Ferella v Chief Commissioner of State Revenue (Rd)

[2013] NSWADTAP 45

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation:	Ferella v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 45
Hearing dates:	20 August 2013
Decision date:	03 October 2013
Jurisdiction:	Appeal Panel - Internal
Before:	RL Seiden, Deputy President A Verick, Judicial Member J Schwager, Non-Judicial Member
Decision:	Appeal dismissed
Catchwords:	Land tax - whether dominant use of land for primary production - standing of discharged bankrupt to whom assessments had been issued - different uses of land - whether finding activities undertaken as a hobby open - onus of proof
Legislation Cited:	Administrative Decisions Tribunal Act 1997 (NSW) Bankruptcy Act 1966 (Cth) Income Tax Assessment Act 1936 (Cth) Land Tax Management Act 1956 (NSW) Taxation Administration Act 1953 (Cth) Taxation Administration Act 1996 (NSW) Trustee Act 1925 (NSW)
Cases Cited:	Chief Commissioner of State Revenue v Print National Pty Ltd [2013] NSWCA 96 Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 41 FLR 338 Cornish Investments Pty Limited v Chief Commissioner of State Revenue [2013] NSWADTAP 25 Ferguson v FCT (1979) 9 ATR 873 Hoxede Pty Ltd as Trustee of The Starr Family Trust v Chief Commissioner of State Revenue [2011] NSWADT 251 Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2010) 79 NSWLR 724 Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2011) 85 ATR 775 Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42 McCallum v Commissioner of Taxation (1997) 75 FCR 458 Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 Re Sherriff [1971] 2 NSWLR 438 Thomason v Chief Executive, Department of Lands (1994-95) 15 QLCR 286
Category:	Principal judgment
Parties:	Gustavo and Nida Ferella (Appellants) Chief Commissioner of State Revenue (Respondent)
Representation:	Counsel JT Svehla (Appellants) E Bishop (Respondent) Crown Solicitor's Office (Respondent)
File Number(s):	139014
Decision under appeal	Citation: Ferella v Chief Commissioner of State Revenue 2013 [NSWADT] 46 Date of Decision: 2013-02-27 00:00:00 Before: Revenue Division File Number(s): 126062

reasons for decision

1. This is an appeal from a decision of the Tribunal in Ferella v Chief Commissioner of State Revenue [2013] NSWADT 46 (the Decision). The underlying proceedings concern the Appellants' entitlement to exemption from land tax during land tax years 2007 to 2011 (the Relevant Period). The Appellants contend that land situated at 6 Alan Street, Box Hill (the Land) was land used for primary production, as that expression appears in s 10AA of the Land Tax Management Act 1956 (NSW) (LTMA).

1. It was common ground that the Land is non-urban rural land. Therefore, the only question for the Tribunal, at first instance, was whether the dominant use of the Land was for the "maintenance of animals ... for the purpose of selling them or their natural increase ...". The Tribunal held at [40] of the Decision:

Regarded on an objective basis it is clearly not possible to conclude that the Property was during the relevant years utilised for the purpose of conducting a thoroughbred horse breeding activity. Having regard to all of the evidence before me a conclusion that the Applicant has not discharged the onus is mandatory and in the circumstances the objection decision under review must be affirmed.

1. The Appellants' appeal on questions of law. The notice of appeal sought leave to extend the appeal to the merits. However, the leave application was not pressed.

Standing

1. Before we can consider the substantive issues in the appeal it is necessary to digress briefly to deal with the question of the standing of Gustavo Ferella (Gustavo), one of the Appellants. The assessments, the subject of the review, concern land tax years 2007 to 2011 (the Assessments). During that entire period Gustavo and Nida Ferella (Nida) were the registered proprietors of the Land. A Sequestration Order was made against the estate of Gustavo on 14 October 2005 and pursuant to ss 58 and 116 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) the joint tenancy between Gustavo and Nida was severed. Gustavo's interest in the Land vested in the Official Trustee in Bankruptcy (Official Trustee). Subsequently, the bankruptcy was discharged although by operation of law, the property of the bankrupt estate remains vested in the Official Trustee for six years after the date of discharge of bankruptcy: s 129AA(3)(a) of the Bankruptcy Act.

