Glenworth Valley Pastoral Company Pty Limited v Chief Commissioner of State Revenue
[2011] NSWADT 272
•17 November 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Glenworth Valley Pastoral Company Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 272 Hearing dates: 8 and 9 August 2011 Decision date: 17 November 2011 Jurisdiction: Revenue Division Before: J Block, Judicial member Decision: Excepting only that the amount assessed must be reduced by the amount assessed for the 2006 land tax year the decision under review is affirmed
Catchwords: Nature of agistment - whether agistment falls within section 10AA of the relevant Act- dominant purpose - whether agricultural purpose dominant- whether land has a dominant purpose where a substantial part is unusable. Legislation Cited: Land Tax Management Act 1956 Cases Cited: Leda Manorstead Pty Limited v Chief Commissioner of State Revenue [2010] NSWSC 867;
Clarke v Commissioner of Land Tax(1980) 11 ATR 794;
Jones v Commissioner of Land Tax 80 ATC 4539;
Shanahan v Commissioner of Land Tax (1980) 80 ATC 4 320;
Saville v Commissioner of Land Tax (1981) 81 ATC 4373;
Council of the City of Newcastle v Royal Newcastle Hospital (1959) 100 CLR 1l; Greenville v Commissioner of Land Tax (NSW) (1977) 7 ATR 278;
Longford Investments Pty Limited v Commissioner of Land Tax (NSW) (1978) 8 ATR 656;
Brown v Commissioner of Land Tax (NSW) (1977) 7 ATR 642.
Sonter v Commissioner of Land Tax 1976 7 ATR 30Texts Cited: Pannam, The Horse and the Law Category: Principal judgment Parties: Glenworth Valley Pastoral Company Pty Limited (Applicant)
Chief Commissioner of State Revenue (Respondent)Representation: Counsel
C Burnett (Applicant)
I Mescher (Respondent)
Brown Wright Stein Lawyers (Applicant)
Crown Solicitor (Respondent)
File Number(s): 106095
Reasons for decision
Part A Preliminary and background
The decision under review is the disallowance of an objection by the Respondent (who is sometimes referred to in these reasons as the “Chief Commissioner”) against an assessment of land tax in respect of the Applicant’s property in Glenworth Valley in New South Wales (“the Property”); the assessment in question relates to the 2006 to 2010 (both inclusive) land tax years; the term “relevant years” as used in these reasons relates to the land tax years aforesaid but excluding the 2006 land tax year. The relevant assessment in respect of which the Applicant objected is contained in Tab14 of the Section 58 documents; it relates to an aggregate amount of $339,338 in respect of the relevant years and also the 2006 land tax year. The 2006 land tax year is however not relevant in respect of the Applicant in this matter simply because the Applicant became the owner after the commencing date in respect of that year, and notwithstanding the fact that the Property was owned by the Lawler family or an entity controlled by it prior to its acquisition by the Applicant.
The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997; it also admitted into evidence exhibits as follows;
Exhibit A1; a witness statement by Mr. Barton Lawler and inclusive of a large file of documents;
Exhibit A2; accounts in respect of the Trust (as defined hereafter);
Exhibit A3; accounts in respect of the Horse Company (as defined hereafter);
Exhibit A4; a document entitled “Glenworth Valley full-time employees”;
Exhibit R1; Respondent’s Bundle of documents;
Exhibit R2; Bundle entitled ‘Documents requested in a letter from the Crown Solicitor dated 21 April 2011’ and comprising tab 3 in Exhibit R1;
Exhibit R3; bundle of 59 colour photographs taken on 6 May 2011;
Exhibit R4; Pamphlet entitled “Glenworth Valley Adventures”;
Exhibit R5; Document entitled “Application for Agistment”;
The web site of the Applicant is contained on a CD Rom and which is Tab 6 in Exhibit R1. The colour photographs which comprise Exhibit R3 are also contained in a CD Rom attached to Exhibit R1.
This matter turns on the question of whether the Applicant was entitled to the primary production exemption (“PPE”) under section 10AA of the Land Tax Management Act 1956 (“the Act”) in respect of the relevant years.
The hearing of this matter took place on two days and being 8 August 2011 (“first hearing day”) and 9 August 2011 (“second hearing day”). The transcript in respect of the two hearing days is not sequentially numbered and accordingly references to the transcript are denoted by either 1TS for the first hearing day or 2 TS for the second hearing day.
Oral evidence was given by only one witness and being Mr Barton Lawler to whom Exhibit A1 is referable; he gave evidence for the best part of both hearing days. Following the completion of his evidence a time-table was arranged in respect of detailed submissions and in substitution for submissions previously filed. The Tribunal subsequently received “Closing Written Submissions of Applicant” dated 23 September 2011 (“AS”); it thereafter received “Closing Written Submissions of Respondent” dated 21 October 2011 (“RS”); and thereafter the “Reply Submissions of the Applicant” dated 4 November 2011(“AS2”). The Tribunal has drawn on the submissions to some considerable extent for the purposes of these reasons.
Having regard to the transcript, the section 58 documents, the exhibits (some very lengthy indeed) and the submissions, the volume of documentation before the Tribunal might suggest that this case is complex in the extreme; the Tribunal does not believe that it is nearly as complex as the documentation might suggest. There is in respect of this matter a central issue of a legal nature and that is as to whether agistment as described in the evidence before the Tribunal constituted primary production in accordance with section 10AA of the Act.
It is necessary to note that the parties are agreed as to the fact that the relevant years are the only years which are relevant for the purposes of this case. This is so because, as set out previously the Property was acquired by the Applicant after 31 December 2005 (and in fact on 11 October 2006); it follows that the Tribunal need not be concerned with the 2006 land tax year. RS notes that for this reason a reassessment will be required in respect of the owner of the Property as at 31 December 2005.
