De Re v Chief Commissioner of State Revenue
[2014] NSWCATAD 24
•12 March 2014
NSW Civil and Administrative Tribunal
New South Wales
Medium Neutral Citation: De Re v Chief Commissioner of State Revenue [2014] NSWCATAD 24 Hearing dates: 18 February 2014 Decision date: 12 March 2014 Jurisdiction: Administrative and Equal Opportunity Division Before: J.Block, Senior Member Decision: The objection decision under review is affirmed
Catchwords: Primary production exemption - onus of proof -consideration of cattle use, rental use and development use Legislation Cited: Land Tax Management Act 1956 Cases Cited: Cornish Group Pty Limited & Anor v Chief Commissioner of State Revenue [2009] NSWADT 191;
Leda v Chief Commissioner of State Revenue in the Court of Appeal ([2011] NSWCA (3);
Leda v Chief Commissioner of Statue Revenue ([2010] NSWSC 867 79 NSWLR 724);
Ashleigh Developments Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25;
Hope v Bathurst City Council (1986) 7 NSWLR 669;
Ashleigh Developments v Chief Commissioner [2011] NSWADT 250;
Saliba v Chief Commissioner of State Revenue [2012] NSWADT 119;
Maraya Holdings Pty Ltd v Chief Commissioner 'of State Revenue [2013] NSWCA 23;
La Vie Developments Pty Limited v Shellharbour City Council [2010] NSWLEC 1277;Category: Principal judgment Parties: Elio De Re (Applicant)
Giuseppe De Re (Applicant)
Chief Commissioner of State Revenue (Respondent)Representation: Counsel
D. Mitchell barrister
Applicant in person
Crown Solicitors Office (Respondent)
File Number(s): 136050
reasons for decision
Part A Preliminary and Background
The objection decision under review is the disallowance by the Respondent (who is usually referred to in these reasons as "the Chief Commissioner") of an objection by the Applicants against an assessment to land tax of their property at 805 Ballina Road, Goonellebah (the "Property") in respect of the 2008 to 2012 land tax years (both land tax years inclusive). The land tax years aforesaid are referred to as "the relevant years" ; where relevant the 2012 land tax year is usually referred to individually as the "2012 year". The Applicants are Elio De Re ("first Applicant") and Guiseppe De Re ("second Applicant"); The Applicants contend that they are entitled to the primary production exemption under section 10AA of the Land Tax Management Act 1956 ('the Act") on the basis that the dominant use of the Property during the relevant years was the maintenance of beef cattle for the purpose of selling them or their natural increase.
This application commenced in the Administrative Decisions Tribunal ("the ADT") The ADT was merged into the Civil and Administrative Tribunal of New South Wales ("NCAT") on 1 January 2014 and in consequence of which I am authorised and required to determine the matter as a matter of NCAT; see clause 7(2) in Schedule 1 to the Civil and Administrative Tribunal Act 2014 ("NCAT Act"). Matters formerly dealt with in the Revenue Division of the ADT are dealt with in the Administrative and Equal Opportunity Division of NCAT; see section 96 of the Taxation Administration Act 1996 and clause 3(1) (b) in Schedule 3 to the NCAT Act.
The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Review Act 1997 (formerly the Administrative Decisions Tribunal Act 1997). The documents aforesaid consist firstly of a large bound volume containing 493 pages lodged on 26 August 2013 (and referred to as the "58 documents") and secondly of a smaller (but nevertheless large) unbound volume of supplementary 58 documents and referred to as "supplementary 58 documents" lodged on 23 September 2013. The supplementary 58 documents relate to a development application made in respect of the Property and more particularly its subdivision into 58 residential lots and one open space lot. In addition the Tribunal, during the hearing, admitted the following exhibits:
Exhibit A1 is a document entitled "Submissions" (by the Applicants) dated 8 October 2013; it was admitted as an exhibit in the somewhat unusual circumstances set out later in these reasons;
Exhibit R1 is a volume of documents entitled "Respondent's Exhibit Folder"
"Exhibit R2 is a document prepared by the Respondent and entitled "Table of Cattle Numbers". It is relevant to note that Exhibit R2 (set out in full later in these reasons) is the document produced by the Chief Commissioner at the hearing but revised to a minor extent in the manner agreed at the hearing.
The Chief Commissioner furnished the Tribunal with lengthy and detailed submissions entitled "Chief Commissioner's Outline of Submissions" dated 12 December 2013; they are referred to as "RS"; I have drawn on them for the purposes of this decision.
The application was brought out of time but Mr Mitchell advised the Tribunal that the Chief Commissioner would not object to the matter being heard.
The Applicants did, at an earlier stage, have legal representation but decided (so the Tribunal was informed), for reasons of expense, to dispense with it. The second Applicant represented the Applicants at the hearing; although not a lawyer he holds a senior position with a bank and has a master's degree in commerce. The documents before the Tribunal indicate that the Applicants sought an extension of time in order to file evidence but in the result did not do so. This matter therefore came before the Tribunal on the basis that the Applicants had submitted no evidence. At the commencement of the hearing a discussion took place as to how in these circumstances the matter might proceed. The Tribunal indicated that it might (subject to objections by the Respondent) be prepared to allow a postponement to enable the Applicants to obtain evidence and possible legal representation; the Tribunal however indicated that such a concession might be accompanied by a costs order in respect of wasted costs. After an adjournment to enable the Applicants to consider their position, they returned to inform the Tribunal that they would not seek a postponement, and whether to furnish evidence or to obtain legal representation, because they were anxious to avoid delay. With Mr Mitchell's consent it was decided that Exhibit A1 might serve as a witness statement, thus enabling the first Applicant to give oral evidence, and notwithstanding that Exhibit A1 consists largely of submissions... Mr Mitchell made it clear also that he would in such event object to certain of its content. The Applicants elected to take this course.
Having noted that I intend to include the whole of Exhibit A1, and in the interests of balance and also because it furnishes an admirable summary of the background, I next include the content of RS under the head of "Background"( in the form in which RS was before the Tribunal at the hearing), and contained in clauses 6 to 38 (but excluding footnotes and although the footnotes have been checked and found to be correct) (and noting that it was prepared and submitted to the Tribunal in point of time prior to the arrangement whereby Exhibit A1 was accepted as a witness statement to allow the first Applicant to give oral evidence) as follows:
6. The Property comprises approximately 13 hectares of land. During all relevant tax years it was zoned Residential 2(a), Industrial 4(a), Special Uses (Road Widening) 5 and Recreation 6(a)6. '
7. During all relevant fax years there was a dwelling house located on the Property, which was rented. The house appears to be of brick and weatherboard construction. The applicants offer no evidence about its state of improvement or the facilities that it offers. The applicants submit that the residence occupies approximately 5 percent of the land by size. It is difficult to test that submission because no evidence in support of it is offered.
Review of an aerial photograph of the Property (see annexure A) suggests that 5 percent is not out of the realm of possibility.
8. The applicants (and before them the first applicant and his wife) maintain a small number of beef cattle on the property. The Chief Commissioner accepts that this is a relevant primary production use for the purpose of s.1OAA.
9. Further, on 9 April 2009 the applicants made a development application to Lismore City Council for approval to subdivide the Property into 58 residential lots. Work to prepare that application commenced prior to that time. Approval was granted on 15 October 2012.
10. In light of the above it is submitted that the Property has at least three uses:
(a) a rental use; this encompasses the use made by the applicants in renting the properties and deriving an income from them and the use made by the residential tenants of the property (arguably this could be treated as two separate uses);
(b) a development use. This encompasses the work engaged in and expenditure incurred by the applicants or on their behalf in obtaining approval to subdivide the Property. It also encompasses the intangible use of the Property as land awaiting development;
(c) a primary production use.
