INTERCORP PTY LTD AS TRUSTEE FOR INTERCORP TRUST and COMMISSIONER OF STATE REVENUE
[2018] WASAT 90
•30 AUGUST 2018
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: LAND TAX ASSESSMENT ACT 2002 (WA)
TAXATION ADMINISTRATION ACT 2003 (WA)
CITATION: INTERCORP PTY LTD AS TRUSTEE FOR INTERCORP TRUST and COMMISSIONER OF STATE REVENUE [2018] WASAT 90
MEMBER: DEPUTY PRESIDENT, JUDGE SHARP
HEARD: 22 JUNE 2018
DELIVERED : 30 AUGUST 2018
FILE NO/S: CC 1813 of 2017
BETWEEN: INTERCORP PTY LTD AS TRUSTEE FOR INTERCORP TRUST
Applicant
AND
COMMISSIONER OF STATE REVENUE
Respondent
Catchwords:
Land tax - Review - Exemption - Non-rural land - Primary production - Primary production business - Meaning of 'substantial'
Legislation:
Interpretation Act 1984 (WA), s 5, s 19
Land Tax Assessment Act 2002 (WA), s 5, s 7(1), s 17, s 20, s 29, s 30, s 30A, s 30A(1), s 30A(1)(a), s 30B, s 30B(a), s 30B(b), s 30B(c), s 30B(d), s 30B(e), s 30D, s 30D(1), cl 1 of Glossary, Pt 3 Div 3, Pt 3 s 17 to s 43A
Land Tax Management Act 1956 (NSW), s 10AA(2)(a)
State Administrative Tribunal Act 2004 (WA), s 17(1), s 24, s 27(1), s 29(1)
Taxation Administration Act 2003 (WA), s 40
Result:
Commissioner's decision affirmed
Application dismissed
Category: B
Representation:
Counsel:
| Applicant | : | In Person (through its director Mr R. Roget) |
| Respondent | : | Ms R Panetta |
Solicitors:
| Applicant | : | N/A |
| Respondent | : | State Solicitor's Office |
Case(s) referred to in decision(s):
Bellbird Ridge Pty Ltd atf Bellbird Ridge Unit Trust v Chief Commissioner of State Revenue [2016] NSWSC 1637
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384
Commissioner of State Revenue v Abbotts Exploration Pty Ltd (2014) 48 WAR 300
Commissioner of State Revenue v Landrow Properties Pty Ltd (2010) 79 ATR 800
Commissioner of the Australian Federal Police v Courtenay Investments Ltd (No 2) (2014) 283 FLR 59
Evans v Federal Commissioner of Taxation (1989) 20 ATR 922
Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503
K&S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309
Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue (2013) 88 ATR 379
Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408
Placer Dome Inc v Commissioner of State Revenue [2017] WASCA 165
Re Charles Lloyd Property Group Pty Ltd v Commissioner of State Revenue (2011) 84 ATR 775
Vartuli v Chief Commissioner of State Revenue [2015] NSWCA 372
Walmsley v Chief Commissioner of State Revenue [2015] NSWCATAD 208
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
This matter comes before the Tribunal by way of an application by the applicant under s 40 of the Taxation Administration Act 2003 (WA) (TA Act) dated 29 August 2017 and lodged with the Tribunal on 5 September 2017.
The respondent (Commissioner) made an assessment of land tax for the 2016/2017 assessment year in respect of Lot 47 on Deposited Plan 67905 (Lot 47). The applicant lodged with the Commissioner an objection against that assessment. The basis of the objection was that for the relevant assessment year the applicant says that Lot 47 was used solely for a primary production business and therefore Lot 47 was exempt from land tax.
On 10 July 2017, the Commissioner disallowed the applicant's objection and it is that decision which is the subject of the review in this proceeding.
Proceedings in the Tribunal
Throughout the proceeding Mr Robert Roget, a director of Intercorp Pty Ltd, appeared for and spoke on behalf of the applicant.
At the first directions hearing on 18 September 2017, the matter was referred to a mediation conference. After a number of adjournments, the mediation was terminated on 20 December 2017 without a resolution being achieved.
