Premier Bay Pty Ltd v Commissioner of State Revenue

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

TAXATION LIST

S ECI 2023 01534

PREMIER BAY PTY LTD (ACN 052 427 684)	Applicant
v
COMMISSIONER OF STATE REVENUE	Respondent

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JUDGE:	Croft J
WHERE HELD:	Melbourne
DATE OF HEARING:	1 May 2024
DATE OF JUDGMENT:	31 July 2024
CASE MAY BE CITED AS:	Premier Bay Pty Ltd v Commissioner of State Revenue
MEDIUM NEUTRAL CITATION:	[2024] VSC 447

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TAXATION — Land tax — Primary production exemption — Land Tax Act 2005, s 67 — Whether principal business of taxpayer was primary production of type carried on on land in question — Where taxpayer received rental income from lease of land to a related entity that was a partnership — Where land was primarily used for business of breeding cattle for sale pursuant to lease — Where taxpayer was also engaged in the business of cattle farming — Identification of scope of a business requires a “wide survey and exact scrutiny” — Mould v Commissioner of State Revenue [2015] VSCA 285 — Spriggs v Commissioner of Taxation (2009) 239 CLR 1 — Identification of scope of a business may be informed by activities of related entities — Grollo Nominees Pty Ltd v Federal Commissioner of Taxation (1997) 147 ALR 330 — GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160 — London Australia Investments Co Ltd v Federal Commissioner of Taxation (1977) 138 CLR 106 — Leasing activities comprised part of the Applicant’s principal business of primary production — Lease was merely instrument designed to allocate revenue from primary production cattle business on land to the taxpayer— Lavendar Rain Pty Ltd v Commissioner of State Revenue [2022] VCAT 1264 — Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379 — Appeal allowed.

PRACTICE AND PROCEDURE — Appeal to Trial Division of Supreme Court of Victoria from Victorian Civil and Administrative Tribunal — Whether Applicant’s challenge to VCAT’s construction and application of word “business” in s 67(2)(d)(i) of Land Tax Act 2005 constitutes a question of law — “it is in effect only in cases of statutes which involve very simple words permitting of only one ordinary meaning that the problem is purely factual” — Word “business” is not “very simple”, nor does it bear “only one ordinary meaning” — R v ACR Roofing Pty Ltd (2004) 11 VR 187 — Proposed question identifies a question of law — Whether relative weight given to factual indicia derived from case law gives rise to an error of law — Relative weight was a matter of factual discretion and does not give rise to error of law — No error of law — Errors of law identified as to other questions.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr G. T. Pagone KC with Mr L. Molesworth	Dentons Australia Limited
For the Respondent	Ms M. Baker KC with Mr A. Healer	State Revenue Office

HIS HONOUR:

Introduction and Background

This proceeding is brought pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (“the VCAT Act”). The applicant, Premier Bay Pty Ltd (ACN 052 427 684) (“the Applicant” or “Premier Bay”), acts in its capacity as trustee of the Montalto Family Trust and seeks leave to appeal the orders of Acting Senior Member R. Tang made on 21 March 2023 in VCAT proceeding numbers Z1056/2021 and Z1057/2021 (“the Orders”). On 21 March 2023, the Victorian Civil and Administrative Tribunal (“VCAT” or “the Tribunal”) published reasons for the making of these Orders (“Reasons”).

On 29 August 2019, the Commissioner of State Revenue (“the Respondent” or “Commissioner”) issued land tax assessments in respect of the 2018 and 2019 land tax years (assessment numbers 18647698 and 31663443 respectively) imposing land tax in relation to a property owned by Premier Bay at 1145 Donnybrook Road, Donnybrook (“the Relevant Property”).

The Applicant, Premier Bay, objected against these assessments and later sought review by the Tribunal pursuant to s 106 of the Taxation Administration Act 1997 of the Commissioner’s determination of its objections. Premier Bay contended that, for each of the 2018 and 2019 tax years, it satisfied the requirements for exemption of the Relevant Property under s 67 of the Land Tax Act 2005 (“LTA”), the applicable exemption for land in an urban zone used solely or primarily for the business of primary production.

Between mid‑2017 and mid‑2019, the Relevant Property was primarily used for the business of breeding cattle for sale by a partnership between Mr Tommaso Montalto and the estate of his late wife, Mrs Angela Montalto (“T&A Partnership”). The Relevant Property was leased to the T&A Partnership by Premier Bay. As well as leasing the Relevant Property to the T&A Partnership, Premier Bay was also engaged in breeding cattle for sale, but did so from a different property, owned by Mr Montalto located on Wildwood Road, Whittlesea (“the Wildwood Road Property”).

The Tribunal dismissed Premier Bay’s application finding that it carried on two businesses of equal significance, being primary production from the Wildwood Road Property, and leasing of the Relevant Property to the T&A Partnership along with other properties leased to third parties, neither of which could be considered to be its principal business. The Tribunal arrived at this view notwithstanding its finding that the Relevant Property was used primarily for the business of primary production, and Mr Montalto was normally engaged in a substantially full‑time capacity in the business of primary production between the Relevant Property and the Wildwood Road Property.[1] The Tribunal found that Premier Bay, being a trustee of a discretionary trust within the meaning of s 64 of the LTA, did not satisfy the requirement in s 67(2)(d)(i) that its principal business must be primary production of the type carried out on the land in question.[2]
[1]Reasons [7].
[2]Reasons [8].

The Respondent argues that the proposed questions of appeal are not properly viewed as questions of law for the purposes of s 148 of the VCAT Act because the way they have been framed does not raise any questions as to the Tribunal’s findings of fact being against the evidence, otherwise legally unreasonable, or whether or not the Tribunal’s finding of facts under the statutory enactment was reasonably open on the evidence.[3] Hence, it says that leave to appeal should not be granted. If, however, leave to appeal were to be granted in respect of one or both of the proposed grounds, the Respondent submits that the appeal should, nevertheless, be dismissed.
[3]TS26:14–31.

Principles applicable with respect to appeals

I recently considered the principles applicable with respect to appeals from VCAT pursuant to s 148(1) of the VCAT Act in The Trust Company Limited v Blue Train Cafe Pty Ltd.[4] In summary, appeals from VCAT pursuant to s 148(1) of the VCAT Act are dependent on two important qualifications. An appeal must be on a question of law, and the Court must give leave to appeal. Since 1 May 2018, s 148(2A) has imposed an additional safeguard, being that the Court may only grant an application for leave to appeal if it is satisfied the appeal has a “real prospect of success”. Courts have long recognised the necessary restraint this Court should show in reviewing VCAT decisions and have been concerned not to subvert the role entrusted by the legislature to the Tribunal by seeking out error. In addition to the leave requirement, a decision of a specialist tribunal must not be interfered with absent a vitiating error of law. Moreover, s 148 does not contemplate that the Court may substitute its own views on the evidence before the Tribunal, the relevance or significance of this evidence, or the inferences which may be drawn from it. It has been held that it is not open for this Court to entertain further debate as to the merits of the decision on the facts: the function of the Court being “limited to the exercise of a supervisory jurisdiction intended to ensure that the merits review which the Tribunal carried out was undertaken in accordance with its statutory obligations.”[5]
[4][2024] VSC 232 [10]–[20]; see also Club Fogolar Furlan Melbourne v Paramount Investments Group Pty Ltd [2024] VSC 208 [7]–[14].
[5]Hoskin v Greater Bendigo City Council (2015) 48 VR 715, 720 [9]–[11]; and see Karakatsanis v Racing Victoria Ltd (2013) 42 VR 176, 186 [22] (CA); Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Ltd (2014) 45 VR 771, 782 [41] and 805 [162] and [165] (CA); and Maund v Racing Victoria Ltd [2016] VSCA 132, [67].

The appeal

Leave to appeal is sought with respect to the following questions of law as put by the Applicant in the proposed notice of appeal (“the Notice of Appeal”):

1.Whether Premier Bay’s primary production business, within the meaning of section 67(2)(d)(i) of the Land Tax Act 2005 (Vic) (“the Act”) (as defined by section 64 of the Act), as at 31 December 2017 (“the 2018 year”), included the receipt of rental income from the integrated and undifferentiated activities undertaken upon the land by the same individuals in relation to the same livestock directed to the same business ends pursuant to an informal lease between Premier Bay and the T&A Partnership?
2.Whether Premier Bay’s primary production business, within the meaning of section 67(2)(d)(i) of the Act (as defined by section 64 of the Act), as at 31 December 2018 (“the 2019 year”), included the receipt of rental income from the integrated and undifferentiated activities undertaken upon the land by the same individuals in relation to the same livestock directed to the same business ends pursuant to a formalised lease between Premier Bay and the T&A Partnership?
3.Whether the principal business of Premier Bay in each of the 2018 and 2019 years was that of primary production given the findings by the learned Acting Senior Member of the extent and significance of the labour employed by Mr Montalto in the business of Premier Bay, and of the integration of that labour in producing the income of Premier Bay with the capital employed?
4.Whether the reference to “business” in section 67(2)(d) of the Act in its ordinary meaning, permitted or required the separate stream of rental income from the T&A Partnership to be treated as a separate business from the primary production business of Premier Bay, contrary to the construction adopted by the learned Acting Senior Member?
5.Whether the character of the “business” of Premier Bay may be informed by its relationship with and extent of involvement in the primary production business and activities of its related entity, being the T&A Partnership?
6.Whether the primary production business of Premier Bay in the 2018 and 2019 years was its principal business?
7.Whether Premier Bay in each of the 2018 and 2019 years satisfied the requirements for the land tax exemption pursuant to section 67 of the Act for the property located at 1145 Donnybrook Road, Donnybrook, Victoria?

Leave to appeal is sought with respect to the following questions of law as put by the Applicant in the Notice of Appeal:

Ground 1
1.The ordinary meaning of business for the purposes of section 67(2)(d)(i) of the Act requires identification of the business by undertaking both a wide survey and an exact scrutiny of Premier Bay’s activities without artificial dissection of individual or separate income streams: Mould v Commissioner of State Revenue (2015) ATC 20‑537; [2015] VSCA 285 [84]; Spriggs v Commissioner of Taxation (2009) 239 CLR 1 at [55], [59]‑[60], [68]‑[73]; Stone v Commissioner of Taxation (2005) 222 CLR 289 at [561‑[64]; Grollo Nominees Pty Ltd v Federal Commissioner of Taxation (1997) 147 ALR 330 at 388.
2.In this case the learned Acting Senior Member impermissibly dissected from the identification of the primary production business of Premier Bay a stream of income that was properly part of the primary production business of Premier Bay, being the rental income from the T&A Partnership.
3.The income of the T&A Partnership and of Premier Bay arose from the wholly integrated activities of the same primary production undertaking performed by the same individuals on the same land with the same undifferentiated livestock. It is artificial to treat Premier Bay’s receipt of rental income from the T&A Partnership as not part of the one integrated primary production business activity of Premier Bay but as part of some identifiably separate business.
4.Alternatively, if the receipt of the rental income from the T&A Partnership was not part of the primary production business of Premier Bay then it is the bare receipt of passive income and incapable of being a separate business.

Ground 2
5.The income and expenses of a primary production business are not confined narrowly to the receipt of income from the sale of livestock. The ordinary income and items of expense of a primary production business are apt to extend to all receipts and items of expenses properly related to the business, which are reasonably incidental to and in the course of the ordinary business activity as judged by ordinary commercial standards: London Australia Investments Co Ltd v Federal Commissioner of Taxation (1977) 138 CLR 106 at 112, 115, 117.
6.The rent received by Premier Bay was part of its integrated primary production business and not from a particular independent or separate activity of Premier Bay.
7.The primary production business of Premier Bay was, as the Acting Senior Member was correct to find, conducted by Mr Montalto across two farms on an integrated basis in circumstances where all of the cattle were bought and sold by him and by reference to his personal livestock registration details.
8.Both the streams of income from the sale of livestock and the rent received by Premier Bay thus arose from the common and integrated exploitation of the same farming land for income earning activities from primary production.