11. Each of these uses is examined separately below.
Rental uses
12. During the whole of the relevant period, the Property was rented by the applicants to residential tenants. The applicants' tax returns show that in each year the properties were tenanted for 52 of 52 weeks.
13. During the relevant tax years the applicants received significant revenue from the investment uses. They also incurred significant expenditure in relation to those uses.
14. The tax returns show the following in relation to the rental use of the Property:
Financial year
Revenue ($)
Expenses ($)
Profit/Loss ($)
2008
10,560
12,202
-1,642
2009
10,780
13,014 or 6,509
-1,119
2010
11,726
12,990
-1,264
2011
12,480
11,620
1,118
2012
No figures provided
No figures provided
No figures provided
15. Notably the bulk of the expenses for the rental use are Council rates (of $7,000-$9,000 per annum).
16. As for the physical use, the only evidence about the number of people living on the Property are the Residential Tenancy Agreements produced by the applicants which state that not more than two persons may ordinarily live on the premises at any one time.
17. From as early as October 2003, the applicants had retained Newton Denny Chapelle, consulting surveyors~ and planners, to prepare a development application to subdivide the Property into "some 55 residential allotments. At that stage the Property was part of a larger Lot 2 in DP W03199 and the proposal was to divide that lot into two lots, one of which was to be used as a residence and the other of which (being the Property) was to be further subdivided
18. The first of those subdivisions (i.e. that is the subdivision of Lot 2 in DP603199 into two lots) occurred sometime thereafter. Lismore City Council was considering a request by the applicants to rezone the land into residential land in November 2007. Ultimately, it was not until 9 April 2009 that the applicants applied to Lismore City Council for approval to subdivide the Property.
19. The application ultimately made was to subdivide the Property into 58 residential lots and one open space lot.' The development application" is a substantial submission and was accompanied by, among other things:
(a) detailed plans and surveys;
(b) an environmental assessment;
(c) a contaminate land assessment;
(d) an environmental noise impact report;
(e) storm water management planning;
(f) an engineering services report.
20. It is apparent that significant amounts of time and cost were involved in the preparation of the application and also in seeing it through Council (approval was not granted until 15 October 2012). That work occurred not only in the offices of the various planners and engineers, but also on site. The Statement of Environmental Effects, for example, states at section 2.2 that Comprehensive Investigations have been undertaken to determine the constraints of the site and to identify mitigation measures and appropriate design responses for proposed Subdivision.
21. Those investigation~ began at least as early as January 2008 (the Environmental Assessment by Planning Design Environment dated 5 June 2008 refers on page 2 to investigations being completed in January and June 2008) and involve a relatively intensive use of the Property. For example":
(a) the Environmental Assessment refers on page 2 to "a detailed foot traverse of the entire site with detailed survey for threatened plants known from the locality";
(b) the Contaminated land Assessment by Southern Cross University dated April 2009 states on page 4:
The sampling regime involved the collection of fifty-nine (59) individual soil samples; which were homogenised into eighteen(18) composite samples for chemical analysis for metals and pesticides. Eight (8) of the samples (from vicinity of the current dwelling) were also analysed for BTEX compounds and Total Petroleum Hydrocarbons. A further three (3) samples taken in the vicinity of the old dairy bales (current location of holding yards) and were analysed for metals. One of the three samples taken in the vicinity of the old dairy barns breached the acceptable limits for lead. Therefore an additional five (5) samples were taken in a 3m radius and at a depth (150-300mm) of the elevated sample
(c) the Environmental Noise Impact Report by Carter Rytenskild Group Traffic and Acoustical consultants dated 6 April 2008 refers on page 3 to recording of "noise statistics in 1 minute blocks continually between Thursday 27/03/08 to Friday 4104108".
22. In so far as assessment of the application goes, it was obviously a substantial exercise.
For example:
(a) Council officers inspected the Property on 5 May 2009, 14 May 2009 and, together with Police officers, 27 July 2012;
(b) The proposed development was advertised from 23 April 2009 to 8 May 2009 and from 7 July 2011 to 8 August 2011;
(c) consideration was given to the application by Building and Services, Environmental Health, Development Engineer, Lismore Water and Sewer, Community Services Social Planner Parks and Recreation, Assets and Infrastructure, Ecology, Road
23. As to cost, this is revealed in part in the applicants' financial statements, which show:
(a) for 2009 expenditure of $81,621;
(b) for 2010 expenditure of $103,121 (potentially this is the cumulative amount so that the amount for 2010 is in fact $21,500);
(c) for 2011 expenditure (described as "Opening Land Held for Resale") of $115,019 (potentially this is the cumulative amount so that the amount for 2011 is in fact $11,898);
(d) for 2012 expenditure (described as "Opening Land Held for Resale") of $136,060 (potentially this is the cumulative amount so that the amount for 2012 is in fact $21,041).
24. No financial statements for the applicants have been produced for 2008. It is apparent from the tax invoice produced by them and the documents produced by Newton Denny Chapelle that work was being undertaken by the applicants and their consultants in the 2008 financial year, albeit that they may not actually have paid for that work until the 2009 financial year.
Primary production use
Nature of the primary production use
25. The applicants do not give evidence concerning the use of the Property for the purpose of primary production.
26. It would appear, however, that the relevant activity was the grazing of beef cattle and that those activities were for all but one tax year (2012) carried out by the first applicant and his wife. For the 2012 tax year the activities were carried out by the applicants.
27. It is also apparent that the cattle grazing activities of the first applicant and his wife were spread between two properties, being:
(a) the Property;
(b) the neighbouring property, owned by the first applicant, at 245 Oliver Avenue, Lismore
28. The extent to which cattle spent time on each of these properties is unclear and the applicants offer no evidence about that subject.
Capital improvements
29. The applicants do not give evidence about the nature of any capital improvements used in the primary production activities. The Land Tax Questionnaire lodged by them refers only to holding yard~ and loading ramp".
Number of cattle
30. The applicants do not give evidence about the number of cattle that were present on the Property at any relevant time. The best evidence that is available is the financial statements produced by them which show the following cattle numbers (which for 2009 to 2011 must be a combined total for both properties, i.e. the Property and the Oliver Avenue property):
Financial year
Cattle standing at beginning of the year
Natural increase
Cattle purchased
Cattle sold
Deaths
Cattle standing at the end of the year
2008
17
17
0
22
1
11
2009
11
15
11
19
7
11
2010
11
4
31
35
0
22
2011
11
11
0
13
0
9
2012
0
0
46
24
0
22
31. The notional carrying capacity of the Property and the neighbouring Property together was 260 units, which equates to 26 head of cattle. The Property was therefore seriously underutilised from a grazing perspective.
32. No figures are available for the Property individually other than in 2012. Given the Oliver Avenue property is of approximately the same size as the Property and in the absence of any evidence from the applicants on this topic, it is not possible to find that any more than half of the cattle numbers for 2008 to 2011 are attributable to the Property (alternatively, it is conceivable that all cattle spent half their time on the Property) - indeed, it would be open to the Tribunal to find that less than half were so attributable. Assuming half the cattle numbers for the Property would be as follows:
Financial year
Cattle standing at beginning of the year
Natural increase
Cattle purchased
Cattle sold
Deaths
Cattle standing at the end of the year
2008
8.5
8.5
0
11
0.5
5.5
2009
5.5
7.5
5.5
9.5
3.5
5.5
2010
5.5
2
15.5
17.5
0
5.5
2011
5.5
5.5
0
6.5
0
4.5
33. The revenue received from cattle-related activities is marginal. The applicants do not give evidence about what their cattle-related expenses were, and the financial statements (other than in the 2012 financial year) only show the expenses of their combined operations (the first, applicant and his wife seemingly also undertook contracting work and a nursery away from the Property). What is apparent, or alternatively what the Court should infer, is that the cattle-related activities were operating at a significant loss each year - indeed, for the cost of sale for cattle exceeded revenue and so there was a loss even before operating expenses were taken into account.
