Codlea Pty Ltd v Chief Commissioner of State Revenue

[2015] NSWCATAD 136

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:	Codlea Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 136
Hearing dates:	24, 25, 26 February 2015
Decision date:	02 July 2015
Jurisdiction:	Administrative and Equal Opportunity Division
Before:	S Frost, Senior Member
Decision:	The land tax assessments for the 2012 to 2014 land tax years are confirmed.
Catchwords:	STATE TAXES – land tax – land used for primary production – keeping of bees, for the purpose of selling their honey – dominant use of land – significant and substantial commercial purpose or character – purpose of profit on a continuous or repetitive basis
Legislation Cited:	Land Tax Management Act 1956
Cases Cited:	Leda Manorstead v Chief Commissioner of State Revenue (2010) 79 NSWLR 724; [2010] NSWSC 867 Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79 Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183 Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408 Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25 Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678
Category:	Principal judgment
Parties:	Codlea Pty Ltd (Applicant) Chief Commissioner of State Revenue (Respondent)
Representation:	Counsel: C Burnett (Applicant) A Gerard (Respondent) Solicitors: Bolster & Co (Applicant) Crown Solicitor’s Office (Respondent)
File Number(s):	1410173

Reasons for decision

1. At issue in this case are land tax assessments made by the respondent Chief Commissioner for the 2012 to 2014 land tax years inclusive.

2. The applicant Codlea disputes the assessments on the basis that it is entitled to the “primary production” land tax exemption.

3. The questions for determination by the Tribunal are:

1. Whether, in respect of any of the relevant land tax years, the “dominant use” of the land was for “the keeping of bees, for the purpose of selling their honey”;

2. Whether the beekeeping use of the land “has a significant and substantial commercial purpose or character”; and

3. Whether the beekeeping use of the land “is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)”.

THE LAND

4. The land in question is situated in the Brunswick Heads area. Codlea purchased the land in 1994. The land is 31.33 hectares in area, with 23.7 hectares within the 2(a) residential zone and 7.6 hectares within either the 7(a) wetland zone or the 7(b) coastal habitat zone. The keeping of bees within the 2(a) residential zone is permissible with consent.

5. The land is covered in scrub, grasses and trees, as well as wetland vegetation around Simpson’s Creek, which borders the land. It has no developments or structures on it other than the beehives and associated structures to which I will refer below.

6. The land was zoned for residential purposes in 1983. Codlea applied to Byron Shire Council in the mid-1990s to subdivide the land for the residential purposes for which it was zoned. The application was rejected; the decision was appealed but ultimately upheld by the Court of Appeal.

7. Since then, Codlea has made some further moves towards subdividing and developing the land. It seems that a proposal to subdivide the land was considered a “Major Project” to which the provisions of Part 3A of the Environmental Planning and Assessment Act 1979 applied, and in around 2006 Codlea completed a Major Projects application and lodged it with the Department of Planning. According to that document, the estimated cost of the development proposal was $20 million.

8. In 2011 Codlea lodged a Concept Plan for the subdivision of the land, proposing 167 residential lots.

9. In the period up to 30 June 2011, Codlea incurred $714,521 in expenses related to the proposed development and subdivision of the land (Court Book page 297 – CB297). It spent a further $57,025 in development costs in the six months to 31 December 2011.

10. During the financial year ended 30 June 2012, Codlea spent approximately $94,000 in development costs related to the proposed development of the land (CB297). Those amounts were paid to solicitors, to the local Shire Council, to the Department of Planning, and to engineers, surveyors, ecological consultants, town planners, environmental assessors and traffic engineers.

11. During the financial year ended 30 June 2013, Codlea spent approximately $160,000 in development costs related to the proposed development of the land (CB336/375). Those amounts were paid to wetlands consultants, engineers, surveyors, ecological consultants, town planners, environmental assessors and waste solutions consultants.

12. During the financial year ended 30 June 2014, Codlea spent approximately $79,000 in development costs related to the proposed development of the land (CB375).

13. On 9 July 2013, Codlea’s Concept Plan was approved. But there is still no project approval, and until that occurs the subdivision and development cannot go ahead.