Ground 3
9.The character of a business should not be assessed in isolation from the business activities of other related entities in an integrated business: Grollo Nominees Pty Ltd v Federal Commissioner of Taxation (1997) 147 ALR 330 at 388.
10.The T&A Partnership, a partnership between Mr Montalto and the estate of his late wife, was a related entity of Premier Bay, being the trustee of the Montalto Family Trust of which Mr Montalto and his late wife were the sole specified beneficiaries.
11.The primary production activity of the T&A Partnership, a related entity of Premier Bay, helped to inform the characterisation of the business activity of Premier Bay as the businesses both involved the maintenance and sale of cattle across two properties by Mr Montalto and which cattle were treated as all being owned by Mr Montalto for sale and registration purposes.

Ground 4
12.A stream of rental income may be income of a primary production business where it has the stamp of its connection with primary production: GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160 at 164; Spriggs v Commissioner of Taxation (2009) 239 CLR 1 at [55], [59]‑60], [68]‑[73]; Stone v Commissioner of Taxation (2005) 222 CLR 289 at [56]‑[64].
13.The rent received by Premier Bay from the T&A Partnership is stamped with the character of income of Premier Bay’s primary production business as the T&A Partnership operated part of the primary production activities of the integrated primary production business of Premier Bay.
14.The activities of the T&A Partnership properly threw light on the nature of the income stream received by Premier Bay from the T&A Partnership and point to such income being income of Premier Bay’s primary production business.

Ground 5
15.The “principal business” of Premier Bay within the meaning of section 67(2)(d)(i) is on the facts found by the learned Acting Senior Member most informed by the activity to which the labour of the entity is principally directed.
16.As the learned Acting Senior Member was correct to find, Mr Montalto undertook the vast majority of Premier Bay’s primary production activity himself and was normally engaged in a substantially full‑time capacity in the business of primary production.
17.In other cases the nature or extent of labour applied to other relevant factors such as income and capital might not be sufficient to outweigh the nominal monetary value received as income or notionally employed as capital. But in this case, as the learned Acting Senior Member found, the whole of the land in question (that is, part of the capital employed) was wholly employed by Mr Montalto in the undifferentiated primary production business of the group entities through his labour. In any event the learned Acting Senior Member erred by not treating the livestock as part of the capital employed when evaluating whether the primary production business was the principal business of Premier Bay.
18.Given the significance and extent of the findings of the labour employed by Mr Montalto in the business of Premier Bay (and, in the alternative, to which should be added consideration of the livestock as part of the capital employed by Premier Bay), and its integration in producing the income of Premier Bay, the principal business of Premier Bay was that of primary production.

Legislative provisions

The LTA imposes land tax in respect of each year on all taxable land in Victoria.[6] The owner of that land is liable to pay the land tax.[7] By reason of the definition of “year” in s 3 of the LTA, land tax is assessed based on calendar years, not financial years.
[6]LTA s 7.
[7]LTA s 8.

Section 8 of the LTA provides that the owner of the taxable land is liable to pay land tax. Section 10 defines “owner” as including, amongst other people, a person entitled to land from freehold estate in possession. The Applicant concedes that it falls within the scope of s 10.[8]
[8]TS2:18–20.

The expression “taxable land” means, under the provisions of the LTA, “land that is not exempt land”.[9] A number of classes of exempt land are created by the LTA. Of relevance in the present proceedings is s 67 of the LTA which exempts certain land used for the business of primary production, in the following terms:
[9]LTA s 3.

67 Exemption of primary production land in an urban zone in greater Melbourne
(1) Land is exempt land if the Commissioner determines that—
(a) the land comprises one parcel that is—
(i) wholly or partly in greater Melbourne; and
(ii) wholly or partly in an urban zone; and
(iii) used solely or primarily for the business of primary production; and

(b)the owner of the land is a person specified in subsection (2).

(2)The owner of the land must be—
(a)… ; or
(b)… ; or
(c)…; or
(d) a trustee of a discretionary trust of which—
(i) the principal business must be primary production of the type carried on on the land; and
(ii) either—
(A) each specified beneficiary is a natural person; or
(B) at least one of the specified beneficiaries is a natural person and each of the specified beneficiaries who is not a natural person is either—
(a) a charitable institution or a trustee of a charitable trust; or
(b) a company all of the shares in which are owned by one or more of the specified beneficiaries who are natural persons; or
(c) a trustee of a trust (except a charitable trust), all of the beneficiaries or specified beneficiaries of which are specified beneficiaries of the discretionary trust who are natural persons; and

(iii) either—
(A) at least one of the specified beneficiaries is a natural person who is normally engaged in a substantially full‑time capacity in the business of primary production of the type carried on on the land; or
(B) …; or
…

The expression “primary production” is defined by s 64(1) of the LTA as follows:

(a)cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state); or
(b)the maintenance of animals or poultry for the purpose of selling them or their natural bodily produce; or
(c)the keeping of bees for the purpose of selling their honey; or
(d)commercial fishing, including the preparation for commercial fishing or the storage or preservation of fish or fishing gear; or
(e)the cultivation or propagation for sale of plants seedlings mushrooms or orchids.

Section 36(1) of the LTA provides that a taxpayer is to be assessed for land tax on land for a tax year on the total taxable value of all taxable land owned by the taxpayer as at midnight on 31 December of the immediately preceding calendar year. This provision makes it “unambiguously clear that the question of the taxable status of the land in question is to be determined as at the assessment date”.[10] Depending on the evidence with respect to particular land, one may simply look at “what was occurring on the land on the date in question” or, alternatively, “the ascertainment of the use at that date may depend on additional evidence about what was happening on the land shortly before and/or shortly after the date in question”.[11]
[10]Rainn Pty Ltd v Commissioner of State Revenue [2016] VSCA 338, [15].
[11]Rainn Pty Ltd v Commissioner of State Revenue [2016] VSCA 338, [17]; see also Longford Investments Pty Ltd v Commissioner of Land Tax (NSW) (1978) 8 ATR 656, 660.

It follows from the provisions of the LTA to which reference has been made that the question in these proceedings is the use of the Relevant Property and associated issues as at midnight on 31 December of each of 2018 and 2019, with the ascertainment of that use possibly assisted by looking at the periods around these assessment dates. In this context, the Applicant puts its case, fundamentally, in terms of reliance on s 67 of the LTA.[12]
[12]TS2:2–3.

The issue, under s 67 of the LTA, is whether in each of the relevant tax years, the Applicant’s principal business was primary production of the type carried on on the Relevant Property. Under these provisions, the Applicant must establish this matter to succeed in respect of any tax year.

Ground 1 — Construction of the word “business”
Preliminary

At the heart of this ground is paragraph 71 of the Tribunal’s Reasons which is extracted below:

In my view, the rent that Premier Bay receives from the T&A Partnership cannot be regarded as income from a business of primary production in the sense defined in the LT Act.

The Tribunal found that the rent received from the T&A Partnership could not be regarded as part of Premier Bay’s primary production business, and instead from a separate leasing business.

Question 4 of the Notice of Appeal asks whether the reference to the word “business” in s 67(2)(d) of the LTA “permitted or required the separate stream of rental income from the T&A Partnership to be treated as a separate business” from the Applicant’s primary production business of cattle farming.

Applicant’s submissions

The Applicant submits that the ordinary meaning of “business” for the purposes of s 67(2)(d)(i) of the LTA required the Tribunal to identify the business by “undertaking both a wide survey and an exact scrutiny of Premier Bay’s activities without individual or separate dissection of income streams”.[13] It says that in identifying the primary production business of Premier Bay, the Tribunal “impermissibly dissected” the rental income it received from the T&A Partnership, a stream of income, which it contends, was part of the primary production business of Premier Bay.[14] The Applicant says that the Tribunal excluded the income from the lease to the T&A Partnership not as a question of fact, but one of construction.[15]
[13]Notice of Appeal [1], citing Mould v Commissioner of State Revenue [2015] VSCA 285, [84]; Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 18 [55], 19–20 [59]–[60], 23–24 [68]–[73]; Stone v Commissioner of Taxation (2005) 222 CLR 289, 305–308 [56]–[64]; GrolloNominees PtyLtd v Federal Commissioner of Taxation (1997) 147 ALR 330, 388.
[14]Notice of Appeal [2].
[15]TS10:6–11.

The Applicant relies on the High Court decision in Spriggs v Commissioner of Taxation (“Spriggs”)[16] where the method of identifying the scope of a business was considered.[17] In Spriggs, the High Court found that that appellants’ promotional activities exploiting their celebrity were intricately linked to their respective employments in playing Australian Rules football and rugby. The High Could held that a taxpayer “may pursue separate income‑producing activities as part of a single business” and that, in determining whether the separate income‑producing activities were part of a single business, it was necessary to examine the “degree of connection and interdependence between the activities” and consider “the whole of the operations concerned”.[18] Because there was a “synergy between playing activities and non‑playing activities”,[19] each income stream was part of the scope of the business. Hence, the Applicant says that a proper application of Spriggs would have led the Tribunal to conclude that Premier Bay was carrying on a primary production business, despite receiving income from the lease to the T&A Partnership.[20]
[16](2009) 239 CLR 1.
[17]Applicant’s Outline of Submissions [2]; Applicant’s Reply Submissions [12]; TS7:28-9:31.
[18]Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60].
[19]Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 23 [69].
[20]TS9:2–19.

The Applicant says that the income streams of both the T&A Partnership and Premier Bay arose from the “wholly integrated” activities of the same primary production undertaking performed on the same land with undifferentiated livestock by the same individuals.[21] In support of this, the Applicant points to Mr Montalto’s substantial involvement in the primary production activities of both the T&A Partnership and Premier Bay.[22] In oral argument, counsel for the Applicant referred to the witness statement of Mr Montalto’s daughter, Rosalba Portella,[23] stating that Mr Montalto “treats farming as his sole occupation or job” and that Mr Montalto had been conducting farming on the land in question for over 20 years.[24] Additionally, it points to Mr Montalto’s evidence that the T&A Partnership ran up to 400 head of cattle on the land as well as around 100 sheep.[25] It also points to Mr Montalto’s viva voce evidence before the Tribunal that the rental arrangement with the T&A Partnership simply came about as the result of an accountant’s advice about the need for formalisation.[26] Seeking to highlight Mr Montalto’s intimate involvement in both the T&A Partnership and Premier Bay, counsel for the Applicant pointed to Mr Montalto’s evidence, that he was the only person signing off on financial statements,[27] including the lease agreement on behalf of Premier Bay.[28] Beyond acting upon accounting advice in signing the lease, the Applicant says that Mr Montalto personally performed most of the work on behalf of Premier Bay during that period from December 2017 to December 2018.[29] Premier Bay does not have any employees, and Mr Montalto gave evidence before the Tribunal that he was “the farmer”.[30] Additionally, the Applicant seeks to rely on Mr Montalto’s evidence that he did not know which entity owned the farming equipment on the land, or whether it was personally owned by Mr Montalto,[31] nor did he know whether funds were paid from the Premier Bay account or Mr Montalto’s personal account.[32] Finally, the Applicant submits that the cattle on the land were intermingled and unidentifiable as per Mr Montalto’s evidence,[33] and Property Identification Code (“PIC”) statements showing that all livestock located on the Relevant Property and related properties were issued to Mr Montalto.[34] As the Applicant highlights, the Tribunal found that “to some (limited) extent, [Mr Montalto] operates the two farms on an integrated basis”.[35] Hence, the Applicant says the Tribunal erred by treating Premier Bay’s receipt of rental income from the T&A Partnership as a separate business rather than part of one integrated primary production business activity.[36]
[21]Notice of Appeal [3].
[22]Applicant’s Outline of Submissions [5].
[23]Witness statement of Rosalba Portella dated 22 April 2022, CB924.
[24]Witness statement of Rosalba Portella dated 22 April 2022, CB929 [24]; TS14:3-8.
[25]Witness statement of Tommaso Montalto dated 22 April 2022, CB917 [24]; TS14:3–28.
[26]TS15:11–31; TS16:1–9, citing CB1181.
[27]TS16:10–21, citing CB1183.
[28]TS17:1–9, citing CB1195.
[29]TS18:1–31, citing CB1204
[30]TS17:26–29, citing CB1145.
[31]TS19:1–6, citing CB1198.
[32]TS19:12–21.
[33]TS19:25–22:4, citing CB1191, CB1202.
[34]TS21:22–22:4, citing CB406; Applicant’s Outline of Submissions [5].
[35]Applicant’s Outline of Submissions [12], citing Reasons [67].
[36]Notice of Appeal [3].