34. The financial statements for the first applicant and his wife (who grazed cattle on the Property all years other than 2012) show the following:
Financial year
Revenue from Cattle sales ($)
Cost of sales (Cattle) ($)
Expenses (all activities, not just cattle) ($)
Profit (all activities, not just cattle) ($)
2008
7,547
3,000
21,411
3,440
2009
8,650
4,210
24,240
-7,740
2010
10,347
11,524
20,323
-20,720
2011
6,508
1,000
27,154
-17,548
35. If one was to attribute one half of the amounts in paragraph 34 above to the Property (using the assumption in paragraph 32 above although noting that in the case of expenses and therefore profit the portion attributable to the Property is likely to be significantly less given the other activities of the first applicant and his wife occurred away from the Property), then the level of revenue expense and profit attributable to the Property is only:
Financial year
Revenue from Cattle sales ($)
Cost of sales (Cattle) ($)
Expenses (all activities, not just cattle) ($)
Profit (all activities, not just cattle) ($)
2008
3,773.50
1,500
10,705.50
1,7200
2009
4,235
2,105
12,120
-3,870
2010
5,173.50
5,762
10,161.50
-10,360
2011
3,254
500
13,577
-8,774
36. The financial statements for the applicants (who grazed cattle on the Property in 2012) show the following"
Financial year
Revenue from Cattle sales ($)
Cost of sales (Cattle) ($)
Expenses ($)
Profit ($)
2012
11,176
12,793
1,467
-3,084
37. These figures need to be divided because they relate to both Properties (although there is no evidence about that). It is important to note, however, that the expenses do not include anything for holding costs of the Property, such as Council rates and so true losses will be greater.
38. Two important points arise out of the financial statements of the first applicant and his wife and those of the applicants:
(a) first, the statements do not disclose payment of any wages and do not otherwise make allowance "tor labour expended on cattle-related activities. The true cost of engaging in those activities, and therefore the true losses, will therefore be greater than that disclosed in the statements. It is not possible, due to the lack of evidence, to know how much greater;
(b) second, the applicant and his wife and later the applicant were either paying more or only slightly less per head for cattle than what they were selling them for as can be seen from the following
table:
Financial year
No of cattle sold
Price ($)
Price per head ($)
No of cattle purchased
Cost ($)
Cost per head ($)
2008
22
7,547
343
0
NA
NA
2009
19
8,650
455
11
4,210
382
2010
35
10,347
296
31
11,524
372
2011
13
6,508
500
0
NA
NA
2012
24
11,176
466
46
24,520
533
It is relevant to note that in respect of all relevant years except the last relevant year (the 2012 year) the second Applicant, although a joint owner of the Property, was not in partnership with his brother (the first Applicant) in respect of the cattle use. The partnership between them in respect of all relevant years except the last related to other activities referable to the Property. The second Applicant became a partner in the cattle operation in the last relevant year; that relationship was not documented in any way and the second Applicant said from the bar table that he did not pay anything to the first Applicant in respect of any cattle or other assets which were in existence at the time, and more particularly in respect of cattle then on hand. There was a purchase of cattle by the partnership towards the end of the first half of the last relevant year but the source of the funds required was not in evidence..
The factual evidence before the Tribunal indicates that the first Applicant and his wife own another parcel of real property (referred to in RS) and in which they now reside, which is referred to henceforth as the 'Oliver Avenue property." The Property and the Oliver Avenue property are approximately equivalent in area and contain in all four paddocks; the cattle (and being the cattle owned by the first Applicant and his wife) and also the cattle owned in partnership were held on all four paddocks during the relevant years.
As indicated by the content of RS included in accordance with these reasons, the Property was used during the relevant yeas for three main purposes or uses:
(a) the Property was used to graze cattle belonging to the first Applicant and his wife, and in the last relevant year, belonging to both of the Applicants; this activity is referred to as the ""cattle use;"
(b) the supplementary 58 documents in their terms relate to an extensive, involved and expensive development application referable to the Property and its division into 58 residential lots; the scope and extent of the work and expense involved can be gauged from the supplementary 58 documents; as will be seen having regard to the evidence of the first Applicant dealt with hereafter in these reasons the Applicants by the end of the relevant years had expended approximately $136000 in respect of the development use; the Tribunal was informed from the bar table that completion will require further substantial expenditure exceeding by a wide margin the aggregate amount already spent; this activity is referred to as the "development use":
(c) the Property includes the residence in which the parents of the Applicants and their five children (and the Applicants are two of their children) lived for many years after its acquisition in 1947. There was no evidence before the Tribunal as to its size as regards number of bedrooms and bathrooms and the like but it was clearly big enough to house a family of seven; throughout the relevant years it was leased to a tenant; it is still so leased and currently results in the derivation of rent of $260 per week; (there have been small increases in the rent paid during the relevant years; rates and taxes are debited against the rent absorbing in approximate terms half of the aggregate rent; this activity is referred to as the "rental use".
Part B. The evidence of the first Applicant; examination in chief
The first Applicant (who is referred to in this part B and also parts C and D as 'the witness") by way of commencement confirmed the truth and correctness of Exhibit A1. (The hearing as a whole indicated that Exhibit A1 is sparse as regards fact and moreover that it is some important respects inaccurate. By way of example it refers to an amount of $90000 spent in respect of development use costs where the amount involved was considerably higher. Having regard to the fact that Exhibit A1 contains in effect most of the evidence in chief for the Applicants it is included in full in these reasons as follows:
These are the submissions of Elio and Giuseppe De Re in relation to their appeal to the Administrative Decisions Tribunal - Division File No. 136050.
The submissions are prepared by Elio De Re.
1. I represent my brother and my interests in the matter of the decision made by The Office of State Revenue ('the OSR' ) in determining the Land Tax for 2008 - 2012 tax years.
2. The OSR has determined to revoke the exemption they initially granted in 2004 and then again in 2008 as 'exempt land used for primary production'.
3. We were issued with a Land Tax Assessment Notice in September 2012 for years 2008 to 2012 retrospectively of $77017.65. This amount was payable by 31 October 2012 in full, or a first instalment payable by same date. Please refer to Tab [1(a)] and [1(b)] in our Bundle of Documents.
4. We appealed the decision on the basis that nothing had changed in land use on that property. We had continued (and continue to date) to graze cattle on the subject land, as has been the practice over a period of some 65 years while the land remained in the De Re family.
We should note that in order to avoid what we thought might have been considerable interest payments, we paid the amount in three instalments, with the final payment made on 24 December 2012. These payments were not made as an admission of liability of the assessment.
5. The result of our appeal has been that the OSR applied a 'dominant use' test to our situation and they believe the dominant use is not primary production and therefore the Land was assessed for land tax for the purpose of issuing a retrospective assessment.
6. It is the application of this assessment, at this time (some four years after the issuing of a "0" balance assessment) that we challenge.
7. We believe our situation is a unique one and respectfully request the Tribunal to reassess the final decision made by the OSR. We seek an order in favour of a reinstatement of the exemption 'land used for primary production' and a reimbursement of sums paid out for the retrospective land tax.
8. We would also request a continued exemption until such a time as the land is utilised for other usage.
9. Please note we have been issued with a Land Tax Assessment Notice for the year 2013 of $13504.95 after our initial appeal was lodged. As with the previous assessment, we have paid this bill to avoid interest payments. We seek that any determination made by the Tribunal also applies to the 2013 assessment. We are happy to provide additional documentation in relation to the year 2013 in order to confirm that the land continues to be used in the way that it has been for the last 65 years. This payment was not made as an admission of liability of the assessment. We have included a copy of the 2013 assessment. Please refer to Tab [7] in our Bundle of Documents.