1. The debt the subject of the Assessments, relates to years after the date of the act of bankruptcy and is not part of the bankrupt estate.

1. Two issues arise:

(a)   Was Gustavo an "owner" of the Land at the time the Assessments were issued so that he was assessable to land tax, even though his property vested in the Official Trustee?

(b)   Does Gustavo have standing to seek review of the Assessments?

1. As to the first issue, it was not contended that the mere fact that the assets of Gustavo had vested in the Official Trustee deprived the Commissioner of the entitlement to issue the Assessments to Gustavo. The Respondent was entitled to issue assessments to the "owner" of land. Under the LTMA "owner" has an expanded definition (s 3) and includes:

in relation to land, every person who jointly or severally, whether at law or in equity.... is entitled to land for an estate of freehold in possession....

1. As registered proprietor of the Land, Gustavo was assessable. Even if this was not the case, jurisdiction of the Tribunal would be enlivened because purported assessments had issued, an objection had been lodged and determined and Gustavo was "dissatisfied" with the objections: s 96 of the Taxation Administration Act 1996 (NSW) (the TAA). Even if the Assessments were issued beyond power, this would not have deprived the Tribunal of jurisdiction. Section 6(3) of the Administrative Decisions Tribunal Act 1997 (NSW) (ADT Act) defines a decision which can be the subject of review in the Tribunal to include one made without power: see as well Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 41 FLR 338 at 343-344.

1. As to the question of standing, in McCallum v Commissioner of Taxation (1997) 75 FCR 458 a majority of the Full Court of the Federal Court held that a bankrupt may have no standing to bring proceedings, under Part IVC of the Taxation Administration Act 1953 (Cth) (Cth TAA) for review of an objection against an assessment under the Income Tax Assessment Act 1936 (Cth), for the reason that he will be unable to show that he is "dissatisfied with the Commissioner's objection decision": per Whitlam J at 470C; see too Lehane J at 475D. This is for the reason that the bankrupt is divested of liability for his provable debts. The present case is distinguishable from McCallum because, if the assessments are upheld, Gustavo will be liable for the debt. The debt does not form part of the bankrupt estate.

1. Further, in Chief Commissioner of State Revenue v Print National Pty Ltd [2013] NSWCA 96 the Court of Appeal held that the expression dissatisfied in the TAA is to be given its ordinary meaning of "displeased": at [34] per Gzell J (Bathurst CJ and Beazley P agreeing). This may be broader than the meaning ascribed to the expression "dissatisfied" as used in the Cth TAA in McCallum. In this case it can be said that Gustavo is displeased with the decision (the issuing of the Assessments) because he contends that the Land is exempt from land tax.

1. Accordingly, there is jurisdiction to review the Assessments and Gustavo has standing to prosecute the appeal.

1. The Official Trustee was apparently notified of these proceedings, but did not appear. In any event, we do not see that the Official Trustee has any interest in the proceedings.

The Land

1. The Land is approximately 1.324 hectares. A residence and curtilage is on approximately 700 square metres (approximately 5% of the Land) and is fenced off from the remainder of the Land, with its own entrance. The residence was tenanted during the Relevant Period for $185 per week. The remainder of the Land is available for use for the primary production activity, which is described below.

The horse breeding activity

1. The primary production activity is described as thoroughbred horse breeding and is conducted by Mr Angelo Ferella (Angelo) on behalf of the Trustee (the Trustee) of the Agusta Trust (formerly known as the Modena Family Trust). The Land that is not taken up by the cottage and curtilage is available for that activity and leased to the Trustee for $1 (there was an issue as to whether the whole Land was leased to the Trustee, we return to this below). The Land available for the primary production activity represents approximately 95% of the Land.

1. At the commencement of the Relevant Period there were two horses on the Land, but they were ill and sold to a knackery for $360 during the 2008 income tax year. Shortly thereafter there was a public announcement about equine flu. It was not until over a year later that another horse was brought onto the Land. This was a yearling. It was not possible to attempt to breed that horse until it had reached three years. Thereafter, there were problems with impregnation. At the end of the Relevant Period there was only one horse on the Land.