The keeping of bees on the land

14. In 2011, Codlea decided to pursue beekeeping and honey production as an economic use of the land, as this activity was permissible with consent under the 2(a) residential zoning, its capital costs were not large and its director, Mr Ian Fraser, felt it had the potential to produce a modest profit. An application for approval to conduct a beekeeping operation was made to Byron Shire Council on Codlea’s behalf. The Statement of Environmental Effects accompanying the application included the following (CB787):

… This application proposes beekeeping on the subject site. The proposal is intended to provide an economic interim use of the site with minimal environmental impact, prior to the ultimate development of the site for residential purposes.

The proposal involves the installation of 60 to 100 beehives which are to be located on the southern part of the property as shown on the Application Plan …

15. Byron Shire Council approved the application on 21 November 2011.

16. Soon afterwards, Codlea applied for and was granted registration as a beekeeper, in accordance with s 7 of the Apiaries Act 1985 (NSW). The number of hives recorded for registration purposes was 60.

17. Codlea then contracted with Michael Howes, a commercial beekeeper, to acquire hives from Mr Howes and for Mr Howes to manage those hives and to sell the honey produced from them. Mr Howes operates his own commercial enterprise under the name Tyagarah Apiaries. He operates about 400 hives of his own. He also processes honey and sells that honey, including the honey produced from Codlea’s hives, by wholesale and by retail.

18. Some of the honey produced by Mr Howes is sold as medicinal honey. However, the honey produced from Codlea’s hives is sold as food honey, which does not command the same high prices as medicinal honey.

19. The contract by which Codlea purchased the hives from Mr Howes (CB19), dated 19 December 2011, committed the company to purchasing 60 healthy, functioning beehives, to be delivered to Codlea’s land on or before 31 December 2011, for $280 per hive, to be paid no later than 31 December 2013.

20. Under a separate contract (CB262), dated 15 December 2011, Mr Howes would be the “manager and facilitator of Codlea’s beekeeping operation on the terms set out” in the agreement. Mr Howes would:

1. Undertake all of the management necessary to successfully carry out the maintenance and propagation of Codlea’s hives; and

2. Undertake the collection, processing, harvesting and sale of honey and other products.

21. For these services Codlea would pay Mr Howes $8,000 per quarter.

22. Mr Howes delivered 28 hives to Codlea’s land on 22 December 2011 and a further 32 hives the following day. Two and a half weeks later, on 10 January 2012, 32 of the Codlea hives were moved off-site, to another location not owned by Codlea. Those 32 hives were returned to Codlea’s land on 4 March 2012. That migration of hives in the early part of 2012 was replicated in the early part of 2013, with 32 hives being moved off the property on 5 January 2013 and 36 returned on 8 March 2013.

23. In early 2013 Codlea renegotiated the management agreement with Mr Howes as, according to Mr Fraser, “it was plain to all concerned that the figure of $8,000 per quarter was excessive” (CB11 [16]). The management fee was reduced to $5,000 per quarter, if the number of Codlea’s hives did not exceed 60, or $6,000 per quarter if the number of hives reached 120.

24. Around that time Byron Shire Council gave approval for Codlea to keep up to 120 hives on the land.

25. Despite that approval, Codlea did not take on the extra 60 hives until January 2014. Moreover, by July 2014, Codlea had only about 60 hives on the land, although it may have had an additional 60 hives on other land.

26. The area that is dedicated to the beehives is an area at the southern end of Codlea’s land. Mr Fraser established the beehive site by erecting concrete besser block stacks and wooden planks on which the hives were placed, and arranging for the erection of a fence around the hives, with a locked gate and signage displaying the beekeeper registration number obtained under the Apiaries Act.

THE LEGISLATION

27. The legislation that applies is s 10AA of the Land Tax Management Act 1956 (NSW) (the LTM Act), which provides relevantly as follows:

(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:

…

(d)   the keeping of bees, for the purpose of selling their honey,

…

Was the keeping of bees, for the purpose of selling their honey, the dominant use of the land?