The proceeding was then programmed to a final hearing.
The parties filed a statement of agreed facts and issues on 6 April 2018. The Commissioner filed her statement of contentions on 7 May 2018 (Commissioner's contentions) and the applicant filed its responsive statement on 23 May 2018 (applicant's response). The Commissioner's final response was also filed on 23 May 2018 (Commissioner's response).
The Commissioner also filed the Commissioner's bundle of documents under s 24 of the State Administrative Tribunal Act 2004 (WA) (SAT Act) on 2 May 2018. The applicant filed the applicant's bundle of documents on 23 May 2018.
The final hearing took place on 22 June 2018. On that date, the Tribunal's decision was reserved.
Facts
The following facts have been drawn from the statement of agreed facts and issues. Certain facts were not agreed between the parties, but it is unnecessary for the purpose of these reasons to make any finding with respect to those matters. The Tribunal makes these findings of fact on the basis that these facts are agreed or, alternatively, are uncontroversial.
Background
On 3 July 2006, Intercorp Pty Ltd as trustee for Intercorp Trust became the registered proprietor of Lot 2 on Plan 20980 being the land comprised in Certificate of Title Volume 2055 Folio 166 (Lot 2).
Lot 2 was non-rural land for the purposes of the Land Tax Assessment Act 2002 (WA) (LTA Act).
For the 2007/2008 assessment year, Lot 2 was exempted from land tax under s 20 of the LTA Act as it was at the relevant time on the basis that the applicant was establishing a rural business on Lot 2.
For the 2008/2009 to 2013/2014 assessment years, Lot 2 was the subject of a concession granted under s 30 of the LTA Act as it was in force at the relevant time, on the basis that although the applicant had failed to satisfy the income test stipulated under the then s 29 of the LTA Act, the respondent was nonetheless satisfied that the land was being used solely or principally for a rural business as that term was then understood.
For the 2014/2015 assessment year, Lot 2 was, using the Commissioner's word, 'automatically' exempted from land tax under s 30D of the LTA Act as the former concession and income test by then had been removed from the LTA Act. Because Lot 2 had previously been granted a concession, the Commissioner again 'automatically' applied an exemption based on the applicant's previous advice as to the nature and extent of the primary production activities conducted on the land.
For the 2015/2016 assessment year, Lot 2 was again exempted from land tax under s 30D of the LTA Act for the reason that the exemption granted in the previous year was simply applied again to the subsequent year.
On 7 June 2016, Lot 2 was subdivided into 4 lots, namely, Lots 44, 45, 46 and 47 on Deposited Plan 67905.
On 21 September 2016, land tax was assessed as payable for Lots 44, 45, 46 and 47 under the LTA Act for the 2016/2017 assessment year as a result of Lot 2 being subdivided.
On 11 October 2016, the applicant lodged an objection against the land tax assessment in respect of Lot 47 for the 2016/2017 assessment year. As previously mentioned, the Commissioner disallowed the objection on 10 July 2017.
Lot 47
Lot 47 has a total area of 28.90 hectares. It had an unimproved value of $1,550,000 in relation to the 2016/2017 assessment year. The owner of Lot 47 is the applicant and the user of Lot 47, in relation to the breeding activities and in relation to the macadamia tree production activities, is the applicant.
Lot 47 is non-rural land for the purposes of the LTA Act.
At the relevant time, the applicant operated a sheep, horse and alpaca breeding business and a macadamia tree production business on Lot 47.
More specifically, in the 2016/2017 assessment year, according to the statement of agreed facts:
(i)the applicant's sheep, horse and alpaca breeding activities were carried out over approximately six hectares of Lot 47; and
(ii)the applicant's macadamia tree production activities, quoting from the statement of agreed facts, were carried out over approximately 2.02 hectares of Lot 47 and approximately 2 hectares of part of lake for irrigation, part road, shed, storage of equipment etc. and part office.
