Ferella v Chief Commissioner of State Revenue

[2022] NSWCATAD 154

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Ferella v Chief Commissioner of State Revenue [2022] NSWCATAD 154

Hearing dates:

20 December 2021

Date of orders:

18 May 2022

Decision date:

18 May 2022

Jurisdiction:

Administrative and Equal Opportunity Division

Before:

J Gatland, Senior Member

Decision:

The land tax assessments for the land tax years 2019 and 2020 are confirmed.

Catchwords:

REVENUE LAW – Land Tax – exemption for land used for primary production

Legislation Cited:

Administrative Decisions Review Act 1997 (NSW)

Civil and Administrative Tribunal Act 2013 (NSW)

Land Tax Management Act 1956 (NSW)

Taxation Administration Act 1996 (NSW)

Cases Cited:

Chief Commissioner of State Revenue v Metricon Qld Pty Ltd [2017] NSWCA 11

Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184

Cornish Investments Pty Ltd v Chief Commissioner of State Revenue [2021] NSWADT 204

Ferella & Anor v Chief Commissioner of State Revenue [2014] NSWCA 378

Ferella v Chief Commissioner of State Revenue [2020] NSWCATAD 128

Ferella v Chief Commissioner of State Revenue [2020] NSWCATAD 327

Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 430

Leda Manorstead v Chief Commissioner of State Revenue (2020) 79 NSWLR 724

Saville v Commissioner of Land Tax (NSW) (1980) 12 ATR 7; 81 ATC 4373

Settler’s Rise Pty Ltd ATF Maison Dieu Road Unit Trust v Chief Commissioner of State Revenue [2019] NSWCATAD 238

Young v Chief Commissioner of State Revenue [2020] NSWSC 330

Category:

Principal judgment

Parties:

G Ferella (First Applicant)
N Ferella (Second Applicant)
Chief Commissioner of State Revenue (Respondent

Representation:

Counsel:
E Graham (Respondent)

Solicitors:
A Ferella (Agent for the Applicants)
Crown Solicitor (Respondent)

File Number(s):

2019/301452
2021/151905

Publication restriction:

None

REASONS FOR DECISION

Introduction

1. The Chief Commissioner of State Revenue, the Respondent in these proceedings, has assessed the Applicants, Nida Ferella and her late husband Gustavo Ferella, as being liable to land tax over real property they owned in New South Wales on 31 December 2019 and 31 December 2020 (relevant years).

2. The Applicants dispute the assessments to land tax for the relevant years as far they relate to a property which they own at Box Hill. They dispute the assessments on the basis that the Box Hill property should be exempt from land tax because it is used for primary production and in particular, the breeding of horses.

3. The Applicants say the Box Hill property has been used for horse breeding exclusively since 2011 (and in fact, since the 1970s). I refer specifically to the 2011 year because there are two applications before the Tribunal and the first of these originally sought review land tax assessments for the years 2011 to 2019 inclusive. That application, as it relates to the years 2011 to 2018, has been determined by way of dismissal; Ferella v Chief Commissioner of State Revenue [2020] NSWCATAD 128 and Ferella v Chief Commissioner of State Revenue [2020] NSWCATAD 327.

4. Previously, with respect to land tax assessments for the years 2007 to 2011, the Applicants unsuccessfully contended the property at Box Hill should be exempted from land tax on the basis of its use for primary production purposes. That litigation culminated in an unsuccessful appeal by them; Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378. The Applicants submit that references to past proceedings are not relevant to the present and to a large extent, I respectfully agree with that submission. Earlier decisions considering the substantive issues in dispute have only parenthetical value to the present applications because land tax is assessed on a yearly basis. The Tribunal is therefore required, and will proceed now, to consider each year individually plus a period of some months before and after the relevant period in order to determine whether, as the Applicants claim, it should be exempted from land tax or whether the Respondent’s assessments should stand.

The Hearing of 20 December 2021

5. The matter was listed for a final hearing before the Tribunal on 20 December 2021. All parties were represented and it was expected that all representatives would attend the hearing by audio-visual link.

