Brown Cavallo Pty Ltd v Chief Commissioner of State Revenue

[2017] NSWCATAD 18

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:	Brown Cavallo Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 18
Hearing dates:	24 August 2016
Date of orders:	11 January 2017
Decision date:	11 January 2017
Jurisdiction:	Administrative and Equal Opportunity Division
Before:	N S Isenberg, Senior Member
Decision:	The Respondent’s Assessments under review for the 2012, 2013, 2014 and 2015 tax years are set aside and a decision is substituted that the Applicant was entitled to the primary production exemption in respect of the Land for these tax years.
Catchwords:	REVENUE LAW – land tax - primary production exemption - dominant use – maintenance of animals – significant and substantial commercial purpose or character – purpose of profit on a continuous or repetitive basis - s 10AA Land Tax Management Act 1956
Legislation Cited:	Administrative Decisions Review Act 1997 Land Tax Management Act 1956 Taxation Administration Act 1996
Cases Cited:	B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187 Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 Leda Manorstead v Chief Commissioner [2010] NSWSC 867 Saville v Commissioner of Land Tax (1980) 12 ATR 7
Category:	Principal judgment
Parties:	Brown Cavallo Pty Ltd as trustee of the Cavallo Family Trust (Applicant) Chief Commissioner of State Revenue (Respondent)
Representation:	Counsel: K Lord (Applicant) A Rider (Respondent)     Solicitors: Pollack Greening and Hampshire (Applicant) Crown Solicitor’s Office (Respondent)
File Number(s):	1510481, 1610403

REASONS FOR DECISION

Introduction

1. The Applicant has applied to the Tribunal to review the Respondent's decision to disallow its objection to the assessment of land tax on its land at Woolgoolga (the Land) for the 2012 to 2015 land tax years (the Relevant Period).

2. The Applicant claims the Land was exempt from land tax under the primary production exemption pursuant to s 10AA of the Land Tax Management Act 1956 (the LTM Act).

3. The Respondent claims that that the Applicant failed to discharge its onus of proof concerning the relevant use of the Land during the Relevant Period.

The subject matter of the review

4. In application number 1510481 filed August 2015 the Applicant sought a review by the Tribunal of the Respondent’s decision to disallow the 17 November 2014 objection to land tax assessments for the 2012 to 2014 land tax years. In application number 1610403 filed June 2016 the Applicant sought a review of the Respondent’s decision to disallow the 8 November 2015 objection to land tax assessments for the 2012 to 2015 land tax years.

5. Both applications were heard together in these proceedings.

Powers of Tribunal on review

6. Section 96 of the Taxation Administration Act 1996 (TA Act) provides that a taxpayer may apply to the Tribunal for an administrative review of a decision that has been the subject of an objection under certain circumstances including if the taxpayer is dissatisfied with the Respondent’s determination of the objection. The Tribunal may confirm or revoke a reviewable decision of an administrator or make a decision in place of the reviewable decision and make orders as to costs or otherwise as it thinks fit, s 101(1) of the TA Act.

Issues

7. There is no dispute that the assessments of land tax in respect of the Land for the Relevant Period (the Assessments) are reviewable decisions and the decisions the subject of review by the Tribunal are the Assessments rather than the disallowance of the objections.

8. Accordingly, the issue for determination by the Tribunal is whether the decision in respect of the Assessment, that for each Tax Year, the Property was not entitled to a primary production land tax exemption, is the correct and preferable decision.

The law

9. The applicable substantive law is the LTM Act. References in this decision to legislative provisions are to provisions of the LTM Act unless stated to the contrary. Section 7 provides that land tax shall be levied and paid on all land in New South Wales other than land which the LTM Act exempts from taxation. Section 3 provides that a land tax year is the period of 12 months starting on 1 January for which land tax is levied and s 8 provides that land tax shall be charged on land owned at midnight on 31st December immediately preceding the year for which land tax is levied.

10. The exemption claimed by the Applicant is found in s 10AA which relevantly states:

10AA Exemption for land used for primary production

(1) Land that is rural land is exempt from taxation if it is land used for primary production.

