| JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : DEVELOPMENT & RESOURCES ACT : TAXATION ADMINISTRATION ACT 2003 (WA) CITATION : QUITO PTY LTD and COMMISSIONER OF STATE REVENUE [2014] WASAT 8 MEMBER : JUDGE T SHARP (DEPUTY PRESIDENT) HEARD : 10 AND 11 OCTOBER 2013 WRITTEN SUBMISSIONS
25 OCTOBER 2013 AND 8 NOVEMBER 2013
DELIVERED : 17 JANUARY 2014 FILE NO/S : DR 40 of 2013 BETWEEN : QUITO PTY LTD Applicant
AND
COMMISSIONER OF STATE REVENUE
Respondent
Catchwords: Land tax - Notice of assessment - Reassessment - Exemption denied by Commissioner - Consideration of s 29 of the Land Tax Assessment Act 2002 (WA) - Use of land at midnight 30 June in year proceeding assessment - Whether land used for the purpose stated in s 29(3) Legislation: Land Tax Assessment Act (WA) 1976
Land Tax Assessment Act 2002 (WA), s 5, s 7, s 7(1), s 17, s 18, s 19, s 20, s 29, s 29(3), cl 1, cl 2, cl 2(3), Pt 2 Div 1
State Administrative Tribunal Act 2004 (WA), s 29(1)
Taxation Administration Act 2003 (WA), s 34, s 40(1) Result: The Commissioner's assessment of land tax is set aside.
The matter is sent back to the Commissioner for assessment in accordance with the correct and preferable decision stated by the Tribunal in the reasons for its decision to set aside the Commissioner's assessment.
Summary of Tribunal's decision: The applicant is the owner of the business known as Benara Nurseries. One of the applicant's places of business is at Lots 17, 18, 19, 20 and 50 Vincent Road, Sinagra. The Commissioner of State Revenue had until June 2011 exempted those lots from land tax on the basis that they were used for a rural business. However, following an audit of the use of the land, the Commissioner reassessed the land and decided that for the assessment years 2008/2009 to 2011/2012 inclusive, the applicant was not in fact using the lots entirely for a rural business. Accordingly, the Commissioner decided that the exemption did not therefore apply to most of the land for those years.
On a review of that decision by the Tribunal, the Tribunal considered the actual use of the land during the relevant financial years. The Tribunal noted that during that time, the applicant was implementing a decision to grow plants inground on the land, rather than in pots on the land as had previously been the case. As a result, the land needed to be cleared of limestone and bluemetal and tested for soil suitability. It was also necessary to wait until the effects of certain herbicides used on the land in the past were no longer detrimental to inground planting.
The Tribunal decided that although the land generated little by way of produce during those years, it was still being used for the applicant's rural business. The Tribunal therefore concluded that the land was exempt from land tax during those years.
Category: B
Representation: Counsel:
Applicant : Mr S Bhojani with Mr KJ Morgan
Respondent : Ms R Panetta
Solicitors:
Applicant : Murfett Legal
Respondent : State Solicitor's Office
Case(s) referred to in decision(s):
Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183
Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493
Diethelm Manufacturing Pty Ltd v Federal Commissioner of Taxation (1993) 44 FCR 450
Dival Nominees Pty Ltd and Commissioner of State Revenue [2005] WASAT 342
Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310
Greenville Pty Ltd v Commissioner of Land Tax (NSW) (1977) 7 ATR 278
Hibben & Ors and Commissioner of State Revenue [2012] WASAT 234
Hope v The Council of the City of Bathurst (1980) 144 CLR 1
Inghams Enterprises Pty Ltd v Commissioner of State Taxation (1996) 16 SR (WA) 88
Inglis v Federal Commissioner of Taxation (1979) 28 ALR 425
Jones v Commissioner of Land Tax (NSW) (1980) 80 ATC 4539
Penrith Rugby League Club v Commissioner of Land Tax [1983] 2 NSWLR 616
Plessey Australia Pty Ltd v Federal Commissioner of Taxation (1989) 89 ALR 395
R v Rintel (1991) 3 WAR 527
Reolon v Chief Commissioner of State Revenue [2013] NSWADT 96
Shannahan Crash Repairs Pty Ltd v Port Adelaide City Corporation (1978) 20 SASR 491
Southern Estates Pty Ltd v Federal Commissioner of Taxation (1966 - 67) 117 CLR 481
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction 1 Until June 2011, the respondent (Commissioner) had allowed the applicant (Quito) a rural business exemption from land tax in respect of certain land owned by Quito. However, following an audit of the use of the land, on 21 March2012 the Commissioner issued a land tax notice (assessment notice) reassessing land tax for the 2008/2009, 2009/2010 and 2010/2011 financial years to Quito, including an assessment for the 2011/2012 financial year. 2 Quito objected to the assessment notice (objection) on the grounds that the rural business exemption should continue to apply to some of the land the subject of the assessment notice. On 23 November 2012, that objection was disallowed by the Commissioner. 3 Quito then applied to the Tribunal on 25 January 2013 under s 40(1) of the Taxation Administration Act 2003 (WA) (TA Act) seeking review of the Commissioner's decision on the objection. Quito is seeking orders that the Commissioner issue an amended land tax assessment notice. Quito is also seeking orders that the Commissioner repay (with interest) some of the land tax already paid on the land that Quito says is not subject to land tax.
The proceeding in the Tribunal 4 The matter proceeded to a hearing on 10 and 11 October 2013. At the hearing, Mr James, a director of Quito, gave evidence and was crossexamined. A witness statement was also filed by the Commissioner from Mr Foote, the Acting Principal Compliance Inspector, who conducted the audit of the use of the land. 5 After the hearing the Tribunal's decision was reserved pending the receipt of further submissions by the parties.