Grounds 1 and 2

1. Grounds 1 and 2 of the Notice of Appeal are as follows:

1.Judicial Member Block erred in finding in the Reasons at [25] that it is an inescapable conclusion that the horses on the Property constituted nothing more than a hobby, as:

(a)this finding was not one available to be made as the use of the vast majority of the land on the Property for thoroughbred horse breeding activity was by the trustee for the time being of the Modena Family Trust, which trust changed its name to the Agusta Trust on 1 June 2007, and at all material times was a discretionary trust ("Trust");

(b)in the land tax years in issue, namely, 2007 to 2011 ("2007 to 2011 Land Tax Years"), the trustee of the Trust was a company, namely:

(i) from the commencement of the 2007 land tax year to part way through the 2011 land tax year (15 July 2011), the trustee was Agusta Industries Pty Ltd ("Agusta Industries");

(ii) for the balance of the 2011 land tax year (from 15 July 2011), the trustee was Agusta Pty Ltd ("Agusta");

(c) the corporate trustee for the time being of the Trust did not have legal power to carry on a hobby and in so finding, Judicial Member Block erred in law.

2.Further and in the alternative, Judicial Member Block erred in impliedly finding in the Reasons at [25] that because the vast majority of the land comprising the Property, accepted to be rural land, in the 2007 to 2011 Land Tax Years had stables, tack room and other structures for use by horses and in most of these land tax years had one or two thoroughbred horses with steps taken to bear progeny, in the nature of a hobby or otherwise, that use precluded the Property from being "land used for primary production" within the meaning of sections 10AA(1) and (3) of the Land Tax Management Act 1956 (NSW) ("LMTA").

Breach of trust

1. At [25] of the Decision the Tribunal said:

On the evidence before me it is not possible to conclude that the Property during the relevant years was used for the dominant purpose of thoroughbred horse breeding. On the contrary and as contended by Ms Bishop, a conclusion that horses constituted nothing more than a hobby is inescapable. It is relevant to note that no business or other plans or relevant material in respect of such a business was tendered at the hearing. (During closing submissions Ms Bishop drew attention to the fact that the section 58 documents contain a number of instances of information sought of the Applicant by the Respondent but not furnished.)

1. At the heart of grounds 1 and 2 is the finding made by the Judicial Member at [25] that the horse breeding activity was a mere hobby. The Appellants contend that not only was this finding not open, it infected the entirety of the Tribunal's reasoning process.

1. The Appellants contend that, properly construed, the Trust Deed of the Agusta Trust (the Trust Deed) did not allow the Trustee to engage in a hobby: to do so would constitute a breach of trust. The Trust was not a charitable (or purpose) trust and therefore the Trustee had duties to the beneficiaries. It is apparent, so it was contended, that the Judicial Member did not have regard to this in making the finding that the Trustee had engaged in a hobby. It was contended that the Tribunal Member ought to have started from the premise that the Trustee was not authorised to engage in a hobby. Having started with that premise, it would have been necessary for the Tribunal to make some very serious findings of fact about the conduct of the Trustee in order to arrive at a conclusion that the Trustee was engaged in a hobby, which was tantamount to a breach of trust. Put another way, it was submitted that if the Tribunal had correctly appreciated that the conduct of a hobby was a breach of trust, the Tribunal would not have made the finding it did and in any event, the finding was not open without the antecedent finding (which was not made) that there had been a breach of trust.

1. We were taken to the Transcript, to make good the proposition that the Judicial Member, in deciding that the Trustee was conducting a hobby, did not have regard to the fact that it would be a breach of trust to do so and that therefore the necessary antecedent finding was not made. At page 63 at line 39 the Judicial Member said:

A trust can do anything at all if the trustee has power can't it?

1. And at line 42 the Judicial Member said:

Nothing as a matter of law prevents a trust from conducting a hobby. It might be a bit unusual but it does happen. If you look at this trust deed, you will see it's cast in general form. It can do virtually anything it likes. It can do what an actual person can do.

1. The Respondent, on the other hand, submitted that the Trust Deed allowed the Trustee to engage in a hobby.

1. Before we consider whether it would be impermissible for the Trustee to conduct a hobby, it is necessary to determine what the Judicial Member meant by this. The expression "hobby" is not one of fixed meaning. It is often used in contradistinction to a business. In Ferguson v FCT (1979) 9 ATR 873 at 877, Bowen CJ and Franki J stated:

The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant. However, if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held to be carrying on a business, even though his operations are fairly substantial.