(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 … for the purpose of selling them or their natural increase or bodily produce, or

…

(4) For the purposes of this section, land is "rural land" if:

(a) the land is zoned "rural", "rural residential" or "non-urban" under a planning instrument, …

11. In summary, s 10AA provides that land zoned rural that is used for primary production is exempt from land tax. However land zoned other than rural that is used for primary production is not exempt unless the dominant use is primary production and the commerciality tests in s 10AA(2) are satisfied. Except where indicated to the contrary, references in this decision to the phrase “land used for primary production” mean “land used for primary production as defined in s 10AA(3)”.

Material before the Tribunal

12. The Respondent relied on:

1. Documents filed under s 58 of Administrative Decisions Review Act 1997 (ADR Act) on 22 September 2015 and Supplementary documents filed on 15 July 2016 (the s 58 documents);

2. An affidavit by Nadya Justine Haddad made 11 July 2016;

3. The Respondent‘s written submissions made 15 July 2016; and

4. Oral submissions made by Mr Rider during the hearing.

13. References to paragraph numbers of the Respondent’s submissions are to paragraphs of RS unless stated to the contrary.

14. The Applicant relied on:

1. The s 58 documents;

2. Affidavits made by George Edward Bennett (Mr Bennett) on 10 March, 1 July and 4 August 2016, respectively GB1, GB2 and GB3;

3. A letter dated 19 July 2016 from Mr Bennett to Ms Haddad of the Crown Solicitor’s Office responding to questions raised in the Crown Solicitor’s Office’s letter to Mr Bennett of 13 April 2016;

4. The Applicant’s written submissions made 11 March 2016 (AS), 1 July 2016 (AFS) and 4 August 2016 (ASR); and

5. Oral submissions made by Mr Lord during the hearing.

15. References to paragraph numbers of the Applicant’s submissions are to paragraphs of AS unless stated to the contrary.

Consideration

Factual background

16. Part of the undisputed factual background to this matter is set out at [4] to [9] in RS. This includes:

1. The Land is located on the north coast of New South Wales and is 2.987 ha in area.

2. During the Relevant Period, the Land:

1. was zoned "R2 — Low Density Residential";

2. had fencing, improved pasture, stock yards and a cattle loading facility;

3. in conjunction with two other properties owned by the Bennett family (the Glenreagh properties) had a Property Identification Code;

4. was used by Tallawudjah Pty Ltd (Tallawudjah), the company through which the Bennett family's cattle breeding business operated, to graze beef cattle in conjunction with the Glenreagh properties; and

5. was used to finish cull-for-age cows from the Glenreagh properties prior to sale at the Grafton saleyards and to improve the economic value of stock in poor condition.

3. From 2011 onwards, Mr Bennett, who managed the family farming business conducted through Tallawudjah, worked part time as an agricultural teacher.

4. In or around 2013, the Bennett family's electronic business records which had been held by the family’s former accountant were deleted by a disgruntled employee of the accountant.

5. In June 2015 Mr Bennett discovered that many of the Bennett family's paper business records had been destroyed by water damage.

6. From July 2016, Tallawudjuh proposes to implement a five (5) year business plan to breed Wagyu/Angus cross cattle for sale on the Glenreagh properties and to continue to use the Land to finish cull-for-age cows (the Business Plan).

17. Mr Bennett’s evidence is that the Business Plan was in operation at the time of the hearing. Thirty-two Angus heifers were acquired in February 2016 to be joined to a purebred Wagyu bull. The bull’s supplier is prepared to buy the offspring at an agreed contract price.

18. There is no dispute that the Glenreagh properties adjoin each other. One property was acquired by Mr Bennett’s parents in 1966 and the other in 1983. The Land was acquired by Mr Bennett’s parents in approximately 1974 to assist in the finishing of beef cattle from the first Glenreagh property they owned and in conjunction with a banana growing business then carried on by the Bennett family. In 2004 the Cavallo Family Trust was established and Mr Bennett’s parents transferred title to the Land to the Applicant.

19. The Applicant permits Tallawudjuh to adjist its cattle on the Land. Having regard to the relationship between the Applicant and Tallawudjuh, there is no formal adjistment agreement.

20. References to “the Bennett family” are to any or all of Mr Bennett, his parents, his wife, the Applicant and Tallawudjuh. All members of the Bennett family have been or are involved in various aspects of the Bennett family beef cattle business (the Business).