6. The evening prior to the final hearing, the Applicants’ son, Angelo Ferella, who represents his mother and his late father’s interests, sent an email to the Tribunal registry, copied to the Chief Commissioner’s representatives. In that email Mr Angelo Ferella stated that he was unwell and might not be able to attend the hearing on 20 December 2021. Mr Angelo Ferella further stated in his email that, in the event he was not able to attend, he had no objection to the hearing proceeding and he asked that the Tribunal consider the written submissions and evidence filed in the proceedings on behalf of the Applicants.

7. At the commencement of the hearing on 20 December 2021 there was no appearance by Mr Angelo Ferella or by Mrs Ferella. The hearing was adjourned for a short time while the representatives for the Chief Commissioner sought to contact Mr Angelo Ferella. When the hearing resumed the Tribunal was informed by counsel for the Chief Commissioner that;

1. Mr Angelo Ferella was not able to be contacted either by email or telephone; and

2. Mr Angelo Ferella, the only deponent of any filed affidavits for the Applicants, was not required for cross-examination.

8. The Tribunal is required, pursuant to the Civil and Administrative Tribunal Act 2013 (NSW), s38(5)(c) to ensure the parties have a reasonable opportunity to be heard or otherwise have their submissions considered in the proceedings. The Tribunal determined, having regard to the matters listed immediately below, that the hearing should proceed without further participation from the Applicants or Mr Angelo Ferella on the basis that;

1. the proceedings have been on foot for an extended period of time – the application in respect of the 2019 year was filed in this Tribunal on 26 September 2019 and the application for the 2020 year was filed on 27 May 2021; and

2. the Applicants’ evidence and submissions were in writing and capable of being fully considered; and

3. Mr Angelo Ferella’s statement that he was content for the hearing to proceed.

Relevant Law

9. On 4 April 2019 and 16 March 2020 the Applicants objected to the Chief Commissioner’s assessment of their liability to land tax with respect to the 2019 and 2020 years respectively. The Applicants were entitled to object to those assessments pursuant to the Taxation Administration Act 1996 (NSW), s 86.

10. On 26 July 2019 and 12 March 2021, the Chief Commissioner disallowed the Applicants’ objections for the 2019 and 2020 years respectively. The determination of those objections was made pursuant to the Taxation Administration Act, s 91.

11. The Applicants, being dissatisfied with the Chief Commissioner’s decisions on objection, applied for administrative review pursuant to the Taxation Administration Act, s 96 and the Administrative Decisions Review Act 1997 (NSW), s 63.

12. The Applicants bear the onus of proving their case in an application for review such as this; Taxation Administration Act, s 100(3). Specifically, the Applicants bear the onus of demonstrating that the land is capable of meeting the exemption; Cornish Investments Pty Ltd v Chief Commissioner of State Revenue [2021] NSWADT 204 at [29]-[30].

13. The Tribunal may have regard to activity during a reasonable period preceding and following the dates on which assessment to liability for land tax is determined; Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2020) 79 NSWLR 724. To the extent possible, I have taken account of any evidence of the relevant activities in the six months before and the six months after the 2019 and 2020 years.

14. The Chief Commissioner, in written submissions, asserts that the “Tribunal does not have jurisdiction to review the decisions to disallow the objection to the assessment” and refers to Basten JA in Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 at [28]. In my respectful opinion, this is not a correct interpretation of either s 96 or Paspaley. The Taxation Administration Act, s 96 provides that a taxpayer may apply to this Tribunal for administrative review of a decision on objection where the taxpayer is dissatisfied with the Chief Commissioner’s determination of the taxpayer’s objection. The passage in Paspaley was concerned with the question of whether, as occurs in federal taxation litigation, a taxpayer is confined to the matters stated in an objection unless leave is granted. Accordingly, I do not consider there is any defect for which amendment is required to the applications as contended for by the Chief Commissioner in his submissions.

15. The Land Tax Management Act, s 7 provides:

Land tax at such rates as may be fixed by any Act is to be levied and paid on the taxable value of all land situated in New South Wales which is owned by taxpayers (other than land which is exempt from taxation under this Act).