Facts 6 On 25 September 2013, the parties filed a statement of agreed facts with the Tribunal. The relevant facts set out below are derived from that statement.
General background 7 Quito is a company registered in 1981 and at all relevant times was the holder of the business name 'Benara Nurseries'. 8 Quito, as trustee for the Quito Unit Trust, was at all material times the owner of a number of areas of land (collectively, the Lots) located at: (a) 116 Vincent Road, Sinagra (Lot 17); (b) 100 Vincent Road, Sinagra (Lot 18); (c) 80 Vincent Road, Sinagra (Lot 19); (d) 60 Vincent Road, Sinagra (Lot 20);and (e) 126 Vincent Road, Sinagra (Lot 50). 9 The Lots are located in the metropolitan region and are therefore land in a non-rural zone for the purpose of s 29 of the Land Tax Assessment Act 2002 (WA) (LTA Act). It is also accepted that Quito derives in excess of onethird of its total net income from rural businesses conducted in Western Australia.
History of audits, assessment and reassessments for land tax 10 In 2007, the Office of State Revenue (OSR) conducted an audit of the rural business land exemptions which then existed over the Lots and concluded that the Lots qualified for rural business land exemptions under s 29(3) of the LTA Act on the basis that the Lots were being used as part of a horticultural business, namely 'the wholesale nursery business known as Benara Nurseries'. As a result on 5 December 2007 the Commissioner issued a land tax notice of assessment in relation to the Lots for the 2007/2008 assessment period. That assessment contained in respect of each of the Lots a full exemption from land tax pursuant to s 29(3) of the LTA Act. 11 The Lots continued to attract a full exemption from land tax under s 29(3) of the LTA Act for the 2009/2010 assessment period, and the 2010/2011 assessment period. 12 However, in June 2011, OSR commenced a further audit of the previous exemptions of the Lots from land tax. In March 2012, that audit was concluded and contained the following findings: (1) Lot 17 ceased being used for a rural business prior to midnight 30 June 2008 and so does not qualify for exemption from land tax for the 2008/2009, 2009/2010 and 2010/2011 assessment periods; (2) Only 35% of Lot 18 was being used for a rural business as at midnight 30 June 2008 and so Lot 18 qualifies for a 35% rural business land exemption for the 2008/2009 assessment period. The Lot ceased being used for a rural business prior to 30 June 2009 and so Lot 18 does not qualify for any exemption from land tax for the 2009/2010 and 2010/2011 assessment periods; (3) Lot 19 ceased being used for a rural business prior to midnight 30 June 2009 and so Lot 19 does not qualify for an exemption for the 2009/2010 and 2010/2011 assessment periods; (4) Lot 20 ceased being used for a rural business prior to midnight 30 June 2008 and so Lot 20 does not qualify for exemption for the 2008/2009, 2009/2010 and 2010/2011 assessment periods; and (5) Lot 50 ceased being used for a rural business prior to midnight 30 June 2008 and so Lot 50 does not qualify for exemption for the 2008/2009, 2009/2010 and 2010/2011 assessment periods. 13 On 21 March 2012, the Commissioner issued a land tax notice of reassessment in relation to the Lots. In respect of the 2008/2009 assessment period, Lots 17, 20 and 50 had their 100% rural business exemption from land tax removed, and Lot 18 had its 100% rural business exemption from land tax reduced to 35%. In respect of the 2009/2010 and 2010/2011 assessment periods, the Lots were reassessed for land tax and the 100% rural business exemption was removed. In respect of the 2011/2012 assessment period, the Lots were assessed for land tax and the 100% rural business exemption for land tax was not applied.
History of objections and the application for review to SAT 14 On 17 May 2012, Quito's solicitors lodged the objection against the assessment and reassessments for land tax documented in the assessment notice. The objection claimed that each of the Lots qualified for a 100% rural business exemption for each of the assessment periods. 15 Then on 5 June 2012, Quito's solicitors lodged a supplementary notice of objection. A 100% rural business exemption was claimed over all of the Lots except for Lot 19 and Lot 20. A 95% rural business exemption was claimed for Lot 19 and Lot 20, because approximately 5% of those Lots was being used as a carpark. 16 On 23 November 2012, the Commissioner disallowed both the objection and the supplementary objection. 17 On 25 January 2013, Quito applied to the Tribunal for a review of the Commissioner's decision, seeking orders that Lots 17, 18 and 50 are subject to 100% rural business exemptions from land tax and that Lot 19 and Lot 20 are subject to 95% rural business exemptions from land tax for the relevant periods.