21. Mr Bennett’s evidence at GB1 includes:

22   The [Land] is located close to the Pacific Ocean coast. As a consequence. the [Land] is in a higher rainfall zone (average 1750+mm pa) than the Glenreagh properties (average 1000mm pa). The [Land] has more fertile soil which means that it is capable of growing more nutritious pasture throughout both the summer and winter seasons. Because of its location on the coast, the [Land] is also not subjected to frosting in the winter months as happens away from the coast — such as at the Glenreagh properties. The [Land] is used to grow kikuyu, paspalum, setaria and rhodes grasses with shaw creeping vigna through the summer and autumn and oversewn with fescue, plantain and chicory through winter/spring to provide nutritious pasture to be able to finish cattle quickly prior to their sale. The softer pasture at the [Land] is especially advantageous for cull-for-age cows due to their worn teeth that don't manage drier grasses.

23   The more nutritious pasture on the [Land] means that cattle which could not be finished for market at Glenreagh are able to be moved to [the Land] and finished to enable them to be marketed. During the recent depressed prices in the beef cattle industry that has meant that cull-for-age cows that would have not been able to be marketed are able to be finished at the [Land] and marketed for an economic return. Cull-for-age cows weighing approximately 300kg live weight can be taken to the [Land] and their live weight increased to 450kg — 480kg in condition suitable for the local livestock market. This means that an old cow in boner condition which may not have any sale value can be value-added through finishing at the [Land] and sold giving revenue to the business.

22. Annexed to GB1 is an undated letter to Mr Bennett from Mr Nathan Jennings, Senior Land Services Officer (Agricultural Advice-Livestock) of North Coast Local Land Services, a New South Wales government agency. The letter includes the following:

In review of your beef enterprise and farm system I can confirm that the way in which you are managing the enterprise across three blocks of land (two at Glenreigh 137 ha and 68 ha and the third at Woolgoolga 3.2 ha [the Land]) is very typical of beef production systems on the NSW north coast.

…

Regional Development Australia this year released a document titled Northern Rivers Beef: Industry Snapshot, this is the most up-to-date publication detailing beef production on the north coast. Some interesting statistics of note, the northern rivers totals 3.7% of Australian cattle properties and 10.6% of NSW cattle producing properties, primarily from small breeding herds of less than 100 head (Reginal Development Australia 2015). My point is that herd sizes on the north coast are typically small, and land areas reflect this, particularly if the land is highly productive such as [the Land].

…

Having a block of land such as [the Land], which is growing Kikuyu, Paspalum, Setaria and Rhodes grass with Shaw Creeping Vigna through the summer/ autumn, and then over sown with Fescue, Plantain and chicory through winter/spring is a very good asset to enable you to finish cattle quickly for markets. The pasture species growing or that can be grown on the block are among the most productive that can be grown on the North Coast. While some of these pasture species can persist at your Glenreagh blocks on the alluvial soils, the lower rainfall will mean that they are not as productive. Furthermore the sandstone hills at Glenreagh would in no way be capable of growing these higher quality pastures and would typically grow native grasses such a carpet grass and whisky grass, both considerably less productive and lower in nutritional quality than the previously mentioned species at Woogoolga meaning the sandstone hills would be very hard to impossible to finish cattle on in a reasonable timeframe.

…

A beef enterprise can really only be benchmarked against its self, because every farming system is different right from the land, rainfall, soil, pasture, cattle types, finance structure etc therefore the use of such an industry bench mark figure in my opinion to compare your business would be fraught with a high level of inaccuracy. The inaccuracy would be even further increased if [the Land] was assessed in isolation to your entire beef enterprise.

Overall [the Land] despite it being only 3.2ha in size is an important land parcel in the scheme and structure of your whole beef enterprise. Whilst in isolation this block would appear un profitable, it is very important for practical management of animals within the enterprise which ultimately influences the financial outcomes of the business each year.

23. Annexure J to GB1 is a letter dated 2 December 2015 from Ray Donovan, stock & station agent. The letter states that Mr Donovan has conducted business with Mr Bennett and his father for approximately 25 years. It also states:

The Bennett’s run approximately 100 breeders on their property at … Glenreigh and [the Land]. Most of the breeders are depastured on the Glenreagh property with [the Land] used to finish cull cows or steers which are usually marketed through the Grafton Saleyards.