1. In the same case, Fisher J variously noted at 882-883:

I would be of opinion that the size of the operation could be of significance for the purpose of testing whether a taxpayer is conducting a hobby rather than a business, but that size is certainly not the determining factor.....

The courts have, from time to time, grappled with the question whether the taxpayer is engaged in carrying on a business, and a number of tests have been suggested..... [such as whether] a certain activity of the taxpayer..... did not have "a significant commercial purpose of character" and thus was not a business activity...... it is certainly relevant to ascertain if the operations of the taxpayer have a commercial purpose ie pursuit of profit or gain rather than pleasure or recreation..... if the transactions which go to make up the activity or operations of the taxpayer have an element of regularity or repetitiveness, this factor assists in concluding that the taxpayer is carrying on a business rather than indulging in a recreational or hobby activity.

1. In the context of the question before the Tribunal, whether the dominant use of the Land was for the purpose of selling thoroughbred horses or their natural increase, it is discernible that the Tribunal was using the expression "hobby" to convey something about the size and scale of the horse breeding operation. We did not apprehend the Appellants to contend that there was any error in considering the size or intensity of the primary production use.

1. It is also discernible that the Judicial Member was conveying something about the motivation for the outlay of funds with respect to the primary production activities. The Judicial Member was conveying that the Trustee was concerned, at least in part, with the personal satisfaction of one of the beneficiaries: i.e. the horse breeding activities had a private or recreational motivation. It is this connotation that the Appellants contend demonstrates the error alleged. Such a connotation does not however mandate a conclusion that there has been a breach of trust. First, a finding that the activity is a hobby is not tantamount to a finding that the pursuit would have been undertaken irrespective of financial outcome. Secondly, whether the activity is permitted depends on an analysis of the Trust Deed and relevant legislation.

1. The Trust Deed provides that the Trust Fund is held for the benefit of general beneficiaries and remainder beneficiaries identified in the schedule. The general beneficiaries are natural persons related to Nida and related corporations, partnerships or trusts, including the trustee of a superannuation fund. There are no remainder beneficiaries nominated. Distribution of income is in the absolute discretion of the Trustee, as is the application of the Trust Fund on vesting day.

1. Clause 6 of the Trust Deed deals with the powers of the Trustee and the preliminary words to clause 6 states as follows:

The Trustee will have the legal capacity, powers and privileges of a natural person.

1. The Appellants highlighted that the mere fact that the Trustee had all the powers of a natural person, did not mean that it could carry on a hobby: one had to consider that the Trustee always had fiduciary duties to the general beneficiaries. So much may be accepted. However, the Appellants also submitted that this led to the conclusion that the Trustee was precluded from undertaking a hobby, especially since this was not a purpose trust. We were not directed to any authorities that specifically supported this view.

1. The Trustee has extremely wide powers. Clause 6(a) of the Trust Deed gives power to the Trustee to vary all investments and assets of the Trust Fund and to reinvest. Clause 6(b) of the Trust Deed provides that the Trustee may, inter alia, either alone or jointly, use or deal with any real property. Clause 6(f) provides that the Trustee may carry on, acquire, establish, and/or dispose of any business. By clause 6(h) the Trustee may permit any beneficiary to reside in a dwelling house, the subject of the settlement, on such conditions as to rent and other expenses as the Trustee decides. By clause 6(l) the Trustee may permit any beneficiary to have use of any chattels on such terms as the Trustee decides and by clause 6(j) the Trustee may lend the whole or any part of the Trust Fund to any beneficiary interest free. By clause 6(k) and regardless of commercial benefit, the Trustee may guarantee, indemnify or become surety for payment of debts of a beneficiary. By clause 6(m) the Trustee may exercise any power regardless of whether personally interested in the result. By clause 6(n) the Trustee may take any action it thinks fit for the "adequate protection" of the Trust Fund.

1. These powers indicate that the Trustee, in the specified circumstances, is empowered to act in a way contrary to maximising commercial return. The horse breeding enterprise does not fall into one of the specified categories. Nevertheless, the power to invest and vary investments in clause 6(a) is wide enough to encompass investing in a thoroughbred horse breeding enterprise.