Business activity on the Lots during the relevant assessment periods 18 It is not in dispute that, prior to June 2008, Quito conducted a horticultural business on the Lots as part of the wholesale business known as Benara Nurseries. 19 On 19 September 2008, Quito placed an order for the purchase of 6,000 sapling olive trees. The sapling olive trees were initially planted and grown in pots until a stage was reached where they could then be planted in the ground. These sapling olive trees were stored on other land owned by Quito whilst awaiting maturation prior to planting on the Lots. The process of preparing the Lots for inground planting then began. 20 There is then a point of difference between the parties. The Commissioner says that from June 2008, Quito had changed its use of the Lots. Quito, on the other hand, says that there was no change in the use of the Lots, but it merely changed its business operating model. 21 As at 30 June 2008, approximately 1% of Lot 20, 35% of Lot 18 and 100% of Lot 19 still accommodated potted plants. In relation to Lot 17 and Lot 50, the parties have not agreed as to the percentage of the Lots that still accommodated potted plants as at 30 June 2008. 22 During 2008, all potted plants were removed from Lot 17, some but not all potted plants were removed from Lot 50, and most of the remaining potted plants were removed from Lots 18, 19 and 20 to allow the Lots to be prepared for the inground planting of the olive trees. The removed potted plants were moved to other land owned by Quito. Lot 17 and Lot 50 were the first of the Lots which began to be cleared of potted plants to make way for inground plants. 23 By 30 June 2009, all potted plants were removed from the Lots, apart from some which remained on Lot 50. 24 To prepare the Lots for the inground planting of the olive trees, all of the Lots had to be cleared of the top layers of bluemetal and limestone. The clearing of bluemetal and limestone began on each of the five Lots on or about the following days: • on Lot 17 by 22 December 2007; • on Lot 18 by 22 December 2007; • on Lot 19 by February 2008 and April 2009; • on Lot 20 by 22 December 2007; and • on Lot 50 by 22 December 2007. 25 This limestone and bluemetal had previously been placed on the Lots for the potted planting business activities. A layer of limestone and bluemetal is necessary for potted plant business activities as these substances prevent contamination from any diseases in soils on the land. Bluemetal and limestone are used as a drainage medium and also as a buffer between the pots and the ground. The pot sits on a thin layer of bluemetal, which is in turn on top of a thicker layer of limestone. The roots do not grow down past the bluemetal and the limestone is a natural barrier for fungus. One of the main reasons for the use of these materials is to prevent the spread of Phytophthora (Jarrah dieback). It is industry best practice to use bluemetal and limestone in this way. 26 In total, approximately 11,000m3 of bluemetal and 32,000m3 of limestone were cleared from the Lots. The bluemetal and limestone from the Lots was recycled and reused at another of Quito's properties for the nursery business. The bluemetal was stockpiled on the Lots because the limestone from the Lots was used first. 27 The limestone and bluemetal had to be removed for the inground planting business activities because it would interfere with the planting and growth potential of the olive trees. 28 For commercial reasons, Quito used its own equipment and machinery to remove the bluemetal and limestone. 29 Clearing the Lots of limestone and bluemetal and growing the sapling olive trees to an acceptable height on other land owned by Quito for eventual planting on the Lots took over three years. 30 From winter 2008, Quito grew test plants progressively on all the Lots as the limestone and bluemetal were cleared to test the ground for residual herbicide and to confirm that each area was ready to be mass planted with olive trees. Without such a cautious approach to the change in business activities there was an unacceptable business risk to Benara Nurseries of significant stock losses and incurring substantial expense. 31 The quarantine facility on Lot 20 was removed between January and March 2010 after the last quarantine plants were released from that facility on 13 January 2009. The quarantine facility occupied 1% of Lot 20. A replacement facility had been established on another of Quito's properties. Between the last quarantine approved released and the building being removed, other commercial plants were grown inside to make use of the building. 32 In November 2010 the bore on Lot 18 was upgraded to cater for inground planting. 33 Also in November 2010, Western Power was requested to connect power back to the bore on Lot 18. The electricity to the bore had been disconnected as a result of subdivision activity on the north side of Vincent Road whereby the power supply along Vincent Road was changed from above ground to underground. 34 In February 2011, Western Power was formally engaged to connect power back to the bore on Lot 18. 35 In May 2011, Western Power was paid for connecting power back to the bore on Lot 18. 36 Sometime between 12 July 2011 and 8 September 2011, the clearing of the limestone and bluemetal from the Lots was completed. 37 In March 2012, some of the Lots had commenced to be graded for inground planting. 38 In April May 2012, Quito started to peg out some of the Lots and drill the holes for planting of olive trees on some of the Lots. 39 The existing irrigation system is still on the Lots. However, the irrigation procedure was to change from overhead sprinklers for pot plants to drip irrigation for inground trees. The sprinklers needed to be cut underground so that the land could be graded and readied for planting. The value of the irrigation system on the Lots is several hundred thousand dollars.
Commissioner's position by the date of the hearing 40 In the Commissioner's final submissions prior to the hearing of the matter, filed with the Tribunal on 4 October 2013, the Commissioner conceded and accepted that:
41 The Commissioner's position was that each Lot should be exempted for the relevant assessment periods in the following proportions:
Lot No | 2008/2009 | 2009/2010 | 2010/2011 | 2011/2012 | | Lot 17 | No exemption | No exemption | No exemption | No exemption | | Lot 18 | 35% exemption | No exemption | No exemption | No exemption | | Lot 19 | 100% exemption | No exemption | No exemption | No exemption | | Lot 20 | 1% exemption | 1% exemption | No exemption | No exemption | | Lot 50 | 25% exemption | 25% exemption | 25% exemption | 25% exemption |
Commissioner's position following the hearing 42 On 25 October 2013, the Commissioner filed further submissions regarding the exercise of his discretion under cl 2(3) of the Glossary to the LTA Act. The Commissioner's decision on Quito's objection was based on the five Lots being assessed separately. The Commissioner says that he has subsequently reconsidered his position and has decided that it is appropriate in this case to treat the five Lots, together with two lots on Griffiths Road not the subject of the proceeding, as a single property (Single Property). The Commissioner says that this will provide the best outcome for Quito. 43 The Commissioner says that provided that some of the Single Property is used for a rural business, any portion of the Single Property which only plays some ancillary role to the rural business carried out on the Single Property will also be exempt under s 29(3) of the LTA Act. 44 The Commissioner's position, as set out in the Commissioner's further submissions, is therefore that the Lots are exempt from land tax for the relevant assessment periods except as follows: … 16. As at 30 June 2008, 30 June 2009, 30 June 2010 and 30 June 2011, the remaining areas of Lot 17 which were unused or only involved the removal of potted plants, removal of bluemetal and limestone and acacia soil testing (that is preparatory activities) ought not be exempted from land tax pursuant to section 29(3) of the LTAA; 17. As at 30 June 2008, 30 June 2009, 30 June 2010 and 30 June 2011, the remaining areas of Lot 18 which were unused or only involved the removal of potted plants, removal of bluemetal and limestone and acacia soil testing (that is preparatory activities) ought not be exempted from land tax pursuant to section 29(3) of the LTAA; 18. As at 30 June 2009, 30 June 2010 and 30 June 2011, the remaining areas of Lot 19 which were unused or only involved the removal of potted plants, removal of bluemetal and limestone, acacia soil testing (that is preparatory activities), stockpiling of bluemetal and limestone for re-use on the Carabooda lots (ancillary to a business conducted on other land) and the hard stand store area ought not be exempted from land tax pursuant to section 29(3) of the LTAA; 19. As at 30 June 2008, 30 June 2009, 30 June 2010 and 30 June 2011, the remaining areas of Lot 20 which were unused or only involved the removal of potted plants, removal of bluemetal and limestone, acacia soil testing (that is preparatory activities) and the hard store area ought not be exempted from land tax pursuant to section 29(3) of the LTAA: 20. As at 30 June 2008, 30 June 2009, 30 June 2010 and 30 June 2011, the remaining areas of Lot 50 which were unused or only involved the removal of potted plants, removal of bluemetal and limestone and acacia soil testing (that is preparatory activities) ought not to be exempted from land tax pursuant to section 29(3) of the LTAA.