28. The taxing date for a land tax year is 31 December of the previous year. In other words, the taxing date for the 2012 land tax year is 31 December 2011; for the 2013 land tax year it is 31 December 2012, and so on.

29. The question that needs to be answered, for each land tax year, is whether the dominant use of the land as at 31 December was for “the keeping of bees, for the purpose of selling their honey”. It seems to be common ground, and I find, that at each relevant year on 31 December, at least one of the uses of the land was for the keeping of bees for the purpose of selling their honey (which, for convenience, I will refer to as the beekeeping use). The dispute turns on the question whether that was the dominant use of the land on those dates.

30. But the inquiry is not restricted to an examination of the use or uses of land on the taxing date and no other. Approaching the question on that basis could give rise to absurd outcomes, where the use of the land on one day of the year would outweigh all other uses of the land on every remaining day of the year. Rather, one must look at a reasonable period either side of the taxing date of 31 December. In Leda Manorstead v Chief Commissioner of State Revenue (2010) 79 NSWLR 724; [2010] NSWSC 867, Gzell J said at 726 [4]:

[The inquiry] extends to a consideration of its use during a reasonable period preceding and following the relevant date (Longford Investments Pty Ltd v Commissioner of Land Tax (NSW) (1978) 8 ATR 656 at 660-661). In my view, six months before and after the relevant date is a reasonable period for inquiry in this case. It allows for consideration of financial records pertaining to the uses to which the land was put.

31. The dominant use of land can only be determined once all the uses of the land have been identified. Then it is necessary to determine which of those uses is the dominant one. If there is only one relevant use then that will be the dominant one. If there is more than one then there needs to be a comparison between all the uses to work out which is dominant.

32. Codlea says that at all relevant times there was only one use of the land, and that was the beekeeping use. The respondent, on the other hand, has identified a second use of the land, which he describes as the use of the land for residential subdivision and development. The respondent submits that this alternative use of the land is its dominant use.

33. If, contrary to its principal submission, Codlea should be found to be putting the land to more than one use, then it submits in any event that the dominant use of the land at the relevant times was the beekeeping use.

34. In Leda Manorstead, Gzell J said at [69]-[76]:

[69]   Dominant in its ordinary meaning connotes ruling, prevailing, or most influential. The statute’s reference to a dominant 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.

[70]   That 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.

[71]   In Saville v Commissioner of Land Tax (1980) 12 ATR 7, Roden J was concerned with whether land was used primarily for the maintenance of animals thereon under a former provision in the Land Tax Management Act. The primary use test was not unlike the dominant use test in the present legislation. His Honour said at 10:

“I am of the view that, for any use of the land to justify the statement that the land is used primarily for that purpose, it is necessary not only that that use prevail over any competing use but also that it be sufficiently substantial to prevail over the proposition that the land is primarily to be regarded as unused land.”

[72]   In Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79, Perrignon J was concerned with the definition of “rural land” as land that is wholly or mainly used for carrying on the businesses or industries of grazing amongst other uses in the Local Government Act 1919, s 118. At 84 his Honour said that what was called for where land was put to a number of uses, was the weighing of the evidence relating to various uses to which land was put, including, but not limited to, the nature and intensity of such uses, the physical areas over which they extended, and the time and labour spent in conducting them.

[73]   His Honour’s decision was upheld on appeal (Hope v Bathurst Cit Council (1986) 7 NSWLR 669). A majority of the Court of Appeal held that the characterisation of rural land as land that is wholly or mainly used for carrying on the businesses or industries of grazing, amongst other uses, did not relate solely to the quantum of area of land used for relevant purposes but related to the end to be achieved by the use and included other criteria such as the nature and intensity of the use.

[74]   In Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 the Land Appeal Court of Queensland, presided over by Ambrose J, had to consider whether, at the relevant date of valuation, the subject land was “exclusively used … for purposes of farming”.

[75]   In terms similar to the Land Tax Management Act, s 10AA, “farming” was defined for this purpose in the Valuation of Land Act 1944 (Qld), s 17(2) to mean the business or industry of grazing, and other specified pursuits, or any other business or industry involved in the cultivation of soils, the gathering in of crops, or the rearing of livestock, if the business or industry represented the dominant use of the land and had a significant and substantial commercial purpose or character and was engaged in for the purpose of profit on a continuous or repetitive basis.