Cattle sold off [the Land] have in the past received top prices on the day at the Grafton Sale. As the paddock has been well fertilised, cattle have the ability to gain 100 to 150 kilograms within a few months making this property a huge asset to the Bennett’s livestock operation.

Land not owned by “special trust”

24. Initially notices of assessment were issued on the basis that a tax-free threshold applied for relevant years. However, the Assessments did not allow thresholds on the basis that the Cavallo Family Trust was not a “special trust” and did not satisfy the relevant criteria.

25. During the proceedings the Applicant conceded that the Cavallo Family Trust was a discretionary trust. Accordingly, it was “unlikely to be a “fixed trust” for land tax purposes, ASR at [22].

26. Having regard to my findings below I do not need to make a finding in respect of this trust.

The onus

27. The Applicant has the onus of proving his case in a review by the Tribunal, s 100(3) of the TA Act. The requisite standard of proof in such a review is the “balance of probabilities” Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [31] and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187.

28. There is no dispute that, having regard to the zoning of the Land, in order for the Applicant to succeed it is necessary for the Applicant to prove that in each year in the Relevant Period:

1. the dominant use of the Land was the maintenance of beef cattle for the purpose of selling them or their natural increase or bodily produce, s 10AA (3) (b); and

2. that use of the Land had a significant and substantial commercial purpose or character, and was engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit was actually made), s 10AA (2).

The dominant use of the Land

29. The Respondent submitted at [27]:

In Leda Manorstead v Chief Commissioner [2010] NSWSC 867, the Court held at [69]-[76] that "dominant use":

·   in its ordinary meaning connotes ruling, prevailing, or most influential use;

·   presupposes that land may be used for more than one purpose and requires a determination of which use of the land is the main, chief or paramount use;

·   is a question of fact and degree that may, in the end, be determined as an objective matter of impression having regard to the facts;

·   refers to a use that prevails over any competing use and must be sufficiently substantial to prevail over the proposition that the land is primarily to be regarded as unused land;

·   is determined according to the nature and intensity of the various uses, the physical areas over which they extended, and the time and labour spent in conducting them must be weighed; and

·   may be a matter of impression that an objective observer would reach from viewing the land as a whole

30. The Respondent sought to summarise the Applicant’s relevant evidence at [28] to [30] as follows:

30.   Here, at its highest, the Applicant's evidence is that the Land was used to finish small numbers of cull-for-age cows (e.g. 6-8) from the Glenreagh properties prior to sale at the Grafton saleyards and to improve the economic value of stock in poor condition. However, the Applicant has not put on any specific evidence as to when and how long such cattle were actually grazed on the Land during the Tax Years.

29.   Further, to the extent that sales invoices from the Grafton saleyards33 evidence that cattle may have grazed on the Land, these documents merely show that:

a.   three (3) cattle were sold on 26 July 2011;

b.   one (1) cow was sold on 8 November 2011;

c.   three (3) cattle were sold on 28 February 2012;

d.   two (2) cattle were sold on 3 July 2012;

e.   two (2) cattle were sold on 27 November 2012;

f.   two (2) cattle were sold on 20 January 201534; and

g.   two (2) cattle were sold on 26 May 201535.

30.   Also, the National Vendor Declaration Waybills for PIC NE280371 all show that cattle were moved directly from Glenreagh to the Grafton saleyards.

31. The Respondent then summarised his submission at [31] and [32]:

31. Due to this lack of evidence, it is not possible to say whether the dominant use of the Land was to maintain cattle or whether the Land was primarily unused during the [Relevant Period] .

32. For the above reasons, the Applicant has failed to discharge its onus that the "dominant use" of the Land was the maintenance of cattle for the purpose of selling them. On this basis, the PPL exemption did not apply to the Land for the [Relevant Period].

32. The Applicant did not dispute the appropriateness of the above principles from Leda. However, the Applicant provided additional evidence in support of its position.

33. The Applicant’s evidence from one or more of Mr Bennett, Mr Donovan and North Coast Local Land Services is that the Land has been used to improve the condition of beef cattle for the purpose of the family cattle breeding and sale business since the acquisition of the Land by the Bennett family over 40 years ago, and with the exception of a small part of the Land, that usage has not changed to the present date.