Issues 45 The issue for determination by the Tribunal is whether the Commissioner was correct in disallowing Quito's objection concerning: 1) the reassessment of land tax for the 2008/2009 assessment period for Lots 17, 18, 20 and 50; 2) the reassessment of land tax for the 2009/2010 and 2010/2011 assessment periods for Lots 17, 18, 19, 20 and 50; and 3) the assessment of land tax for the 2011/2012 assessment period for Lots 17, 18, 19, 20 and 50. 46 The sub-issues arising from this primary issue as identified by the Commissioner include: 47 From the Commissioner's further submissions filed with the Tribunal on 25 October 2013 and referred to earlier in these reasons, I have concluded that the Commissioner is no longer pressing subissue (b)(iii). 48 Further, it is clear from the Commissioner's provisional statement of facts, issues and contentions filed with the Tribunal on 22 March 2013 when read with the Commissioner's further submissions that the Commissioner is not pressing subissue (c). In the provisional statement, the Commissioner says that s 29(3) of the LTA Act 'does not require that "an entire rural business" be conducted on the land in question. However, the activities conducted on the land in question need to fall within the scope of the rural business type said to be conducted on the land'. The 'land', the Commissioner has conceded, is the Single Property, not the five Lots.
Legislation 49 Section 34 of the TA Act confers on a taxpayer the right to object to an assessment issued by the Commissioner. Section 40(1) of the TA Act provides, relevantly: A person dissatisfied with the Commissioner's decision on an objection … may apply to the Tribunal for a review of the decision. 50 The proceedings before the Tribunal are within its review jurisdiction and therefore the Tribunal has the functions and discretions corresponding to those exercisable by the decisionmaker in making the reviewable decision; s 29(1) of the State Administrative Tribunal Act2004 (WA).
The LTA Act 51 Part 2 Div 1 Liability to land tax 52 Clause 1 of the Glossary to the LTA Act contains certain definitions which are relevant. exempt purpose, in relation to land, means a purpose for which the land is used or reserved and by virtue of which the land is exempt; … land includes all tenements and all interests in land; ... lot has the meaning given in clause 2 [of the Glossary]; ... parcel means 2 or more lots of land that are treated as a single property under clause 2 [of the Glossary]; … rural business, in relation to land, means the use of the land on a commercial basis to produce income to the user from the sale of produce or stock in the course of carrying out a business of a kind referred to in section 29(1)(a) or (b); rural business land means land on which a rural business has been or is being carried on[.] 53 Clause 2 of the Glossary provides, relevantly: The Commissioner's submissions
The first sub-issue - Does s 29(3) of the LTA Act incorporate a requirement that the Lots be used for a rural business at each midnight on 30 June in the previous financial year? 54 Section 29(3) of the LTA Act does not expressly include, in contrast to s 29(1), the words 'at midnight on 30 June in the previous financial year'. 55 The Commissioner submits that it is an implicit requirement of s 29(3), when read in its proper statutory context, that in order for the exemption to apply, the land in question be used by the owner for a rural business as at midnight on 30 June in the previous financial year. 56 The Commissioner says that the statutory context is, first, s 7(1) which provides that land tax is payable on land by the owner of that land at midnight on 30 June in the previous financial year. Section 17 then provides that land is exempt from land tax for an assessment year if it is exempt under, relevantly, s 29(3). The Commissioner says that this is sufficient to supply the relevant assessment time reference point of 'midnight on 30 June in the previous financial year' for the purposes of s 29(3) of the LTA Act. 57 Alternatively, the Commissioner says that if the Tribunal does not accept that the statutory context of the LTA Act fixes midnight of 30 June of the previous financial year as the exemption determination date for the purposes of s 29(3) of the LTA Act, then it is contended that the words 'at midnight on 30 June of the previous financial year' were inadvertently omitted by the Parliament. The Commissioner contends that it is open to the Tribunal in the circumstances to imply those words into the text of the legislation.