16. As may be seen from that provision, land tax is levied on all land in New South Wales unless a relevant exemption applies.

17. Land tax is levied on land owned by at midnight on the 31^st of December each year; Land Tax Management Act, s8.

18. A relevant exemption pursuant to the Land Tax Management Act, s 10AA, is for land used for primary production and relevantly provides:

10AA Exemption for land used for primary production

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

(2)    Land that is not rural 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 in a continuous or repetitive basis (whether or not a profit is actually made).

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

…

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

…

19. Land Tax Management Act, s 10AA(4) defines “rural land” by reference to zoning, various legislation and planning instruments or, absent any zoning or planning instrument applying, to the satisfaction of the Chief Commissioner.

20. It may be seen from the above extracts of the Land Tax Management Act, s 10AA that there are three elements, each of which the Applicants bear the onus of demonstrating in order to procure and exemption from land tax over a parcel of land;

1. Firstly, whether the dominant use of the land, be it rural land or some other kind, is primary production. As Gzell J noted, if the land is not used for a primary production, that is the end of the matter; Leda Manorstead at [10].

2. Secondly, where the land is used for primary production but is not rural land (as defined), whether the primary production use has a significant and substantial purpose or character; and

3. Thirdly, in addition to the primary production use of the land having a significant and substantial commercial purpose or character, that that use of the land is for the purpose of profit in a continuous or repetitive basis.

21. In adopting an approach of elements, I am mindful of the caution urged by Payne J (as his Honour then was) in Young v Chief Commissioner of State Revenue [2020] NSWSC 330 at [117] that a statutory exemption should not be broken up and construed separately from its obvious context and that the express legislative context of the exemption provided under the Land Tax Management Act, s 10AA which was further noted in Young at [111]:

… It is not to be forgotten that s 10AA(3) was part of a suite of anti-avoidance measures. As the Minister explained in the Second Reading reply (at 20064):

“The primary production use of the land will have to have significant and substantial commercial purposes, which must be engaged in for the purpose of a profit or on a continuous and repetitive basis. Running a few head of cattle or sheep to attract a land tax exemption rather than to make profits will no longer suffice.”

Evidence Before the Tribunal

22. The Applicants rely on two affidavits of Mr Angelo Ferella, the first sworn on 24 October 2021 and the second sworn on 18 December 2021. Those affidavits were read at the hearing without objection.

23. In his affidavit of 24 October 2021, Mr Angelo Ferella deposes to the following matters:

1. His awareness that the current proceedings now relate only to the 2019 and 2020 years.

2. From at least 1 June 2006, the late Gustavo Ferella was the sole person responsible for the primary production activities on the Box Hill property being the breeding of horses and copies of receipts regarding the expenses incurred by the late Mr Ferella were annexed to Mr Angelo Ferella’s affidavit.

3. Two thoroughbred horses, a colt and a filly, bred on the property in November and December 2016 respectively have been advertised for sale. No date was provided as to when these animals were made available for sale or whether a sale has in fact taken place.

4. That there are seven horses on the property at Box Hill, three of which are brood mares who are, in the normal course, covered annually.

5. In 2018, the colt who is the subject of one of the sales listings mentioned above, was used to cover the brood mares on the Box Hill property, those covers being productive of two live foals born in October 2019 and January 2020.

6. That it takes more than 11 months to produce a foal and up to 18 months before a foal (then a yearling) is ready to be sold or marketed.

7. The recent COVID-19 restrictions have caused delay in foal identification and registration such that the 2016-born colt was only registered in October 2021 and that the two foals born in 2019 and 2020 are only now being prepared for identification, branding, micro-chipping and registration with the Australian Stud book which is a preparatory step to taking them to market.

8. The Australian Taxation Office had recently audited the horse breeding enterprise being conducted on the property at Box Hill. However, the material annexed relates to an entity known as the Cavallino Unit Trust, the ATO auditor states in part “We accept the enterprise of property leasing and horse breeding activity”. I note in passing however that it is not apparent what the extent, if anything, is of the horse breeding activity as it relates to the property at Box Hill and the acceptance by another revenue authority of the existence of an activity does not significantly assist in determining the matters which the Tribunal must have regard to pursuant to the Land Tax Management Act, s 10AA.