10. I offer the following information for your consideration.
Chronology of Appeal
11. A letter was received from the OSR on 7 August 2012 informing us of 'a review of our land holdings and exemption status' of the land known as Lot 2 DP 1112474. We inherited this land from our father after his death in 2003.
12. On 14 August 2012, I requested a "Primary Production Land Exemption Application" form from Mr Lieu. At this time, I also verbally requested an extension of time to complete this application.
13. On 27 August 2012, I sent Mr Lieu at the OSR, a Primary Production Land Exemption application. Please refer to Tab [2] in our Bundle of Documents.
14. Our tax agent, Irvine & Co., sent information to the OSR gathered to include in our Application on 21 September 2012.
15. A Land Tax Assessment Notice for the periods 2008 - 2012 was issued 21 September 2012 for $77017.65, payable by 31 October 2012 or by instalments (3) with first instalment of $26 063.55, due 31 October 2012. Please refer to Tab 3[b] in our Bundle of Documents.
16. I made appeal to the OSR through solicitor Mr C Spence of Walters Solicitors, Lismore on 2 November 2012, on the ongoing grounds of primary production usage.
17. A further request for financial documents for 2008 - 2012 and other necessary evidence was made by OSR on 12 December 2012. All requested information was forwarded by post on 16 January 2013. That information has been included in the Crown Solicitor's Bundle of Documents [Tabs 14 & 15].
18. A 'disallowance' to our objection by the OSR was received by our solicitor on 6 May 2013. Please refer to Tab [8] in our Bundle of Documents.
19. I then requested a review in the Administrative Decisions Tribunal on 7 July 2013. This request was made by post, and included the OSR's letter of 6 May 2013 disallowing the appeal.
20. On 26 August 2013, we received a Bundle of Documents served by the Crown Solicitor's Office, which included some of the documents that we had provided in our initial application and in the OSR's further review.
21. In a letter from the Administrative Decisions Tribunal NSW dated 23 July 2013, we were advised of a directions hearing on 30 August 2013. Neither myself or my brother attended that mention, and took the Crown Solicitor's Office's legal representative's offer to mention our appearance.
22. We understand that the Short Minute's of Order that were signed by myself and Giuseppe were made by the Tribunal member on that day.
23. Per the orders made on 30 August 2013, a preliminary conference was held on 24 September 2013. This conference was attended by myself and my brother Giuseppe De Re. A further directions hearing is set for 22 October 2013 - we hope with a view to a settlement of the decision.
24. Below are further details that we ask the members of the Tribunal to consider in making their determination.
Historical background
25. In 1947, my father Mario De Re purchased a dairy farm of approximately one hundred and twenty (120) hectares, consisting of various lots. By 1955 this holding had been downsized to sixty two (62) hectares. The property was share-farmed from 1955 while Mario purchased a home and worked in business in Lismore til 1965. On return to the property, Mario continued to operate a cream dairy and piggery until 1969 when he converted to cattle grazing and cropping on his property.
26. As his son, I worked together with Mario in the planting and harvesting of pineapples, small crops and to the tending of cattle from this period.
27. In approximately 1978 Lismore City Council purchased a portion of the farm, some 50 acres, for their industrial estate, now known as Goonellabah Centenary Industrial Estate.
28. My wife, daughter and I moved into a caravan on the property next to the farmhouse while my parents built a new home on now Lot 1 DP 1112474, and I continued to work with my father on his beef cattle and pineapple farm. When my parents moved into their new home in 1979, we moved into the old farmhouse and continued to work on the farm.
29. In late 1980, my wife and I purchased 13.3 hectares of the farm from dad, being the portion on the southern side of the creek - Lot 2 DP620590, but continued to live at the farmhouse on my father's property until 1993. During that time my wife and I built our own home on our property and continued to grow small crops, nursery fruit trees and ran some of our cattle with Mario's cattle on his farm - which at that time included the farm subject of this Application, as well as additional farmland adjacent.
30. At that time, cattle being grazed used both Mario's land and my wife and my land across the creek. By family arrangement, income from sale of the cattle was Mario De Re's while income from pineapples was my wife and mine, as the cropping work was being done by us.
31. The size of the herd varied from year to year depending on climatic conditions, as well as the capacity of me and my father to work. During this time, my wife also gave birth to four more children.
32. By 1990 Mario's land was rezoned to '2(a) residential' and Mario sold forty (40) acres. This left 2 parcels of land DP1112474 (13.3 hectares) and Lot 2 DP620590 (13.2 hectares). All cattle were run over this whole area of 26.6 hectares utilising the creek crossing that separates the two farms for access. My wife and I continued to live on and work the family farm (Mario's farm). My wife and I raised our family of five children there til 1993.
33. During this time, my wife and I also continued to work pineapples on our property.
34. In 1993, my wife, our children and I moved into the house on Lot 2 DP620590 and moved the nursery fruit trees there. We continued growing pineapples, small cropping and grazing cattle with Mario. Eventually, income derived from ALL cattle sales became that of Elio & Gabrielle De Re (the business in the name of my wife and I) and all cattle ear tags were in the name of Elio & Gabrielle De Re.
35. These practices continued til Mario's health diminished and he largely retired from farming in approximately 1996. The cattle continued to move between the two farms as they still do to this day.
36. We note that in the information provided by Lismore City Council to the OSR, in their letter dated 18 January 2013 (at points 1, page2) that '....Council accepts that the current use of land for grazing has been the historical and continual use of the land and therefore is a continuing and permitted use of the land.' And ( at point 2 page 2) During this period the subject property was observed by the writer and other Council officers (during site inspections) as:
(i) being benefited by a dwelling house and:
(ii) being used for grazing cattle.
Please refer to Tab [6] in our Bundle of Documents for a copy of this letter.
37. In 2003 Mario died and he bequeathed the farm to us (Elio and Giuseppe De Re).
38. We were executors of our late father's estate. Parts of the terms of the will were to subdivide the house and a small holding around it for the use of our mother Elvira De Re for perpetuity. This is known as Lot 1 DP 1112474.
39. The will was finally executed in 2007, at which point we became tenants in common of Lot 2 DP1112474. We remain trustees of Lot 1 DP 1112474.
40. The old farmhouse was rented as an opportunity to defray costs of local government rates of the farm holding. Between 2003 and 2007, the rental income was used to offset the costs of enacting the will, including the subdivision of DP 1112474 into Lots 1 and 2.
41. In 2009, we formed a partnership 'Tucki Developments' and submitted a Development Application to Lismore City Council for a 58 lot subdivision.
42. The decision to submit a development application was made in an attempt to maximise the value of the land. It was recognised by both of us that this process would take a significant amount of time and we did not anticipate the costs associated with the application process and all of the reports required.
43. As part of this process, Council required various conditions to be met and reports to be undertaken. These have been the large outgoings for Giuseppe and me for the years 2009 to 2012. These outgoings amount to $90,562.
44. Consent was granted in a 'Notice to Applicant of Determination of a development application' on 15 October 2012, but we have to date not changed the use of the land or the structure of the land towards subdivision. Consent was granted with conditions. Please refer to the document contained in our Bundle of Documents as Tab [4(a)]. This includes a 'Notice of Requirements' dated 15 October 2012. Please refer to Tab [4(b)] of our Bundle of Documents.
45. We are currently not in any financial position to embark on a subdivision. As can be seen from our financial records (which have previously been provided to the OSR and is contained in their Bundle of Documents), the quantum of land tax is substantial relative to income made from the property.