[76]   The Court, helpfully, gave its approach to the determination of dominant use of land at 303:

“In our view, the proper approach to be taken when ascertaining the dominant use of land is to consider such matters as the amount of land actually used for any purpose, the nature and extent and intensity of the various uses of the land, the extent to which land is used for activities which are incidental to a common business or industry of a type specified in section 17(2), the extent to which land is used for purposes which are unrelated to each other, and the time and labour and resources spent in using the land for each purpose. When undertaking this exercise, one cannot ignore the conclusion that an objective observer would reach from viewing the land as a whole.”

Were there uses of the land other than the beekeeping use?

35. There is no doubt that some activities were physically carried out on the land during the relevant period. Mr Fraser confirmed, for example, that surveyors had been present on the land from time to time – to survey the land, no doubt – and that representatives of a company named Waste Solutions had been on site to carry out water sampling and to examine the direction of water flows. Australian Wetlands Consulting Pty Ltd replaced Waste Solutions at some stage and carried out on-site groundwater investigations.

36. Consulting engineers also attended the property: CB303 is an invoice to Codlea from CivilTech Consulting Engineers which includes a charge for “site inspection re groundwater comments”.

37. Codlea has spent money on “slashing services”, on environmental assessments, and on town planning and traffic reports. All of these expenditures have been treated as “development costs” in its financial records. Some of the things that the suppliers have provided to Codlea (such as the slashing services) will have required the supplier to attend the property to carry out the activity. Sometimes the work could be done off-site, either with or without the supplier actually spending time on the land.

38. But all of these things are activities, undertaken either on the land or elsewhere. The fact that activities have been undertaken, either with respect to the land or even on the land, does not mean that the land has been used by Codlea, whether for a narrow purpose such as the preparation of an environmental report or, as the respondent contends, for the broader purpose of residential subdivision and development. And it is the use, or uses, of the land, not activities as such, that have to be identified so that the dominant use enquiry can be undertaken.

39. There is no doubt that Codlea’s desired outcome with respect to the land is that it will eventually be able to subdivide and develop it. It has wanted to do that from the very beginning. But the reality is that during the relevant period all it has been able to do is carry out some modest works directed towards that desired outcome. To characterise those works as amounting to a use of the land is, in my view, to overstate the position.

40. Mr Fraser’s affidavit affirmed on 17 July 2014 makes it plain that any use other than beekeeping use is not permitted (emphasis added):

[20]   As noted earlier in this affidavit, Codlea has been endeavouring over a very significant period of time to obtain approval to utilise the land for the residential purpose for which it has been zoned since 1983. Despite its best endeavours, and the expenditure of a significant amount of money over a period of 20 years, no development approval exists which enables the land to be used for anything other than the keeping of bees.

[21] On the 9th July 2013 the Department of Planning approved a Concept Plan in respect of the land under the former Part 3A of the Environmental Planning and Assessment Act 1979. The Concept Plan approval does not authorise any works activity or use on the land, but is an approval in principle. Further approvals are required before any use of the land can be undertaken. At the present time there is a project application being prepared for the Department of Planning. If granted, that approval would authorise the property to be used for residential subdivision, at least in part. Based on the advice presently available to me, it is unclear when, or if, an approval might be granted.

41. It is important, when applying the comparisons referred to in Hope (No. 2) and in Thomason (both cited by Gzell J in Leda Manorstead: see [34] of these reasons), to note that the comparisons are between uses, not activities. An activity does not always amount to a use. And in Codlea’s case, it is not accurate to describe the activities undertaken during the relevant period as amounting to a use of the land for residential development, even though that is the ultimate desired use of the land. It is, therefore, not to the point that Codlea’s expenditure on surveying services and environmental assessments may exceed its expenditure on beekeeping, because surveying the land, undertaking environmental assessments and other activities do not amount to a use of the land, and they do not form part of a broader use of the land (identified by the respondent as the residential development use of the land).