32. The exception relates to the use of part of the Land for bananas and avocados. In relation to the bananas there was a previous use of up to .6 ha of the Land to grow a nursery block of bananas. A small nursery area of some .1 ha of the Land is maintained so that genetic material is not lost. However, planting material has not been taken from that area since about 2004.

33. Avocados were also grown on the Land but did not prove suited to the location and are no longer present.

34. The evidence is that throughout the whole of the Relevant Period other than two months around July to September 2014, the number of cattle on the Land would have been at least four head. During July to September 2014 there was a lack of sufficient pasture caused by severe drought conditions. The drought caused kangaroo pressure which also reduced available paddock feed. A new fence was constructed on the northern side of the Land at the end of 2014 to deter the movement of kangaroos onto the property.

35. The Applicant submitted at [8] to [9] of ASR that a temporary gap in the presence of cattle on the Land for the period referred to in the previous paragraph was a “hiatus period” as described in Saville v Commissioner of Land Tax (1980) 12 ATR 7 at 11, where Roden J said:

There can be a chance occurrence which causes the land to be unused in the sense that there is no relevant activity going on at any particular time. Such occurrence could be the disposal of the owner's entire stock which is being replaced, with the replacement stock not yet arrived. In such a case, again it seems clear that it would be proper to say that during the hiatus period the land was being used for that purpose.

38. The Applicant also relied on the Respondent’s land tax ruling LT097 at [27] – [29] which included:

Where primary production use of land temporarily ceases, in a physical sense, for a period of time that includes the taxing date, the circumstances before and after the taxing date, and during the tax year are relevant to determining whether the land qualifies for the PPL exemption …

The landowner must demonstrate that the primary production activity had previously been the dominant use of the land, and that the hiatus period during which there was no primary production was temporary or a typical part of the cycle of primary production, such that primary production remains the “purpose” attributable to, or the reason for occurrence of the hiatus period. Examples include a drought …

39. In response to the Respondent’s submissions at [29] and [30] the Applicant’s evidence is that the Land is approximately 43 km by tar sealed road from the Glenreagh properties and the driving time to move cattle between the the Glenreagh properties and the Land is approximately 40 minutes. Mr Bennett said at [10] [11] [13] and [14] of GB3:

10. … the majority of cattle sold by my family's cattle business are sold at the South Grafton Saleyards, with some sales in Casino and Inverell.

11   The stock transporters operated by the cattle transport contractors do not travel to [the Land]. For that reason, cows finished at [the Land] are moved back to Glenreagh on one of the trucks used in my family's business a few days before they are loaded on to the stock transporter and taken to the saleyards.

12.   The address shown on all the National Vendor Declaration waybills for PIC NE280371 is … (being one of the Glenreagh properties …) as that is the registered address for Tallawudjah and that producer identity number. The electronic form of the National Vendor Declaration defaults to that address

13   I always inform my stock and station agent if cattle have been finished on [the Land] so that the agent is aware of the origin and pasturing of the particular cattle.

14   I also separately identify and note cattle being sold which have been finished at [the Land].

40. In addition to RS, Mr Rider made certain oral submissions during the hearing. Certain of those oral submissions are referred to below

Evidence of involvement of the Land with respect to the overall operations of the Business

41. Mr Rider submitted that there was a lack of evidence as to the involvement of the Land in respect of the overall operations of the Business.

42. This submission is contrary to the evidence presented by the Applicant, some of which has been referred to in these reasons. I reject the submission.

Carrying capacity of the Land

43. Mr Rider submitted that there was no independent evidence as to the carrying capacity of the Land. I accept that there was no independent expert’s report as to carrying capacity.

44. However, I have regard to Mr Bennett’s undisputed experience in managing cattle operations on the Land for many years, his statement at [4] in GB3 that the carrying capacity is 4 to 6 mature cows at any one time depending on seasonal conditions and availability of feed. There may also be calves on the Land from time to time. I also have regard to Mr Bennett’s unchallenged statement at [5] in GB3 of his reliance on a pasture management system devised by Agricultural Information and Monitoring Service from the University of New England in conjunction with the Northern Rivers Catchment Management Authority

45. There is no evidence to the contrary and I accept Mr Bennett’s evidence.

The “commerciality test” of use of the Land

46. The Respondent’s written submissions dealt with the commerciality test at [34] to [38] as follows:

34.   In Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 the Court held at [89]-[90] and [106]-[107] that the "commerciality test" requires:

[89]   ... use of the lands for primary production, either individually or in conjunction with the other lands, to have had a significant and substantial commercial purpose or character. That test required the commercial purpose or character of the use of the lands to have had a relatively high degree of importance. The combination of "significant" and "substantial" demands that conclusion.