Mr Lawler was cross-examined at length as to the Applicant’s website; see Tab 6 of Exhibit R1. He was also cross-examined at some length as to the relevant financial accounts.
AS contains a helpful and detailed description of the Property; clauses 1 to 10 of AS (excluding) footnotes read as follows;
The Applicant owns a property at Glenworth Valley in New South Wales ("the Property"). The Applicant is controlled by the Lawler family and the Property has been beneficially owned by the Lawler family since 1972.
The Property consists of 37 contiguous allotments and in total measures approximately 2847 acres, with a number of roads and trails running between the allotments, the majority of which belong to the Crown. Most of the Property is zoned 7(a) and a small part of it is zoned 7(b). Both 7(a) and 7(b) are "non-urban" zonings under the Gosford Interim Development Order No. 122 made under the Gosford Local Environment Plan. Under the draft Gosford Local Environmental Plan 2009, the Property is proposed to be zoned E2 with a small part proposed to be zoned RU2; both are also "non-urban" zonings.
The Property is situated on a valley consisting of pastured river flats surrounded by steep valley walls, rocky escarpments and the surrounding ridges. Popran Creek runs through the Property.
The valley slopes and escarpments are vegetated and steep; they are not suitable for agricultural production and are not used for any activity at all, apart from a 50m by 20m area on which abseiling sometimes takes place.
The middle part of the valley is where the Property's most fertile land lies. The northern part of the valley is characterised by sandy soil and the southern part is subject to salt water intrusion; neither is as fertile as the middle part.
The main improvements on the Property are:
(a) 5 houses, (4 of which are occupied);
(b) 4 farm sheds;
(c) 1 administration/booking office;
(d) 2 stock handling yards;
(e) 25 farm dams, 4 of the largest dams are set up for irrigation purposes and are connected to an extensive network of 6" and 4" underground irrigation mains that supply water to travelling irrigators that are used on the Property to grow fodder crops.
The Property is fenced off into approximately 90 paddocks with approximately 400 gates and approximately 80kms of stock fencing. Approximately 40kms of underground waterlines have been installed on the Property. These waterlines are used to supply water to automatic livestock drinkers located throughout the Property. Approximately 8kms of levees and 15 kms of laser-levelled drains have been constructed in order to improve the Property's pasture production.
Majority of the Property not used for any activity
The aerial photograph at Tab 8 of Exhibit BL-1 to the Affidavit of Barton Lawler dated 6 April 2011 depicts the various types of "areas" on the Property, as described in that Affidavit at [27] to [29] as "Area A", "Area B" or "Area C". Area A, outlined in black, is the part of the Property incapable of being farmed and not used for any purpose. Area B, outlined in purple, is a relatively small spot on the Property, primarily used for the leisure activities; it features the carpark, booking building, picnic tables, horse riding yard, marshalling area and quad bike and kayak storage and instruction area. Area C, outlined in red, is the parts of the Property being actively cultivated to produce pasture crops.
The photographs taken by the Respondent at the view of the Property, Exhibit R3, depict Area B (carpark, marshalling area) from various different angles, and the remainder of these photographs are mainly of different parts of Area C. Mr Lawler's re-examination at Transcript 9 August 2011, pages 53.33 to 56.28, identifies whether each photo depicts Areas A, B or C.
The majority (approximately 79%) of the surface area of the Property is not used for any activity at all ("Area A"). It consists of steep valley walls, rocky escarpments and swampy, saltwater-intruded flats. It is not capable of being cultivated or farmed. The only use to which this part of the Property is put is abseiling, which takes place on a small patch of rock measuring approximately 50m by 20m. The rest of the majority of the Property is unused and undeveloped other than as to boundary fencing and Energy Australia power lines.
RS contains a helpful section entitled “Relevant Factual Background” and comprising clauses 8 to 23; that section, altered only so as to utilise a number of defined terms in place of those selected by the Chief Commissioner, reads as follows;
On 8 April 1993 a company now known as Glenworth Valley Horse Riding Pty Limited (“the Horse Company”) was registered with ASIC.
On 15 August 1996 The Lawler Family Discretionary Trust was established by trust deed. The original trustees were Barton Lawler, Barbara Lawler (his mother) and Barry Lawler (his brother). In substance, the beneficiaries under the trust were not only the original trustees but also the relatives of the original trustees and companies that had some association with the original trustees.
On 8 July 1997 The Lawler Family Discretionary Trust was renamed as The Glenworth Valley Trust (“the Trust”).
On 11 May 2006 the Applicant was registered with ASIC.
On 25 September 2006 the Applicant was appointed as the new trustee of the Trust.
On 11 October 2006 the property (consisting of 37 titles) was transferred into the Applicant’s name.
On 4 December 2006 another company associated with Mr Barton Lawler, namely Ocean Planet Kayak Tours Pty Limited (“the Kayak Company”), was registered with ASIC.
On 14 October 2009, the Respondent sent a land tax questionnaire to Mr Lawler in relation to the land use activities that were taking place at the property.
On 8 November 2009 a reminder letter was sent to the Applicant by the Respondent.
On 4 December 2009 the Applicant returned the completed land tax questionnaire.
On 17 March 2010 the Respondent informed the Applicant that the property did not qualify for exemption for the relevant period. On the same day, the Respondent issued a Notice of Assessment of Land Tax for the relevant period totalling approximately $334,247.85.
On 7 May 2010, Mr Lawler, on behalf of the Applicant, requested an extension of time to lodge an objection to the assessment.
On 12 July 2010 the Respondent granted to the Applicant an extension of time until 13 August 2010 under s.90 Taxation Administration Act 1996 (NSW) (“TAA”) to lodge an objection to the assessment.
On 9 August 2010, the Applicant lodged an objection to the assessment.
On 20 October 2010, the Respondent determined the objection by wholly disallowing it.