At the hearing, this statement was queried and it was clarified and agreed between the parties that the macadamia tree production activities were carried out over 4 hectares of Lot 47 and the breeding activities were carried out over 13.6 hectares. The balance of Lot 47 was used for non-exempt purposes; ts 37-38, 22 June 2018.
Size of the operations
The applicant asserts, and the Tribunal accepts, that as at 30 June 2016, Lot 47 had on it approximately 13 sheep. A further five breeding horses were retired and 'out to graze due to age'. There were two other breeding horses and two alpacas.
Carrying capacity of stock on Lot 47
The applicant further asserts, and the Tribunal also accepts, that the maximum carrying capacity of Lot 47 is 30 horses and 50 sheep.
Profit and loss results from breeding activities
(a)In relation to the breeding activities, there was no reported revenue for the 2016/2017 assessment year but only an increase in stock;
(b)in relation to the breeding activities, reported expenses for the 2016/2017 assessment year were $6,290, comprised of $2,290 for training, $3,000 for fodder and $1,000 in veterinary costs;
(c)in relation to the breeding activities, there was a loss of $2353.54 for the 2015/2016 assessment year; and
(d)in relation to the breeding activities, there was $4,889.50 reported expenses for the 2015/2016 assessment year, comprised of 'horse training expenses';
Profit and loss results from macadamia production activities
(a)In relation to the macadamia production activities, there was no reported revenue for the 2016/2017 assessment year and there was $30,000 in reported expenses;
(b)in relation to the macadamia production activities, there was no reported revenue for the 2015/2016 assessment year and there was $25,000 in reported expenses; and
(c)the applicant asserts, but the Tribunal makes no finding, that there was unreported revenue of between $15,000 and $20,000 paid to Lifeline, a charitable organisation, as a result of the macadamia production.
Revenue from other activities of the applicant
(a)In relation to the 2016/2017 assessment year, the applicant has reported revenue from:
(i)share investment revenue of $15,646.03;
(ii)capital gains of $220,817.54; and
(iii)rent of $59,906.00 paid to the applicant by R & M Roget as residents of the house on Lot 47.
(b)In relation to the 2015/2016 assessment year, the applicant has reported revenue from:
(i)share investments of $37,568.84; and
(ii)rent of $51,539.34.
Resources
The following resources exist in relation to the breeding activities:
(i)the farm manager's residence;
(ii)a shed;
(iii)dams;
(iv)fences;
(v)shelters; and
(vi)stables.
Business keeping records
The Tribunal accepts the applicant's assertion that it does not arrange to have prepared, in relation to the macadamia tree production activities, any accounts or tax returns as there have been no sales of macadamia nuts since at least 2014/2015 due to produce being destroyed by a protected species of birds, namely, red-tailed black cockatoos.
Issues
The issue before the Tribunal is whether an exemption under s 30D of the LTA Act ought to have been granted for the 2016/2017 assessment year in relation to Lot 47.
What is not in dispute
The Commissioner accepts that:
(a)the sheep, alpaca and horse breeding activities constitute 'primary production' within the meaning of s 30A(1)(b) of the LTA Act;
(b)the macadamia tree production activities constitute 'primary production' within the meaning of s 30A(1)(a) of the LTA Act; and
(c)at the relevant time, Lot 47 was used by:
(i)an owner of the land in relation to the sheep, alpaca and horse breeding activities; and
(ii)an owner of the land in relation to the macadamia tree production activities.
What is in dispute
The applicant asserts, and the Commissioner disputes, that at the relevant time Lot 47 was exempt under s 30D(1) of the LTA Act because it was used solely for a primary production business within the meaning of s 30B of the LTA Act.
The Commissioner contends that as at 30 June 2016 a primary production business was not being conducted on Lot 47 and therefore Lot 47 is not exempt under s 30D(1) of the LTA Act.
Legislative scheme
State Administrative Tribunal Act
Under s 17(1) of the SAT Act, these proceedings fall within the Tribunal's review jurisdiction. The reviewable decision is the decision of the Commissioner to disallow the applicant's objection.