42. The proper characterisation in Codlea’s case is that residential development is a potential future use of the land, but it was not an actual current use of the land during the relevant period. The authorities confirm that what must be examined is actual current use: Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183 at [29] and the cases cited there.

43. I find that during the relevant period there were no uses of the land other than the beekeeping use. That means that the dominant use of the land, in respect of each of the land tax years under consideration in this proceeding, was for the keeping of bees, for the purpose of selling their honey. The land accordingly answers the statutory definition of “land used for primary production”.

Did that use of the land have a significant and substantial commercial purpose or character, and was it engaged in for the purpose of profit on a continuous or repetitive basis?

44. These questions, in paragraphs (a) and (b) of s 10AA(2), were introduced into the LTM Act in 2005. Gzell J traced the background to their introduction in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 at [59]-[64]:

[59] Section 10AA of the Management Act was introduced by the State Revenue Legislation Further Amendment Bill 2005. The second reading speech contained the following (New South Wales, Parliamentary Debates (Hansard), Legislative Council, 29 November 2005, p 20060 (The Hon Michael Costa, Minister for Finance, Infrastructure)):

"Land currently qualifies for a land tax exemption if it is within a rural or non-urban zone and is used primarily for primary production; or if it is within an urban zone and is used in the course of carrying on a business of primary production.

The Local Government Act definition of 'farmland' contains a more precise business test. The bill amends the land tax provisions to be consistent with that definition."

[60]   The reference was to the Local Government Act 1993, s 515 which provided:

"515 Categorisation as farmland

(1) Land is to be categorised as farmland if it is a parcel of rateable land valued as one assessment and its dominant use is for farming (that is, the business or industry of grazing, animal feedlots, dairying, pig-farming, poultry farming, viticulture, orcharding, bee-keeping, horticulture, vegetable growing, the growing of crops of any kind, forestry or aquaculture within the meaning of the Fisheries Management Act 1994, or any combination of those businesses or industries) which:

(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).

(2) Land is not to be categorised as farmland if it is rural residential land.

(3) The regulations may prescribe circumstances in which land is or is not to be characterised as farmland."

[61] Section 515 of the Local Government Act 1993 replaced a similarly worded s 118 of the Local Government Act 1919. In the second reading speech to the 1988 bill introducing amendments to s 118 it was stated that the purpose of the amendments was to: "weed out persons who have exploited the vagueness of the current rule rating provisions of the Act to obtain rate concessions when in fact they have not been genuine primary producers." (New South Wales, Parliamentary Debates (Hansard), Legislative Assembly, 10 November 1988, 3186).

[62]   It was Walsh J who coined the phrase "significant commercial purpose or character" when speaking of a business in Thomas v Federal Commissioner of Taxation (1972) 3 ATR 165 at 171.

[63]   And it was Mason J in Hope v Bathurst City Council (1980) 144 CLR 1 at 8-9 who said of s 118 of the Local Government Act 1919, which then defined rural land to include a parcel of land which exceeded 8,000 square metres in area and was wholly or mainly used for the time being by the occupier for carrying on the business or industry of grazing:

"I accept, then, that 'business' in the sub-section has the ordinary or popular meaning which it would be given in the expression 'carrying on the business of grazing'. It denotes grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis."

[64]   In Hope it was held that an occupier of land who used over 80 percent of it for the agistment of other persons' cattle or horses was carrying on a business. It was to overcome this decision that the 1988 amendments to s 118 of the Local Government Act 1919 were made.

45. His Honour also noted at [66] that the amendment introduced a more stringent test for the availability of the exemption when the land in question is not rural land.

46. On appeal, in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408, Emmett JA, with whom Meagher and Leeming JJA agreed, said at [64]-[65]:

[64] The primary judge observed that s 10AA(2) introduced "a more stringent test" for the availability of the exemption. The Taxpayers complain that the criteria to be found in s 10AA are not more stringent than the earlier language, which simply provided an exemption for land "used for primary production". However, in circumstances where the language of s 10AA(2) appears to be derived from observations made by the High Court, it is significant that the Parliament chose to add the word "substantial" to the phrase used in Thomas. It was not erroneous to suggest that the substitution of s 10AA for the phrase "land used for primary production" involved a more stringent test.