On 16 December 2010, the Applicant filed the current proceedings in the Administrative Decisions Tribunal.
The Applicant (in its capacity as trustee of the Trust), the Horse Riding Company and the Kayak Company were during the relevant years associated (in some fashion) during the relevant years; in this context:
In respect of the Applicant the directors were Mr. Lawler and his mother Mrs Barbara Lawler; when asked whether he is a shareholder in the Applicant Mr Lawler answered (1TS 35) “Honestly I don’t know” When asked whether he knew that his mother is a shareholder in the Applicant he answered “No I don’t I am sorry “(1TS 40)
(b) In respect of the Horse Company Mr Lawler said that his mother is a director but that he is not . When asked as to the issued shares in the Horse Company he answered (1TS52; 1 to 5) as follows:
Q. Is it the case that you and your mother jointly own two shares in that company? Do you know that or not?
A. I don’t know that, no. I--
Q. The principal - sorry, go ahead.
A. I would have thought the trust owned the shares but I could be wrong
In respect of the Kayak Company Mr Lawler said that Mr. Kerry Miljoen (who is his partner) is a director; when asked whether she owns all the issued shares in the Kayak Company he answered “I would imagine so - yes.”
It would seem that the Kayak Company conducts the Kayak operations and other activities on the Property while the Horse Company conducts the horse riding and also the agistment activities conducted on the Property. Mr. Lawler gave evidence to the effect that the Applicant is passive in that it merely owns the Property and that the Horse Company pays the Applicant rent for its use of the Property. As to whether that evidence was altogether accurate is questionable having regard to other evidence which would suggest that the Applicant owned horses in its own right. It is apparently the Horse Company which employed all of the staff (and as to which and in respect of full-time employees Exhibit A4 is referable). The positions assigned to those employees in Exhibit A4 suggest that some at least are employed on recreational activities while others again are concerned with agistment but if the role of the Applicant was purely passive it would not have needed full-time staff of its own.
The evidence as to the relationship between the entities referred to in the preceding clause and in particular the financial relationship between them was at times confusing. It was my impression that Mr. Lawler was not, in this particular context, answering dishonestly but rather that he was not aware of the precise relationship details. I have taken the view that in all probability it does not matter which particular entity carried out which particular activity because the Tribunal is concerned with the use of the Property itself.
In conclusion as to this Part A I have come to the conclusion that in dealing with the evidence before the Tribunal it is not necessary, more particularly having regard to the content of Part C, to canvas it in detail.
Part B. The legislation, and the Ruling
The exemption from land tax was throughout the relevant years set out in Section 10AA of the Act as follows:
10AA Exemption for land used for primary production
(1) Land that is rural land is exempt from taxation if it is land used for primary production.
(2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land:
(a) has a significant and substantial commercial purpose or character, and
(b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made).
(3) For the purposes of this section, "land used for primary production" means land the dominant use of which is for:
(a) cultivation, for the purpose of selling the produce of the cultivation, or
(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
(c) commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals, or
(d) the keeping of bees, for the purpose of selling their honey, or
(e) a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or
(f) the propagation for sale of mushrooms, orchids or flowers.
(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.
Revenue Ruling LT22 (“the Ruling”) was issued in 1990 and when the legislation was cast in somewhat different terms but it was in force during the relevant years. Clauses 4 and 7 of the Ruling read as follows:
In determining whether this is the case, the degree extent and intensity of each use should be considered. Relevant factors include the area of land allocated to each use, the capital investment in each use, the income generated by each use, and the use both before and after the taxing date. It is not possible to be prescriptive about the requirements which must be met to qualify for the exemption. However, the following guidelines will be applied in order to reduce the uncertainty surrounding the application of the exemption
Where the level of investment in primary production is higher than investment in any other activity, it will be accepted that the exemption applies. The value of the land allocated to each use should be included in the calculations of investment in each use.
It is convenient at this point to record that the Applicant (in clause 35 of AS) noted (on the basis that, having regard to earlier submissions, the Respondent agrees) that where land has two or more uses the factors to be taken into account as to which use is dominant are as follows:
the area of land allocated to each use;
the capital investment in each use;
the income generated by each use;
the use both before and after the taxing dates;
the degree, extent and intensity of each use;
the extent to which land is used for purposes which are unrelated to each other; and
the overall impression that the land has on an objective observer
Part C The issues
There is no dispute as to the fact that during the relevant years 79% of the Property could not be used for any purpose and in particular could not be used for any purpose of an agricultural nature. The Respondent contends that this being so the Property did not have any dominant use. This issue is referred to as the “unusability issue.” See also clause 5 of the Ruling which refers to a test in this context of 50%.
During the relevant years there were, on the evidence before me, two major areas of use; one major use comprised the growing of pasture and the agistment of horses owned by third party owners who entered into agistment arrangements with the HR company, and the other major use comprised a large variety of recreational activities conducted on the Property by the Horse Company and the Kayak Company; (I note that there was also evidence as to the agistment of horse belonging to the Applicant) The Respondent contends but the Applicant denies that the recreational activities constituted the dominant use of the Property; this issue is referred to as the “dominant use issue”.
During the relevant years some cattle were maintained on the Property for the purpose of selling them. The Applicant conceded (correctly in my view) that that use was such that it could not be regarded as dominant. (Tab 7 of the section 58 documents). In addition there were during the relevant years some sales of horses. On the evidence before me that activity was never at any time one which could be treated as significant or dominant and the Applicant has never contended otherwise.
There is an important and threshold question as to whether the agistment of horses pursuant to contracts of agistment falls with section 10AA(3)(a) of the Act. That issue is referred to in these reasons as the “agistment issue”. It is convenient to deal firstly and in Part D with the agistment issue and then and in Parts E and F to refer (respectively) to the dominant use issue and the unusability issue.