Alternatively, the Applicant submits that the rental income received from the T&A Partnership constitutes a bare receipt of passive income and is incapable of constituting a separate business.

Respondent’s submissions
Question of Law?

The Respondent submits that question 4 in the Notice of Appeal, proposed by the Applicant, does not identify any error or purported error made by the Tribunal in construing the word “business” in s 67(2)(d) of the LTA.[37]
[37]Respondent’s Outline of Submissions [17], citing Notice of Appeal question 4.

The Respondent does not dispute that the word “business” in s 67 of the LTA bears its ordinary meaning and is to be determined by reference to the indicia set out in Spriggs,[38] involving a question of fact and degree requiring the consideration of a range of indicia in combination and in whole.[39] However, the Respondent argues that this ground of appeal, proffered by the Applicant, does not raise an issue with the construction of the word “business” in s 67(2)(d) of the LTA but rather, takes issue with factual findings made by the Tribunal,[40] a matter which it says is outside the scope of this Court’s appellate jurisdiction under s 148 of the VCAT Act.[41]
[38]Spriggs v Commissioner of Taxation (2009) 239 CLR 1; Applicant’s Outline of Submissions [15].
[39]Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 19 [59].
[40]Respondent’s Outline of Submissions [20].
[41]TS35:11–13.

The Applicant does not accept this characterisation, and in its reply submissions, highlights paragraph 71 of the Tribunal’s Reasons, maintaining its view that the sole basis of the Tribunal’s decision to exclude the rental income from the T&A Partnership was its conclusion that it “could not be regarded as income from a business of primary production in the sense defined by” the LTA.[42] It says that the issue raised by the fourth question of the Notice of Appeal is not whether the activities undertaken by Premier Bay amount to a “business”, as characterised by the Respondent. Rather, the Applicant says the issue stems from the sole reason underpinning the Tribunal’s exclusion of the rental income received by Premier Bay’s primary production business being the Tribunal’s view, as a matter of statutory construction, that income from that activity could not form part of a single primary production business undertaken by Premier Bay.[43]
[42]Applicant’s Reply Submissions [1]–[2]. Cf Respondent’s Outline of Submissions [17]–[23]; TS69:8–70:8.
[43]Applicant’s Reply Submissions [3].

Error of Law?

Responding to the Applicant’s position on this ground,[44] the Respondent submits that the Tribunal correctly applied the indicia in Spriggs, finding that Premier Bay was carrying on two businesses, in cattle farming and leasing.[45] It says that the Tribunal made this finding after having regard to the other properties owned by the Applicant,[46] in relation to the quantum of the rental income received from those properties,[47] and the value of the other leased properties.[48] The Respondent also seeks to highlight the Tribunal’s finding that the leasing activities of Premier Bay were “substantial”, “systematic”, and “ongoing”.[49] Following from its finding that Premier Bay was engaged in the business of leasing land, the Respondent says that the Tribunal correctly treated the arrangements with the T&A Partnership as well as rental income received from these arrangements, as part of the leasing business.[50] The Respondent says the Tribunal correctly reached this conclusion and did not err in doing so as a matter of fact or as the result of an error of law in constructing the meaning of the word “business” in s 67(2)(d) of the LTA.[51]
[44]Applicant’s Outline of Submissions [4].
[45]Respondent’s Outline of Submissions [21], citing Reasons [52], [61]–[62], [111].
[46]Reasons [31].
[47]Reasons [58].
[48]Reasons [59].
[49]Reasons [61].
[50]Respondent’s Outline of Submissions, citing Reasons [78].
[51]Respondent’s Outline of Submissions, citing Reasons [11]–[12].

In oral argument, counsel for the Respondent sought to highlight the reasons for the Tribunal’s decision. First, it argued that the Tribunal made a factual finding that, although the lease agreement with the T&A Partnership contemplates primary production activities, Premier Bay would still be entitled to rent irrespective of whether the T&A Partnership carried on those activities.[52] The Respondent also points to matters of statutory construction considered by the Tribunal which it submits should weigh against the allocation of the rental income stream to primary production notwithstanding the fact that the character of primary production comes from a third party, the T&A Partnership.[53] The Tribunal pointed to the definition in the LTA of the relevant type of primary production business qualifying for the exemption as “the maintenance of animals … for the purpose of selling them or their natural increase or bodily produce”. It found that this definition delimits the scope of the relevant type of primary production for the purposes of s 67.[54] Further, the Tribunal found that the exemption in s 67 of the LTA focuses on the business of the owner of the land, contrasted by the exemption in s 65 which is applicable to land outside greater Melbourne where the exemption is available for any land used for primary production, regardless of whether that use is by the owner or another person.[55] The Tribunal found that there is no basis within the LTA and no principled reason in favour of a different interpretation to be adopted where the land is rented to a related party.[56] It expressed the view that, had Parliament intended for the activities of related parties to be relevant to the assessment in s 67, it could have been expected to have included grouping rules.[57] Moreover, the Tribunal held that, had the policy been to allow rent received from a related party to be taken into account when assessing the nature, size and scale of a primary production business, Parliament would have been expected to have legislated to deal with the use of other land owned by the related party.[58]
[52]TS42:23–43:6, citing Reasons [72].
[53]TS43:7–25, citing Reasons [73]–[77].
[54]Reasons [73].
[55]Reasons [74].
[56]Reasons [75].
[57]Reasons [76].
[58]Reasons [77].

The Respondent submits that the Tribunal correctly identified the scope of the business carried out by Premier Bay, and engaged in the “wide survey and exact scrutiny of the taxpayer’s activities” as was required of it by Spriggs.[59] Following this exercise, the Respondent says that the Tribunal correctly arrived at a finding that Premier Bay was engaged in two separate businesses. The Respondent does not accept the Applicant’s characterisation that the Tribunal artificially dissected Premier Bay’s income streams for the purposes of identifying different businesses.[60] In oral argument, counsel for the Respondent added that Spriggs requires an emphasis on the activities of the taxpayer, and not the activities of another party, a characterisation which it says is contrary to the Applicant’s position.[61]
[59]Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60]; TS38:8–17; TS38:15–31; TS44:27–28.
[60]Respondent’s Outline of Submissions [23]. Cf Applicant’s Outline of Submissions [6], [8].
[61]TS41:14–22. Cf Applicant’s Outline of Submissions [15]; Applicant’s Reply Submissions [12].

In oral reply submissions, counsel for the Applicant sought to highlight passages from its written reply submissions directing the application of Spriggs to the relevant taxpayer, Premier Bay.[62] It says that the Tribunal erred in paragraph 71 of its Reasons by not examining what the taxpayer, through Mr Montalto, was doing.[63] It says that the Tribunal erred when making findings about the “substantial”, “systematic” and “ongoing” nature of Premier Bay’s leasing activities,[64] because it excluded the lease of the Relevant Property to the T&A Partnership in doing so.[65] Hence, it says that the Tribunal did not apply Spriggs when considering the activities occurring on the land.[66] Also, it says that the Tribunal’s conclusion on Premier Bay’s leasing activities did not consider what Premier Bay, through Mr Montalto, is doing on the land.[67]
[62]TS67:1–11, citing Applicant’s Outline of Submissions [15]; Applicant’s Reply Submissions [12]. Cf TS41:14–22.
[63]TS67:1–69:8.
[64]Reasons [61].
[65]TS68:15–20, citing Reasons [58].
[66]TS68:19–20.
[67]TS68:21–23.

In oral argument, counsel for the Respondent argued that though it might not be possible to determine whether an individual cow was owned by the T&A Partnership or Premier Bay, there was some sort of separation between the cows owned by each entity as reflected in the accounts and sales documentation.[68] Hence, it observed that cows may be regarded as somehow fungible. It sought to rely on Mr Montalto’s evidence to the Tribunal that, though it was not possible to distinguish whether a cow was owned by Premier Bay or the T&A Partnership, he would deliberately ensure that the same number of cattle were returned when moved between properties.[69]
[68]TS33:2–21, citing CB187–9, CB625–6, CB631–2.
[69]TS32:12–31, citing Reasons [34](c).

Analysis and conclusions
Question of Law?

In my view, ground one taken with the fourth question in the Notice of Appeal identifies a question of law. The proposed fourth question is set out below:

Whether the reference to “business” in section 67(2)(d) of the Act in its ordinary meaning, permitted or required the separate stream of rental income from the T&A Partnership to be treated as a separate business from the primary production business of Premier Bay, contrary to the construction adopted by the learned Acting Senior Member?

The question of whether the facts found fall within a statutory enactment properly construed is a question of law.[70] Hence, the question of whether VCAT properly applied the relevant statutory provision to the facts has been held to be a question of law.[71] However, as Nettle J observed in Central Bayside Division of General Practice Ltd v Commissioner of State Revenue,[72] where a statute uses words according to their ordinary meaning and it is reasonably open to hold that the facts of the case fall within those words, the question of whether they do or do not is ordinarily a question of fact. Similarly, the Court of Appeal has noted that once the task of construing a statutory description is over, the question whether particular circumstances fall within that statutory description is essentially a question of fact.[73]
[70]Hope v Bathurst CC (1980) 144 CLR 1, 7 cited in Vetter v Lake Macquarie CC (2001) 202 CLR 439, 450 [24]. See Emrys Nekvapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 7th ed, 2022), 982-3 [148.260].
[71]Commissioner of State Revenue (Vic) v Arrigo [2016] VSCA 339 [46].
[72][2003] VSC 285, [5].
[73]S v Crimes Compensation Tribunal [1998] 1 VR 83, 89; and see Brighton Foreshore Association Inc v Bayside City Council [2021] VSCA 284 [34].

Importantly, in R v ACR Roofing Pty Ltd, Nettle JA said that “in reality there are very few cases where the question of whether facts as found come within a statutory provision is purely a question of fact … it is in effect only in cases of statutes which involve very simple words permitting of only one ordinary meaning that the problem is purely factual”.[74] An example of such a case is where the only question raised was whether the appellant’s behaviour was “insulting”.[75]
[74](2004) 11 VR 187 [42].
[75]Hope v Bathurst CC (1980) 144 CLR 1, 7, citing Brutus v Cozens [1973] AC 854.

The proposed fourth question directs itself at the ordinary meaning of the term “business”. It is not contested between parties that the term “business” in s 67 of the LTA bears its ordinary, general meaning.[76] However, this assessment requires “consideration of the Spriggs indicia”, in identifying a business by undertaking both a wide survey and exact scrutiny.[77] As articulated by the fourth proposed question, parties are in dispute over the proper application of the indicia in Spriggs, and whether this permitted or required that the stream of rental income from the T&A Partnership be treated as a separate business from Premier Bay’s primary production business. Hence, I am not satisfied that the word “business” in s 67 of the LTA is “very simple” or bears “only one ordinary meaning” to render the fourth question proposed in the Notice of Appeal purely factual.[78] Rather, the proposed fourth question goes to a question of law for the purposes of s 148 of the VCAT Act.
[76]Applicant’s Outline of Submissions [15]; Respondent’s Outline of Submissions [18]; Reasons [57], citing Mould v Commissioner of State Revenue [2015] VSCA 285 [84].
[77]Applicant’s Outline of Submissions [15], citing Mould v Commissioner of State Revenue [2015] VSCA 285 [84] (Warren CJ); Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60].
[78]Cf R v ACR Roofing Pty Ltd (2004) 11 VR 187, 202 [42].