[65] The Taxpayers also contended that the language of s 10AA was not intended to alter the effect of its predecessor. They say that the terms of s 10AA(2) are satisfied if it can be concluded that business as a primary producer is clearly being carried on on taxable land. Such a contention ignores the clear intention of the parliament in changing the language in question in order to avoid the vagueness of the original provision, which was being exploited by persons who were not genuine primary producers. Further, the primary judge was not asked to consider the contention now advanced by the Taxpayers. His Honour was not asked to make any findings as to whether Maraya was carrying on a business of primary production. The ground is not raised in the notice of appeal. The contention must be rejected as having no substance.

Significant and substantial commercial purpose or character

47. Mr Bruce White is an acknowledged beekeeping expert, with over 50 years’ experience in the industry. He was engaged by the respondent to provide an expert report on Codlea’s beekeeping activities on its land.

48. Mr White’s report includes an “Industry overview” which, as he acknowledged, was sourced from a document entitled Commercial Beekeeping in Australia, produced by the Australian Government’s Rural Industries Research and Development Corporation (RIRDC) in 2007 (Exhibit 2).

49. Mr White opined that the “beekeeping industry” has always comprised four groups of beekeepers – amateur/recreational beekeepers; sideline beekeepers; commercial beekeepers; and queen breeders. For the purposes of the current discussion, and because of their specialist nature, the queen breeders group can be put to one side.

50. Beekeepers fall into one or other of the three remaining groups, according to Mr White, based on the number of hives they own or operate, irrespective of the honey yields per hive.

51. Into the amateur/recreational group fall those beekeepers who manage a small number of colonies as a hobby to produce some honey, pollinate gardens or to study the bees’ activities. The hives are usually kept on the land that the beekeepers own in rural or urban backyards. Mr White said this group owns between 10 and 20 hives and the average yield of honey is 10 to 20 kg per hive per year.

52. The sideline beekeepers usually have another full-time occupation or have retired from full-time work. Mr White said they usually operate between 40 and 400 colonies. Many of them gain experience by having this number of hives and are then able to become fully commercial beekeepers by increasing their hive numbers beyond 400 colonies. The average yield for sideline beekeepers is 40 kg per hive per year.

53. Commercial beekeepers operate between 400 and 6000 hives. They migrate their hives up to 6 times a year, often over very large distances. Extensive migration of this kind maximises honey production as the bees follow the nectar flows, and minimises the risk of hive mortality which can occur if the bees come into contact with pesticides or do not have access to sufficient nectar and pollen. The average honey yield is 100 kg per hive per year.

54. Mr White weighed up the various characteristics and practices in relation to Codlea’s hives and concluded that Codlea is a “sideline” beekeeper. He reached that view largely on the basis of the number of hives operated by Codlea. Mr White had visited the apiary in August 2014 and observed that there were 65 active beehives on the site. He noted that both Mr Fraser and Mr Howes had indicated that there were 120 hives on site, but there were only 65 when Mr White attended the property. Even then, Mr White said that if there had been 120 hives on site when he visited, he would still regard the operation as a “sideline” activity.

55. Mr White also noted that the migration of the hives had been modest – two migrations in the 2012 year, four in 2013 and two in 2014 as at the date of his report in September 2014. He thought those migration activities were below what would normally be expected of a commercial beekeeper operation.

56. Mr White also noted, however, that there were some activities that were not consistent with the characteristics and features for a sideline beekeeper, including:

• the fact that Codlea paid a professional beekeeper to carry out all the management of the beehives as well as the extracting of the honey. Mr White noted that these activities would normally be carried out by the owner of the hives but in this regard Mr White said the hives are very well managed – “Michael’s done a very good job”;

• the honey yield from Codlea’s hives, at 100 kg per hive per year according to the production records, far exceeded the average honey yield for sideline beekeepers. Mr White thought a contributor to this result was the fact that the colonies were being managed by a professional beekeeper;

• the migration practices, which had some of the hives remaining on the property while others were being migrated to other locations, was inconsistent with both sideline and commercial beekeeper practices.