Part D The agistment issue
At an early stage of his evidence Mr Lawler said that owners of horses could agist their horses on the Property at a charge of either $65 per week or $55 per week; the rate differed in that the more expensive rate applied in respect of areas nearer to the parking facilities. Mr, Lawler spoke also of much cheaper rates available in Dubbo. At a later stage of his evidence and in the context of certain named horse owners it appeared that there were other rate differences but it is not necessary for me to detail them.
Agistment is the process by which a person having control of the horse, sends it to the property of another for the purpose of the horse being fed and cared for; Pannam, The Horse and the Law, 3rd edition, 2004, Law Book Company, at paragraph [3.20]. The horse is in the possession and under the control of the relevant land owner or occupier; Pannam at paragraph 3.35.
During the course of the hearing there was some discussion of a purely hypothetical example posed by the Tribunal. That example related to a peach orchard where customers are invited to come onto land in order to pick peaches. As the Applicant contended in clause 66 of AS, title in the peaches passes to the customer at the time when a peach is picked and whether or not it is then consumed by the customer. I have come to the conclusion on reflection that that example was not apposite. A better example would be that of a hotel keeper or a bed and breakfast facility owner who supplies accommodation together with a breakfast of a buffet nature selected by the customer. Such a (common) contract would not in my view constitute a sale by the provider to the customer of the items constituting the selected breakfast; such a transaction is in fact no more or less than the supply of a service with the breakfast constituting one incident of it, and so that there is no question of title passing. Such an arrangement is akin to the agistment arrangements entered into by the Applicant with horse owners. There is thus cultivation within section 10AA(3)(a) of the Act but there is not sale of the pasture which is cultivated.
In this particular case the agistment contract did not involve merely the feeding of the horse. It involved a variety of considerations as follows:
(a) a fee for allowing the animal to be on the land - i.e. a form of “rent”; 1TS21.40 to 22.1;
(b) time and work involved in employees contacting vets when horses are sick and providing a list of vets; 1TS 42.22, 42.32 to 36, 43.23, 43.37 and 46.22;
(c) ensuring horses have access to water including bore water; 2TS 14.5 to 10
(d) the salary of the agistment manager; 1TS 42.22; 2TS 13.to 13.40;
(e) noticing that horses are sick and generally observing horses; 1TS 43.23; 2TS 13.25 to13.35; 2TS 13.50;
(f) observing whether fences surrounding paddocks in which the agisted horses are placed are in need of repair 2TS 13.40;
(g) generally liaising with owners of agisted horses in relation to their horse when required; 2TS 13.30
The Respondent contends (correctly in my view) that the agistment contracts did not constitute a sale of produce. I include with approval (but using the abbreviations selected by me in place of those selected by the Chief Commissioner) clauses 82 to 84 of RS as follows:
For the following reasons, on the evidence in these proceedings, there is no sale taking place of pasture cultivated on the property from the Horse Company (or any other entity) to agisted owners:
(a) there is no evidence at the price at which any cultivated pasture is sold to owners of agisted horses. The agistment fees shown in the invoices at Tabs 6-10 Exhibit R2 do not refer to any pasture (by way of quantity or price). The invoices in Exhibit R2 are standard invoices. Nothing in these documents shows the amount of pasture consumed by any horse and nothing about the sale of pasture to agisted owners;
(b) a flat fee is shown as being charged on agistment invoices on a weekly basis with no reference whatsoever to pasture. It can be inferred that this fee includes the matters in paragraph 79 above. The agistment fee is not the consideration for the sale of the pasture;
(c) the difference in agistment fees charged to owners of horses on a weekly basis does not, in any way, depend upon the amount of pasture eaten by that horse. Rather, it depends upon the distance the horse is from the car park and the number of the horses in the paddock which are placed with the relevant agisted horse. In other words, the further away the horse is from a car park and the greater the number of horses placed with it then the less the weekly agistment fee payable by the owner of the horse; 1TS 44.16 to .24; 1TS 44.40; 1TS 45.1 to 4; 2TS 10.20 to.42. If a “sale” of pasture was taking place then it would be reasonable to expect the agistment fee to increase or decrease depending upon the amount of pasture sold and/or the quality of the relevant pasture. There is no evidence that any variance in agistment fees has anything to do with pasture;
(d) no sale of pasture grown on the property takes place by way of bundles or otherwise in separate containers. The pasture is not in any way harvested for the purposes of sale. Once again, if a “sale” of pasture was occurring it would not be unreasonable to expect some evidence of how the price at which it is sold is quantified and how the seller knows the quantity of pasture that he/she is selling;
(e) if pasture was being sold to agisted owners then it would be reasonable to expect the Horse Company or a related entity to keep track of how much pasture is eaten by horses on a daily, weekly, monthly or, at the very least, yearly basis so that, in some way, a price can be placed on the quantity of pasture eaten by horses - e.g. a kilogram, 100 grams or another amount. No such evidence exists. Indeed, the evidence is to the contrary: Mr Lawler frankly admitted that he has no idea how much pasture a horse eats on any given day, week, month or year;
(f) the standard form of agistment contract (being Exhibit R5) does not, in any way, refer to the weight or quantity of pasture that is consumed by a horse and/or being sold to an owner. Once again, if a selling of pasture was occurring to owners of agisted horses, it would not be unreasonable to find in the agistment contract some reference to the quantity of pasture sold to the owner and its relationship to price. The standard form of agistment contract is silent as to these matters;
(g) neither the invoices at Tabs 6-10 Exhibit R2 nor the standard agistment contract (Exhibit R5) say anything about title in the pasture being transferred to owners of agisted horses for a price. It is not physically delivered to owners of agisted horses for a price, nor is there evidence of the passing of a legal right in the pasture to agisted owners.