1. The governing law of the Trust is New South Wales ([item 6] of the Schedule) accordingly, the Trustee Act 1925 (NSW) (the Trustee Act) is also relevant. Section 14 is relevant to the powers of a Trustee. It authorises the Trustee to invest and vary any investment. The term "investments" is not defined. In Re Sherriff [1971] 2 NSWLR 438 at 442 it was said by Helsham J that ordinarily "investment of trust funds" will mean "the laying out of trust moneys in acquisition of property with the object or purpose of obtaining some return by way of income or pecuniary return for the benefit of those ultimately entitled".

1. The term "investment" is capable of applying to the outlay of funds to pursue a thoroughbred horse breeding activity. As we have mentioned, labelling an activity as a hobby is not the same as making a finding that there was no genuine belief that the enterprise could produce a financial gain. Ordinarily, ss 14A and 14C would govern the Trustee's duties with respect to investment. A trustee, who is not a professional, must in deciding to invest, exercise the care, diligence and skill that a prudent person would exercise in managing the affairs of other persons: s 14A of the Trustee Act. Section 14C lists the factors that a trustee may take into account when exercising the power of investment. However, the Trust Deed expressly excludes ss 14A, 14B and 14C of the Trustee Act from applying. This does not mean that the Trustee could apply the Trust Fund unthinkingly. We accept that the Trustee has duties to the beneficiaries. However, the question of whether there has been a breach of duty by the Trustee is not answered by the conclusion that the adventure was in a nature of a hobby.

1. Rather than focussing upon the distinction between hobby and business, the question of whether there was a breach of trust requires attention on whether the Trustee has acted prudently, with the objects of the Trust in mind. That question is not answered by labelling the activity as a hobby or a business.

1. We therefore reject the submission that a valid finding that a Trustee carried on a hobby must be preceded by a finding, or have as an unstated premise, that the Trustee was engaged in a breach of trust.

The wrong test

1. There was, on appeal, no real dispute about the correct statutory test, or that the Tribunal correctly articulated it. The issue was whether, despite articulating the proper test, the Tribunal nevertheless misdirected itself.

1. The Appellants submit that the Tribunal misdirected itself and that the error is revealed in the Tribunal's preoccupation with whether there was a business of horse breeding. The question of what is the dominant use of the Land is not answered by looking at whether a particular use is businesslike and by focussing on that, so it was contended, the Tribunal revealed an error in approach. The error was revealed, so it was contended, because the finding that the activity was a hobby was said by the Tribunal to be "on the contrary" to the conclusion that during the relevant years the Land was not used for the dominant purpose of thoroughbred horse breeding. It is the way in which the Tribunal referred to "hobby" in contradistinction to dominant use that the Appellants point to, to demonstrate the Tribunal's error.

1. The Appellants also pointed to [39] of the Decision which, it was asserted, was linked to the finding of hobby. At that paragraph, the Tribunal did not refer to a hobby, but there is a reference to the primary production activity not being indicative of a business activity. Also, the Appellants pointed to the Judicial Member's extensive use of the Trust tax returns. It was submitted that the Judicial Member was overly concerned with whether the Trust was conducting a business and to that end, was overly concerned with whether there were supportive documents of the Trust tax returns and whether they were properly prepared. These matters, it was contended are not relevant to use. It was contended that the Tribunal Member's concern with whether the Trust was conducting a business or a hobby, shows that the Judicial Member misapplied the test and that the Judicial Member asked himself the wrong question.

1. On the other hand, the Respondent contends that there is no error disclosed in the Tribunal's reasoning. First, the intensity of a particular use is relevant to determining dominant use: the Respondent referred, for instance, to Hoxede Pty Ltd as Trustee of The Starr Family Trust v Chief Commissioner of State Revenue [2011] NSWADT 251 at [51]. Secondly, the finding of hobby was simply a finding in relation to the intensity of the use and that the use lacked the scale necessary to conclude it was the prevailing use of the Land. Thirdly, the Tribunal's concern with the Trust tax returns was consistent with the way the then Applicants ran their case. A large part of the evidence was made up of the Trust tax returns and supporting documents.

1. Finally, the Respondent submitted that the Judicial Member was not preoccupied with whether there was a business of primary production, but simply did not accept the then Applicants' evidence. The Respondent also contended that the Tribunal had regard to the correct question: the Tribunal was concerned with what was the prevailing use.