[90]   Not every business will satisfy the commerciality test. The test distinguishes activities amounting to a business that is carried on in a small way or as a sideline from those of a more serious and weighty kind. A business that satisfies the commerciality test will be an important one. It will usually also exhibit some of such characteristics as size, depth, bulk, weight, seriousness, quality, intensity and prominence.

[106]   ... that the primary production use be engaged in 'for the purpose of profit" and accepts that that purpose may be satisfied whether or not a profit is actually made.

[107]   While the absence of a profit does not negate an engagement in a primary production use of land for the purpose of profit, a continuous pattern of a lack of profit may lead the court to question and, in appropriate cases, to reject evidence that the primary production use of the land was engaged in for the purpose of profit.

35.   Here, the available financial statements and 2013 income tax return for the Bennett family's cattle business show that it made continuous losses before and during the Tax Years.

36.   Further, it does not assist the Applicant's case that other financial statements and income tax returns relevant to the Tax Years are not in evidence, nor that both George and Carolyn Bennett had off-farm employment during the Tax Years.

37.   Also, the Applicant's Business Plan does not assist its case in terms of the "commerciality test", as the Land itself would still only be used for preparing cull-for-age cows for sale (historically, very small numbers, e.g. 6-8) on an ad-hoc basis.

38.   For the above reasons, the Applicant has failed to discharge its onus that the Cattle Use of the Land satisfied the "commerciality test". On this basis, the PPL exemption did not apply to the Land for the Tax Years.

47. Section 10AA (2) (a) requires that the use of the Land “has a significant and substantial commercial purpose or character”.

48. Mr Jennings’ letter confirmed that the way in which the Business was managed across three blocks of land including the Land was “very typical of beef production systems on the NSW north coast”. The letter also stated:

10.6% of the NSW cattle producing properties [are] primarily from small breeding herds of less than 100 head;

herd sizes on the north coast are typically small, and land areas reflect this, particularly if the land is highly productive such as [the Land];

Overall [the Land] despite it being only 3.2 ha in size is an important land parcel in the scheme and structure of your whole beef enterprise; and

Whilst in isolation this block would appear un profitable, it is very important for practical management of animals within the enterprise …

49. Mr Donovan’s letter included:

Cattle sold off [the Land] have in the past received top prices on the day at the Grafton Sale. As the paddock has been well fertilised, cattle have the ability to gain 100 to 150 kilograms within a few months making this property a huge asset to the Bennett’s livestock operation.

50. The Applicant submitted at [13] of ASR:

In considering the tests in s10AA(2)(a) and (b), the use of [the Land] should be viewed in the context of the entirety of the beef cattle business conducted by the Bennett family … on the two Glenreagh properties and on [the Land]. To isolate the [Land] for the purposes of s10AA(2) — as suggested in paragraph 37 of the Respondent's submissions — would be "inappropriate" in the words of White J in Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678 at [36] …

51. I observe that in Vartuli, White J, when considering whether a block of land the dominant use of which was for the maintenance of animals for the purpose of selling them or their natural increase or bodily produce and which was one of several blocks of land used both by members of a family and a corporate trustee of their family trust, was exempt from land tax pursuant to section 10AA(2), said:

36 It is not appropriate to isolate the land in question. The tests posed by s 10AA(2) are whether the use of the land was engaged in for the purpose of profit on a continuous or repetitive basis and had a significant and substantial commercial purpose or character. The focus in s 10AA(2) is on the profit-making purpose of the use of the land and therefore attention is directed to the purpose of the user or users and the profit or losses made from the use of the land, not the profits or losses made by the owner of the land. In deciding whether the use of the land was engaged in for the requisite profit-making purpose, and whether the use of the land had a significant and substantial commercial purpose or character, it is appropriate to consider the entirety of Sydrom's and Deemhire's primary production activities, whether conducted on the land or not. This is because the Edmondson Park land was only part of the land used as part of those companies' primary production activities. Those activities had the same purpose and character, irrespective of the particular parcels of land upon which the cattle grazed … The profitability of those activities should be considered from the perspective of [the family and their companies], by consolidating their results, and excluding the internal agistment charges by which income from those activities was paid to [the family members] at those companies' expense.