The review of a reviewable decision is to be by way of a hearing de novo; s 27(1) of the SAT Act.
Section 29(1) of the SAT Act provides that the Tribunal has, when dealing with a matter in the exercise of its review jurisdiction, functions and discretions corresponding to those exercisable by the decision-maker in making the reviewable decision.
Land Tax Assessment Act
Section 5 of the LTA Act provides that land tax is payable for each financial year for all land in the State except land that is exempt under s 17.
The term 'financial year' means in any year the period of 12 months ending on 30 June; s 5 of the Interpretation Act 1984 (WA) (Interpretation Act).
The term 'assessment year', in relation to land tax, means the financial year for which the land tax is, or is to be, assessed; cl 1 of the Glossary to the LTA Act.
Land tax payable on land for an 'assessment year' is payable by the person who is or was the owner of the land at midnight on 30 June in the previous year; s 7(1) of the LTA Act.
Section 17 of the LTA Act states that land is exempt from land tax for an assessment year if the Commissioner grants an exemption for the assessment year under s 20 or if the land is exempt under another provision of Pt 3 (comprising s 17 to s 43A inclusive).
Section 20 of the LTA Act does not apply in this case.
Specifically, s 30D(1) of the LTA Act provides:
(1)Land is exempt for an assessment year if, at midnight on 30 June in the previous financial year, the land is-
(a)non-rural land; and
(b)used solely for a primary production business; and
(c)used, as described in paragraph (b), only by one or more of the following-
(i)an owner of the land;
(ii)if an owner of the land is a family owner, a person related to the family owner.
Section 30A of the LTA Act sets out what is meant by land used for primary production. Relevantly, it provides:
(1)Land is used for primary production if it is used for any of the following -
(a)the growing or rearing of plants (including trees, fungi or any crop) for the purpose of selling them, parts of them or their produce;
(b)the breeding, rearing or maintenance of living creatures for any of the following purposes (produce animals) -
(i)selling them, or their progeny, for food;
(ii)the production or collection of their skins, shells or bodily produce;
(iii)selling parts of them or their skins, shells or bodily produce;
(c)the breeding, rearing or maintenance of produce animals for the purpose of selling them or their progeny-
(i)for stud purposes; or
(ii)to be used for a purpose set out in paragraph (b)(i), (ii) or (iii),
(d)the breeding or rearing of horses for the purpose of selling them or their progeny;
(e)any other thing prescribed for the purposes of this subsection.
…
No other activity has been prescribed for the purposes of s 30A(1) of the LTA Act.
Section 30B of the LTA Act sets out the circumstances under which land can be said to be used for a 'primary production business'. It provides:
Land is used for a primary production business if the land is used for primary production and that use of the land -
(a)has a significant and substantial commercial purpose or character; and
(b)is directed at making a profit and has a prospect of making a profit (whether or not a profit is actually being made); and
(c)is planned, organised and carried on in a businesslike manner, rather than being carried on for recreation, hobby, sporting or similar activities; and
(d)has the same or similar characteristics as, and is carried out in the same or a similar manner to, the ordinary trade in that line of business taking into account -
(i)scale, size and permanency; and
(ii)repetition and regularity;
and
(e)is in accordance with any other factor prescribed for the purposes of this section.
No other factor has been prescribed for the purposes of s 30B of the LTA Act.
Principles of statutory interpretation
The present case primarily concerns the statutory construction of s 30B of the LTA Act. The Commissioner set out in the Commissioner's contentions the principles of statutory construction, with which I respectfully agree.
The modern approach to statutory construction in Western Australia was summarised by Edelman J in Commissioner of the Australian Federal Police v Courtenay Investments Ltd (No 2) (2014) 283 FLR 59 at [14]:
The key integers in the exercise of determining the effect of Parliament's intention in [section x] are statutory text, context and purpose. The starting point, and the end point, is the text. But, although the statutory text is the 'surest guide' to Parliament's intention, the text must be read in the widest sense of context, including the general purpose and policy of the provision.