1. On a different but related point, the Appellants submitted that the decision was infected with error, by putting too much weight on income from the cottage. In this regard our attention was directed to Thomason v Chief Executive, Department of Lands (1994-95) 15 QLCR 286 (Thomason) at 304.7 where the Land Appeal Court, Ambrose J, Mr Trickett and Mr Neate said:

We have reservations about adopting an income approach to determine the question of dominant use, although it may be relevant in considering other criteria contained in s 17(2). To apply a test related to relative incomes could, in the majority of cases, distract the enquirer from the primary question of determining the dominant use of land. On some limited occasions income may be helpful in conjunction with all other criteria in assisting to determine the question, but care must be taken not to allow income generated by a use to become the primary determinant.

1. As the extract demonstrates, income may be considered in an appropriate case.

Resolution of grounds 1 and 2

1. We have already stated that the finding that the primary production activity was carried out in a hobby-like fashion was not tantamount to a finding that there was a breach of trust. We are also satisfied that such a finding was open even though there was no anterior finding of a breach of trust. As intensity of use is a relevant inquiry, the question of whether the horse breeding activity was conducted in a hobby-like manner was not an irrelevant inquiry.

1. The Judicial Member was interested in the scale and intensity of the horse breeding operation. There is ample authority for the proposition that in determining the prevailing or dominant use it is relevant to look at the intensity of the use. In Thomason at page 303 it was said:

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

1. In Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2010) 79 NSWLR 724 Gzell J at first instance stated that dominant use requires a determination of the main, chief or paramount use (at [69]). The reasoning of Gzell J was supported by the Court of Appeal in Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2011) 85 ATR 775 at [24]-[25]. This is a question of fact and degree.

1. Further, the authorities disclose that having regard to the relative income from competing uses is not an irrelevant concern. Income is one factor that can be weighed in the balance, as was done here by the Tribunal. Accordingly, there was no error in giving weight to the income produced by rental of the cottage.

1. In any event, even if we are wrong and the finding of hobby was not open, the finding in relation to hobby was not central to the reasoning of the Tribunal and does not disclose that the Tribunal misdirected itself or applied the wrong test. It was not for the reason that the activity was conducted in a hobby-like fashion that the Tribunal dismissed the application.

1. Having regard to the structure of the Decision, it is apparent that the Tribunal reviewed, in detail, the evidence and identified concerns with the evidence. For instance at [18] to [20] of the Decision, the Judicial Member identified his concerns with relying upon the tax returns. In particular, as to whether certain expenses were properly deductible because invoices for work done referable to the horse breeding activity (such as stables and a tank room) were rendered by the Trustee to another entity. There was also an absence of supporting material such as profit and loss accounts, which the Tribunal expected to be available.

1. At Part D the Tribunal summarised the evidence of Angelo regarding the horse breeding activities and again noted a dissatisfaction with aspects of the evidence. For instance, at the commencement of the Relevant Period there were only two horses, despite the fact that the Land could sustain considerably more horses: at [21] of the Decision. At [23] of the Decision the Tribunal indicated reservations about accepting the explanation for the fact that there were no horses on the Land for over a year. The explanation given was that there had been an outbreak of equine flu. The Judicial Member was sceptical about the explanation because the mare and colt were sold before the public announcement about equine flu and the yearling was not acquired until some months after it was publically announced that equine flu was under control. Further, at [24] of the Decision the Tribunal indicated some doubt as to Angelo's attendance on the Land. His evidence was that he attended every day for two hours. However, the Tribunal doubted this was necessary when there were so few horses on the Land and for over a year there were no horses on the Land.

1. Turning to the statutory test, the Tribunal started from the position that the then Applicants had to satisfy the onus imposed on them by s 100(3) of the TAA. As explained in Cornish Investments Pty Limited v Chief Commissioner of State Revenue [2013] NSWADTAP 25 at [39], this means that the then Applicants had to move the Tribunal from the position that the dominant use of the Land was not primary production. In light of the use of the Land as a residential property (which involves both a residential use and an investment use) the then Applicants had to satisfy the Tribunal that the use by the Trustee of the Land for horse breeding, predominated over the residential or investment use. In light of the concerns expressed by the Tribunal about the Applicant's evidence (referred to above at [47]) it is apparent that the Tribunal was not persuaded to move from the starting position that the dominant use of the Land was not primary production.