52. Mr Bennett said in GB1:

64   The [Land] can support 4 to 6 head at any one time, depending on seasonal conditions and availability of feed. There are currently 6 head on the [Land].

65   The [Land] is used as a finishing paddock for cull-for-age cows. It is used in that way because the property is in a higher rainfall zone than the Glenreagh properties and the grass at the [Land] is better quality pasture. The [Land] has been used in that way for all of the approximately 40 years that the property has been owned by my family.

66   The cull-for-age cows are transported from Glenreagh to the [Land] by road in one of the trucks used in the family business.

67   Cull-for-age cows weighing approximately 300kg live weight can be taken to [the Land] and their live weight increased to 450kg — 480kg in condition suitable for the local livestock market. Cows which are aged and have finished raising a calf are in low body condition and so of low market value. During the past four years of drought conditions over eastern Australia and the resultant depressed price structure such animals have virtually no economic value and can in fact be unsaleable. Having a finishing paddock with quality pasture such as [the Land] can allow for the stock to increase their weights and to produce a saleable article. This paddock is normally used for cull-for-age cows but it is also used at times for other stock in poor condition to enhance their economic value …

…

71   My parents raised and educated three sons, two of whom attended university, all from the proceeds of the family's farming enterprise.

72   My wife and I have raised three daughters providing them with an adequate education and upbringing to enable them to be self-sufficient adults and have their own families .... The family's farming business has provided us with our income and lifestyle [since 1975], at the present and will continue to do so in the future. In the period up to the global financial crisis in 2008/2009, my wife and I were able to use surplus revenue from our farming business to make a number of off-farm investments with the intention of using those investments to fund our retirement.

73   At all times, my family has relied upon our farming business as our principal source of income.

53. In respect of Mr Bennett’s evidence at [73] the Respondent referred to Mr Bennett’s evidence that his wife worked both on-farm and off-farm and he had part-time off farm employment.

54. Mr Bennett’s evidence at [54] to [57] in GB1 included:

54   Prior to global financial crisis in 2008/2009, my wife and I looked to diversify our activities and investments to fund our retirement and to allow the younger generation to start to takeover the running of the farming business. Unfortunately the GFC resulted in us suffering serious financial losses in our investments. That made it necessary for me to take on part-time employment to rebuild our assets and to get rid of the debt relating to our investment losses from the GFC.

55   As a result I have had part-time employment off-farm as an agricultural teacher at Clarence Valley Anglican School in Grafton from 2011 onwards. I teach on a two week roster during the school terms. The first week I teach Wednesday, Thursday and Friday from 8.45am to 3pm and the second week I teach Wednesday, Thursday and Friday from 8.45am to 12.30pm. I continue to manage the day-to-day activities involved in the breeding, raising and finishing of beef cattle in the family's business. I work on the farming properties in the mornings before heading to teach at the school, and in the afternoon/evening after school has finished. On the days I am not teaching (including school holiday periods and weekends) I work fully in the farming business.

56   I carry out the normal activities involved in running the family's cattle business. My activities include the management of the animals in breeding, feeding and husbandry practises to keep them healthy and performing as well as possible. I manage the cattle herd for breeding, which involves the use of bulls as well as artificial insemination to give access to improved genetic material. Every couple of days I carry out the care and management of pasture and the movement of stock to new cells. I regularly monitor and control weeds such as lantana, tropical soda apple, groundsel bush, fire weed and Parramatta grass - which are all invasive species and are a constant consideration in the management of pasture. I also carry out cattle husbandry practises for the control of pests and diseases such as buffalo fly, lice, paralysis ticks and internal parasites. My daily routine includes building and maintenance of fences, water infrastructure and farm machinery, and managing and feeding stock which have to be finished at target weights for sp … markets. I regularly liaise with stock agents and market contacts and arrange the sorting and movement of stock as required to meet customer needs. It is also necessary for me to liaise with clients for the farm-to-freezer business as well as co-ordinating stock transport processing, butchering and transportation to those clients.