The second subissue Was Quito using the Lots for a rural business at all relevant times? 58 The Commissioner then submits that the land in question needs to be actually used at the relevant time in carrying on a rural business, not merely being prepared for that use. The Commissioner says that the preparation of land for the conduct of a rural business is not the same as carrying out a rural business; see for example Southern Estates Pty Ltd v Federal Commissioner of Taxation (1966 - 67) 117 CLR 481 (Southern Estates); Jones v Commissioner of Land Tax (NSW) (1980) 80 ATC 4539 at 4541. The Commissioner says that the language of s 29(3) requires a present and actual use, not an intended use; Hibben & Ors and Commissioner of State Revenue [2012] WASAT 234 (Hibben) at [46]. 59 The predecessor Act to the LTA Act was the Land Tax Assessment Act 1976 (WA) (1976Act). The Commissioner considers that it is clear from the second reading speech relating to the Bill in respect of the LTAAct that the LTAAct was intended to be a reenactment of the 1976 Act and that there was to be no change in policy. The Commissioner therefore argues that any judicial consideration of the equivalent provisions in the LTA Act to the 1976 Act is still relevant. 60 The Commissioner points out that judicial consideration of the equivalent provision to s 29(3) of the 1976 Act has determined that the provision is 'so worded as to give an exemption from land tax to those persons who are actually engaged in commercial activities on the land in question which can be described as agricultural or primary production'; Inghams Enterprises Pty Ltd v Commissioner of State Taxation (1996) 16 SR (WA) 88 (Inghams) at 91. 61 The Commissioner also submits that s 29(3) requires that the land in question needs to be used by the owner of the land by way of 'carrying out a business'; Hibben at [46]. 62 The Commissioner says that 'business' in this statutory context has its ordinary and popular meaning and denotes 'activities undertaken as a commercial enterprise in the nature of a going concern, that is activities engaged in for the purpose of profit on a continuous and repetitive basis'; Hope v The Council of the City of Bathurst (1980) 144 CLR 1 at 8 9. 63 The Commissioner says that the indicators of such a business being carried on include the nature of the activities, whether there is repetition and regularity of those activities, whether the activity has a degree of permanence, whether the activity has a significant commercial purpose or character (as opposed to being a hobby or a form of recreation), the size and scale of the activities and whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business; Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310 at 314. Whether a business is being carried on is 'a matter of activity'; Inglis v Federal Commissioner of Taxation (1979) 28 ALR 425 at 429. 64 The Commissioner says that, as a consequence, land tax cases dealing with a rural business should focus on identifying what actual activities are being conducted on the land in question at the relevant date and then examining whether those activities comprise, constitute or fall within the scope of a rural business described in the relevant Act; Inghams at 91; Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183 (Caruana) at [53] and [55]. 65 The Commissioner accepts that prior to the middle of 2008, Quito conducted a horticultural business on the five Lots. That horticultural business, in the Commissioner's view, involved growing plants in pots. Then, between December 2007 and the middle of 2008, the Commissioner says that Quito 'began to implement a business plan to change its business activities on the five Lots from potted pot planting to inground planting of semimature olive trees'; Commissioner's final submissions at para 57. 66 Accordingly, in the Commissioner's view, in 2008 Quito ceased carrying out its horticultural business activities on the five Lots in order to prepare the five Lots for a new horticultural business, namely the inground planting of semimature olive trees. That involved: a) removing the pots containing plants from the five Lots; b) clearing the top layers of bluemetal and limestone from the five Lots; c) growing test plants progressively on the Lots to test the ground for residual herbicide; d) removing the quarantine facility and its contents from Lot 20, removing the mechanics shed and upgrading the bore on Lot 18; e) cutting the sprinklers underground so that the Lots could be graded and readied for planting and changing the existing irrigation system to drip irrigation for inground plants. 67 The Commissioner says that these activities do not satisfy the indicators of a 'business'. The Commissioner says that during the relevant period there was no repetition or regularity of activity, no size or scale of activity, no activity that could be organised in a businesslike manner, no activity being conducted of the same kind and carried on in a similar matter to that of the ordinary trade and merely an intention to carry on a business in the future on the Lots. 68 The Commissioner further points to the fact that the activities during the relevant period took over three and a half years to complete and were still not complete by the end of the relevant period. They are therefore preparatory works to the conduct of a nursery business. 69 The Commissioner says that the Tribunal needs to examine the actual activities on the land in question and determine whether they amount to carrying out a rural business or are merely preparatory to carrying out a rural business. Further, the Commissioner says that the characterisation of activities as 'preparatory' to the carrying out of a rural business on the land in question in a land tax context, in circumstances where: was adopted in Reolon v Chief Commissioner of State Revenue [2013] NSWADT 96 (Reolon) at [93] - [96]. 70 The Commissioner refers to the witness statement of Mr James where (at para 90) he describes how Quito began implementing its plan to change the use of the Lots from potted pot plants to inground planting. The Commissioner says that the decision in Reolon makes it clear that the work done to prepare the land for inground planting activities was in the nature of preparatory activities and thus could not constitute the carrying out of a rural business on the Lots. The Commissioner says that the fact that potted planting activities and inground planting activities both fall within the same general rural business category of horticultural business does not take this case outside the principles stated in Reolon. 71 The Commissioner makes the further point that the five Lots cannot be regarded as having been 'used for a rural business' during the relevant period on the basis that there had been a mere interruption to the earlier exempt use of the land. 72 The Commissioner accepts that land can be regarded as having been 'used' for an exempt purpose at the relevant time in some cases where there has been a mere interruption to the earlier, exempt, use of the land; Dival Nominees Pty Ltd and Commissioner of State Revenue [2005] WASAT 342 at [99]. However, the Commissioner says that if the earlier use of the land has ceased as opposed to been merely interrupted, then that earlier use is not relevant and applicable at the relevant time. 73 The Commissioner says that the earlier use of the land will have ceased if: a) the earlier use has changed to a different use; b) the earlier use has, by overt and unequivocal act, been abandoned; or c) the earlier use has been discontinued for so long that the inference must be drawn that the previous use is not just in temporary abeyance but is no longer in existence; Shannahan Crash Repairs Pty Ltd v Port Adelaide City Corporation (1978) 20 SASR 491 at 511. 74 The Commissioner says that the earlier use of the Lots involved the carrying out of a horticultural business involving potted planting activities. Then, from December 2007 to the middle of 2008, Quito implemented its business plan to change the business direction to inground planting activities. The Commissioner says that for over three and a half years, the Lots were not used for potted planting activities but were being prepared for their use for inground planting activities. This in the Commissioner's view demonstrates that abandonment of the earlier use of the Lots. The Commissioner says that the inground planting activities are different in nature, intensity and effect and says that it can be seen that the later use of the land is different to the earlier use. 75 The Commissioner concludes that Quito did not use the Lots during the relevant period for the carrying out of a rural business, and that this is a case of a change in business direction rather than a temporary or mere interruption of a business.