46. Between 2008 and 2012, cattle continued to graze the two properties as a single farm as they have always done. The cattle are grass fed not lot fed, so up to 50 head is all that can be sustained over the two holdings depending on climatic conditions. We do not purchase grain and attempt to keep costs to a minimum, as our cash-flow is low and our income is not substantial. Improvement of capacity through pasture irrigation and annual application of fertiliser was phased out with the cessation of the dairy.
47. We are and have always been a small family holding working together for family gain.
48. We applied for exemption from land tax as we believe we utilise the land for primary production and continue to do so. The OSR granted that exemption under primary production usage in 2004 and again after review in 2008 and I believe this has not changed.
49. We acknowledge the OSR's request for clarification of "dominant usage" but as can be seen we have been engaged in the same primary production for a substantial time with practices not changing in an attempt to avoid tax.
Submissions as to the law (as understood by us)
50. I would like to refer to objections made by our solicitor then, Mr C. Spence and adopt the same objections he has made in paragraphs [8] to [25]. These objections are attached as Annexure 'A' to Mr Spence's letter dated 2 November 2012. Please refer to Tab [5] of our Bundle of Documents.
51. I have read and have attempted to understand the case of Ashleigh Developments Pty Ltd v. Chief Commissioner of State Revenue [2011] NSWADT 250 ('Ashleigh') which is cited by the OSR in their letter disallowing our appeal. It is our submission that our case differs from that case substantially.
52. Our case can be distinguished in the following ways:
i. The land was not purchased with a view to subdividing it and selling residential lots. It was inherited.
ii. The application for exemption was not made in an attempt to avoid paying land tax while we 'developed' the land, as it was in Ashleigh. Our initial application for exemption came before the development application to Lismore City Council was even made.
iii. The cattle grazing on the subject land are owned by us - the land owners - and have been continuously grazing throughout the family ownership of the land. This has been a continuing farming practice across two generations.
iv. No earthworks have been carried out on the Land to indicate subdivision. In regards to the 'subdivision' - the soil has not been broken; there are no curbs or roads, no infrastructure, services or utilities on the Land for the purposes of any future development of the land. The pre-existing farm road and the rental property are all that are situated on the property.
v. We do not consider we are using the Land as a business or development property or as an inventory of a development business. It may well happen that the Land may be developed for residential subdivision in the future but we submit that this is not its current usage. We submit that the DA approval, at this stage, remains merely a prospect of future use.
vi. We have not spent considerable amounts of money to get the property into a condition it needs to be in so its full potential can be exploited. There have been no "tax write-downs or significant taxation benefits" for us as the owners, so we submit that this is not a relevant 'use 'of the Land.
53. As outlined above, the present activity carried out on the subject land is cattle grazing, as well as a single residential tenancy to assist in offsetting costs incurred in maintaining ownership of the Land. The farmhouse is small and somewhat run-down almost dilapidated and we have not invested any funds to maximise rental potential through upkeep to a higher standard.
54. The size of the property dictates the amount of cattle grazed, and using both properties has allowed a higher amount to be grazed. Profit made is always dependent on fluctuating cattle prices and climatic restraints. We attempt to make a profit each year.
55. It seems almost nonsensical to compare what has been a cost incurred by us until October 2012 (that is, the costs associated with the development application) with what we submit is the dominant use of the land, and a significant proportion of our total income - being the grazing of cattle.
56. It is our submission that our case differs from the case of Ashleigh, and for these reasons, the application of the "dominant use" test should apply to our circumstances, in favour of the granting of the exemption.
57. We ask that the Tribunal's review find in our favour by recognising that our land is used for ongoing primary production for the period 2008 to 2012. We also ask that specific consideration be made in finding whether the primary production exemption applies for the year 2013, and ongoing.
Elio De Re
(for and on behalf of Elio De Re and Giuseppe De Re)
8 October 2013
Mr Mitchell repeated that Exhibit A1 suffers from the fact that it, to a large extent, consists of submissions. He objected to the first sentence of clause 46 on the basis that it contains a statement which was not substantiated by documentary evidence and so that its veracity could not be properly tested; Mr Mitchell contended furthermore that it was in any event irrelevant. Mr Mitchell also objected to the last sentence of clause 54 on the basis that it contained a conclusion without reference to the underlying facts. (Exhibit A1 is noted to the effect that it was prepared by the first Applicant; the Tribunal is firmly of the view that it is far more likely that it was prepared by the second Applicant.
The witness was then asked a number of additional questions; the second Applicant's method of questioning was frequently leading and thus resulting in a number of objections.
The witness said that the structure of the dwelling is asbestos fibre; it has some weatherboard and it has some enclosed verandas which provide additional living space. He noted that "we as a family lived in the house"; the witness said also that the dwelling house was in situ when the Property was purchased by his late father in 1947. Asked whether there were any other (brick) structures he said that there is a laundry and a garage. He said also that the garage when originally built was not attached to the house but that it is now attached.
The witness was asked when he and his family (and he also has five children) vacated the Property. He replied that he could not answer truthfully. (Exhibit A1 clause 35 indicates that this occurred in 1993). When asked whether there had been improvements since he vacated it he referred to a new roof installed after a hail storm; he referred also to the installation of a new electrical hot water system.
The witness confirmed that rental of $260 per week is paid. He said that personally spent 3 hours per week in the administration of the dwelling house. He said that the second property in which he and his family now live (the Oliver Avenue property) is like the Property approximately 12 hectares in extent.
Part C. The evidence of the witness; cross-examination
The witness agreed that the development application was submitted in 2009. It was put to him, and he agreed, that it related originally to an application for 55 residential sites.
The witness was asked whether he expected that the subdivision would result in the receipt by the Applicants of a large sum of money. He answered; "some money hopefully".
Asked whether the Applicants had received advice from a real estate agent as to what the residential sites might fetch he answered that they had been advised that if sold in a hurry they would fetch between $140000 and $180000 each. The witness was then cross-examined as some length as to possible sale prices. It is not necessary to go into that evidence in detail. The witness referred to problems as regards access and the fact that the land is steeper on one side; he said that the sites which are furthest from an industrial development would probably fetch more than those nearest the industrial development. His evidence in this context can fairly be described as hazy and at times contradictory. By way of one example he was asked whether the real estate agent had said that sites near the industrial estate would fetch less and his answer was that this aspect had not been discussed.
The witness agreed that development approval was obtained in 2012. He said that advice had been obtained from the real estate agent that the Property were sold as a whole (and without any cattle) it might realise between $1.5m and $1.6m. When asked whether a part of that amount might be attributable to the development approval he replied that this had never been discussed. When asked whether the approval improved the value of the land he answered "no" and when asked whether that answer was serious" answered that "it is very serious'. It was pointed out to him that in financial statements issued prior to the approval the Property was reflected at $1.2m
The witness was referred to page 359 of the 58 documents which indicated that the approval was granted in October 2012 in respect of 58 lots. He agreed that at 30 June 2012 approval had not been obtained and that $136000 had been spent prior to its grant. The witness was also referred to page and other page 8 and other pages of Exhibit R1; it was put to him that $136000 had been spent and not $90000 as referred to in clause 44 of Exhibit A1. He did not answer.