Error of Law?

As identified by the Tribunal,[79] and both parties,[80] it is clear that the exemption in s 67 of the LTA is directed at the activities of the landowner and not the use of the land. A proper application of Spriggs requires the assessment of the activities of the taxpayer, Premier Bay. The issue is whether this assessment, mandated by Spriggs, extends to require consideration of the broader activities of Mr Montalto, as part of the T&A Partnership.
[79]Reasons [74].
[80]TS41:14–22; TS67:1–11; Applicant’s Outline of Submissions [15]; Applicant’s Reply Submissions [12].

In my view, the Tribunal erred by not first considering the extent of Premier Bay’s business, before determining whether it was one principally directed at primary production. In considering whether the rent received by Premier Bay from the T&A Partnership was part of its primary production business, the Tribunal undertook an exercise of statutory construction when evaluating the exclusion in s 67 of the LTA. It found that the rent received from the T&A Partnership cannot be regarded as income from a business of primary production in the sense defined in the LTA.[81] However, the inquiry in Spriggs required the Tribunal to first assess the activities of Premier Bay to determine the nature of its business. The question of whether Premier Bay’s business was principally one of primary production was a secondary question. Had it done so, it should have reached the conclusion that the lease to the T&A Partnership was a function of Premier Bay’s primary production business.
[81]Reasons [71].

Hence, though the Respondent’s submissions and Tribunal’s findings on the construction of the exclusion in s 67 of the LTA are helpful,[82] it is my view that they distract from the inquiry required by Spriggs. The issue arises in determining the extent of the term “business” in s 67(2)(d)(i) of the LTA, a term which bears its ordinary general meaning.[83] The exercise of determining whether a taxpayer’s activities fall within the ordinary general meaning of the term “business” is to be conducted with a “wide survey and exact scrutiny” of the taxpayer’s activities.[84]
[82]See above [28], citing Reasons [73]-[77].
[83]Applicant’s Outline of Submissions [15]; Respondent’s Outline of Submissions [18]; Reasons [57], citing Mould v Commissioner of State Revenue [2015] VSCA 285 [84].
[84]Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60].

A “wide survey and exact scrutiny” of Premier Bay’s activities, consistent with Spriggs, mandates a finding that Premier Bay was carrying on one integrated primary production business.[85] The application of the indicia in Spriggs is not limited to exclude instances where two separate entities, such as Premier Bay and the T&A Partnership, are involved. Though the rental income received from the T&A Partnership was a separate income producing activity, there is, in my view, a synergy between the primary production activities of Premier Bay and the lease to the T&A Partnership. In assessing the “degree of connection and interdependence”, it is important to consider “the whole of the operations concerned”.[86] The lease to the T&A Partnership was structured around Premier Bay’s primary production activities, with the instrument mainly intended to effect an income tax efficiency strategy proposed by an accountant.[87] The primary production activities of both Premier Bay and the T&A Partnership rely on Mr Montalto’s labour and time, demonstrating a high degree of connectedness between the lease to the T&A Partnership and primary production activities of Premier Bay. The central role of Mr Montalto in Premier Bay means that the activities of the taxpayer, Premier Bay, are aptly understood through the actions of Mr Montalto. As observed by the Tribunal,[88] Mr Montalto played a considerable role in the cattle farming activities of Premier Bay. He was the sole farmer,[89] who treated farming as his sole occupation,[90] and personally performed most of the work on behalf of Premier Bay between December 2017 and December 2018.[91] Mr Montalto was the only person signing off on financial statements.[92] The cattle on the land was intermingled, unidentifiable, and registered to the same owner, Mr Montalto.[93] The farming equipment on the land was also intermingled to a point that it was not possible for Mr Montalto to determine whether an item was owned by him personally, or by Premier Bay or by the T&A Partnership,[94] as were the funds.[95] Though I accept the Respondent’s submission that cows may be regarded as fungible, and that Mr Montalto ensured to maintain separation between the cattle owned by the two entities,[96] this does not take away from the high degree of integration between Premier Bay and the T&A Partnership.
[85]Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60].
[86]Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60].
[87]TS15:11–31; TS16:1–9, citing CB1181.
[88]Reasons [48].
[89]TS17:26–29, citing CB 1145.
[90]Witness statement of Rosalba Portella dated 22 April 2022, CB924; TS14:3-6.
[91]TS18:1–31, citing CB1204.
[92]TS16:10–21, citing CB1183.
[93]TS21:22–22:4, citing CB406; Applicant’s Outline of Submissions [5].
[94]TS19:1–6, citing CB1145;
[95]TS19:12–21.
[96]TS33:2–21, citing CB187–9, CB625–6, CB631–1; TS32:12–31, citing Reasons [34](c).

I do not accept the Applicant’s alternative position that, if the receipt of the rental income from the T&A Partnership was not part of the primary production business of Premier Bay, then it is the bare receipt of passive income and incapable of being a separate business.[97] The Applicant has not adduced any authority to support the finding that a bare receipt of passive income is incapable of being a separate business. Further, as observed by the Respondent,[98] it may be possible to carry on a business passively.
[97]Notice of Appeal [4].
[98]Respondent’s Outline of Submissions [19]; T64:22–65:11.

Ground 2 — Defining the scope of the Applicant’s “primary production business”
Preliminary

Questions 1 and 2 in the Notice of Appeal engage the statutory requirement in s 67(2)(d)(i) of the LTA that in its capacity as trustee for the Montalto Family Trust, Premier Bay’s “principal business must be primary production of the type carried on on the land”.[99] The questions seek to characterise the rental income received by Premier Bay from the T&A Partnership as forming part of the business of primary production.[100]
[99]Respondent’s Outline of Submissions [25].
[100]Respondent’s Outline of Submissions [25].

Questions 1 and 2 of the Notice of Appeal are cast in similar terms, with the main difference being that question 1 is premised upon an informal lease agreement, whereas question 2 is premised upon the later formalised lease.[101]
[101]See above [9].

Question 1 of the Notice of Appeal asks whether Premier Bay’s primary production business, as at 31 December 2017, included the receipt of rental income from the “integrated and undifferentiated activities” undertaken upon the land by the “same individuals in relation to the same livestock directed to the same business ends” pursuant to an informal lease between Premier Bay and the T&A Partnership.

Question 2 asks whether Premier Bay’s primary production business, within the meaning as at 31 December 2018, included the receipt of rental income from the “integrated and undifferentiated activities” undertaken upon the land by the “same individuals in relation to the same livestock directed to the same business ends” pursuant to a formalised lease between the Applicant and the T&A Partnership.

Applicant’s submissions

The Applicant submits that the income and expenses of a primary production business are not confined to the receipt of income from the sale of livestock.[102] Instead, the Applicant says the income and items of expense of a primary production business should be treated as extending to all receipts and expenses properly related to the business, which are reasonably incidental to and in the course of business, as judged by ordinary commercial standards.[103] In support of this proposition, the Applicant cites the decision of the High Court in London Australia Investments Co Ltd v Federal Commissioner of Taxation (“London Australia”).[104] The controversy in London Australia arose from an investment company that invested in shares with a view to earning dividend income, but which would regularly sell its shares in the course of that investment business. The question was whether the surplus realised on the sale of shares either had the character of income for income tax purposes or should be treated as being on the capital account.[105] Barwick CJ observed that the weight of authority supports the view that gains from the realisation of securities by banking and insurance companies constitute income by the banking or insurance business.[106] This was based on the particular nature of those businesses and the relationship which the realisation of investments bore upon that nature.[107] Gibbs J of the majority added emphasis to the point that dealing in shares was “an integral part of the taxpayer’s business”.[108]
[102]Notice of Appeal [5].
[103]Notice of Appeal [5].
[104](1977) 138 CLR 106, 112, 115–117.
[105]TS53:3–54‑10; London Australia Investments Co Ltd v Federal Commissioner of Taxation (1977) 138 CLR 106, 114–5 (Gibbs J).
[106]London Australia Investments Co Ltd v Federal Commissioner of Taxation (1977) 138 CLR 106, 112.
[107]Applicant’s Outline of Submissions [10].
[108]London Australia Investments Co Ltd v Federal Commissioner of Taxation (1977) 138 CLR 106, 117.

The Applicant submits that the rent received by Premier Bay was part of its integrated production business and not arising from a particular independent or separate activity. The Applicant seeks to rely upon the Tribunal’s finding that Mr Montalto conducted a primary production business across both farms,[109] in support of this contention. In its Notice of Appeal, it highlights that all the cattle were purchased and sold by Mr Montalto and corresponded to his PIC livestock registration details.[110] Hence the Applicant proffers that both streams of income, from the sale of livestock and the rent received by Premier Bay from the T&A Partnership, came about from the same “common and integrated exploitation”[111] of the same farming land for income earning activities from primary production.
[109]Reasons [52]–[56].
[110]Notice of Appeal [7]. See also Applicant’s Outline of Submissions [5], [9].
[111]Notice of Appeal [8].

Respondent’s submissions

To the extent that questions 1 and 2 of the Notice of Appeal raise issues of construction, the Respondent proffers that the exemption in s 67(2)(d)(i) of the LTA, as well as the exemption in s 67 generally, should be construed having regard to the text context and purpose of the provisions.[112] The Respondent’s approach to construction is contrastable from that taken by the Applicant, who submits that an examination of the exemption in s 67 of the LTA “in its context”[113] is “not a case of interpretation of the section to extent the (sic) exemption (cf [74]) but of construing its terms to give effect to its true purpose”.[114]
[112]Respondent’s Outline of Submissions [26], citing Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at [47] (Hayne, Heydon, Crennan and Kiefel JJ); Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 at [39] (French CJ and Hayne, Crennan, Bell and Gageler JJ); and SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362 at 368 [14] (Kiefel CJ, Nettle and Gordon JJ). See also Commissioner of State Revenue v EHL Burgess Properties Pty Ltd [2015] VSCA 269 (Burgess) at [51]–[52] (Tate JA, Kyrou JA and Robson AJA) with respect to context.
[113]Applicant’s Outline of Submissions [3], citing Reasons [74].
[114]Applicant’s Outline of Submissions [3], citing Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.

In its proffered construction of s 67 of the LTA, the Respondent seeks to rely on the defined meaning of “primary production” in s 64(1) of the LTA,[115] with “particularised elements, one or more of which must be satisfied specifically for the definition to be enlivened”.[116] The Respondent does not dispute that paragraph (b) of the definition is enlivened, which contemplates “the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce”. Hence, the Respondent accepts that s 67(1)(a)(iii) of the LTA was satisfied because, throughout the relevant period, albeit through the T&A Partnership, the Relevant Property was used for the breeding of cattle for sale.[117] It also does not dispute that Premier Bay carried on a business of primary production involving the breeding of cattle for sale from the Wildwood Road Property owned by Mr Montalto.[118]
[115]Respondent’s Outline of Submissions [27], citing Kelly v R (2004) 218 CLR 216 [103] (McHugh J).
[116]Respondent’s Outline of Submissions [27], citing Mintifield Pty Ltd v Commissioner of State Revenue [2023] VSC 317 [37] (Croft J).
[117]Respondent’s Outline of Submissions [28], citing Reasons [2], [7].
[118]Respondent’s Outline of Submissions [29], citing Reasons [2], [27], [52]–[53].