(Citations omitted)
Buss JA said in Commissioner of State Revenue v Abbotts Exploration Pty Ltd (2014) 48 WAR 300 (Abbotts) at [160]:
The modern approach to statutory construction is purposive. The statutory text is the surest guide to Parliament's intention. A decision as to the meaning of the text must begin by considering the context, in its widest sense. This will include the general purpose and policy of the provision.
(Citations omitted)
Accordingly, the starting point in relation to the meaning of s 30B of the LTA Act is consideration of the text, in its proper statutory context.
The proper statutory context of a provision includes:
(a) reading the provision in the context of the statute as a whole; K&S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 at 315; and
(b)the underlying purpose of the statute and the mischief which it was intended to remedy; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408.
When considering the text of, in this case, s 30B of the LTA Act, the Tribunal may have regard to extrinsic materials and legislative history without having to invoke the provisions of s 19 of the Interpretation Act; Abbotts at [91].
However, legislative history and extrinsic materials cannot displace the meaning of the statutory text; Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 at [39].
Further, taxation statutes are to be interpreted in a technical manner; Re Charles Lloyd Property Group Pty Ltd v Commissioner of State Revenue (2011) 84 ATR 775 at 781; Commissioner of State Revenue v Landrow Properties Pty Ltd (2010) 79 ATR 800 at 816.
Application of these principles
The statutory text
Section 30A of the LTA Act provides that if land is used for any of the purposes set out in that section, it will be regarded as being used for primary production.
Section 30B of the LTA Act requires that, for land to be considered as being used for a primary production business (emphasis added):
(a)the land must be used for primary production; and
(b)that use of the land must satisfy all of the separate criteria set out in s 30B(a) to (e).
However, only the criteria in s 30B(a) and (b) of the LTA Act will be considered, because the respondent did not address the other criteria and therefore the applicant did not comment on them. The respondent took the view that if the criteria in s 30B(a) and s 30B(b) were not satisfied, then it is unnecessary to consider the other criteria; ts 12, 22 June 2018. I agree with that statement, on the basis that clearly all the criteria in s 30B must be met and if one is not then the activity concerned is not a primary production business.
Section 30B(a) of the LTA Act has not been judicially considered in Western Australia. However, in New South Wales, s 10AA(2)(a) of the Land Tax Management Act 1956 (NSW), provides for an exemption from land tax for land used for primary production and the use of that land has a 'significant and substantial commercial purpose or character'.
These words, which are the same as the words in s 30B(a), have been considered by the Supreme Court of New South Wales. I am assisted by two decisions in particular.
In Vartuli v Chief Commissioner of State Revenue [2015] NSWCA 372 (Vartuli) at [151], Gleeson JA said that it does not follow that a commercial purpose or character of the use of the land is a significant and substantial commercial purpose or character. He said that that would fail to give the word 'substantial' its ordinary meaning of 'considerable or large' and the word 'significant' its ordinary meaning of 'something of consequence'; Vartuli at [151].
In Bellbird Ridge Pty Ltd atf Bellbird Ridge Unit Trust v Chief Commissioner of State Revenue [2016] NSWSC 1637 (Bellbird) at [73], White J said that 'commercial purpose' and 'commercial character' means that the use of the land for primary production not only has the purpose of obtaining revenue but must have at least a 'profit-making potential'. To have a 'significant and substantial commercial purpose or character, the use must have a character such that it generates, or can reasonably be expected to generate, profit that contributes in a real and not trifling way to the user's income or purpose of generating such profit'.
I respectfully agree with those statements.
In considering the words of s 30B(b) of the LTA Act, the verb 'directed' should be given its ordinary meaning '... to turn (the eyes, attention, mind) straight to an object, (a person or thing) to an aim, purpose etc'; see Oxford English Dictionary online. The word 'prospect' should be given its ordinary meaning, 'expectation'; see Oxford English Dictionary online. The word 'profit' should be given its ordinary meaning, 'a financial gain, esp, the difference between the amount earned and the amount spent in buying, operating, or producing something'; see Oxford English Dictionary online.