The witness was cross-examined at some length as to the involvement of Newton Derry Chapelle ("NDC") in respect of the DA. Here too the evidence was at times convoluted. He said that the supplementary 58 documents relate in their entirety but excluding the last two pages to the Development Application. ("DA"). He agreed that it involved considerable work but when asked whether there were further requirements and questions from Council after the application was submitted he answered "I am not sure". He was then referred to Exhibit R2 and to a tax invoice by NDC reading as follows:
Newton Denny Chapelle
SURVEYORS PLANNERS ENGINEERS
TAX INVOICE - ABN 86 220 045 469
Invoice to: Elio De Re
37A Centenary Drive
GOONELLABAH NSW 2480
Your Ref: Our Ref: 2007103/1 Date 06/09/2011
MEMORANDUM OF FEES DUE FOR PROFESSIONAL SERVICES Invoice No: 38565
JOB ADDRESS:
Lot 2/No. 805
STREET:
BALLINA ROAD
AMOUNT
SUBURB:
LISMORE
TO: Town Planning Services Provided to 30/6/11 for Preparation of Additional Information in Response to Lismore City Council's Additional Information Request Relating to DA No. 5.2009.145.1 being for the Proposed Subdivision at 805 Ballina Road, Goonellabah Incorporating: -
Town Planning:
- Review of Lismore City Council's Additional Request Requirements.
- Discussions with Carter Rytenskild Group and Co-ordination of Environment Noise Impact Report.
- Discussions with Environmental analysis Laboratory Regarding Remediation Action Plan.
- Discussions and Co-ordination of Landslide Hazard Assessment.
- Discussions and Meetings with Client.
- Drafting and Revision of Design Plans for Site Characteristics, Detail Survey, Subdivision Plan with Aerial & Contours, Acoustic Barrier and Street Tree Location, Water & Sewer Zoning Extension and Composite Subdivision Plan.
- Site Inspection.
- Preparation of Additional Information Response to Lismore City Council.
- Printing and Collating of Additional Information Response (6 Copies) and Correspondence to Client.
Total: $7,850 + GST Buy Say $5,650 + GST (As Quoted 24/3/2010)
$6.215.000
Engineering:
- Review of Lismore City Council's Additional Information Request Engineering Requirements.
- Discussions and Meeting with Lismore City Council Officers.
- Discussions and Meeting with Client.
- Site Inspection Regarding Stormwater and Noise Wall.
- Engineering Design for Initial Platform Design for Valley.
- Information Review for Noise Wall/Basin Raising.
- Redesigning of Sediment Basin 1 for Filling in Gully Required to Update Black Earth Plan.
- Engineering Data Review and Preparation of Engineering Matters to be Included within Additional Information Response to Lismore City Council.
Total: $2,350 + GST
$2,585.00
Net Value: $8,000.00 - GST Value: $8,000.00 Invoice Amount:
$8,800.00
The witness expressed the view that the opening part of the invoice narrative related to additional work referable to the DA but not the separate items which followed. (In referring to this invoice I have referred to one only contained in Exhibit R2 but there are others.) A consideration of the invoice reveals that it relates to the development use,
I do not think it necessary to deal in detail with the evidence of the witness as regards accounts. He was referred to page 75 of the 58 documents and which relates to the accounts of Tucki Developments (the partnership in which the Applicants were partners) for the 2012 financial year. His attention was drawn to the fact that the costs of the development approval were reflected as $136000 (and not $90000 as set out in Exhibit A1) and he was asked whether that cost was reflected on the basis that it might give rise to a deduction for tax purposes or as an offset against capital gains tax.; (the attention of the witness was drawn to clause 53 (vi) of Exhibit A1.) The witness eventually but only after some hesitation agreed that the Applicants hoped that these costs might give rise in the future to tax deductions of some kind.
The witness was then cross-examined as to the cattle use. He agreed that he and his wife ran cattle until the last of the relevant years when the second Applicant became a partner in this activity. He agreed that in November 2011 the partnership purchased cattle.
The witness agreed that the cattle use sustained losses on a continual basis during the relevant years and that the losses reflected in accounts would have been significantly greater if they had included rates and taxes as an expense and greater still if they had reflected remuneration for him and his wife in respect of their services.
It was put to the witness that the relevant authority had assessed the notional carrying capacity of the Property and the Oliver Avenue property as 26 head of cattle; it was also put to him that he apparently believed that more could be maintained. He answered "not all the time". He was referred to clause 47 of Exhibit A1 in which the Applicants contended that 50 could be maintained; he answered that this would be possible only in a very good year.
It was put to the witness that during the relevant years there were very rarely 50 cattle on both properties; he answered that " this is true". When taken through the accounts in relation to opening and closing stock figures during the relevant years he agreed that the number of cattle was during most of the time "nowhere near 50".
It was put to the witness that the carrying capacity could be improved; he answered that he did not believe so. He also did not believe that this result could be achieved if the diet for the cattle were supplemented by hay and silage.
The witness accepted that cattle had at times been sold below cost; he also agreed that no profits had been derived. He said that the cattle use did not allow for any wages for services by him and his wife.
The witness was then shown Exhibit A2 on the basis that it required some minor amendments to properly reflect that cattle were located on both properties during the relevant years and also to allow for some births in the 2012 relevant year. The witness accepted that Exhibit R2 with those amendments would be correct; in its corrected form it reads as follows;
TABLE OF CATTLE NUMBERS
(To give an indication of cattle on the subject property the final column divides those figures by two)
Date
Cattle standing at beginning of year
Natural increase
Cattle purchased
Cattle sold
Deaths
Cattle standing at end of year
Running total
Running total subject property
01/07/2007
17
17
8.5
14/08/2007
4 (p.316)
13
6.5
10/11/2007
4 (p.317)
9
4.5
Unknown
17
0
1
25
12.5
26/02/2008
9 (p.318)
16
8
04/03/2008
1 (p.319)
15
7.5
23/03/2008
4 (p.320)
11
5.5
30/06/2008
11
11
5.5
2008 totals
17
17
0
22
1
11
11
5.5
01/07/2008
11
11
5.5
04/11/2008
2 (p.321)
9
4.5
11/11/2008
3 (p.322)
6
3
17/11/2008
11 (p.302)
17
8.5
02/12/2008
6 (p.323)
11
5.5
Unknown
15
7
19
8.5
10/02/2009
8 (p.324)
11
5.5
30/06/2009
11
11
5.5
2009 totals
11
15
11
19
7
11
11
6.5
01/07/2009
11
11
5.5
17/11/2009
12 (p.303)
23
11.5
17/11/2009
1 (p.304)
24
12
01/12/2009
1 (p.305)
25
12.5
01/12/2009
2 (p.306)
27
13.5
12/12/2009
16 (p.307)
43
21.5
Unknown
4
6
41
20.5
12/01/2010
4 (p.325)
37
18.5
02/02/2010
23 (p.326)
14
7
20/04/2010
2 (p.327)
12
6
30/06/2010
11 (or 12)
12
6
2010 totals
11
4
31 (or 32)
35
0
11 (or 12)
12
6
01/07/2010
11
11
5.5
26/10/2010
3 (p.328)
8
4
06/11/2010
1 (p.329)
7
3.5
Unknown
11
18
9
05/04/2011
5 (p.330)
13
6.5
30/05/2011
4 (p.331)
9
4.5
30/06/2011
9
9
2011 totals
11
11
0
13
0
9
9
4.5
01/07/2011
9
9
4.5
12/11/2011
18 (p.308)
27
13.5
25/11/2011
15 (p.309)
42
21
25/11/2011
13 (p.310)
55
27.5
Unknown
6
61
30.5
06/03/2012
6 (p.332)
55
27.5
15/05/2012
18 (p.333)
37
18.5
19/06/2012
6 (p.278)
31
15.5
30/06/2012
31
31
15.5
2012 totals
9
6
46
30
0
31
31
15.5
Part D. The evidence of the first Applicant- re-examination.
The witness said that climatic conditions were less than average during the relevant years. He went on to say that there were other reasons why there were so few cattle. When asked what those reasons were he answered that he is bipolar and "going through a very rough period such that it affects my farming ability" and then added "But I do my best".