The evidence before the Tribunal 76 Mr Foote in his evidence to the Tribunal says that in early June 2011 he commenced an audit of the Lots. The first stage of that audit was to consider some aerial photographs of the Lots taken in December 2008 and February, March and April 2010. His initial impression from those photographs was that the Lots 'appeared to be largely vacant land' (FWS 11). 77 He compared those photographs to photographs taken in 2006 and 2007 'which showed plant life on all of the lots' (FWS 13). 78 Mr Foote said that this suggested to him that 'a rural business may have ceased being carried out on three of the five lots of land from approximately early 2008 and on the other two lots sometime between March 2008 and December 2008' (FWS 14). 79 Mr Foote then conducted a physical inspection of the Lots and spoke to Mr Darren Shyne, the financial controller for Quito. He spoke to Mr Shyne because he was the person who had applied for the exemption on behalf of Quito in September 2007. 80 Mr Foote says that Mr Shyne confirmed that 'he was the correct person to speak to in relation to these matters' (FWS 47). 81 Mr Foote subsequently met with Mr Shyne on 25 January 2012 and Mr Foote says that he told Mr Shyne that Mr Foote believed that the Lots had been incorrectly exempted from land tax. He subsequently wrote to Mr Shyne on 27 February 2012 confirming that conversation. 82 Mr James in his evidence to the Tribunal provided an extensive history of and background to the business operated by Quito and known as Benara Nurseries. He says, in particular, that the business is a single wholesale business (JWS 15) operating from respectively two properties in Carabooda and a property in Wanneroo which incorporates the Lots. All of the business premises currently used for the business is owned by Quito (JWS 21). 83 Mr James describes the business as a wholesale nursery (JWS 30). In essence, Quito supplies plants direct to retail nurseries, to landscapers, to local government councils and to some major infrastructure projects (JWS 31). The direction which the business takes from time to time is based on trends, and to some extent, speculation: We take the punt and grow plants out on a speculative basis in an attempt to win big contracts when they come through. None of the contractors have the foresight to order five or 10 years ahead, instead we grow plants ready for when projects happen. Because of the time a lot of these advanced plants and trees take to grow, it is one of the main reasons why we need to use inground planting, which allows plants to mature. When the demand comes for these advanced plants and trees, Benara Nurseries can meet that demand (JWS 32). 84 The principal product supplied by Quito is, selfevidently, plants (JWS 35). These range from seedlings supplied in small pots to advanced plants and trees (supplied in large pots). Mr James emphasises that even the advanced plants or trees grown or produced are grown in the ground and then dug up and replanted in very large pots for supply to customers (JWS 35). 85 In terms of the scale of the business, between 1 July 2006 and 30 June 2012, Quito sold somewhere between four and five million plants in each financial year, of which in each financial year some 125,000 200,000 plants were considered to be advanced plants or trees (JWS 36). 86 Mr James emphasises that all plants sold by Quito are supplied in trays, small pots, larger pots and very large pots or bags (JWS 51). 87 Mr James says that in or around August 2005, for reasons which include the nature of the neighbourhood in Wanneroo tending towards residential use, Quito decided to transfer and consolidate the potted plants at Carabooda and use the Lots entirely for inground planting. Mr James says that the inground plants are less labour intensive and watering could be done automatically with the existing irrigation system and it would result in less insecticide spraying, and fertiliser smells. It would also avoid any difficulties associated with complying with the curfew imposed by the Wanneroo City Council on running tractors and trucks before 7 am (JWS 55 58 and 90). Mr James says that once this decision had been made, 'there was a significant amount of work to be done to prepare the land for inground planting' (JWS 98). 88 This work was done progressively, starting with selling as many as possible of the potted plants from the lots rather than move them to Carabooda. This took place during September and December in 2007 (JWS 99). In Mr James' witness statement he describes the work which needed to be done at the Lots including removing the remaining pot plants and grading the land to remove the bluemetal and limestone referred to earlier in these reasons (JWS 101). He explains that the entire process 'was gradual and took a long time because of the enormity of the project, and the fact that we were using our own employees who had other duties as well' (JWS 117). 89 Mr James also points out that at the Lots Quito used the herbicide Diuron to control weeds. He says that Diuron stays active for up to two years in the soil and that the Diuron factsheet provides that areas treated with Diuron should not be replanted within two years (JWS 131). 90 Mr James confirms that the bluemetal and limestone, once removed, was cleaned and transported to Carabooda where potted plants are now grown (JWS 142). 91 Mr James says that the first time he was aware that an audit of the land had taken place was when he received the assessment notice in March 2012. He expressed some surprise that Mr Foote did not speak to any of the company directors or any of the operational managers. He also expressed surprise that Mr Shyne did not insist that Mr Foote spoke to a director (JWS 161 163). 92 Mr James says that Mr Shyne is not involved in the operational control of the business except when the business requires finance for 'large purchases'. He says that he would have been willing to explain to Mr Foote why the Lots appeared to be unused (JWS 168). 93 Mr James concluded his evidence by saying that the Lots have always been used continuously for the nursery business, including during the period between 2008 and 2012 and is still used for the business today. He excludes some small parts Lots 19 and 20 which are used as a carpark in connection with a nearby residential subdivision (JWS 169). 94 Finally, he makes the point that potted plants and inground plants 'are not separate businesses; they are just different methods of growing plants to sell in the course of carrying out the Benara Nursery's business' (JWS 171).