There is no selling of pasture taking place to agisted owners. Rather, the Applicant is selling the right to bring a horse onto its property for the purpose of that horse being cared for and maintained on the property. This right involves a range of factors (such as those referred to in paragraph 79 above). This right would otherwise only be vested in the Applicant and it is this right that is being sold - not the selling of the pasture itself - even though the agisted horse can eat the pasture.
Section 10AA(3)(a) does not say “cultivation for the purpose of animals feeding on the produce of the cultivation”. Rather, it necessarily imports the concept of a “sale” of the pasture of which (for the reasons referred to above) there is no evidence in these proceedings.
In Jones v Commissioner of Land Tax 80 ATC 4539, Woodward J held that the exemption, then contained in section 10(1) (p) of the Act did not extend to the agistment of horses. The statutory provision with which the Tribunal is concerned is cast in the same terms as that considered by Woodward J. The Applicant contends (and perhaps correctly) that this particular finding of Woodward J in Jones was obiter; if it was obiter it must nevertheless be persuasive so far as this Tribunal is concerned. I refer in this context to a passage from the third page of the judgment in Jones reading: “Because of the definition contained in the Act of the words “land used for primary production” they must be read in the circumstances as land used primarily for primary production, and can in the circumstances relate only to the breeding of horses but not the racing or agistment of horses.”
If the judgment in Jones can be questioned on the grounds that the relevant finding was obiter it is doubtful whether the same criticism can be levelled at the judgment of Newman J in Shanahan v Commissioner of Land Tax 1980) 80 ATC 4 320 and where he came to the same conclusion that agistment was not within the exemption. In Shanahan the relevant property also included pasture which was cultivated for cattle feed and thus analogous to the pasture grown on the Property. The relevant legislation was, as with Jones, in the same terms as the legislation relevant in this case. Newman J said towards the end of his judgment: “In this regard it was submitted that agistment involves merely the grazing of animals brought from without a subject property for the purpose of allowing such animals to graze, For instance if a property owner used his land solely for the purpose of allowing other persons’ animals to come onto the properly to graze ultimately being removed by their owners for the purposes of sale by them then such land would not fall within the exemption created by s 10(1)(p)”.
In AS2 the Applicant contended that Jones and Shanahan are distinguishable. I refer in this context to clauses 15 and 16 of AS2 as follows:
The cases of Shanahan and Jones are distinguishable because they concern s 10AA(2)(b) or its predecessor, and there was no argument or evidence in those cases that the primary activity taking place on the land was active cultivation of pasture. Indeed, it would have been surprising if that was the case, because those two cases involved small numbers of animals, grazed part-time by owners who were respectively a dentist and a doctor, in contrast to the full-time, large-scale and capital intensive pasture farming activities taking place at the Property in this case.
There is, at property law, a sale of the pasture in this case. The respondent admits that the land is cultivated and generates produce. These facts, together with the sale that takes place as part of the agistment arrangements, mean that the pasture cultivation, which is the predominant activity taking place on the land (see next section), satisfies s 10AA(2)(a) of the LTMA.
I do not agree that the cases referred to in the preceding clause are relevantly distinguishable. Although the relevant statutory provisions were when those cases were decided numbered differently from the provisions with which I am concerned the effect is the same. As set out previously I do not accept that the agistment arrangements constituted a sale and so that section 10AA (3)(a) did not apply. As to clause 16 of AS2 I surmise that the reference to section 10AA (2) (a) is simply a typographical error and that a reference to subsection (3) is intended. Similarly the two references to section 10AA(2)(a) in clause 3 of AS2 appear to me to fall into the same category.
A decision of a superior court is binding on this Tribunal; it follows that I must conclude that agistment does not fall within section 10AA (3) (a) of the Act. On the basis that this finding is correct as a matter of law and so that agistment must be excluded the Applicant cannot succeed.
Part E The dominant use issue
Having come to the conclusion that the Applicant must fail in respect of the agistment issue, the provisions of Part E and F are included in case I have erred in respect of my finding as to the agistment issue. This part E therefore refers to the dominant use issue in somewhat truncated terms and applies only if contrary to my finding agistment is an activity within section 10AA(3)(a) of the Act.
In the course of preparing these reasons I went into the Applicant’s web site and was able to cut and paste the following extract, from which pictures and the like have been removed, and which accords with the material as to the website furnished in evidence:
Welcome to Glenworth Valley
Australia's largest and most successful horse riding and outdoor adventure centre
Glenworth Valley invites you to escape amongst 3,000 acres of the finest unspoilt wilderness located in a deep valley in the hinterland region of the NSW Central Coast. A leisurely one hour drive from Sydney and Newcastle CBDs, 15 minutes from Gosford or 20 minutes north of Hornsby.
Horse riding and agistment, quad biking, kayaking, abseiling, fishing, laser skirmish, team building, school holiday camps, bushwalking and camping.
NEWS & EVENTS
Customers, please note Glenworth Valley’s horse riding, quad biking, abseiling, kayaking and fishing activities will not be operating on Sat 19 November due to an event being held on the property. Activities will resume and operate as usual on Sun 20 November. We apologise for any inconvenience.
Valley Stampede, Saturday 19 November 2011
Take on 15 bad-ass obstacles including The Mud Buffet, Angry Cows, Giant Slip & Slide, 10,000 volts of electricity and more on a 5km run at Glenworth Valley on Sat 19 Nov 2011. Tickets are limited and are selling fast gourmet picnic horse rides back by popular demand
The gourmet picnic ride is a guided trail riding experience with a difference. Indulge with a scenic horse ride through the spectacular valley, complete with gourmet picnic lunch and wine & cheese tasting. Glenworth Valley wins two gold awards at Hunter & Central Coast Tourism Awards
Glenworth Valley Outdoor Adventures is thrilled to have won two gold awards in the 2011 Bluetongue Brewery Hunter & Central Coast Awards for Excellence in Tourism in the Tourist Attractions and Adventure Tourism categories.