The witness was then asked to refer to the last two pages of the supplementary 58 documents and in particular a letter by NDC dated 7 October 2003. He was asked in particular whether it referred to the development use or to an earlier matter. He replied that it referred to the death of their father. He was then referred to page 46 of the 58 documents which contains the will of his late father and he was asked to consider clause 5. It is not necessary to deal in detail with the particularly convoluted answers which were given; suffice it to say that the last two pages do in their terms relate to the development use and the work involved.
Part E. The evidence - summary
The evidence of the first Applicant was at times convoluted and contradictory; this may be due to his bipolar condition but there was no medical evidence to this effect.
It will be noted that oral evidence was given only by the first Applicant; one has to wonder why there was no evidence by any other persons and for example his wife or the second Applicant; in the same context this appears to be a case in which the evidence of a person expert in beef cattle might have been thought to be necessary. The absence of any such evidence must lead to an inference that it would not have assisted the Applicants.
Part F The relevant statutory provisions and case law.
In respect of the relevant years, s.10AA of the Act provided (and still provides):
10AA Exemption for land used for primary production
(I) 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 Iand:
(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/or 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, 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, or
(b) The land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land.
The Property was not zoned "rural", "rural residential" or "non-urban". Section 10AA(2) of the Act therefore applies to the Property for the relevant years such that the Applicants must satisfy each of the following criteria or "limbs" (see Cornish Group Pty Limited & Anor v Chief Commissioner of State Revenue [2009] NSWADT 191 at [26], per Judicial Member A Verick):
(b) first limb: the dominant use of the Property must be primary production (s.1OAA (3));
(c) second limb: the applicants' primary production activities must have a significant and substantial commercial purpose or character (s.10AA (2) (a);
(d) third limb: the applicants primary production activities must be engaged in for the purpose of a profit on a continuous or repetitive basis (whether or not a profit is actually made) '(s.10AA (2) (b).
. If any of the limbs are not satisfied, the primary production exemption in s.10AA will not apply.
In respect of the first limb:(the dominant use test) the Tribunal refers to
Leda v Chief Commissioner of State Revenue in the Court of Appeal ([2011] NSWCA (3); If the land is used for one or more of the purposes listed in s 10AA(3)(a)-(f), and is also used for a purpose that is not listed in s 10AA(3)(a)-(f), it is necessary to enquire whether the use (contended to be the dominant use) is for one or more of the purposes listed in (a)-(f) and is in fact the dominant use.
(a) In Leda v Chief Commissioner of Statue Revenue at first instance ([2010] NSWSC 867 79 NSWLR 724) at [69]-[70], Gzell J said of the dominant use test in s.1OAA(3):
(a) 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:
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.
(b) His Honour then referred (at [72]) to Hope v Bathurst City Council (1986) 7 NSWLR 669 (a decision under the old s.118 of the Local Government Act) and noted that the Court of Appeal in that case held that the test "did not relate solely to the quantum of area used for relevant purpose~ but related to the end to be achieved by the use and included other criteria such as the nature and intensity of the use".
(c) At [76], Gzell J quoted with apparent approval the following passage from Thomason v Chief Executive, Department of Lands (1994-1995) 15 QCLR 286 (a decision under s.17(2) of the Valuation of Land Act 1944 (Qld»:
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 an 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.
These factors must be considered from both a physical and economic perspective: Cornish Group v CCSR at [42], per Judicial Member A Verick (although see the cautionary note of Judicial Member R Perrignon in Ball v Chief Commissioner of State Revenue [2010] NSWADT 114 at [60) and [65) concerning the use of revenue).
The approach of Gzell J in Leda v Chief Commissioner was approved on appeal by the Court of Appeal: see at [43), per Allsop P (with whom Campbell and Whealy JJA agreed). Relevantly, a use need not be a physical use but may be an intangible use. In Leda v Chief Commissioner in the Court of Appeal Allsop P (with whom Campbell and Whealy JJA agreed) said:
[24] I am unable to accept the bright line distinction made by Leda in Its submissions. The words of the section (other than identifying particular uses in paras (a) to (f) do not otherwise prescribe any particular use for which the land could be otherwise used. The particular uses identified in paras (a)-(f) are the uses for which the land must be dominantly used for the application of subs (3). As the appellant, Leda, submits, if there is another use for which the land is being' put, it must be compared with the relevant use in, here, para (b). In evaluating any given circumstances there is no warrant within the words of the section or the meaning of the word "use" or the phrase "used for" to require beneficial return or any other like concept. There will be some circumstances in which activity on the land will be understood or evaluated as preliminary to the undertaking of a future use. That is not what s 10M is directed to. 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 estate 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.
In Ashleigh Developments Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25 the Appeals Panel said:
[35] 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.
[36] 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.
There were (as I have noted) three main uses of the Property: the rental use, the development use and the cattle use. The Chief Commissioner submits (correctly in the view of the Tribunal) that the Applicants have not established that the dominant or primary use of the Property is the primary production use or cattle use.
Importantly, and although during the 2008 to 2011 financial years the primary production activities of the first Applicant and his wife occurred across two properties, it is only the activities undertaken on the Property which are relevant to the dominant use test: see Ashleigh Developments v Chief Commissioner [2011] NSWADT 250 at [12]-[13], per Judicial Member S Frost.
The level of evidence concerning the nature and intensity of a primary production use on a property that is required to establish that is the dominant use dominant is significant. See, for example, the observations of Judicial Member S Frost in Saliba v Chief Commissioner of State Revenue [2012] NSWADT 119 at [29]-[32] about the evidence of the Salibas.
In Maraya Holdings.Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 Gzell J said of the second limb:
[77] Section 10M (2) (a) is concerned with objective qualities of the use of the land. The words "significa9t" and "substantial" in s 10AA (2) (a) are to be construed in their context and by interpreting the phrase "significant and substantial commercial purpose or character" as a whole rather~: than by adding up linguistic elements of each of the words (Collector of Customs v Agfd~Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389 at 396-397 quoting R v Brown (1996) 543 at 561).
[82] By defining "significant" as the obverse of "trifling" the result will inevitably be an emphasis upon the lower end of the spectrum of meanings of "significant".
[83) In ordinary parlance, "significant" connotes importance, something of consequence, a key element, a vital or critical one.
[84) These meanings tend to place "significant" at the upper end of the spectrum of meanings the word has developed.
[85] In the context of s 10AA (2) (a) of the Management Act this is appropriate as the purpose of its commerciality test is to exclude a less important use of land from qualifying for exemption. '
[86) As the Administrative Decisions Appeals Panel said of the commerciality test in Ashleigh Developments Pty Ltd v Chief Car of State Revenue [2012) NSWADTAP 25;
This criterion eliminates hobby or token operations even though they may have passed' the de minimise threshold to which we have referred [above). 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.
[88] But in ordinary parlance the word "substantial" connotes size or bulk. It means an ample or considerable amount, quantity or size.
[89] the commerciality test in s 10AA (2) (a) of the Management Act required Maraya's 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.
[91] To determine whether Maraya's cattle operation had a significant and substantial commercial purpose or character, the court should consider the intensity of the operation, the size and qua1ityof the herd, the size and carrying capacity of the land and the resources (whether of time labour or expenditure) put into the development and maintenance of the cattle operation.'
In Maraya, Gzell J concluded:
[92] 40, or even 55, cattle grazing on the subject lands with or without the other lands do not constitute a serious or intense primary production use when the grazing areas of the lands are taken into account.