24. Mr Angelo Ferella’s second affidavit, sworn on 18 December 2021, annexes a stallion return application submitted in respect of the colt (now stallion) born in November 2016. The application sets out the brood mares covered by that animal. The second affidavit also annexes a copy of an annual return of land and stock for 2018 pertaining to the property at Box Hill in which it is stated that there were 5 horses on the property on 30 June 2018.

25. On behalf of the Applicants, Mr Angelo Ferella prepared, filed and served amended submissions dated 26 October 2021 and submissions in reply dated 15 December 2021. These submissions have been considered as part of the hearing and determination of the matter, including the submissions concerning the dramatic impact of the COVID-19 lockdowns have had on the use of the property at Box Hill. The Applicants’ submissions, as far as they relate to matters which are not relevant to the 2019 and 2020, have not been considered in detail and they are, in my respectful opinion, irrelevant to the matters to be determined in these proceedings.

26. On 17 June 2021 the Chief Commissioner filed a bundle of documents in accordance with the Administrative Decisions Review Act 1997 (NSW), s 58 (s 58 Bundle). To the extent the material is relevant, the Tribunal has considered that material. Where material contained in the s 58 Bundle is not expressly referred to I have considered but have given little weight to it in the determination of these applications for example, the documents at pages 241 to 442 of the s 58 Bundle show expenses said to have been incurred by the Applicants in the 2011 to 2014 years which are not relevant to the matters to be determined in these proceedings.

Relevant Facts

27. On 5 February 2019 and 22 January 2020, the Chief Commissioner issued Land Tax Assessment Notices for the land tax years 2019 and 2020 respectively. The assessments were made, and the notices given, pursuant to the Land Tax Management Act 1956 (NSW).

28. The supporting information accompanying the assessment notices for the relevant years show the assessments were based on Mr and Mrs Ferella’s ownership interests in two parcels of land in New South Wales, including ownership of a property at Box Hill.

29. It was not in dispute between the parties that the property at Box Hill is not “rural land” for the purposes of the Land Tax Management Act, s 10AA(4). In the relevant years, the property at Box Hill was zoned as “high density residential” pursuant to a planning instrument.

30. It may be appreciated from the plain words of the Land Tax Management Act, s 10AA(2) that where the land is not rural land, an exemption from land tax will only arise where the use of that land has a significant and substantial commercial purpose or character and where such use is engaged in or the purpose of profit on a continuous or repetitive basis.

31. In 2019, the Applicants submit that the Box Hill property maintained three brood mares each of which had been covered for breeding. From those covers, two live foals were born (the third mare having lost her foal) in 2019 and early 2020.

32. The evidence before the Tribunal concerning progeny expected to arise from the covering of brood mares in 2020 was that breeding activity had been impacted by the COVID-19 lockdowns and did not occur in that year.

33. As far as may be ascertained from the evidence and the documents in the s 58 Bundle, the greatest number of horses on the property either shortly before, during or shortly after the relevant period was seven. That finding is based on the following material:

1. The 2018 annual land and stock return which shows five horses are maintained on the Box Hill property.

2. The Primary Production Land Exemption Application form for the 2019 year annexed to Mr Angelo Ferella’s first affidavit which has been completed on behalf of the Applicants and which lists 7 horses as being the only livestock grazed on the Box Hill property including natural increase of 2 animals.

3. The Primary Production Land Exemption Application form for the 2020 year also annexed to Mr Angelo Ferella’s first affidavit which has been completed on behalf of the Applicants and which lists 7 horses as being the only livestock grazed on the Box Hill property, though this total also includes a natural increase of 2 animals.

34. As to whether the Applicants have presented sufficient evidence to show that the express purpose of maintaining animals for the purpose of their sale or natural increase, both the evidence and the facts are quite limited:

1. There are the two sales entries contained in the s 58 bundle. The first sales entry concerned the colt born in November 2016 and the second referred to the filly born in December 2016. The Applicants rely on these sales listings as a basis for their submission that the property at Box Hill was land which was used for the dominant purpose of primary production.