Findings
The first subissue Does s 29(3) of the LTA Act incorporate a requirement that the Lots be used for a rural business at each midnight on 30 June in the previous financial year? 95 I agree with the Commissioner that, when the LTA Act is read as a whole, for the exemption in s 29(3) of the LTA Act to apply in any financial year, the land in question must be used for the relevant purpose at midnight on 30 June of the previous financial year. 96 It therefore follows that I disagree with the contention of Quito that the test is merely that the taxpayer can show that the relevant land was used by the owner for a rural purpose at some point during the financial year in question. 97 The reference point in s 7(1) of the LTA Act is midnight on 30 June in the previous financial year. If the test under s 7(1) for liability for land tax is ownership at a certain time on a certain date, then it is logical to proceed on the basis that the test for an exemption pursuant to s 17 should be applied by considering the circumstances of the possible exemption at the same time and on the same date. 98 Also, if the language of s 29 itself is read as a whole, then I consider that the draftsperson of the LTA Act saw no reason to repeat the words 'at midnight on 30 June in the previous financial year' in s 29(3). Section 29(1) exempts land from land tax if it is used at midnight on 30 June in the previous financial year for a rural business, except land in a nonrural zone. Section 29(3) then deals with land in a nonrural zone and provides that same exemption, with the additional requirement that more than onethird of the owner's total net income for the previous financial year has to have been derived from the owner's carrying out of a business of that kind. In my view, when s 29(1) and s 29(3) are read as a whole, then it is clear that the words 'at midnight on 30 June in the previous financial year' are carried from s 29(1) into s 29(3) without the necessity of repeating them. If it was in fact intended that the conclusion contended for by Quito was to be drawn, namely that the intention was that the relevant land was used by the owner for a rural purpose at any point during the financial year in question, then s 29(3) would have made that expressly clear. 99 For convenience, I will deal at this stage with a further point arising from s 29, even though it is not part of the first issue. As I have said, the rural business exemption from land tax is contained in s 29(1) of the LTA Act, extending to all land except land in a nonrural zone. This exemption is then expanded by s 29(3) of the LTA Act to include land in a nonrural zone, subject to the income test already mentioned. It is therefore my view that the necessary use under s 29(3) is a sole or principal use in line with the conditions set out in s 29(1). Again, I consider that if the draftsperson intended that s 29(3), in contrast to s 29(1) required only that the land in question was 'used', as opposed to 'used solely or principally', then I believe that s 29(3) would have made that expressly clear.
The second sub-issue - Was Quito using the Lots for a rural business at all relevant times? 100 In Plessey Australia Pty Ltd v Federal Commissioner of Taxation (1989) 89 ALR 395 Sheppard J noted at 406 that the word 'business' is a word of wide import and should not be narrowly construed. 101 The word 'used' is similarly a word of wide import; Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493 (Royal Newcastle) at 515. The ordinary meaning of the verb 'to use' is to utilise or to employ for or with some aim or purpose; R v Rintel (1991) 3 WAR 527 at 529. The uses to which property of any description may be put are manifold and what will constitute 'use' will depend to a great extent upon the purpose for which it has been acquired or created; RoyalNewcastle at 515. 102 Quito is, of course, claiming an exemption from land tax. As French J (as his Honour then was) said in Diethelm Manufacturing Pty Ltd v Federal Commissioner of Taxation (1993) 44 FCR 450 at 457: As a general proposition the taxpayer claiming the benefit of an exemption from the imposition of a tax has the burden of proving the facts necessary to fall within that exemption. … On the other hand, an exemption which exists for the purposes of encouraging, rewarding or protecting some class of activity is not to be given a narrow application. 103 Similarly, in Penrith Rugby League Club v Commissioner of Land Tax [1983] 2 NSWLR 616 at 622, Hunt J said: I see nothing wrong in such an area of land being exempted from land tax as the site of a club building. The intention [of the relevant section] … is to relieve certain community groups from the burden of land tax upon the land used and occupied by them. Such an exemption should not be construed narrowly. … It is only by the narrowest and most pedantic of constructions that the car park in question in this appeal can be excluded from that exemption. 104 In this case, it is clear that the exemption in s 29 exists for the purpose of encouraging the use of land for rural business, both in rural and nonrural areas. It is accordingly not appropriate that s 29 should be interpreted narrowly. 105 The next consideration in respect of this issue is the actual use of the land in question; Inghams at 91. Clearly, it is not sufficient to attract the exemption afforded by s 29(3) that the land is merely owned by a rural business operator. It is, as the Commissioner contends, the present and actual use of the land which is relevant. 106 In Greenville Pty Ltd v Commissioner of Land Tax (NSW) (1977) 7 ATR 278 at 280, Helsham CJ said this: … whether land is being used for primary production within the meaning of the definition must be decided by an objective test - the inquiry is an inquiry into actual land use; it is not to be tested by the intention of the owner (cf [Southern Estates]). And in applying that test one must adopt a broad approach and a commonsense one. For example, it would not be sufficient merely to look at the area actually under cultivation at the relevant time, if cultivation were being relied upon as the use, so as to ascertain whether for example more than half of the whole of the land was under cultivation - because of course, the part not under cultivation might be unusable or lying fallow, although in the latter instance fallow land might be regarded as passive use of land …. It would probably not be sufficient to look merely at the financial return from the cultivation; the fact that there was none would not of itself warrant a finding that the land was not used primarily for cultivation, nor would the existence of a more rewarding cottage industry carried on by the owner on the land at the same time. Likewise the quantity of produce of the cultivation taken from the land would not of itself be a determinant of its primary uses. The matter will be one of degree in each case. 107 In this case, it is common ground that prior to midnight on 30 June 2008, the Lots were used for a rural business. The issue is whether that use was occurring at midnight on 30 June 2008 and on midnight on 30 June in the subsequent years up to and including 2011. 