits is expressly conditioned on the Appeal Panel finding error in relation to any of the matters raised by the question of law grounds. As no error has been found, the application is not further considered.

The Cross Appeal

1. The Chief Commissioner has appealed against the second part of the Tribunal's reasons. The Tribunal stated that if it was wrong in its interpretation of the 'dominant use' provisions it would have gone on to uphold the taxpayer's case. It declared itself satisfied on the evidence that the activity on the land met the commerciality test set by sub-s (2) of s 10AA.

1. There are eight grounds of appeal (numbered five to thirteen).

1. In light of our primary conclusion, it is not essential to the effective disposal of the appeal that we address the issues raised by the Chief Commissioner in any detail.

1. We will confine ourselves to the following short observations.

1. In contrast to the position in relation to land that is rural land, it is not enough that there be some primary production activity on land. Sub-s (2) requires the following steps:

(i) A threshold determination that the land is used for primary production. That means more, we consider, than some de minimis use of the land. It should be shown that the land as a whole is used for primary production in the requisite sense, even if that occurs in combination with some non-primary production uses. (There is no dispute in this case that Mr Porter's farming operation passes this threshold.)

(ii) If the threshold determination is favourable, there must be a level of use that 'has a significant and substantial commercial purpose or character' (factor (a)). This criterion eliminates hobby or token operations even though they may have passed the de minimis threshold to which we have referred in (i). The taxpayer then needs to show that the operation is run on a commercial basis with appropriate attention to the orthodoxies of income, expenditure and the aim of profitability; cognisant of the elements of unpredictability of any business operation, especially primary production. This is a higher standard than the one that applies to rural land. This is where the dispute starts in the present case.

(iii) The next criterion, factor (b), takes the issues raised by factor (a) to a further level of exactitude. The activity must be engaged in for the purpose of profit 'on a continuous or repetitive basis (whether or not a profit is actually made)'. The reference to 'continuous' or 'repetitive' we see as connoting a business enterprise of a well structured, long term character, with administrative features (organisation, management, book keeping) which support the conclusion that it is set up with the aim of generating a profit year to year over a succession of years.

1. We accept, as did the Chief Commissioner, that the consideration of these factors can take appropriate account of the overall farming enterprise, here the other 280 hectares.

1. It may be that some concession involving a less rigid approach to profitability is acceptable in a family farming operation where a subsistence level of income may be seen as sufficient in the circumstances, especially where the farmer is of a later age.

1. Nonetheless, we tend to agree with the Chief Commissioner's criticism of the Tribunal's reasons for putting great weight on Mr Porter's evidence that farming was his life (see reasons at [87] and [91]-[93], ground of appeal six). It is not enough, as we interpret the provisions, that it be simply shown that the farmer is not a hobbyist.

1. The difficulty that this case presents is that the piece of Mr Porter's farming operation that is under notice is a very small one viewed proportionately. Further at the time of the hearing he held it under very precarious conditions, and did not have the strong commercial hold over it that one would ordinarily expect if it was to form part of a long term, commercial operation of the kind to which the criteria in factor (b) point. It was held on a peppercorn rental arrangement and with the owner entitled to move to recover control of the land on short notice.

1. The judgments required by sub-s (2) are ones ultimately of fact. While the evidence should be assessed by the Tribunal in an objective manner there are aspects which have a discretionary subjective aspect ('significant', 'substantial', 'continuous', 'repetitive'). In principle evaluations with these characteristics could only be upset on House v The King type grounds: [1936] HCA 40; (1936) 55 CLR 499 at 505-505.

1. It will be seen from these brief observations that we have reservations about the approach taken by the Tribunal to this aspect of the case, in light of the evidence of Mr Porter as recorded in the reasons for decision and the transcript.

1. We would not regard the Tribunal's conclusions on this aspect of the case as authoritative for future, similar cases.

Order

Appeal dismissed.

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Decision last updated: 16 July 2012