57. Mr White said that even in the light of these factors, he still thought Codlea was a “sideline” beekeeper.

58. The RIRDC report, Exhibit 2, also divided the industry into three categories – amateur (1 to 40 hives); part time (41 to 200 hives); and commercial (more than 201 hives). Using those as the yardstick, Codlea would be regarded as a “part time” beekeeper.

The purpose of profit on a continuous or repetitive basis

59. Mr Fraser said in his affidavit:

In 2011 Codlea became aware of the possibility of farming bees for profit. Examination of the matter indicated that the keeping of bees was permissible with consent under 2(a) Residential zoning, that capital costs were not large and that there would be an opportunity to obtain a modest profit.

60. The beekeeping operation did not make a profit in any of the relevant years but, as the language of s 10AA(2)(b) makes plain, that is not a disqualifying circumstance.

61. In Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25, the Appeal Panel of the Administrative Decisions Tribunal said at [45](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.

62. Mr Peter Hillig is a chartered accountant and an insolvency practitioner. He was engaged by the respondent to provide an expert report analysing, among other things, the profit or loss of Codlea’s beekeeping activities from 24 November 2011 to 31 December 2013.

63. Mr Hillig prepared a profit/(loss) calculation for several discrete periods and summarised his conclusions at page 6 of his report as follows:

• 24 November 2011 to 31 December 2011 – $Nil;

• 24 November 2011 to 30 June 2012 – ($15,156);

• 1 January 2012 to 31 December 2012 – ($29,475);

• 1 July 2012 to 30 June 2013 – ($27,365);

• 1 January 2013 to 31 December 2013 – ($20,965).

64. He arrived at those figures by the standard methodology of deducting from the revenue earned in each period, the expenses incurred in producing that revenue. His calculations were performed on an accruals basis, with revenue and expenses brought to account in the period to which they relate, irrespective of whether cash had been received for sales, or whether actual payment had been made to suppliers.

65. At paragraph 21 of his report Mr Hillig provided a summary of Codlea’s overhead expenditure but explained at paragraph 22 that he was unable to identify the incremental costs of those expenses in relation to the beekeeping activities. In cross-examination he explained that by incremental costs he meant those costs that relate to beekeeping that would not have been incurred if the beekeeping activities had not been carried on. Given that inability, he estimated the overhead costs, relating to beekeeping, at $500 per quarter, or $2,000 per annum.

66. Mr Fraser thought those estimates were excessive. He provided his own summary at CB59 and explained in paragraph 5 of his second affidavit (CB57) that these costs ranged between $626 and $1,441 per annum, or $1,100 per annum on average.

67. Apart from that $900 per annum difference in overheads, Mr Fraser disagreed with Mr Hillig’s calculations in one other major respect. That was in the area of council rates. Mr Hillig had included council rates in his calculations in their entirety, on the assumption that “the dominant physical use of the Land is for the purpose of beekeeping” (CB610, paragraph 24). Mr Fraser, on the other hand, said in his second affidavit (CB57, paragraph 6):

[U]nlike Mr Hillig I do not count the Council rates in their entirety in the expenses of the beekeeping operations. This is because Codlea has long paid these Council rates, and is required to pay the Council rates regardless of whether beekeeping operations are carried on on the land.

68. Mr Fraser in fact excluded the council rates in their entirety, and on that basis came up with a projected profit of around $16,000 per annum, which he considered “a significant sum”.

69. I think Mr Hillig’s approach to the treatment of council rates is correct, and Mr Fraser’s is wrong. Codlea cannot on the one hand claim that its only relevant use of the land is for beekeeping, and yet on the other hand claim that the expenditure (which has to be paid no matter what) does not relate to any extent to that very activity. Council rates are a necessary incident of land ownership. It is hard to imagine a circumstance where they should not be taken into account, either in whole or in part, in the calculation of profit.

70. Mr Hillig also thought that the review of the arrangement between Codlea and Mr Howes, which led to a reduction in the management fee from $8,000 to $5,000 per quarter, was in recognition of the uncommercial nature of the original arrangement.