2. Mr Angelo Ferella’s affidavit evidence that the two horses born in 2019 and 2020 are being prepared for sale.

3. Aside from these sale listings and Mr Angelo Ferella’s statements about preparing the other two animals for sale, there is very little other information about attempted sales of these four horses.

1. The sales listings for the 2016 colt and filly, are undated so it is not possible to determine when these horses were first made available for sale or whether they have been subsequently sold. The Applicants’ submissions make no attempt to clarify this – it is simply asserted that the Applicants are not required to sell horses in each year to meet the requirements of the definition in the Land Tax Management Act, s 10AA(3). While I accept that proposition, but it does not assist the Tribunal in determining the matters before it.

2. Having regard to Mr Angelo Ferella’s affidavit evidence, it seems, at least with respect to the colt, that it has not been sold and is instead being used (possibly as an interim use) to cover brood mares.

35. Accordingly, I find:

1. The colt (now stallion) born in November 2016 was maintained on the property at Box Hill for the purpose of sale and/or natural increase. I accept also that, given this animal is a thoroughbred and has been used already to provide covering services to brood mares, it may also be considered to be maintained on the land for the sale of its bodily produce in a similar manner found by Ward CJ in Eq (as her Honour then was) in Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 430.

2. There can be no definitive finding with regard to the filly born in December 2016 as it is unclear whether that animal has been sold, disposed of in some other manner, or retained as breeding stock. The Applicants have not demonstrated that the filly was maintained on the Box Hill property for the purpose of its sale or natural increase.

3. With respect to the two foals produced in 2019 and 2020, given the life-stage of those animals in the relevant years, it is unlikely there would have been significant further steps to advance the sale of those foals in the relevant years. However, the hearing of this matter took place late in 2021 and at that time there was still no evidence presented by the Applicants of any further effort to sell these foals. The Applicants have therefore not demonstrated that these animals were maintained on the Box Hill property for the purpose of sale or natural increase.

4. I accept there are three horses maintained on the property as brood mares. However, as noted above despite Mr Angelo Ferella’s affidavit evidence that these mares were covered annually, there was no evidence of any progeny either in or arising from breeding activities taking place in the 2020 year. The Applicant’s submissions in reply refer to annual coverings subject to the health of the mares and they submit that no covering took place in the 2020 season due to COVID-19 lockdowns. There is no clear explanation of what occurred with respect to each brood mare for the 2019 season. Consequently, the Applicants have not demonstrated that these animals were maintained on the Box Hill property for the dominant purpose of natural increase or sale.

Consideration

Dominant Purpose of Primary Production

36. The definitional requirements of “primary production” contained in the Land Tax Management Act, s 10AA(3) require that the dominant use of the land is, relevantly, the maintenance of animals for the purpose of selling them or their natural increase.

37. Whether there exists a primary production use (dominant or otherwise) is a matter to be determined objectively, though the subjective intent of the person who claims to be using the land for primary production may also be a relevant consideration; Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378 at [49], Chief Commissioner of State Revenue v Metricon Qld Pty Ltd [2017] NSWCA 11 at [36]-[37].

38. Aside from maintaining horses, the Applicants submit and I accept, that there was no other use to which the land at Box Hill was said to be put. This differs from the facts determined in Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378 where part of the land was used for rental income.

39. However, a sole use of the land is not necessarily sufficient to determine dominant use, where such use does not involve the entirety of the property. In Saville v Commissioner of Land Tax (NSW) (1980) 12 ATR 7, 81 ATC 4373 at [10], Roden J, considering earlier provisions and the use of land “primarily” for a particular purpose, stated:

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.

40. There was no evidence in these proceedings as to the extent to which Applicants used the property at Box Hill for maintaining horses and the extent to which the property was unused.

41. While there was evidence before the Tribunal to permit the conclusion that, in the relevant years, the property at Box Hill was used for the dominant purpose of maintaining seven horses, something more is required than evidence of the maintenance of animals in order to establish a dominant use of the land for the purpose of primary production. What is required to be demonstrated on the evidence is that the dominant use of the land was the maintenance of animals for the purpose of selling those animals or their natural increase.