Underlying purpose and legislative history
In relation to s 30B of the LTA Act, the clause note for cl 6 of the explanatory memorandum to the Taxation Legislation Amendment Bill (No 2) 2014 (WA) (which introduced Pt 3 Div 3 of the LTA Act) explains (at pages 8 - 9):
This section describes what criteria need to be satisfied to ascertain whether land being used for primary production is being used for a primary production business. The indicators that have been embedded into the legislation are well established indicators derived from common law. The common law indicators are relevant to determining whether primary production activities constitute the carrying on of a business and are no different, in principle, from the indicators as to whether any activity constitutes the carrying on of a business. No single indicator is decisive and whether a business is being carried on depends on consideration of all the indicators. In determining whether an activity is a business of primary production, consideration will be given to the following indicators:
(a)the size, scale and permanency of the activity;
(b)whether the activity has a significant commercial purpose or character;
(c)whether the taxpayer has more than just an intention to engage in business;
(d)whether the taxpayer has a purpose of profit as well as prospect of profit from the activity;
(e)whether there is repetition and regularity of the activity;
(f)whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;
(g)whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit; and
(h)whether the activity is better described as a hobby, recreation or sporting activity.
A prescription power is also contained within the section should any further indicators be identified. For example, this may occur as a result of new case law.
Clearly, the indicators which are set out in the Explanatory Memorandum were intended to reflect the common law indicators as to the existence or otherwise of a business. As Hill J said in Evans v Federal Commissioner of Taxation (1989) 20 ATR 922 (Evans) at 939 on the issue of whether a particular activity constitutes a business:
There is no one factor that is decisive of whether a particular activity constitutes a business. As Jessel MR said in the famous dictum is Erichsen v Last (1881) 8 QBD 414 at 416:
There is not, I think, any principle of law which lays down what carrying on trade is. There are a multitude of things which together make up the carrying on of trade.
Profit motive (but see cf IRC v Incorporated Council of Law Reporting (1888) 22 QBD 279), scale of activity, whether ordinary commercial principles are applied characteristic of the line of business in which the venture is carried on (IRC v Livingston (1926) 11 TC 538), repetition and a permanent character, continuity (Hope v Bathurst City Council (1980) 144 CLR 1 at 9; 12 ATR 231 at 236; Ferguson v FCT (1979) 9 ATR 873 at 876; 79 ATC 4261 at 4264), and System (Newton v Pyke (1908) 25 TLR 127), are in indicia to be considered as a whole …
The common law indicators are to be considered as a whole, but the absence of one will not necessarily result in the conclusion that a business is not being carried on; Evans at 939.
However, upon a consideration of the text of s 30B of the LTA Act, it is clear that, first, not all the factors set out in the Explanatory Memorandum appear in s 30B and the factors set out in s 30B do not entirely reflect the common law indicators. Also, as I have already mentioned, it is apparent from the wording of s 30B that the factors in s 30B must all apply if the use of the land for primary production is to constitute a primary production business. As I have previously noted, extrinsic materials cannot be used to displace the text of the statute.
Focusing in particular on s 30B(a), the word 'substantial' is included, which is not part of the common law test. The word 'substantial' was considered in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue (2013) 88 ATR 379 (Maraya), (referring again to the equivalent provisions in the New South Wales legislation) where, at [66], Gzell J said that the addition of the word 'substantial' means that a more stringent test is to be imposed.
By a 'more stringent test', Gzell J in Maraya at [91] explained (in the context of a cattle operation) that this additional qualification meant that 'the court should consider the intensity of the operation, the size and quality of the herd, the size and carrying capacity of the land and the resources (whether of time, labour or expenditure) put into the development and maintenance of the cattle operation'.
When considering whether the use of the land has 'a significant and substantial commercial purpose or character', the Commissioner is therefore in my view required to consider such factors as:
(a)the intensity of the operation;
(b)size of herd/crop;
(c)quality of herd/crop;
(d)size of the land in question; and
(e)carrying capacity of the land in question.