57   The time I spend working on each property varies from week to week and also from season to season depending on the prevailing conditions. I work approximately 2,600 hours per annum on the Glenreagh properties attending to stock and carrying out the other maintenance and management operations as required. The Woolgoolga property probably requires between myself and my father spending 600-800 hours per annum looking after pasture, infrastructure and the daily feeding and monitoring of stock. My father is also involved in the feeding and monitoring of the stock on the Woolgoolga property.

55. In GB2 Mr Bennett said that the net loss shown in accounts in evidence for the 2014 and 2015 financial years showed improving net primary production income and that the net loss was primarily due to interest costs. The interest costs arose from a need to borrow against the equity in the family’s properties due to off-farm investment losses in the GFC. Mr Bennett said that the family is regaining control of their debt and:

With the return to reasonable income from our cattle product and the innovations we are in the process of implementing to our cattle business, we expect to return to profitability very soon. We expect to be able to return to full-time farming in the coming year.

56. I find that Mr Bennett’s statement at [73] is not inconsistent with the Applicant’s other evidence before me in respect of the Bennett family’s financial position.

The Applicant’s reliance on the Business Plan

57. Mr Rider submitted that the future prospects of the use of the Land are not relevant because land tax is based on individual years and that one cannot look beyond six months before the start of a tax year beyond six months after the end of the tax year. Accordingly, Mr Rider submitted that the Business Plan could not be taken into account.

58. The evidence before the Tribunal was that the Business Plan had already commenced operation.

59. I observe that Mr Rider provided no authority in support of his submission and I reject the submission.

Financial records

60. Mr Rider submitted that details of the profitability of the maintenance of cattle on the Land was not provided to the Tribunal and that there was no evidence of expenses other than council rates.

61. I accept that there was a lack of divisional accounts in respect of the operation on the Land in comparison to the overall operation of the Business.

62. I have regard to Mr Lord’s oral submissions in reply including his reliance on the statement by White J at [33] in Vartuli that in deciding whether the use of the Land was engaged in for the requisite profit-making purpose and whether the use of the land had a significant and substantial commercial purpose or character it was appropriate to consider the entirety of the primary production activities whether conducted on the land or not.

63. Reference has been made above to the reasons given by Mr Bennett for the lack of financial records. I accept those reasons.

Prior land tax assessments in respect of the Land

64. In GB1 Mr Bennett provided what he described as a “history of OSR land tax assessments” in respect of the Land. He said:

89   From my recollection, there have been three occasions when the Office of State Revenue has looked into the land tax status of [the Land].

90   The first occasion was in around 2004 and prior to the transfer of [the Land] property from my father to the Applicant. My recollection is that I contacted the Office of State Revenue in relation to the assessment to explain that the property was used in carrying on a primary production activity, and I provided copies of cattle sale returns. As a result, the Office of State Revenue withdrew that assessment.

91   A second land tax assessment was made in around 2006/2007. Again, in response I contacted the Office of State Revenue to explain that the property was used in carrying on a primary production activity. I again provided copies of cattle sale returns. That land tax assessment was withdrawn.

92   The third occasion involves the land tax assessments for the years 2012 — 2014, which are the subject of the present proceedings.

93   The use of [the Land] property as part of my family's business has not changed in any material way over the period since 2004.

65. I observe that Mr Bennett’s sworn evidence in the preceding paragraph was not challenged nor has the Respondent provided any information concerning his prior consideration of the tax status of the Land. I accept Mr Bennett’s evidence.

Decision and orders

66. Having regard to the material before me I find on the balance of probability that:

1. the dominant use of the Land throughout the Relevant Period was to maintain beef cattle for the purpose of sale, and

2. the Land has throughout the Relevant Period been used for the purpose of profit on a continuous or repetitive basis and had a significant and substantial commercial purpose or character.

67. Having regard to the above findings the correct and preferable decision is that for each tax year during the Relevant Period the Land is exempt from taxation as it was land used for primary production in accordance with relevant requirements of s 10AA.

68. The Respondent’s Assessments under review for the 2012, 2013, 2014 and 2015 tax years are set aside and a decision is substituted that the Applicant was entitled to the primary production exemption in respect of the Land for these tax years.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 11 January 2017