Christmas & New Year closure
Customers, please note Glenworth Valley will be closed for all activities and camping on Sat 24 and Sun 25 December 2011 and Sun 1 January 2012
The Applicant’s website, and also Exhibit R4 suggest in plain terms that the dominant use of the Property is that of recreation. The recreational activities are emphasised to such an extent that having regard to the relevant material, it is the view of the Tribunal that an independent observer would come to the conclusion that the Property is used as a holiday resort and with extensive recreational facilities. Agistment is mentioned but not in any manner which would suggest that it is significant. The Applicant contends that a website is just that, a website and that an independent observe who came to the Property would not have concluded that its dominant use was recreational. There was however no evidence to this effect in support of such a proposition. Mr. Lawler, whose evidence sought to play down the relative importance of the recreational use, was hardly an independent observer.
The hearing of this matter commenced with a lengthy opening statement by Ms Burnett as to the evidence contained in Mr. Lawler’s witness statement. AS I understood her the Applicant contends that the fixtures and equipment on the Property should be apportioned between primary production including agistment and recreational activities in accordance with the areas used by each of them; such a purely arithmetical (and arbitrary) calculation cannot be correct and one must look to the actual values of the equipment devoted to each of the relevant activities.
RS in clauses 40 to 73 deals in some detail with the nature and extent of the recreational activities which were conducted during the relevant years; those clauses are (with approval as to their factual content) included with some minor amendments so as to use the defined terms I have selected and so as to exclude footnotes (but noting also that the footnotes which refer to evidence before the Tribunal are correct) as follows;
The business name referred to on the website is “Glenworth Valley Outdoor Adventures”. It is a registered business name which has a logo. The business has been a finalist in tourism awards for leisure activities conducted on the land. Members of the public can book online for the various leisure activities offered by the Applicant. Various signs on the property indicate where leisure activities take place.
The property comprises a not insignificant canteen area consisting of a vending machine together with a picnic area where people can stay as long as they like either before or after they have their various leisure tours. Income from the vending machine was in the vicinity of $29,000 per year, used primarily by persons commencing or concluding the various leisure activities conducted either on or off the property.
A large car park exists for people (who are about to undertake the various leisure activities offered) to park their cars.
Exhibit R4 is a pamphlet showing in summary form the extent of the leisure activities offered on the property although it is submitted that the internet site is a more comprehensive source of the nature of the activities offered by the Applicant both on and off the property.
The Applicant represents to potential employees that its core business is “horse riding, abseiling, kayaking and quad bike tours to domestic and international visitors”. There is no evidence that its business is ever represented to potential employees as involving any of the primary production activities referred to in s.10AA(3) of the Act.
Horse Riding Tours
An enormous variety of horse riding tours is offered on the property. Mounting yards have been built on the property where instructions are given to potential riders. Horses are led to such mounting yards where members of the public saddle up on the horse and begin their ride. A large number of horses on the property are used for horse riding as there exist 110 saddles on the premises and 240 reins.
The Applicant is a member of the Horse Riding Centre Association which assists in the drafting of exclusion clauses. Four permanent staff are employed in relation to horse riding and a pool of 20 casual staff exist from which people are chosen from to instruct or guide horse riding tours. The horse rides are not restricted to small groups and 40 riders can go in the one group. The horse riding tours start and end on the property and continue for some kilometres on the property itself (both there and back). The tours themselves can go up to 10-11 kilometres.
An enormous amount of gross income is earned by Glenworth Valley Horse Riding Pty Limited (“the Horse Company”) from the horse riding tours that it conducts. For example, during the financial year ending 30 June 2006 to the financial year ending 30 June 2007, the gross income was in the vicinity of $1.34-$1.445 million. For the year ended 30 June 2008, the riding school income amounted to $1.410 million, for the year ended 30 June 2009 it was $1.689 million and for the year ended 30 June 2010 it was $1.678 million.
Riding school income is the highest gross income activity engaged in by the Horse Company over the relevant period, being in the vicinity of $1.4 - $1.67 million.
Additionally, considerable expenses such as rent, wages and expenses for farrier and saddlery were incurred by the Horse Company in relation to the horse riding activities.
The “riding school income” does not merely consist of income generated from the horse riding schools but also includes various sales associated with the riding school income together with, inter alia, camping fees and ocean planet booking fees (presumably for kayaking tours).
The “riding school income” of the Horse Company far exceeds the income of the Trust during the relevant period and the income of the Kayak Company during the relevant period.
The Applicant’s activities on the property, in light of the above, are distinctly orientated towards the riding school business. Approximately 70% of the horses owned by the Trust are available for use in the horse riding business and can be hired out. (The Respondent referred in this context to Sonter’s case and which is referred to in full later in these reasons).
In the circumstances, to the extent that the property is used, the Respondent submits that the dominant use of the property is not for any of the purposes in s.10AA(3) Act but rather for horse riding, horse lessons, camping activities, kayaking, picnicking, quad biking, abseiling and ancillary camping and recreational activities. (The Respondent referred in this context by way of example to Clarke v Commissioner of Land Tax(1980) 11 ATR794)
Camping
Camping is a leisure activity conducted on the property and is an extensive activity both in terms of the area of the property on which it is conducted and the number of campers that can be accommodated on the property. An extensive area on the property - approximately 200 acres - is devoted to camping. This is one third of the total usable area of the whole of the property. The campsite can accommodate over 100 people for two nights or more.
Kayaking
Kayaking is offered on the property by way of a 2.5 hour tour along Popran Creek which runs through the property itself.
The kayaks are stored on the property and the tours can vary from 6 to 200 people. A pool of 6-8 casual staff are employed in relation to kayaking. Cleaning of the kayaks (and any damage that may occur to the kayaks) takes place on the property.