Other considerations would include:
(a)the resources (time, labour or expenditure) put into the development and maintenance of the operation; Vartuli at [77] citing with approval Maraya at [91];
(b)the relative contribution (from the operation) to the (total) income of the user; Vartuli at [87] and [97];
(c)whether the taxpayer's scale of use is consistent with comparable operations; Vartuli at [90]; and
(d)income and profitability of the operation; Vartuli at [126] and [135]; Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408 (Maraya Appeal) at [60].
The above factors are not discrete; Bellbird at [75]. For example, the intensity of the operation may depend upon the size and quality of the operation and the labour and skill devoted to it.
Whether something has a substantial purpose or character involves some matter of relative judgment; Maraya Appeal at [84].
Applicant's submissions
The applicant says that other than share investments, there are no other activities or business conducted by the applicant. The share investments and profits represent investments similar to those normally accepted as superannuation and these investments can in no way be classed as alternative business activity.
The applicant asks, 'where does it say in the [LTA Act] that primary production returns have to [be] for the benefit of the landowner?'; ts 58, 22 June 2018.
The applicant says that the critical question is what the applicant uses the land for. If it is for primary production, then even if it generates a loss, the land must be exempt from land tax; ts 59, 22 June 2018.
The applicant points out that Lot 47 could reasonably be expected to generate a profit so long as problems beyond their control are eliminated. The applicant is here referring to damage caused to the trees by cockatoos and to livestock by neighbourhood dogs. The applicant points out the inclusion of the phrase 'has a prospect of making a profit' where it appears in s 30B(b) of the LTA Act and says that Lot 47 can be regarded as being used for a primary production business on the basis that a profit is something which the applicant hopes for and has an apparent chance of making.
The applicant, presumably relying on the common law indicators of the existence of a business, points out that a business does not need to be a large business to qualify as a business.
Onus of proof
The applicant carries the onus of proving to the Tribunal that the Commissioner's assessment of land tax for the 2016/2017 assessment year issued on 21 September 2016 was incorrect or invalid; Placer Dome Inc v Commissioner of State Revenue [2017] WASCA 165 at [204] and [208].
Findings
Sheep, alpaca and horse breeding activities
It is clear that the use of Lot 47 at the relevant time for sheep, alpaca and horse breeding activities did not have a significant and substantial commercial purpose or character for the purposes of s 30B(a) of the LTA Act.
Only 13.6 hectares of the 28.9 hectares comprising Lot 47 is used for sheep, alpaca and horse breeding activities; ts 37, 22 June 2018 and paragraph 11(a) of the statement of agreed facts. Further, in both 2016/2017 and the preceding assessment year, the sheep, alpaca and horse breeding activities contributed nothing to the total income of the applicant, which was derived entirely from share investments, capital gains and rent from the directors of Intercorp Pty Ltd's occupation of the residence on Lot 47; paragraph 11 of the statement of agreed facts and page 58 of the Commissioner's bundle of documents.
In addition, as at 30 June 2016, accepting the applicant's assertion as to the size of the sheep, alpaca and horse breeding operation, the size of the operation was small in absolute terms as well as when compared to the carrying capacity of Lot 47 namely, 30 horses and 50 sheep. Further, the value of Lot 47 of $1,550,000 (paragraph 11(b) of the statement of agreed facts) relative to the lack of any return from the breeding activities for the 2016/2017 assessment year does not suggest the existence of a significant or substantial commercial purpose or character. This indicates to the Tribunal that the operation on Lot 47 was not 'a weighty, serious or intense commercial operation'; Walmsley v Chief Commissioner of State Revenue [2015] NSWCATAD 208 (Walmsley) at [37].
No evidence was given about the quality of the herd and I make no finding in that regard.
Turning to s 30B(b) of the LTA Act, it is also my view that the use of Lot 47 at the relevant time for sheep, alpaca and horse breeding activities was not directed at making a profit and did not have a prospect of making a profit.
The carrying capacity of Lot 47 was 30 horses and 50 sheep. However, as at 30 June 2016 there were only 7 horses, 13 sheep and 2 alpacas being bred on the land; paragraph 15 of the statement of agreed facts.