Gzell J's reasoning and conclusion was upheld on appeal: Maraya Holdings Pty Ltd v Chief Commissioner 'of State Revenue [2013] NSWCA In that case Emmett J (with whom Meagher and Leeming JJA agreed) said:
[56] It is unrealistic to suggest that an assessment can be made as to whether use of land has a significant and substantial commercial purpose, or a significant and substantial commercial character, in the abstract. Whether a particular use has a commercial purpose or a commercial character can only be assessed by reference to the way in which land is generally used. It was not suggested that the Subject Lands could be~ used only for cattle operations. Indeed, they were zoned for industrial or residential use and could only lawfully be used for cattle grazing by reason of existing use rights. The Taxpayers' reliance on Mr Glover's evidence appears to be underpinned by an assumption that cattle grazing was the only use to which the subject Lands could be put. A relevant consideration in determining whether use of land has a commercial purpose or a commercial character must be the way in which land is generally used...
Emmett J ultimately concluded:
[66) The Subject Lands extend to more than 27 hectares. The total value of the Subject Land is in excess of $26 million. The Subject Lands are zoned industrial and their appearance is anything but rural. There has been Substantial industrial development on adjacent lands. Maraya's cattle operations, taking into account land holding expenses, could never be expected to generate a profit or surplus. The cattle operations have not, on any commercial approach, generated a profit or surplus since they began. It is impossible to conclude that that use of the Subject Lands could in, any way be said to have a commercial purpose or a commercial character, much less a significant and substantial commercial purpose or significant and substantial commercial character.
Leeming JA (with whom Meagher JA also agreed):
[84) In order to assess the additional qualification of substantiality, a comparison needs to be made. Whether something has a substantial commercial purpose or character is at least in part a relative judgment. Speaking of s 450 of the Trade Practices Act, Bowen CJ said in Tillmanns at 339 that "No doubt in the context in which it appeals the word imports a notion of relativity", and the same is true of "substantial" when it appears in s 10AA (2). A commercial truffle grower may have very little land, and harvest only a few kilograms of product. and yet the use may be substantial, seen against his or her competitors. The word "substantial" has in the present context no inherent or absolute meaning standing alone....
In La Vie Developments Pty Limited v Shellharbour City Council [2010] NSWLEC 1277. Moore SC summarised some of the authorities which looked at cattle grazing activities for the purpose of s.515 (1) (a) of the Local Government Act 1993 (the provision on which s.10AA (2) is based (Maraya at [59]). The Senior Commissioner stated at [8]-[11]:
I have been taken to a variety of decisions by members of the Court in the past that have provided a little assistance but certainly do not provide anything that binds me with respect to the extent to which activities on rural properties or rural activities on other properties could be regarded as satisfying the question of significant and substantial commercial purpose or character.
The first of those is the decision of Cripps CJ in Page v Council of the Shire of Parkes (1991) NSWLEC 4 where at, about thirty-five or forty percent of the way through the decision given by his Honour, he said, as is correctly the case here, each matter must be dealt with on its facts and circumstances. He concluded that, in that instance, the grazing of four cows and .the cultivation of fifteen acres of crops could not reasonably be said to have a use of a significant and substantial commercial purpose or character.
Second, in an unreported decision of (then) Assessor, (now former) Bly C, given on 16 October 1992 ,in Cousins v Council of the City of Lake Macquarie (unreported - Matter No: 30252 of 19921, in the final substantial paragraph, my former colleague said:
"I have not been persuaded that a forty-hectare farm with fifty head of cattle - with a fifty head herd of herd cattle generating up to $5,800 per annum profit in about three to four years' time represents a significant and substantial commercial purpose".
Moore SC concluded in respect of the case at hand (at [15]):
Turning my mind, as I do, to the facts and circumstances of the present case, assisted but not bound by the comments of Cripps J and Bly C, I find that the raising of a maximum of thirteen calves per annum for sale from this land, even if it be appropriate to hold that that be the dominant use of the land, a gross profit of $6,500 per annum cannot conceivably satisfy the test; of being a significant and Substantial commercial purpose or character.
Part G. Evaluation
The only evidence before the Tribunal in this matter is the oral evidence of the first Applicant read with Exhibit A1. (It may be noted that Exhibit A1 contains a number of references to a bundle of documents but no such bundle was tendered at the hearing).
As noted previously the cattle use resulted in significant losses on a continual basis throughout the relevant years; those losses would have increased, and to a significant extent. if they had taken into account expenses such as rates and taxes and labour. It is possible that the cattle use could not have been sustained without the revenue from the rent use perhaps coupled with capital infusions from the Applicants. The fact that the cattle use was so insubstantial and productive of losses may have been caused by the ill-health of the first Applicant but that does not alter the fact that the number of cattle involved was such that a profit was not realistically achievable...
On the evidence before me the dominant use in respect of the Property was either the rental use or the development use The rental use produced a regular income flow but the figures involved in the development use (and the possible revenue involved) leads me to infer that it may have been the dominant use. The Applicants devoted, and apparently intend in the future, to devote significant capital to what is (as the supplementary 58 documents demonstrate) a substantial undertaking. Even if the 55 sites all fetch the lowest figure stated by the first Applicant ($140000) the resulting aggregate sum is very large indeed. And that amount was specified as the lowest figure if the sites are sold in a hurry. It is unnecessary for the Tribunal to specify which the dominant use is but it is abundantly clear that the cattle use cannot be so specified. The cattle numbers were minimal at best which suggest that for all years but 2012 as few as 4.5 and not more than 11 cattle were on the Property during the period under consideration; or, alternatively as few as 9 and not more than 22 cattle spent 6 months of the year on the Property. For 2012 there were no cattle at the start and 22 at the end).As set out previously the Property was utilised at less than half its carrying capacity.
Having found that the cattle use was not the dominant use it is not strictly necessary for me to deal with the other limbs but I do, in this context, note that in my view the cattle use did not in the relevant years satisfy either of the other two limbs.
It is abundantly clear that the Applicants could not satisfy the onus on them and indeed it must be said that they did not make any significant effort to do so.
The dwelling house on the Property represented a significant physical improvement, particularly in contrast to the apparent improvements used for primary production. While there does is no evidence before the Tribunal as to any physical improvement; made in respect of the development use, the level of investment was significant thus indicating its importance.
The intensity of the use of the land for rental is relevant. There were at least two people living on the Property during the whole of the relevant period. The development use was as I have noted, intense, both away from and at the Property.
To use the words of Judicial Member Frost in Romano v Chief Commissioner of State Revenue [2011] NSWADT 73 at [45]
"the renting out of residential premises is such a significant activity that renders it impossible to conclude, in relation to the land tax years in question, that the dominant use of either of the properties was for primary production".
Part H Conclusion
The Property was used during the relevant years for three main purposes as described earlier in these reasons. The letting out of the dwelling house was clearly an important and relevant use because the rent derived from the dwelling provided in all probability the moneys required to fund or at least to fund in part the cattle use losses and to pay the costs or some of the costs involved in the development use. It is conceivable that the rents net of rates and taxes were insufficient and that moneys were contributed but the Tribunal is in the absence of evidence unable to state whether this is so..
The cattle operation was (as set out previously) small in that the number of cattle involved was small. Losses were sustained on an ongoing basis and those losses would have been considerably higher than those reflected in the accounts if all relevant expenses had been included or provided for. Rates and taxes is one obvious example; another is the need to provide at least on a notional basis for the costs involved in running the cattle operation. The first Applicant gave evidence that he and his wife ran the cattle operation but that his health problems were relevant to the fact that the results were so poor. There was no evidence before the Tribunal as to the fact that run as it was during the relevant years a profit was likely or possible.
It is clear that, as set out previously, the Applicants have not discharged the onus on them. In all the circumstances the assessment whereby the Applicants were assessed for land tax in respect of the Property for the relevant years (and therefore the objection decision) must be affirmed.
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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: 12 March 2014
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