The Respondent submits that the fact that the T&A Partnership was using the Relevant Property for the purposes of its primary production business should not be taken to render the activities and assets of the T&A Partnership relevant to, or part of, the primary production business of Premier Bay for the purposes of s 67(2)(d)(i) of the LTA. Additionally, it submits that it does not result in the rental income received by Premier Bay from its lease of the Relevant Property being treated as forming part of Premier Bay’s business of primary production.[119] Hence, the Respondent submits that the Tribunal was correct in finding that the rent received by Premier Bay from the T&A Partnership cannot be regarded as income from a business of primary production in the sense defined in the LTA.[120]
[119]Respondent’s Outline of Submissions [30].
[120]Respondent’s Outline of Submissions [30], citing Reasons [71].

Further, the Respondent submits that the Tribunal did not err in its construction of s 67 of the LTA in reaching that conclusion,[121] providing four arguments in support. First, the Respondent seeks to rely on the Tribunal’s reading of the requirements of s 67(2) of the LTA as being focused on the business of the owner of the Relevant Property, in arguing that to satisfy the requirements of the exemption, the Applicant’s business must be principally one of the maintenance of animals for the purposes of selling them or their natural increase or bodily produce.[122] Secondly, it points to the Tribunal’s reading of the definition of “primary production” in s 64 of the LTA, highlighting the provision’s reference to particular activities that may comprise “primary production”. Activities associated with leasing land and receiving rental income are not included in that definition.[123] Thirdly, the Respondent seeks to rely on the Tribunal’s application of the statement of Garde J in Lotus Oaks Pty Ltd v Commissioner of State Revenue (“Lotus Oaks”),[124] that the requirements of s 67(2)(d) of the LTA are intended to exclude from the scope of the exemption owners of the land that are trustees of trusts which have “two or more different businesses, unless it can be said that the type of primary production carried on on the land is the principal business of the trust”.[125] The Respondent further seeks to rely upon the statements of Garde J in Lotus Oaks that “the provisions should be construed relatively strictly” because it is not “the intention of Parliament to exempt all persons carrying on farming activities from land tax”.[126] Hence, the Respondent says that it would be inconsistent with Parliament’s intention to construct the exemption in a manner that allows regard to be had to the activities and assets of another party in determining the scope of a taxpayer’s business of primary production. Fourthly, the Respondent points to the Tribunal’s observation that, if Parliament had intended to take the activities and assets of another party into account in determining whether the primary production business of the taxpayer was its principal business, it could have done so by including grouping rules for related corporations such as those in Div 3 of Part 3 of the LTA. Because Parliament specifically did not do so in the primary production exemption provisions in Div 2 of Part 4 of the LTA, the exemption provisions should not be construed in the manner proffered by the Applicant.[127]
[121]Respondent’s Outline of Submissions [31].
[122]Respondent’s Outline of Submissions [31], citing Reasons [74].
[123]Respondent’s Outline of Submissions [31], citing Reasons [73].
[124](2021) 113 ATR 379.
[125]Respondent’s Outline of Submissions [31], citing Reasons [12]; Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379 [112] (Garde J).
[126]Respondent’s Outline of Submissions [31], citing Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379 [117] (Garde J).
[127]Respondent’s Outline of Submissions [31], citing Reasons [76].

In its reply submissions, the Applicant submits that the Respondent falls into error by suggesting that “the activities and assets of another party” are irrelevant in ascertaining whether primary production was the principal business of Premier Bay, and that Parliament would have introduced grouping rules if it had intended such an enquiry to be necessary.[128] The Applicant argues that this proposition is inconsistent with the approach in Spriggs which militates that “a wide survey and an exact scrutiny” is required in determining whether different streams of income emanate from separate businesses.[129] It seeks to rely on Mould v Commissioner of State Revenue (“Mould”) in support of the application of such authority to the LTA.[130]
[128]Applicant’s Reply Submissions [12].
[129]Applicant’s Reply Submissions [12], citing Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60].
[130]Mould v Commissioner of State Revenue [2015] VSCA 285, [84].

Additionally, the Applicant submits in reply that the Respondent’s reliance on Lotus Oaks in answering the question of whether Premier Bay carried on a single integrated business is misplaced due to distinguishable facts.[131] The Applicant seeks to highlight that Lotus Oaks involved three different agricultural enterprises, conducted on three different properties which were located at significant distances and each managed by different individuals who conducted different activities.[132] The Applicant says that the present case concerns a single individual, Mr Montalto, who carried on the management of the same livestock, registered under the same PIC across local proximate properties. Hence, the Applicant says, the activities on the Relevant Property were in the true sense part of a single integrated primary production livestock business of Premier Bay.[133]
[131]Applicant’s Reply Submissions [7].
[132]Applicant’s Reply Submissions [7], citing Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379 [148]–[155] (Garde J).
[133]Applicant’s Reply Submissions [7].

The Applicant says that the factors considered by Garde J in Lotus Oaks, when applied to the facts in the present matter, support the finding that the primary production activities conducted on the Relevant Property, and the consequent rental income received by Premier Bay were part of a single primary production business.[134] The Applicant’s proposed analysis of each factor is set out below:
[134]Applicant’s Reply Submissions [8], citing Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379 [159] (Garde J).

a. The primary production activity on the relevant property was interconnected with Premier Bay’s other local livestock activities involving the same cattle under the same registration on rotation across the properties including the subject land (T61.19‑25, T62.3‑19, T137.18‑31, T138.6‑9; c.f. Lotus Oaks [159(a)]);
b. The primary production activity was overseen and carried on by the same individual, Mr Montalto, across the subject land and other Premier Bay properties (Reasons [55], [110]; c.f. Lotus Oaks [159(b)]);
c. The same equipment and machinery was put to use and deployed across the properties and owned by the same entity (e.g. T79.19‑83.26, T132.12‑T133.16; c.f. Lotus Oaks [159(c)]);
d. Mr Montalto’s involvement in the different properties was not just to approve “significant decisions and expenses” (c.f. Lotus Oaks [159(d)]), rather the Tribunal found Mr Montalto “devoted most of his time and energy to cattle farming” (Reasons [55], [110]);
e. The relevant land on Donnybrook Road and Premier Bay’s associated primary production activities on Wildwood Road were local and a short drive of around 10 minutes and were not “physically remote” at distances of over 3 or 4 hours apart (c.f. Lotus Oaks [159(e)];
f. Premier Bay’s primary production sales activity involved local stock agents (T144.2 10); rather than sales being conducted through different mills, facilities and agents across different regions depending on where the relevant farm was located (c.f. Lotus Oaks [159(f)]);
g. Unlike in Lotus Oaks where the Court found the facts “did not indicate integration or interconnectedness between the three separate farms in their ordinary operations and activities” (Lotus Oaks [159(g)]) the Tribunal specifically found that at least to some extent Mr Montalto “operates the two farms on an integrated basis” (Reasons [67]);
h. While the Court in Lotus Oaks clearly considered financial interdependence relevant to ascertaining the existence of a single business, the judge noted that the principal evidence of financial interdependence was not able to be the subject of cross‑examination and therefore “not much weight can be given to this aspect” of the evidence (Lotus Oaks [159(h)]); by contrast there was extensive cross‑examination about the financial interdependence of Premier Bay’s operations (e.g. T62.9‑28).

Addressing the Applicant’s reply submissions in oral argument, counsel for the Respondent sought to distinguish the above factors from Lotus Oaks cited by the Applicant. It argued that the considerations in Lotus Oaks are directed at answering whether one taxpayer, farming at three different properties, was carrying on one business of primary production or three separate businesses of primary production. It argued that, by contrast, the question on these facts is whether the activities carried on under the T&A Partnership, a separate entity to Premier Bay, should be treated as one integrated business. It sought to highlight that the relevant activity of the Applicant, Premier Bay, is the leasing of the Relevant Property to the T&A Partnership. Hence, it argued that the considerations have no application to the present case.[135] It also submitted in oral argument that the Applicant’s reply submissions attempting to invoke the factors in Lotus Oaks do not raise a question of law and merely seek to contest the Tribunal’s factual finding with respect to the degree of integration between the two businesses.[136]
[135]TS59:9–60:7, citing Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379 [159] (Garde J).
[136]TS61:4–13.

The Respondent says that, on a proper construction of the exemption, Premier Bay’s primary production business cannot include the leasing of the land in the manner undertaken by Premier Bay.[137] It argues that the Tribunal correctly applied the approach in Spriggs in the context of s 67 of the LTA by treating the rental income derived by Premier Bay as forming part of its leasing business. Contrary to the Applicant’s position,[138] the Respondent submits that there is no principle in Spriggs or any income tax authority, that expands the statutory meaning of primary production in Div 2 of Part 3 of the LTA, or changes how the question of whether a taxpayer’s principal business is one of primary production carried on on the land is approached.[139] It seeks to rely on the cautioning view expressed by Warren CJ in Mould that materials arising from different statutory contexts “are of very limited assistance in determining what constitutes a business, in particular in the context of the Land Tax Act”.[140]
[137]Respondent’s Outline of Submissions [32].
[138]Applicant’s Outline of Submissions [9]–[11], citing Grollo Nominees Pty Ltd v Federal Commissioner of Taxation (1997) 73 FCR 452 at 514 (the Court); (1997) 147 ALR 330 at 388, London Australia Investments Co Ltd v Commissioner of Taxation (1977) 138 CLR 106 at 112 (Barwick CJ, in dissent) and 115–117 (Gibbs J) and GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160 at 164 (the Court).
[139]Respondent’s Outline of Submissions [32].
[140]Mould v Commissioner of State Revenue [2015] VSCA 285 [57].

In its reply submissions, the Applicant submits that on the facts found by the Tribunal, the Tribunal’s finding that Premier Bay was conducting a leasing business did not warrant the conclusion that the lease of the Relevant Property to the T&A Partnership fell within Premier Bay’s business of leasing.[141] On the Applicant’s characterisation, the rental income received by Premier Bay from the T&A Partnership was “merely the mechanism by which the fruits of the primary production activity carried out by Mr Montalto on the subject land was conveyed to Premier Bay”.[142]
[141]Applicant’s Reply Submissions [5].
[142]Applicant’s Reply Submissions [6].

The Respondent further submits that questions 1 and 2 of the Notice of Appeal misstate the Tribunal’s findings to the extent that they suggest that the Applicant’s rental income was sourced in “integrated and undifferentiated activities” undertaken upon the land by the “same livestock directed to the same business ends”.[143] Further, the Respondent does not accept the Applicant’s characterisation that the Tribunal found the interdependence of the primary production activities of Premier Bay, the partners in the T&A Partnership and Mr Montalto himself to be “complete”.[144] Rather, it says that though the Tribunal acknowledged that the “vast majority” of Premier Bay’s primary production activity was undertaken by Mr Montalto personally,[145] it found that, at the highest, Mr Montalto operated the farms on the Relevant Property and Wildwood Road Property on an integrated basis to “some (limited) extent”.[146] Moreover, the Respondent seeks to rely on the Tribunal’s finding that the legal structure, accounting and tax treatment of the arrangements between the Applicant and the T&A Partnership reflect the separate identity of each entity.[147] In drawing this conclusion, the Tribunal considered the fact that the different entities paid one another for the use of their land, with the T&A Partnership paying Premier Bay under the lease arrangements,[148] and Premier Bay paying Mr Montalto for agistment of cattle on the Wildwood Road Property.[149] The Tribunal also found that each of the Applicant and the T&A Partnership had their own cattle and prepared their own accounts and income tax returns which recognised their separate ownership of assets and their separate activities.[150]
[143]Respondent’s Outline of Submissions [33].
[144]Applicant’s Outline of Submissions [5].
[145]Respondent’s Outline of Submissions [33], citing Reasons [55].
[146]Respondent’s Outline of Submissions [33], citing Reasons [67].
[147]Respondent’s Outline of Submissions [33], citing Reasons [70].
[148]Reasons [25].
[149]Reasons [27].
[150]Reasons [25], [52].