42. In accordance with the findings at [33] above, the Applicants have not demonstrated that the maintenance of the horses on the property at Box Hill was for the dominant purpose of primary production - specifically the selling of those animals or their natural increase.

43. The Applicants have demonstrated only the animals were maintained on the property. Even taking into account the fact that it may take more than 11 months from covering a brood mare to obtain a live foal and then further time (even years) to be able to sell that progeny, the evidence before the Tribunal falls short of demonstrating objectively that the purpose of primary production as defined in Land Tax Management Act, s 10AA(3) is met in this case.

44. Accordingly, I find that the land was not used for the dominant purpose of primary production in the relevant years.

Significant and substantial commercial purpose or character

45. Even if the property at Box Hill was used for the dominant purpose of primary production, since the land is not “rural land” then the Land Tax ManagementAct, s 10AA(2) imposes an additional requirement before an exemption from land tax can be granted; that the use of the land has significant and substantial commercial purpose or character. In this regard and for the reasons stated below, the Applicants’ would also claim fail in each of the relevant years.

46. In Ferella v Chief Commissioner of State Revenue [2013] NSWADT 46 at [23] the Tribunal concluded that the activity on the Box Hill Property in the years between 2007 and 2011 was altogether minimal. In that case the Tribunal found there was at most two horses and at times no horses being maintained on the property. The facts in these proceedings are different; there are more horses on the property and there is some evidence of breeding and of attempted sales. However, the scale of the activity undertaken on the Box Hill property, in the relevant years and in the periods before and after those years, was small.

47. In addressing the question of the level of intensity and activity associated with the horse breeding which took place and which was referrable to the Box Hill property, the Applicants in their submissions refer to invoices for service fees and stud services dated between January 2013 and May 2016. While those fees are significant in themselves, those expenses were incurred well before the relevant years and even allowing for the difficulties which may have befallen the Applicants in the 2020 year, the Applicant’s evidence concerning the commercial purpose and character was limited.

48. The extent to which use of the land has a significant and substantial commercial purpose or character has been considered in several decisions. The case authorities have been recently reviewed by the Tribunal in Settler’s Rise Pty Ltd ATF Maison Dieu Road Unit Trust v Chief Commissioner of State Revenue [2019] NSWCATAD 238 [61]-[67] in which the Tribunal referred to Gzell J’s findings in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23; 88 ATR 379 (which were subsequently approved on appeal in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408), in the following terms:

[61] … at [83] that in ordinary parlance, ‘significant’ connotes importance, something of consequence, a key element, a vital or critical one. At [88] his Honour noted ‘substantial’ connoted size or bulk: ‘It means an ample or considerable amount, quantity or size.’ His Honour said at [89]-[91]:

[89] The commerciality test in s 10AA(2)(a) of the [LTM] 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 quality of 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.

49. There is no characterisation of the facts in this case which could reasonably lead to the conclusion that the use of the land identified by the Applicants is significant or that it has a significant and substantial commercial purpose – there are just seven horses, four of which are nominally for sale or intended to be sold, three of which brood mares retained for breeding.

50. As to commercial purpose or character, in Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678 98 ATR 545 at [109]-[111] White J (as his Honour then was) stated that:

[109] … For a use of the land to have a commercial purpose or commercial character, the purpose or character of the use must be or include the making, or the potentiality for the making, of profits. Nothing in the Court of Appeal's decision [in Maraya] excludes the potentiality for making profits from satisfying the requirement of commercial purpose or commercial character.

[110] The magnitude and size of the use for primary production and the intensity of the operation are relevant to an assessment of whether the commercial purpose or commercial character of the use is significant and substantial. This includes the size of the herd, the size and carrying capacity of the land, the resources put into the business of primary production, and the revenues and profits generated. In deciding whether the use has a significant and substantial commercial purpose or character it is appropriate to compare the use of the subject lands with other primary production activities of the same kind, in this case cattle-raising, and with how land is generally used.

[111] The return from the primary production use relative to the value of the land can be relevant in determining whether there is a commercial purpose or character of the use, and, if so, whether that commercial purpose or character is significant and substantial.