1. Ultimately, the Tribunal was not satisfied that the evidence established that the dominant use of the Land was primary production. The Tribunal was also not satisfied that the horse breeding activity could be described as a business, absent supporting materials such as business plans or profit and loss statements.

1. The Tribunal said at [36] of the Decision:

The Tribunal accepts the contention of the Respondent that the Applicant has failed to establish a competing and dominant primary production use. (See also in this context Romano v Chief Commissioner of State Revenue [2011] NSWADT 7).

1. The Tribunal's conclusions (at [40]) are based upon a failure of the then Applicants to satisfy their burden.

1. Accordingly, the Tribunal did not misdirect itself and was not, in effect, waylaid by the question of whether there was a hobby or a business being conducted on the Land.

Ground 3

1. Ground 3 of the Notice of Appeal states as follows:

3.The finding by Judicial Member Block in the Reasons at [37] that the land's (the Property's) dominant use in the relevant years (2007 to 2011 Land Tax Years) was as an investment property earning income from the letting was a finding which failed to take into account, or give sufficient weight to, relevant considerations, namely, that in the 2007 to 2011 Land Tax Years:

(a)just over 5% of the land comprising the Property was available for use as an investment property;

(b)almost 95% of the land comprising the Property was available for use for thoroughbred horse breeding activity;

(c)the separate parts of the land on the Property comprising these two uses were fenced off from each other with separate rights of ingress and egress;

(d)these two uses were undertaken by separate persons, namely:

(i)the investment property income producing activity was conducted by the appellants, Gustavo Ferella and Nida Ferella ("Ferellas"), who were the owners of the Property;

(ii)the use of thoroughbred horse breeding activity was conducted by the trustee of the Trust for the time being, namely, Agusta Industries and then Agusta;

(e)the Ferellas, for nominal consideration, leased approximately 95% of the land comprising the Property to the trustee of the Trust for the time being, namely, Agusta Industries and then Agusta who then used it for the thoroughbred horse breeding activity;

(f)the income from the investment property income earning activity and the expenses in respect of that activity were incurred by the Ferellas;

(g)the income from the thoroughbred horse breeding activity and the expenses in respect of that activity were incurred by the trustee for the time being of the Trust, namely, Agusta Industries and then Agusta;

(h) expenses were incurred in relation to the horse breeding activity by the trustee for the time being of the Trust, namely, Agusta Industries and then Agusta;

(i)the expenses in paragraph (h) incurred by the trustee for the time being of the Trust exceeded the expenses incurred by the Ferellas in the investment property income earning activity;

(j)the expenses in paragraph (h) incurred by the trustee for the time being of the Trust exceeded the income derived by the Ferellas in the investment property income earning activity in some of the 2007 to 2011 Land Tax Years;

(k) the time spent on and in relation to the thoroughbred horse breeding activity by:

(i)Mr Angelo Ferella on a daily basis (inspection and maintenance of horses, stables, bedding, water tanks/troughs, fencing, feed, etc.);

(ii) Mr Angelo Ferella and others in relation to the construction of improvements (stables, tack room, awnings, wash bay, water tanks/troughs, irrigation, fencing) on that part of the Property upon which the thoroughbred horse breeding activity was conducted;

(I)the minimal time spent by the Ferellas in relation to the investment property income earning activity.

1. It is apparent that the Tribunal did not ignore any of the matters referred to in ground 3. For instance (as to (a) to (c)) the fact that the Land on which the cottage was situated was only 5% of the Land and that 95% of the Land was available for horse breeding was referred to at [4] and [5] of the Decision, as was the fact that the remainder of the Land is fenced off.

1. As to ground 3(d), the fact that the different uses were undertaken by separate persons, was plainly not ignored by the Tribunal. It was implicit in the discussion about the ambit of the lease of the Land. It is apparent that the Tribunal was not satisfied that only the Land the subject of the horse breeding activity was leased to the Trust: at [8] of the Decision. In any event, we do not see this as a "relevant factor" (or mandatory consideration) in the sense described in Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 (Peko-Wallsend) at 39-41. As the question of dominant use is one of fact and degree of the use of the Land, whether or not the distinct uses are undertaken by distinct entities, is not a factor that must be taken into account.