The Respondent also points to the Tribunal’s observation that Premier Bay was entitled to rent from the Relevant Property, irrespective of whether or not the Relevant Property was used for any primary production activities.[151] Hence, it says, it was open for the Tribunal to conclude that Premier Bay’s leasing activities were not integrated with Premier Bay’s primary production business and, instead, comprised a separate business of leasing land.[152] Contrary to the Applicant’s submission that the rental income from the T&A Partnership was “inextricably linked” to Premier Bay’s primary production business,[153] the Respondent says that the mere fact that there was a link between Premier Bay’s leasing activities and the T&A Partnership’s use of the Relevant Property for its primary production business does not demonstrate an error of law in the Tribunal’s conclusion that Premier Bay was carrying on two separate businesses.[154] Nor does it establish, according to the Respondent, that the Tribunal erred in treating the rental income received by Premier Bay for leasing of the Relevant Property as being related to Premier Bay’s business of leasing land.[155]
[151]Respondent’s Outline of Submissions [34], citing Reasons [72].
[152]Respondent’s Outline of Submissions [34].
[153]Applicant’s Outline of Submissions [6].
[154]Respondent’s Outline of Submissions [35].
[155]Respondent’s Outline of Submissions [35].

Finally, in oral argument, counsel for the Respondent submitted that the Applicant’s reliance on London Australia is misplaced because it does not bear relevance to the propositions put in the Applicant’s case about reference to other parties’ activities.[156] In oral reply submissions, counsel for the Applicant sought to clarify its reliance on London Australia as standing for the general proposition that what constitutes a business includes activities that are incidental to the business. Hence, it said that the Tribunal should have considered what was incidental to Premier Bay’s activities on the land.[157]
[156]TS54:1–26.
[157]TS71:4–15.

Analysis and conclusions
Question of Law?

The Applicant’s proffered analysis of the factors in Lotus Oaks, distinguishing the factual bases of the case with the present facts, seems to be directed at the factual findings of the Tribunal,[158] beyond the remit of this Court’s jurisdiction under s 148 of the VCAT Act.
[158]See above [53]; And see Applicant’s Reply Submissions [8].

However, the Applicant’s case is about the process to be followed in defining the scope of Premier Bay’s primary production business under s 67 of the LTA and hence, questions 1 and 2 in the Notice of Appeal comprise questions of law invoking the Court’s jurisdiction under s 148 of the VCAT Act.

Error of Law?

As the Respondent observes, the sole fact that the T&A Partnership was using the Relevant Property as part of its primary production business does not render the activities and assets of the T&A Partnership as relevant to, or part of, the primary production business of Premier Bay for the purposes of the exemption in s 67 of the LTA. Similarly, the use of the Relevant Property by the T&A Partnership for the purposes of primary production does not, on its own, result in the rental income received by Premier Bay being treated as forming part of its primary production business.[159] I also accept the Respondent’s submission,[160] and the Tribunal’s view,[161] that the exemption in s 67 of the LTA is focused on the business of the owner, and the question is whether the taxpayer is engaged in primary production activities. It seems that the Applicant also takes this position.[162] Moreover, as observed by the Tribunal[163] and Respondent,[164] the definition of “primary production” in s 64 of the LTA does not expressly include activities in leasing land and receiving rental income.[165] Similarly, the reference to the lack of grouping rules in Div 2 of Part 4 of the LTA can be taken to indicate Parliament’s intention to avoid a position where the activities of related entities are always relevant in characterising a taxpayer’s primary production business.
[159]Respondent’s Outline of Submissions [30].
[160]Reasons [74].
[161]Respondent’s Outline of Submissions [31].
[162]TS67:1–68:4; And see Applicant’s Reply Submissions [12].
[163]Reasons [73].
[164]Respondent’s Outline of Submissions [31].
[165]Respondent’s Outline of Submissions [31], citing Reasons [73].

However, the relevant inquiry is in defining the scope of Premier Bay’s primary production business, rather than whether leasing land or receiving rental income from a primary production business comprises a primary production activity as a default position. Nor is the inquiry whether the income streams of related entities should always be considered when characterising income streams for the purposes of identifying the scope of a primary production business.

As reflected in the wording of proposed questions 1 and 2 in the Notice of Appeal, the Applicant seeks to emphasise the “integrated and undifferentiated” nature of the activities of the taxpayer, Premier Bay, through Mr Montalto. With the issue going to the scope of Premier Bay’s business, it is important to have regard to the indicia in Spriggs when characterising the business. This involves a “wide survey and exact scrutiny” of the activities and income streams of Premier Bay, including whether the income stream from the lease to the T&A Partnership emanates from a separate business.[166] In many cases, income from leasing would not be attributable to a taxpayer’s primary production business. However, the emphasis on the activities of the taxpayer in s 67 of the LTA may mean that income from a lease to a related entity engaged in primary production as part of an integrated operation would be attributable to the taxpayer’s primary production business. This is consistent with the Applicant’s reliance on London Australia, which stands for the proposition that a business’s activities may be understood by what is incidental to that business.[167] As with GRE Investments,[168] the fact that the related entities incidental to the business may bear a separate legal identity does not take away from the fact that their activities may assist in characterising the activities of a taxpayer. Hence, though I acknowledge the Respondent’s submissions,[169] and the Tribunal’s findings,[170] as to the separate legal structure, accounting and tax treatment of each identity, the closeness between the T&A Partnership and Premier Bay nevertheless assists in understanding the scope of Premier Bay’s primary production business.
[166]Applicant’s Reply Submissions [12], citing Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60]; Mould v Commissioner of State Revenue [2015] VSCA 285 [84].
[167]TS54:1–26.
[168]See below [69]–[84].
[169]Respondent’s Outline of Submissions [33].
[170]Reasons [55], [67], [70].

As to the Respondent’s reliance on Lotus Oaks, I accept the views expressed by Garde J that the requirements in s 67(2)(d) of the LTA are intended to limit the scope of the exemption to exclude owners of the land that are trustees of trusts which have “two or more different businesses, unless it can be said that the type of primary production carried on on the land is the principal business of the trust”.[171] I also accept that the guidance in Lotus Oaks on the relatively strict construction of the provisions in the LTA and that Parliament did not intend for land tax exemptions to extend to all persons carrying on farming activities.[172] However, it does not follow that considering the activities of a related party as part of the process of characterising the scope of a taxpayer’s primary production would be inconsistent with Parliament’s intention. Further, the statements of Garde J in Lotus Oaks contemplate the instance in which “the type of primary production carried on on the land is the principal business of the trust”, which is argued by the Applicant to be the case on the present facts.[173] Again, the relevant statutory construction exercise is of the term “business”, which carries its ordinary meaning, and is to be interpreted according to the indicia in Spriggs, requiring a “wide survey and exact scrutiny” of the taxpayer’s activities.[174]
[171]Respondent’s Outline of Submissions [31], citing Reasons [12]; Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379, [112].
[172]Respondent’s Outline of Submissions [31] citing Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379, [117].
[173]Applicant’s Outline of Submissions [13].
[174]Mould v Commissioner of State Revenue [2015] VSCA 285 [84] (Warren CJ); Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60].

As outlined in my findings for ground 1, I am satisfied that there was a substantial degree of integration between the activities of the T&A Partnership and Premier Bay.[175] The primary production business of Premier Bay extended further than the sale of livestock and included allocation of land and livestock to the T&A Partnership. The revenue from the sale of livestock was then allocated to Premier Bay through rent payments under the lease. As the Applicant put it, “the lease was merely the mechanism by which the fruits of the primary production activity carried out by Mr Montalto on the subject land was conveyed to Premier Bay”. It follows that the rent received by Premier Bay from the T&A Partnership arose from the same primary production business.
[175]See above [17]–[40].

Grounds 3 and 4 — Relevance of a related party’s activities to the scope of a business
Preliminary

Question 5 of the Notice of Appeal asks whether the character of Premier Bay’s “business” may be informed by its relationship with and extent of involvement in the primary production business and activities of its related parties. The related parties in question are Mr Montalto and the estate of his late wife Mrs Angela Montalto, who are both partners of the T&A Partnership.

The Tribunal considered whether Premier Bay’s primary production business was its “principal business” for the purposes of the land tax exemption in s 67 of the LTA. The LTA does not define “principal business” or provide a method for determining which business is a taxpayer’s “principal business” amongst multiple business activities. Hence, the Tribunal applied the method in Lavendar Rain Pty Ltd v Commissioner of State Revenue[176] by comparing the gross income, labour employed and capital employed in each respective business.[177] The Tribunal found that the leasing business generated “slightly more” gross income than the cattle farming business,[178] but accepted that “Mr Montalto devoted most of his time and energy to cattle farming, and very little to … leasing activities”.[179] It found that, having excluded the Relevant Property, the capital employed in leasing “dwarfs” that used by Premier Bay in cattle farming.[180] The Tribunal ultimately found that cattle farming and leasing were “equally significant businesses”.[181]
[176][2022] VCAT 1264.
[177]Reasons [110].
[178]Reasons [110], [52], [78].
[179]Reasons [110], [55], [60].
[180]Reasons [110], [54], [59].
[181]Reasons [111].

Applicant’s submissions
Ground 3

The Applicant submits that the character of a business should not be examined in isolation from the business activities of other related entities in an integrated business.[182] It says that the character of rental income received by Premier Bay should be determined by considering the interrelationship of the people, activities and objectives in which it was derived.[183]
[182]Notice of Appeal [9].
[183]Applicant’s Outline of Submissions [9].

In support of this submission, the Applicant cites the decision of the Full Federal Court in Grollo Nominiees Pty Ltd v Federal Commissioner of Taxation (“Grollo”).[184] In Grollo, the Full Federal Court considered the nature of the business of Grollo Australia and concluded that “it would not be correct to treat its [Grollo’s] activities in isolation of those in the remainder of the group”.[185] Grollo Australia was part of a group of companies which carried out building project activity, and assessment of the character of the business was not to occur in isolation from the business activities of other related entities in the integrated business.[186]
[184](1997) 147 ALR 330.
[185]Grollo Nominiees Pty Ltd v Federal Commissioner of Taxation (1997) 147 ALR 330, 338.
[186]Applicant’s Outline of Submissions [9], citing Grollo Nominiees Pty Ltd v Federal Commissioner of Taxation (1997) 147 ALR 330, 338.

Accordingly, the Applicant submits that the activity and relationship of each of Premier Bay, the T&A Partnership and Mr Montalto should be considered by this Court, leading to a finding that the character of the rental income derived by Premier Bay from the T&A Partnership “bears the stamp” of its connection with primary production.[187] The Applicant argues that the T&A Partnership is a related entity of Premier Bay since it was formed between Mr Montalto and the estate of his late wife and is the trustee of the Montalto Family Trust, of which Mr Montalto and his late wife were the sole beneficiaries.[188] Because Premier Bay and the T&A Partnership are related entities, the Applicant says that the primary production activity of the T&A Partnership informs the characterisation of the business activity of Premier Bay.[189] The businesses both involved the maintenance and sale of cattle across two properties owned by Mr Montalto.[190] The cattle owned across the two properties were all treated as being owned by Mr Montalto for PIC registration purposes,[191] and were rotated between the two properties.[192] The applicant relies upon the Tribunal’s finding that Mr Montalto “to some (limited) extent … operates the two farms on an integrated basis”.[193]
[187]Applicant’s Outline of Submissions [9].
[188]Notice of Appeal [10].
[189]Notice of Appeal [11].
[190]Notice of Appeal [11].
[191]Notice of Appeal [11]; And see TS21:22–22:4, citing CB406; Applicant’s Outline of Submissions [5].
[192]Applicant’s Outline of Submissions [12]; CB1126 (lines 19–25); CB1127 (lines 3–9); CB1202 (lines 18–31); CB1203 (lines 6–9).
[193]Applicant’s Outline of Submissions [12], citing Reasons [67].