51. The Applicants in these proceedings did not tender any evidence concerning income or expected profits which they might generate from the use they had identified. Instead, from the submissions in reply filed on the Applicants’ behalf, it appears they did not consider it necessary to demonstrate by reference to evidence the existence of a commercial purpose. It was submitted that:

[5] The applicants have met the dominant use test s. 10AA(3) of the LTMA and the commercial test s. 10AA(2) LTMA, having regard to the coverings of the three (3) brood mares which is undertaken annually unless problems arise with respect to the health of the mares. In the relevant land tax years before the tribunal the broodmares were covered in the 2018 season and two (2) foals were born, the first foal born on 23 October 2019 and the second foal born on 30 January 2020, the foals now rising two year olds are being prepared for market.

52. And further:

[11] … Whilst the Applicants have provided many invoices regarding expenditure of producing and maintaining the horses the reasoning has already been explained at length in paragraph 5, the applicants are not required to adduce any other evidence which also includes sales of prior year’s which are not relevant to the current proceedings before the Tribunal and will be the subject of other proceedings in due course. …

Engaged in the Purpose of Profit on a Continuous or Repetitive Basis

53. While the making of a profit or the earning income from the use of the land is expressly not determinative of the question, in Vartuli v Chief Commissioner of State Revenue [2015] NSWCA 372 at [87], the Court of Appeal found:

… nothing in the reasons of either Gzell J or this Court in Maraya precludes consideration of the relative income contribution from the primary production use for the purpose of contextualising the significance and substantiality of any commercial purpose or character of the use of the land. The relative contribution to the income of the user is a relevant consideration when determining whether any commercial purpose or character of the use of the lands has a “relatively high degree of importance”: Maraya (Gzell J) at [89].

54. In this case, there was insufficient evidence tendered by or on behalf of the Applicants on which a finding could be made that the use of the land had a commercial purpose or character, let alone that such character was significant and substantial.

55. The evidence tendered by the Applicants, at its highest, showed that animals were maintained on the property at Box Hill and that there was some breeding activity which resulted in food, transport and veterinary expenses, the registration of the colt born in November 2016 and two sales listings (including that of the colt).

56. The Applicants submit the Tribunal should consider or have regard to the value of the horses and the potential for sale of those animals to generate reasonable returns on sale. However, the limited evidence of sale activity does not assist the Applicant in making this point – there was no evidence that such assets were capable of being realised by the Applicants or what their realisable value in fact was.

57. The Chief Commissioner submitted, and I accept, that the Applicant’s evidence was wanting in this regard; there was no financial reports showing profits and losses or forecasts, there was no business plan or strategic documents which might allow the Tribunal to determine whether the use of the land had a commercial purpose of character and certainly there was no evidence to demonstrate a significant or substantial commercial purpose or character to the use of the land.

Conclusion

58. Having regard to the factual findings and the consideration of the exemption provided under the Land Tax Management Act, s 10AA(2) and the definition of “land used for primary production” in the Land Tax Management Act, s 10AA(3), I have concluded that the Applicants have failed to discharge the onus to demonstrate that the decision under review should be set aside.

59. In particular, I have determined the following, having regard to the factual findings set out above, the legislative provisions (including their context and purpose) and the authorities which have considered those provisions:

1. The property at Box Hill was not land used for primary production as defined under the Land Tax Management Act, s 10AA(3) as the Applicants failed to demonstrate that the dominant use of the land was for the purpose of maintaining animals for the purpose of selling them, their natural increase or their bodily produce.

2. Had the property at Box Hill met the statutory definition provided in the Land Tax Management Act, s 10AA(3), as the property is not “rural land” but rather land which is zoned as “high density residential”, then the property would not have met the further requirements for exemption under the Land Tax Management Act, s 10AA(2) since there was no evidence that the use of the land has a significant and substantial commercial purpose or character and nor was there evidence that the use of the land was engaged in for the purpose of profit on a continuous or repetitive basis.

Orders

1. The land tax assessments for the land tax years 2019 and 2020 are confirmed.

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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: 18 May 2022