108 The Commissioner's position is, essentially, that Quito had ceased using the Lots for a rural business by midnight on 30 June 2008. In the years from then until midnight on 30 June 2011, the Commissioner says, Quito was preparing the Lots for use for a rural business. 109 I disagree. On the evidence before me, Quito had for many years been operating a single business, accepted by the Commissioner as being a rural business, from the Lots and also from other property, including Quito's property in Carabooda. During the relevant assessment years, what was actually taking place on the Lots was the removal of potted plants, the removal of bluemetal and limestone, soil testing and storing stockpiles of bluemetal and limestone. Part of some of the Lots was used to store tractors and pots. Part of one of the Lots was at least during part of the relevant period used for a quarantine facility. Approximately 5% of two of the Lots were used as a carpark unrelated to Quito's business. 110 This is not a case where a taxpayer, engaged in a rural business elsewhere, 'acquires virgin land to bring it into primary production as part of his existing business'; Southern Estates at 488. Nor is it a case where the use of the land ceased. In this case, on the evidence of Mr James, which I accept, Quito took a decision that its business, which is growing and selling plants and trees, would, for good commercial reasons, be better served by moving all of the unsold potted plants from the Lots to another location and then using the Lots to grow plants inground, once the Lots were prepared and ready. 111 This is not a change of the business being carried on on the Lots nor a new business on the Lots. There was simply a change in the way in which the existing business of growing plants for sale was to be conducted on the Lots in the future. 112 Obviously, during the relevant assessment periods, little was grown on the Lots which could be described as produce. However, in my view, that does not lead to the conclusion that the Lots were not being used for a rural business. It is an aspect of a business of this kind that land is used seasonally or may be left to lie fallow for some period of time. That cannot be determinative as to whether the Lots ceased to be used for a rural business. If land becomes unsuitable for a particular crop, or as in this case because of the previous use of a particular herbicide the land cannot be planted for a period of time, then the fact that the land cannot produce plants for a certain time is merely an aspect of that kind of business. 113 It is not the case that the use of the Lots was changed for some other purpose. The facts in this case can be distinguished from those in Reolon, where although the expression 'changed direction' was used, it was a significant change from bee keeping to the business of goat and cattle herding (Reolon at [93] and [94]). 114 The use of parts of the Lots for a quarantine facility and for storing tractors is in my opinion a use for the purpose of Quito's business. Similarly, stockpiling bluemetal and limestone is a use of the Lots for the business, and I do not accept the Commissioner's contention that this is a use of the Lots for a business conducted by Quito at Carabooda. 115 The clear evidence of Mr James is that at no time did the Lots cease to be used for the rural business operated by Quito. The Lots merely ceased to be productive for a period of time. The decision as to how the Lots were to be used had been made in 2005 and that decision was subsequently implemented.
116 Mr Foote's evidence is that he based his findings on aerial photographs and on his own visual assessment of the Lots. He also relied on information supplied to him by a particular member of Quito's staff, namely the financial controller. Because, as Mr Foote would have been aware, the relevant consideration was the actual use of the Lots, he would have been better informed about that use by interviewing the owner and operator of the Lots. I consider therefore that the basis of Mr Foote's recommendations to the Commissioner for reassessment is flawed.
A further subissue - Are the Lots fully or only partially exempt? 117 In the Commissioner's reassessment, particularly the Commissioner's reassessment of the Lots as a Single Property, the Commissioner considers that the exemption under s 29(3) of the LTA Act ought to apply to the proportion of the Single Property used for the exempt purpose. 118 The LTA Act provides that land tax is payable for all land except land that is exempt under s 17. 119 Section 17 provides that land is exempt if the Commissioner grants an exemption under s 20, or if it is exempt under Pt 3 of the LTA Act. Section 29 is in Pt 3. 120 Secton 29(3) provides, in essence, that the Single Property is exempt if at the relevant dates it is used for a rural business. I have already concluded earlier in these reasons that for the exemption in s 29(3) to apply, the land must be used solely or principally for a rural business. 121 Section 29 does not contain any express provision under which the exemption applies only in proportion to the percentage of the land used for a rural business. I therefore conclude that it was the intention of the draftsperson that the exemption under s 29 was to apply to all of the land in question if it was used solely or principally for a rural business. If the land was not used solely or principally for a rural business, then I consider that the exemption would not apply at all unless the Commissioner grants an exemption under s 20. 122 Even though certain parts of the Single Property are used for purposes other than for a rural business, those parts are on the evidence before me very small areas in relation to the whole. Accordingly, I conclude that those parts may be disregarded for the purposes of s 29(3) and that the Single Property is used principally for a rural business.
Conclusion 123 I consider that Quito's objection to the assessment notice should be upheld and that the matter should be referred back to the Commissioner for assessment on the basis that the Single Property was at midnight on 30 June 2008, 30 June 2009, 30 June 2010 and 30 June 2011 used by the owner of the Single Property principally for a rural business.
Orders 124 For the reasons given above, the Tribunal makes the following orders: 1. The Commissioner's assessment of land tax in respect of the property the subject of these review proceedings is set aside. 2. The Tribunal sends the matter back to the Commissioner for assessment in accordance with the correct and preferable decision stated by the Tribunal in these reasons for decision published with this order, so that the subject land is exempt from land tax under the Land Tax Assessment Act 2002 (WA) for the financial years 2008/2009, 2009/2010, 2010/2011, and 2011/2012. 3. The parties have liberty to apply to the Tribunal for directions in the event that the applicant is aggrieved by the Commissioner's determination under order 2 above. |