Ground 4

Ground 4 is cast in a similar manner to ground 3 and, hence, it is convenient to deal with the grounds together. The Applicant submits that a stream of rental income may be income of a primary production business where it has the stamp of its connection with primary production.[194] On this basis, the Applicant says that the rental income received by Premier Bay from the T&A Partnership is “stamped with the character” of the income that Premier Bay receives from primary production. Hence, it says that the rental income from the T&A Partnership should have been characterised by the Tribunal as income of the primary production cattle farming business, leading to the finding that Premier Bay was principally engaged in the business of cattle farming.
[194]Notice of Appeal [12], citing GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160 at 164; Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 18 [55], 19–20 [59]–[60], 23–24 [68]–[73]; Stone v Commissioner of Taxation (2005) 222 CLR 289, 305-308 [56]–[64].

The Applicant seeks to rely upon GRE Insurance Limited v Commissioner of Taxation (“GRE Insurance”)[195] where the Federal Court considered whether profits derived by an insurance company and its subsidiary from the sale of shares were treated to be assessable income of those companies. The issue was whether the gains from selling shares were on the capital or revenue account. The Court held that the profits received from dealing shares were assessable income on the revenue account for both the operating insurance company and its subsidiary. The activities of the subsidiary were found to be an “integral part of the insurance business” conducted by the parent company, and “the equities indirectly formed part of the funds representing the insurance reserves and part of the circulating capital of the business”.[196] Though the subsidiary was a taxpayer in its own right, the Court observed that “the part which a subsidiary plays in affairs which concern its holding company, or in the group in which both companies form a part, may throw light upon the character of the activities of the subsidiary”.[197]
[195](1992) 34 FCR 160 at 164; Applicant’s Outline of Submissions [11].
[196]GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160, 164; Applicant’s Outline of Submissions [11].
[197]GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160, 164; Applicant’s Outline of Submissions [11].

Hence, the Applicant characterises GRE Insurance as an endorsement of the approach in London Australia,[198] and submits that the income received from the T&A Partnership should have been treated by the Tribunal as income from the primary production business, leading to a finding that the only income stream for Premier Bay is from primary production.
[198]Applicant’s Outline of Submissions [11].

Respondent’s submissions
Ground 3

The Respondent seeks to rely on its submissions in relation to grounds 1 and 2 of the appeal.[199] Accordingly, it submits that the Tribunal was correct in concluding that the fact that the Relevant Property was leased to a related party warranted no different approach to the identification of Premier Bay’s primary production business for the purposes of s 67(2)(d) of the LTA.[200]
[199]See above [24]–[31] (ground 1), [47]–[59] (ground 2).
[200]Respondent’s Outline of Submissions [37], citing Reasons [75].

In oral argument, counsel for the Respondent submitted that Grollo does not have any application to the construction of the word “business” in the context of s 67 of the LTA. It argued that the case cannot be taken to support a proposition that separate income streams must be considered as part of the same business if there is some degree of interconnectedness ascertainable by a third party, even if it were a related third party. On the Respondent’s approach, the decision in Grollo should be understood with reference to the factual matrix — in the context of the large development activities undertaken by the Grollo group of companies, the fact that Grollo Australia had not previously been a builder did not preclude a finding that receipts from building activity could be income in its hands. On this basis, it was permissible to look at the wider context, and the Grollo group of companies.[201]
[201]TS52:20–53:15.

Ground 4

In oral argument, counsel for the Respondent submitted that it is not strictly correct for the Applicant to characterise GRE Insurance as endorsing the approach in London Australia.[202] It acknowledges the view expressed by the Full Federal Court that “it seems preferable that the present case be looked at, at least in the first instance, within the context of the many authorities which have laid down the principles upon which the profits of an insurance company are brought to tax”.[203] However, the Respondent seeks to highlight the Full Federal Court’s observation that the conclusion in London Australia that the taxpayer was carrying on a business of dealing in securities was referrable to the special features of that case.[204] It acknowledges that the part a subsidiary plays in the affairs of its holding company or the group of companies of which both companies form a part may be relevant to determining the character of the activities of the subsidiary in the context of income and profits. However, it submits that GRE Insurance does not mandate an approach by which the taxpayer’s activities must always be characterised by reference to the activities of another party in seeking to ascertain whether the taxpayer is carrying on a business and the scope of such a business.[205] In oral reply submissions, counsel for the Applicant sought to clarify its reliance on GRE Insurance as standing for the general point that the activities of the taxpayer may be informed by the activities undertaken by an entity within the group. It sought to emphasise that this does not mandate consideration of the activities of others within a group, but doing so may, in some instances, be helpful in characterising a taxpayer’s activities. Hence, it says, even if Mr Montalto was taken to be separate from Premier Bay, as a related third party, the activities of Mr Montalto will nonetheless cast a shadow on the activities of Premier Bay.[206]
[202]TS54:29–57:24.
[203]TS55:13–17, citing GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160, 161.
[204]TS55:20–24, citing GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160, 162.
[205]TS57:1–24, citing GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160, 166.
[206]TS71:14–22.

Analysis and conclusions

It seems that the Respondent’s understanding of Grollo is consistent with the manner in which the Applicant seeks to rely upon it. The Applicant’s case is not, as the Respondent puts it, that Grollo mandates the consideration of separate income streams as part of the same business if there is even an iota of interconnectedness. But, rather, the Applicant argues that the activities of related entities may be helpful in understanding the activities of the taxpayer. In my view, that is a relevant principle to the issue on the present facts. As in my findings for ground 1, the process of characterising a taxpayer’s business must begin with the “wide survey and exact scrutiny” of the taxpayer’s activities.[207] This inquiry may involve the consideration of related entities.
[207]See above [17]–[40]; Spriggs v Commissioner of Taxation (2009) 239 CLR 1, 20 [60].

The issue is whether the approach in GRE Insurance, as enunciated by the Applicant, can be applied to these facts, where the entities in concern are not subsidiaries, but rather related by their common core in Mr Montalto. Such a reading of the approach in GRE Insurance is broader than that adopted by the Tribunal, which seems to have dismissed its relevance on the basis that it only stood for the proposition that the character of a receipt by a subsidiary company may be impacted by the nature of the business activities of its parent.[208] The Tribunal found that Premier Bay is a separate entity from the T&A Partnership as reflected in the legal structures, accounting and tax treatment of the lease arrangements between the entities.[209]
[208]Reasons [69].
[209]Reasons [70].

As submitted by the Respondent,[210] and consistent with the Applicant’s position,[211] the application of the approach in GRE Insurance in determining whether the taxpayer is carrying on a business, and the scope of such a business, does not mandate the characterisation of a taxpayer’s activities by reference to the activities of related parties. However, as proffered by the Applicant,[212] the activities of Mr Montalto as a partner to the T&A Partnership, and an integral person in the management of Premier Bay, may cast light on the activities of Premier Bay.
[210]TS57:1–24, citing GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160, 166.
[211]TS71:14–22.
[212]TS71:18–22.

In GRE Insurance, the trading activities of the subsidiary were “an integral part” of its parent[213] because the equities were part of the funds in the parent company’s insurance reserves, and comprised part of the “circulating capital” of the parent company’s insurance business.[214] In the present case, the primary production activities of Mr Montalto, as part of the T&A Partnership, generated income which was transferred to Premier Bay through the lease agreement. Arising from the Respondent’s proffered characterisation of cows as somehow fungible capital,[215] the cattle held by the T&A Partnership can be analogised with the fungible equities that were held to comprise part of the circulating capital of the parent company’s insurance business in GRE Insurance. The cattle was rotated between the T&A Partnership and Premier Bay in an indistinguishable and undifferentiated manner despite being accounted for separately, and was exploited for revenue that was transferred to Premier Bay through a lease, akin to the equities held by the subsidiary company in GRE Insurance. The fact that Premier Bay and the T&A Partnership hold separate identities, as observed by the Tribunal,[216] does not affect the inquiry here. Just as the activities of a legally separate parent company were relevant in characterising an income receipt in GRE Insurance,[217] the activities of a related party, Mr Montalto, are relevant in characterising the income receipt through the rental income.
[213]GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160, 164.
[214]GRE Insurance Limited v Commissioner of Taxation (1992) 34 FCR 160, 164; Applicant’s Outline of Submissions [11].
[215]See above [31]; TS33:2–21, citing CB187–9, CB625–6, CB631–2.
[216]Reasons [70].
[217]Reasons [69].

The lease to the T&A Partnership was merely an instrument designed to allocate the revenue from the primary production cattle farming business to Premier Bay. It should follow that the rental income received by Premier Bay under this lease is treated as income from the business of primary production. It is relevant to note the Respondent’s observation that Premier Bay would be entitled to rent under the lease regardless of whether the T&A Partnership is engaged in a business of primary production.[218] However, the commercial reality is that the lease between Premier Bay and the T&A Partnership was entered into in contemplation of the leased land being used for primary production. This is reflected in the fact that the only permitted use of the land listed in the Schedule to the lease is “primary production and related activities”.[219] In the relevant land tax years, the land leased to the T&A Partnership was used for primary production.
[218]See above [28]; TS42:23–43:6, citing Reasons [72].
[219]CB400.

Hence, following the application of GRE Insurance, the Tribunal ought to have found that the rental income from the T&A Partnership was income from the business of primary production and not part of its separate leasing business. As such, the rent of $149,875 per annum[220] ought to have been excluded from the Tribunal’s calculation of the gross rent derived from the leasing business in each financial year.[221] Taking that approach, the gross rent derived from the leasing business in each financial year should have been calculated as follows:[222]

·FY17: $87,087.
·FY18: $46,320.
·FY19: $48,067.

[220]CB398.

[221]Reasons [78].

[222]Reasons [58].

The gross income generated from Premier Bay’s leasing business should have been calculated as $181,474,[223] significantly less than the income generated directly from Premier Bay’s cattle farming business of $524,630[224] combined with the total $449,625 in rent received from the T&A Partnership over three years.[225]
[223]Reasons [110], [58].
[224]Reasons [52].
[225]CB398.

Ground 5 — The principal business of Premier Bay
Preliminary

Both questions 3 and 6 of the Notice of Appeal are directed toward the statutory requirement that the Applicant’s “principal business” be primary production. Question 3 in the Notice of Appeal raises the Tribunal’s findings concerning the extent and significance of the labour employed by Mr Montalto in Premier Bay’s business, and of the integration of that labour in producing the income of Premier Bay with the capital employed. Question 6 in the Notice of Appeal is cast in more general terms and asks whether the primary production business of Premier Bay in the 2018 and 2019 land tax years was its principal business. Question 7 in the Notice of Appeal addresses the Tribunal’s conclusion and asks whether the Applicant, in each of the 2018 and 2019 land tax years, satisfied the requirements for the land tax exemption in s 67 of the LTA for the Relevant Property.[226]
[226]Respondent’s Outline of Submissions [38].

Applicant’s submissions

The Applicant submits that even if the Tribunal was correct to treat the rental income from the T&A Partnership as separate and distinct from Premier Bay’s primary production business, the Tribunal erred by failing to find that the primary production business of Premier Bay was still its principal business for the purposes of s 67(2)(d)(i) of the LTA.[227] It submits that, on the facts found by the Tribunal, the assessment of Premier Bay’s principal business is most informed by the activity to which the labour of the entity is principally directed.[228]
[227]Applicant’s Outline of Submissions [16].
[228]Notice of Appeal [15]; Applicant’s Outline of Submissions [16].