The income generated by the kayak tours is received by Ocean Planet Kayak Tours Pty Limited (“the Kayak Company”). This income increased tremendously from $14,000 per year for the year ending 30 June 2007 up to $146,000 per year for the year ending 30 June 2008. It then increased further to about $156,000 for the year ending 30 June 2009. There is no evidence of the financial statements for the Kayak Company for the year ending 30 June 2010.
Quad Biking
Quad biking is also offered on the property and consists of one tour. Casual staff is engaged in relation to quad biking. The maintenance and repair of quad bikes is conducted in sheds wholly on the property.
Approximately 30 quad bikes are stored in freight containers on the property and people meet on the property for the purpose of starting the quad bike tours where instruction is given.
Income generated from quad biking tours is considerable. For the year ending 30 June 2007 it was approximately $4,000 but jumped tremendously to $430,000 for the year ending 30 June 2008 and up to $600,000 for the year ending 30 June 2009. It can be inferred that the cost of acquiring approximately 30 quad bikes was also not insignificant.
Abseiling
Abseiling is also offered and takes place on the property. The abseiling tours last about 2.5 hours and one to six casual staff is employed for that purpose. People interested in the tour meet in the reception area and are driven to the location of the abseiling tour.
Expenditure of about $10,000 has taken place on abseiling gear and an income of approximately $55,000 was generated for the year ending 30 June 2009.
Fishing Park
There is a fishing park on the property provides members of the public with the opportunity to fish. The park is also there to allow fish to breed and grow.
Mountain biking
Mountain biking is also an activity that has been offered over the last four years to members of the public and is undertaken wholly on the property.
Laser Skirmishing
Laser skirmishing is also an activity that takes place on the property and lasts for about 1-2 hours.
Bushwalking
Bushwalking is also offered to members of the public. Instructors are employed in this regard and tours occur on the property.
Orienteering/Rogaining
The activity of orienteering and/or rogaining is also offered to members of the public. Income of approximately $6,860 was generated from this activity for the year ending 30 June 2009.
Archery
Archery is also an activity offered on the property and is shown on the website as being offered to members of the public.
Laser Clay Pigeon Shooting
This activity is also offered on the property and is shown on the website as available to members of the public. Third party contractors are employed in relation to this activity.
Corporate team building
Various activities are offered by way of corporate team building on the property including overnight stays that have been undertaken by various corporations as listed in the website. A number of activities take place on the property in relation to corporate team building.
Outdoor Education Programs Offered To School Students
The property also offers a number of outdoor education programs to school students which are advertised on the website to school students.
Hiring Out Property For Weddings, Conferences, Photo Shoots
The property is also regularly hired out for weddings, conferences and various photo shoots. Marquees are set up on the property in this regard.
Conclusion
Accordingly, in light of the above evidence, the Applicant’s website advertises approximately 15 leisure activities, many of which are conducted on the property itself. It is not just horse riding which is of a “sufficient scale” and potentially relevant to the determination of dominant use. An objective observer, viewing the usable land as a whole, and taking into account:
a) the income generated by such activities;
b) the expenditure on such activities;
c) the time and effort put into such activities,
d) the staff employed for such activities;
e) the extent of the property devoted to such activities;
f) the extensive advertising of such activities via the website and the pamphlet,
would reach the conclusion that the dominant use of the property is for a holiday resort with numerous leisure activities.
The area used in respect of agistment was undoubtedly larger than that used for recreational activities; moreover it is likely that the value of equipment used in agistment and other agricultural activities was in excess of that in respect of recreational activities. On the other hand the recreation activities generated more income, on a gross basis; the horse riding activities in particular generated considerable income, See in this context clauses 111 and 112 of AS (noting that information as to the 2006 land tax year is not relevant and again omitting footnotes) as follows;
Set out in the table below is a summary of the gross income received from the main business activities occurring between 30 June 2006 to 30 June 2010 ("Table 1"):
Table 1: Gross income from main activities
Year ended
Third party agistment
Cattle breeding (sales)
Horse breeding (sales)
Agistment of horses owned by Trust[1]
Horse riding
Kayaking
Abseiling
Quadbiking
30-Jun-05
$321,063.14
$22,435.64
$13,196.23
$442,406.00
$1,339,272.88
30-Jun-06
$390,585.93
$46,094.65
$8,297.45
$506,307.79
$1,395,293.67
30-Jun-07
$401,437.77
$5,636.82
$16,781.84
$535,178.95
$1,445,175.47
$ 15,550.17
$ 4,394.55
30-Jun-08
$424,857.57
$1,582.78
$15,885.70
$601,366.85
$1,410,138.72
$153,830.71
$433,059.29
30-Jun-09
$514,280.26
$3,790.16
$17,224.88
$230,715.45
$1,688,261.24
$156,784.23
$55,014.50
$621,212.56
30-Jun-10
$592,832.31
$3,200.76
$15,232.31
$271,327.00
$1,677,624.30
(no accounts)
(no accounts)
(no accounts)
Decision last updated: 31 January 2012
Although on the face of the accounts it appears that the horse riding activities on the Property generated more income than the sale of pasture by way of agistment and the sale of livestock, we submit that not all the income derived from the activity of horse riding could be apportioned to use of the Property. In fact, 85% of the tracks and trials used by the horse riding business are located on public and Crown road reserves. Of the tracks and trials belonging to the Property which are used in the horse riding business, those tracks and trials are not used exclusively in the horse riding business, nor are they used in the horse riding business continuously over the course of a day.