1. As to (e) the fact that the horse breeding Land was leased for nominal consideration is referred to at [4] and not ignored (though the submission that only 95% of the Land was leased was rejected). In relation to ground 3(f) the question of whether the income from the investment property was that of Gustavo and Nida, as opposed to the Trust was also rejected, so it was not taken into account in any positive sense. However, it was not a mandatory consideration for the reason outlined in relation to ground 3(d). Failure to have regard to it does not disclose an error of law.

1. In relation to grounds 3(g), (h), (i) and (j) the fact that the income and expenses were incurred by the Trust is reflected in Part C of the Decision and plainly not ignored, as is the level of expenses. As to ground 3(k) the fact that in addition to Angelo spending time daily on the premises, there was time spent on construction and improvement relevant to the primary production activity throughout the period was not ignored by the Tribunal although the evidence was not entirely accepted (at [19] and [24]) and little weight was ascribed to it. In relation to ground 3(l), it is asserted that only minimal time was spent by the Appellants in relation to the investment property, but we were not directed to specific evidence about this (although it is unlikely to have been contentious). These last factors are of minor significance and there is no error disclosed in the Tribunal failing to mention them.

1. We are therefore not satisfied that there is any error of law disclosed in relation to ground 3.

Ground 4

1. Ground 4 of the Notice of Appeal states as follows:

4.Judicial Member Block erred in finding and/or taking into account as a material consideration that:

(a)for the 2007 to 2011 Land Tax Years:

(i)the Trust tax returns did not appear to have been in conformity with the requirements of relevant tax legislation: Reasons at [20];

(ii)the tax returns of the Trust were not audited: Reasons at [20];

(b) the information provided in the Trust tax returns for the 2007 to 2011 income years in respect of primary production is quite clearly not indicative of a business activity: Reasons at [39];

(c)the Ferellas had not put into evidence information which supports the Trust's tax returns for the 2007 to 2011 income years: Reasons at [39];

(d)the only evidence as to the breeding of thoroughbred horses relates to the yearling acquired in the 2008 land tax year: Reasons at [38];

(e)no relevant material in respect of the thoroughbred horse breeding was tendered by the Ferellas at the hearing: Reasons at [25].

1. To the extent it is contended that these are wrong findings of fact, this is not articulated as a question of law. A wrong finding of fact is not an error of law, unless the conclusion is not open: Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42 at [11].

1. Further, we do not consider the factors referred to in ground 4 as being irrelevant in the sense contemplated in Peko-Wallsend. Factors (a), (c), (d) and (e) are relevant to the reliability of the evidence led by the Appellants and whether it is sufficient to discharge the onus. Grounds (b) and (d) relate to intensity of the primary production activity.

1. No error of law is disclosed in relation to ground 4.

Ground 5

1. Ground 5 of the Notice of Appeal states as follows:

5.Judicial Member Block erred in failing to separately and independently consider whether the Ferellas had satisfied the requirements of sections 10AA(1) and (3) of the LMTA for each of the 2007 to 2011 Land Tax Years, but treated and considered the 2007 to 2011 Land Tax Years as a composite whole.

1. It is alleged that the Tribunal Member erred in failing to separately and independently consider whether the requirements of the section had been satisfied on a year by year basis and that the Tribunal approached the issue as a composite whole. However, if one reviews the Decision, the evidence in relation to each year was considered. Read fairly, a year by year approach was adopted by the Tribunal. Overall the Tribunal was concerned that the evidence did not satisfy the Appellants' burden of proof and that on a year by year basis it could not be said that there was a dominant use of primary production. No error of law is disclosed in relation to ground 5.

Conclusion

1. A fair reading of the Tribunal's decision indicates that the Tribunal considered that the then Applicants had not satisfied their burden of proof.

1. We are not satisfied that there has been any error of law. The Judicial Member explained why he was dissatisfied with the level of evidence. In circumstances where there was a competing use of the Land (the rental of the cottage) the Tribunal was not satisfied that the Appellants had proved that the prevailing or dominant use, which is a question of fact and degree, was primary production.

Orders

1. The appeal is dismissed.

Decision last updated: 03 October 2013