The Applicant contends that the approach adopted by the Tribunal does not find support in the authorities.[229] The Applicant says that the Tribunal’s conclusion on which of the two businesses is significant required an evaluative judgement based upon the relevant facts. It proffers that the evaluation to be undertaken is to see how facts relevant to the inquiry probatively bear upon the conclusion. The Applicant argues that the assessment of the significance of one factor is not limited to its volume or extent. It contemplates that, for example, gross income from one business may be dwarfed in significance by the extent of labour employed notwithstanding that the amount of revenue received may be large. Similarly, the capital employed in one business may be large, but objectively less significant than the volume or extent of the labour connected with the capital, or the income received.[230]
[229]Applicant’s Outline of Submissions [17]
[230]Applicant’s Outline of Submissions [17].

Following from this approach, the Applicant says that the identification of the “principal business” of Premier Bay is most informed by the activity to which labour of the entity is directed.[231] The Applicant seeks to rely on the Tribunal’s findings that Mr Montalto undertook the majority of Premier Bay’s cattle farming activity himself and was ordinarily engaged in the business of breeding cattle for sale in a substantially full‑time capacity.[232] The Tribunal also found that there was no significant labour of Mr Montalto devoted to property management or leasing, with the other properties held by Premier Bay as trustee for the Montalto Family Trust being managed by external agents.[233] The land in question, being part of the capital employed, was found by the Tribunal as being employed by Mr Montalto in the undifferentiated primary production business of both the T&A Partnership and Premier Bay through Mr Montalto’s labour.[234]
[231]Applicant’s Outline of Submissions [18].
[232]Notice of Appeal [16]; Applicant’s Outline of Submissions [18], citing Reasons [48], [55].
[233]Applicant’s Outline of Submissions [18], citing Reasons [60].
[234]Applicant’s Outline of Submissions [18], citing Reasons [46].

The Applicant says the Tribunal further erred in its evaluation of whether the primary production business was the principal business of Premier Bay by not treating the livestock as part of the capital employed by Premier Bay.[235] Had the Tribunal done so, the Applicant says, it would have concluded that the capital employed establishes the cattle farming business as Premier Bay’s principal business.[236]
[235]Applicant’s Outline of Submissions [18], citing Reasons [110].
[236]Applicant’s Outline of Submissions [18].

Respondent’s submissions

The Respondent submits that it was open for the Tribunal to find that cattle farming and leasing were equally significant businesses.[237] Additionally, it says that the Tribunal’s finding is consistent with the statements in Lotus Oaks interpreting the principal business requirement in s 67(2)(d) of the LTA as having a “practical effect” that “excludes trusts which have two or more different businesses”.[238]
[237]Respondent’s Outline of Submissions [42].
[238]Respondent’s Outline of Submissions [42], citing Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379 [112] (Garde J).

Contrary to the Applicant’s position in question 3 of the Notice of Appeal as outlined in its Outline of Submissions,[239] the Respondent submits that the respective weight to be attributed to the relevant considerations was a factual matter to be evaluated by the Tribunal.[240] It adds that it is not the role of this Court, hearing an appeal under s 148 of the VCAT Act, to substitute its own views on the evidence.[241] Moreover, the Respondent submits that there is no principled reason why Mr Montalto’s labour in undertaking primary production activities on behalf of Premier Bay and the T&A Partnership should predominate other considerations when evaluating whether Premier Bay’s primary production business is its “principal business” for the purposes of s 67(2)(d)(i) of the LTA. It points to the fact that allocation of labour is separately addressed by s 67(2)(d)(iii) of the LTA which raises the question of whether a specified beneficiary of a discretionary trust is normally engaged in a substantially full‑time capacity in a business of primary production of the type carried out on the subject land.[242] In oral argument, counsel for the Respondent submitted that given businesses can be carried on passively, granting a predominance to labour over other matters that might be of a relative scale and size of the two businesses would distort the inquiry that is being asked of s 67(2)(d)(i) of the LTA.[243]
[239]Applicant’s Outline of Submissions [16]–[18].
[240]Respondent’s Outline of Submissions [43], citing Comptroller‑General of Customs v Pharm‑A‑Care Laboratories Pty Ltd (2020) 270 CLR 494, 513 [41]; Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379 [206]–[207] (Garde J).
[241]Respondent’s Outline of Submissions [43] citing Mintifield Pty Ltd v Commissioner of State Revenue [2023] VSC 317, [7]–[8].
[242]Respondent’s Outline of Submissions [43]; TS63:21–64:21.
[243]Respondent’s Outline of Submissions [19]; TS64:22–65:11, citing Mould v Commissioner of State Revenue [2015] VSCA 285 [84]; Lotus Oaks Pty Ltd v Commissioner of State Revenue (2021) 113 ATR 379 [182]–[186] (Garde J).

In its reply submissions, the Applicant accepts that the Tribunal was required to undertake a factual evaluation when determining the respective weighting attributable to the relevant activities of Premier Bay. However, it submits that the Tribunal ought to have conducted the factual enquiry in the manner required by the provisions of the LTA as considered by the authorities.[244] It says that s 67(2)(d)(i) of the LTA required the Tribunal to evaluate the relative importance of each of the relevant factors. The Applicant contends that the Tribunal adopted a “mechanical assumption” that each factor had equal weight regardless of the relative importance each factor held with respect to the conclusion required by s 67(2)(d)(i) of the LTA.[245] It argues that the Tribunal found that the assessment of Premier Bay’s “principal business” for the purposes of s 67(2)(d)(i) of the LTA is most informed by activity to which the labour of the entity is principally directed. In support of this argument, it refers to the Tribunal’s finding that Mr Montalto undertook most of Premier Bay’s primary production activity himself and was normally engaged in the primary production business of cattle farming in a substantially full‑time capacity.[246] Hence, it argues that the labour employed by Premier Bay does bear some predominance when considering the probative effect of the findings on the proper legal characterisation of Premier Bay’s “principal business”. It submits that such predominance necessitated the finding that Premier Bay’s principal business was one of primary production.
[244]Applicant’s Reply Submissions [9].
[245]Applicant’s Reply Submissions [10].
[246]Applicant’s Reply Submissions [11], citing Reasons [48], [55].

Contrary to the Applicant’s position that the Tribunal erred by not treating livestock as capital employed by Premier Bay,[247] the Respondent submits that the Tribunal considered the livestock owned by Premier Bay in evaluating the capital employed by Premier Bay in its primary production business. It seeks to highlight the Tribunal’s finding that capital was “relatively modest”,[248] and makes reference to this finding within the Tribunal’s Reasons.[249]
[247]Applicant’s Outline of Submissions [19]–[20].
[248]Respondent’s Outline of Submissions [40], citing Reasons [52]–[54].
[249]TS62:24–63:20, citing Reasons [110]. Cf Applicant’s Outline of Submissions [19].

Analysis and conclusions
Question of Law?

The Respondent submits that the weighing of indicia in determining the principal business of Premier Bay was an evaluative exercise reliant on the discretion of the Tribunal, beyond the scope of the Court’s jurisdiction pursuant to s 148 of the VCAT Act. The Applicant’s case seems to take issue with the application of the test in Lavendar Rain, arguing that the Tribunal provided equal weight to the gross income, labour employed, and capital employed in each business in a manner that was inconsistent with the provisions of the LTA and the authorities. Hence, the Applicant says that though the Tribunal ultimately reached a factual finding, it takes issue with the process followed in reaching that finding, giving rise to a question of law.[250] This is reflected in question 3 in the Notice of Appeal asking whether the principal business of Premier Bay was that of primary production, given the facts found by the Tribunal.
[250]TS69:10–16; TS70:27–71:1.

I am satisfied that the Applicant has identified a question of law. This Court has held that a mixed question of law and fact arises where a decision is required on the application of a legal test or a standard to the facts as found.[251] The VCAT Act provides that a mixed question of fact and law comprises a question of law for the purposes of s 148.[252] As reflected in question 3 of the Notice of Appeal, the Applicant’s case here raises the question of whether the Tribunal correctly applied the legal test in Lavendar Rain to facts found regarding Premier Bay’s business activities, when arriving at the factual finding that cattle farming and leasing were both principal businesses of Premier Bay.[253] This comprises a mixed question of law and fact which invokes this Court’s appellate jurisdiction under s 148 of the VCAT Act.
[251]Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd [2016] VSC 244 [28], cited in Emrys Nekvapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 7th ed, 2022), 985 [148.260].
[252]Victorian Civil and Administrative Tribunal Act 1998, s 107(4).
[253]Reasons [110].

Error of Law?

Where a mixed question of law and fact arises, this Court must determine whether the Tribunal has made an error of law or an error of fact.[254] It is not open for this Court to entertain further debate as to the merits of the Tribunal’s factual findings,[255] leaving a limited capacity to review findings of fact made by the Tribunal.[256] It is relevant to note that the Tribunal comprised of Acting Senior Member R. Tang, who has a strong background in taxation law matters. In this regard, the Court will be particularly reluctant to overturn a decision of VCAT where it is comprised by expert members on questions of fact in respect of which they have particular expertise.[257] Legally erroneous fact finding, such as the application of a wrong legal test,[258] may found an appeal on a question of law.[259]
[254]Higgins Nine Group Pty Ltd v Ladro Greville St Pty Ltd [2016] VSC 244 [28] cited in Emrys Nekvapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 7th ed, 2022), 985 [148.260].
[255]Hoskin v Greater Bendigo City Council (2015) 48 VR 715, 720 [10].
[256]Patsuris v Gippsland and Southern Rural Water Corporation [2016] VSCA 109 [44].
[257]Zhao v Medical Board of Australia [2021] VSC 763 [81].
[258]Comptroller‑General of Customs v Pharm‑A‑Care Laboratories Pty Ltd (2020) 270 CLR 494, 514 [44].
[259]Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315 [192].

The Applicant argues that the Tribunal made an error of law by adopting a “mechanical assumption” by which each of the factors in Lavendar Rain is treated equally. It says that this approach is contrary to the authorities and interpretation of s 67 of the LTA. Instead, it proffers that depending on the factual circumstances of the taxpayer’s activities, some predominance may be granted between the factors in the Lavendar Rain assessment when determining the taxpayer’s principal business. It relies on the Tribunal’s factual findings about the allocation of Mr Montalto’s labour in support of this. I am not satisfied that the approach taken by the Tribunal is contrary to the authorities and provisions of the LTA. The Applicant has not identified any authorities, or principled reason, in support of the proposition that the focus allocated between factors in Lavendar Rain should be determined relative to a taxpayer’s activities. The Tribunal examined Premier Bay’s activities with the financial information available before it and exercised its discretion in determining the weight to grant each aspect. The Tribunal afforded each factor equal weight under an approach which, in my view, was grounded in the information before it and not inconsistent with Lavendar Rain. Though it may have also been consistent with the Lavendar Rain approach for the Tribunal to afford some predominance to the labour employed by Premier Bay in the manner submitted by the Applicant, its discretion in not doing so does not give rise to an error of law.

I do not accept the Applicant’s submission that the Tribunal erred by not treating livestock as the capital employed by Premier Bay and am satisfied by the Respondent’s reference to the Reasons that the Tribunal provided due consideration to Premier Bay’s livestock.[260]
[260]Respondent’s Outline of Submissions [40], citing Reasons [52]–[54]; TS62:24–63:20, citing Reasons [110]. Cf Applicant’s Outline of Submissions [19].

Hence, I find that the fifth ground of appeal must be dismissed.

Conclusion

For the preceding reasons, leave is given on all grounds.

The appeal is allowed with respect to grounds 1, 2, 3 and 4, and ground 5 is dismissed.

The parties are to bring in orders to give effect to these reasons.

I reserve the question of costs and will hear the parties on this issue should that be necessary.

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[2024] VSC 447

31 July 2024