71. Mr Hillig also noted that one of the consequences of the reduction in the management fee was that Mr Fraser would undertake some of the activities previously undertaken by Mr Howes. Mr Fraser said in his first affidavit (CB11, paragraph 16) that he had made lids for the hives and performed general repairs on the hives. For practical purposes, in the absence of any allocation of expenditure to those activities, they are now being provided to Codlea free of charge. That is not a commercial arrangement.

72. Mr Hillig concluded at CB614, paragraphs 41-42:

Unless Codlea can do one (or all) of the following, there is no prospect of the bee keeping operations generating a profit:

Increase the price per kilo paid for its honey;

Increase the yield from the hives;

Further reduce the Apiarist’s fees; and/or

Negotiate with Council for a reduction in Council rates to a level sufficient to enable the bee keeping operations to generate a profit.

If the bee keeping operations cannot generate a profit, then they are not sustainable (without resorting to capital raising or external funding).

73. I agree with those assessments.

Conclusion on section 10AA(2)

74. I find that Codlea’s use of the land for beekeeping did not, for any of the land tax years in question, meet the “more stringent” test for exemption introduced into the LTM Act in 2005.

75. The beekeeping operations do not have the “significant and substantial commercial purpose or character” required for the exemption to be available. I accept the assessment of Mr White, an acknowledged expert, that even at 120 hives the activities fall into the “sideline” category.

76. I am mindful that during the relevant years the beekeeping activities were in the “start-up” phase but, even on Mr Fraser’s own predictions, the best outcome Codlea could hope for was a “modest profit”. That has not been achieved, and there is no likelihood that one will be achieved in the near future. On that basis the activities fail to reach the indicators suggested by the ADT Appeal Panel in Ashleigh Developments:

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.

The applicant’s “alternative argument”

77. Codlea put forward an alternative argument in support of its claim that s 10AA(2) is satisfied. This alternative argument is that the relevant enterprise to be considered is not only Codlea’s hives but also the beekeeping and honey production activities carried out by Mr Howes in his business trading as Tyagarah Apiaries. The argument is summarised in the Applicant’s written submissions in reply, at CB701, as follows:

The Supreme Court found in Vartuli (Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678) at [36] and Maraya (Gzell J) (Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23) at [73] that the fact that primary production activities are carried out by a person who is not the landowner, and take place outside the subject land, does not mean they are not considered in determining whether the activities as a whole satisfy s 10AA(2).

Because of the nature of beekeeping, where hives are migrated from site to site, and the honey harvested from various hives is processed and packaged in a central facility, it is appropriate, in the alternative, to characterise the overall beekeeping operations on the land in question as being part of the Tyagarah Apiaries overall beekeeping enterprise. That enterprise clearly comes within Mr White’s “commercial” beekeeping category, and also considered independently of Mr White’s classifications would satisfy the requirements of s 10AA(2).

78. I do not accept the argument.

79. The beekeeping activities on the land are the activities that are conducted by Codlea. Those activities commenced in late 2011 when Codlea purchased hives from Mr Howes. Those hives belong to Codlea, although Mr Howes carries out some management activities in relation to them. But they are Codlea’s hives. Codlea uses the hives (with Mr Howes providing hive management services) to produce honey, which it then sells to Mr Howes. The hives do not form part of Mr Howes’ enterprise, and the beekeeping activities undertaken by Codlea are not part of the activities or enterprise of Mr Howes.

80. Mr Howes is a service provider to Codlea. He provides management services to Codlea in respect of the hives. Those management services are part of the enterprise that he conducts, under the trading name Tyagarah Apiaries. He also buys the honey from Codlea. But he is not conducting the beekeeping activities on Codlea’s land; Codlea is. And Codlea’s beekeeping activities are Codlea’s enterprise; they form no part of the enterprise that is conducted by Mr Howes.

81. The enterprises of Codlea and Mr Howes are separate from, and independent of, each other. Each of them is a supplier to the other. But neither party’s enterprise forms part of the enterprise of the other, and there is no reason to treat them as if they did.

DECISION

82. The land tax assessments are confirmed.

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: 02 July 2015