The Applicant contends that it is relevant that the horse riding activity took place in part on land which was not part of the Property although rides started in and finished in the Property. The horse riding activity was conducted in the Property utilising horses made available at the Property and the services of employees based at the Property and the fact that part of any given ride may have taken place on other land is in my view not relevant. So for that matter and for the same reason, it does not matter that some part of the kayaking activities were conducted on water outside the Property. There is in my view no basis for a view that some part of the revenue so generated should be excluded.
The Applicant contends that while a website may have some relevance it will not be significant. A consideration of this website and the other evidence before the Tribunal suggests otherwise. In these modern times the website is increasingly the method by which an enterprise attracts customers and anyone entering this website would come to the conclusion that it involves a leisure park. The photographs which were in evidence support a finding that the Property was predominantly used as a large entertainment facility. As I have said there was no evidence by an independent observer to any different effect.
The Applicant in AS2 contends that the Chief Commissioner’s attack on the credibility of Mr Lawler is weak and in this regard some brief comment by the Tribunal is desirable. It is my view that his evidence was open to criticism for two reasons in particular; his knowledge of the basic structure was uncertain and he plainly had difficulty with the accounts; the evidence of the Applicant’s accountant might have been helpful. Moreover and as I have mentioned his evidence was flawed by an evident desire to upgrade the importance of the agistment activities and to downplay the importance of the recreational facilities.
The Ruling, to which I have referred, is in some respects not easy to interpret. Clause 4 sets out a number of factors which require consideration for this purpose but clause 7, which is not consistent with clause 4, suggests that the exemption will apply where the level of investment in primary production is larger than the level of investment in any other activity, I do not think that these two clauses of the Ruling are readily reconcilable.
On balance and to the extent to which it is necessary for me to make a finding as to the dominant use issue I would find that the recreational use was dominant; in the alternative I would find as Rath J did in Sonter v Commissioner of Land Tax 1976 7 ATR 30 that the Applicant has not discharged the onus.
Part F; the unusability issue
This part too is included as a matter of completeness. In essence the Respondent contends that where a very large part of the subject land cannot be used there is no dominant use. Clauses 24 to 32 of RS are included and in this instance so as to include those footnotes which are references to decided cases, as follows:
"Dominant” in s.10AA(3) of the Act 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;, Leda Manorstead Pty Limited v Chief Commissioner of State Revenue [2010] NSWSC 867 at para [69] per Gzell J Significantly, it is submitted that the Applicant must identify the dominant use of the land for the purposes referred to in paragraphs (a)-(f) of s. 10AA(3).
When section 10AA(3) speaks of the dominant “use for”, that which is dominant is not to be determined by reference to uses that constitute a “use for” a specified purpose in that sub-section. Rather, the section requires “use for” the relevant specified purpose to be the dominant use whether or not a competing use or uses is a “use for” a specified purpose; Leda at [65] per Gzell J.
Accordingly, if the property was totally vacant and, for example, cattle grazing was confined to a small herd in a small area of the land such that the chief characteristic of the property was unused then the Applicant would fail the dominant use test under s.10AA(3) of the Act; Leda at [67] per Gzell J.
For any use of the land to justify the statement that the land is used primarily for that purpose, it is necessary not only that that use prevail over any competing use but also that it be sufficiently substantial to prevail over the proposition that the land is primarily to be regarded as unused land, Saville v Commissioner of Land Tax (1981) 81 ATC 4373 at 4377 per Roden J.
If the property in question was at all material times substantially unused then it is inappropriate to describe it as primarily used for any purpose; Saville at 4379 per Roden J; Council of the City of Newcastle v Royal Newcastle Hospital (1959) 100 CLR 1 at 4 per Lord Denning.
The question as to what is the main use of the land is not to be answered by pointing to the only activity on the land. An activity going on on the land does not necessarily characterise the use of the land taken as a whole so that one can say that the land is used primarily for that activity (emphasis added). This is a correct proposition if there is more than one activity on the land and it does not cease to be correct where a portion of the land is not being put to any use; Greenville v Commissioner of Land Tax (NSW) (1977) 7 ATR 278 at 290 per Helsham CJ in Equity; Longford Investments Pty Limited v Commissioner of Land Tax (NSW) (1978) 8 ATR 656 at 661 per Sheppard J; Brown v Commissioner of Land Tax (NSW) (1977) 7 ATR 642 at 648 per Rath J.
The parcels comprising the property must be regarded as a whole when seeking to apply the exemption; Brown at 648 per Rath J
The exemption is related to the whole of the parcel and it is from that point of view that the matter must be considered. The predominant use must be of such a degree that that use can be attributed as the character of the parcel as a whole; Jones v Commissioner of Land Tax (NSW) (1980) 80 ATC 4539 at 4541 per Woodward J; Abbott v Commissioner of Land Tax (Victoria) 1978 9 ATR 728 at 732 per Lush J
The above is the intended result of section 10AA which may have the effect that properties where substantial areas of land are totally unused and unusable are not eligible for the exemption.
The Applicant says in effect that the Respondent’s contentions are likely to be tenable only where the unused area of land is large and where a very small portion only is devoted to agriculture; it contends that the test will be satisfied if primary production occurs on a significant, albeit not a major area of the subject land. There is in my view arguably some measure of support for the Applicant’s contention in the judgment of Rath J in Brown’s case. I refer in this context to its content under the head of “Held” on the first page as follows: “Held; allowing the taxpayer’s objection against the assessment; the definition of “primary production” permits of regard being had not only to the area of use but also to the intensity of rural use, the presence or absence of competing uses and the capabilities of the land for use. In this particular instance the land not used at all was substantially unusable and accordingly the whole of the area qualified as land used for primary production.”
It is however not necessary for me to make a finding as to the unusability issue and I do not do so.
Part G Interest
The imposition of interest was at one stage a relevant issue but this is no longer the case.
Part H Conclusion
In the result, and excepting only that the assessment must be reduced by the amount referable to the 2006 land tax year, the decision under review is affirmed.
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