From the breeding activities conducted on Lot 47 in the 2016/2017 assessment year, despite expenses of $6,290, there was no revenue generated; paragraph 11 of the statement of agreed facts; page58 of the Commissioner's bundle of documents.
In the preceding assessment year, a loss of $2,353.54 was reported from the breeding activities conducted on Lot 47 along with expenses of $4,889.50; paragraph 11(l) and (m) of the statement of agreed facts; page 58 of the Commissioner's bundle of documents.
In addition, the breeding activities as at 30 June 2016 were only being carried out over 13.6 hectares, in contrast to the total size of Lot 47, 28.90 hectares; paragraph 11 of the statement of agreed facts, ts 37-38, 22 June 2018.
The Tribunal therefore finds that the sheep, alpaca and horse breeding activities carried out on Lot 47 on 30 June 2016 did not constitute a primary production business within the meaning of s 30B of the LTA Act.
Macadamia tree production activities
It is also my opinion that the use of Lot 47 at the relevant time for macadamia tree production activities did not have a significant and substantial commercial purpose or character for the purposes of s 30B(a) of the LTA Act. Approximately 4 hectares only of a total of 28.9 hectares was used for the macadamia tree activities; paragraph 11(g)(ii) of the statement of agreed facts; ts 3738, 22 June 2018;
Further, in 2016/2017 and the preceding assessment year, the macadamia tree activities contributed nothing to the total income of the applicant (paragraphs 11(n) - (p) of the statement of agreed facts; page58 of the Commissioner's bundle of documents). I have already identified the sources of the applicant's income for both the 2015/2016 assessment year and the 2016/2017 assessment year. There was no return and simply no profitability associated with these activities.
In addition, the value of Lot 47 of $1,550,000 (paragraph 11(b) of the statement of agreed facts) relative to the zero net return (paragraphs 11(n)-(p) of the statement of agreed facts) from the macadamia tree activities for the 2016/2017 assessment year, indicate to the Tribunal that the operation on Lot 47, again using the words of Walmsley at [37], was not 'a weighty, serious or intense commercial operation'.
Similarly, the use of Lot 47 at the relevant time for the macadamia tree activities was not directed at making a profit and did not have a prospect of making a profit for the purposes of s 30B(b) of the LTA Act.
The applicant's explanation for why there was no revenue earned from the macadamia tree production activities for the 2016/2017 assessment year is because protected red-tailed cockatoos are eating the nuts from the trees (paragraph 11(r) of the statement of agreed facts) has the consequential negative effect on the prospect of the applicant ever making a profit, and this situation has existed since at least 2008 and still persists to date; paragraphs 11(q) and 11(r) of the statement of agreed facts; pages 109, 121 and 125 of the Commissioner's bundle of documents.
The suggestion that there was a derived charitable benefit, even if proved, does not mean that the criterion in s 30B(b) of the LTA Act is satisfied.
The Tribunal finds that the macadamia tree activities carried out on Lot 47 did not constitute a primary production business within the meaning of s 30B of the LTA Act.
Conclusion
I do not consider that the applicant has discharged the burden on it of proving that the Commissioner's assessment of land tax for the 2016/2017 assessment year was incorrect or invalid.
Neither the sheep, alpaca and horse breeding activities nor the macadamia tree production activities is a primary production business under s 30B of the LTA Act because the criteria in s 30B(a) and in s 30B(b) of the LTA Act are not satisfied in respect of either activity. The other criteria in s 30B have not been considered because it is unnecessary to do so.
The applicant does not argue that there is any other activity conducted on Lot 47 and it is therefore the Tribunal's conclusion that on 30 June 2016 a primary production business was not being conducted on Lot 47. The Tribunal affirms the Commissioner's decision of 10 July 2017.
Order
1.The decision of the respondent made on 10 July 2017 to disallow the applicant's objection to land tax for the assessment year 2016/2017 is affirmed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
JUDGE T SHARP, DEPUTY PRESIDENT
30 AUGUST 2018
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