R. and E Drafting Pty Limited v Chief Commissioner of State Revenue - [2014] NSWCATAD 75

NSW Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation: R. & E Drafting Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 75
Hearing dates: 9 September 2013; 10 September 2013; 5 December 2013; 6 December 2013
Decision date: 06 June 2014
Jurisdiction: Administrative and Equal Opportunity Division
Before: J.Block Senior Member
Decision:
The objection decision under review is affirmed

Catchwords: Primary production - meaning of applicable tests "cultivation"
Legislation Cited: Land Tax Management Act 1956
Cases Cited: Collector of Customs (Tasmania) v Davis (1989) 23 FCR 378;
Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867; 79 NSWLR 724 at [69]-[70],
Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366 at [48];
Hope v Bathurst City Council (1986) 7 NSWLR 669;
Lease A Leaf Property Pty Limited v Chief Commissioner of State Revenue [2011] NSWADTAP 41;
Eager v Smith (19 February 1988, SC NSW unreported;
Safety Beach Estates P/L v. Commissioner of Land Tax 79 ATC 4032;
Favello Pty Ltd & Ors v Chief Commissioner of State Revenue [2014] NSWCATAD 47;
Category: Principal judgment
Parties: R. & E Drafting Pty Limited
Chief Commissioner of State Revenue
Representation: Counsel
D. Mitchell (Respondent)
R Ennis (Applicant)
Crown Solicitor (Respondent)

File Number(s): 136013

reasons for decision

Part A - Introduction and Preliminary

The Applicant seeks the review of a decision by the Respondent (who is usually referred to in these reasons as the "Chief Commissioner") in terms of which the Applicant was assessed to land tax in respect of the 2011 to 2013 land tax years (collectively referred to as "the relevant years"). The assessments relate to properties situated at 2 Parsland Close Exeter ("No 2"), 42 Parsland Close ("No 42"), and 45 Parsland Close Exeter ("No 45")(collectively referred to as "the properties").The Applicant contends that it is entitled in respect of the relevant years to the primary production exemption under section 10AA of the Land Tax Management Act 1956 ('the Act') on the basis that the dominant use of the property was primary production in the form of cultivation of grasses for the making of hay for sale. The Applicant asserts also that in the case of No 2 cultivation of hardwood timber and firewood occurred.

This application commenced in the Administrative Decisions Tribunal ("the ADT") The ADT was merged into the Civil and Administrative Tribunal of New South Wales ("NCAT") on 1 January 2014 and in consequence of which I am authorised and required to determine the matter as a matter of NCAT; see clause 7(2) in Schedule 1 to the Civil and Administrative Tribunal Act 2014 ("NCAT Act"). Matters formerly dealt with in the Revenue Division of the ADT are dealt with in the Administrative and Equal Opportunity Division of NCAT; see section 96 of the Taxation Administration Act 1996 and clause 3(1)(b) in Schedule 3 to the NCAT Act. The Tribunal had before it the documents lodged in accordance with section 58 of the Administrative Decisions Review Act 1997 (previously the Administrative Decisions Tribunal Act); those documents are referred to as the "s.58 documents". The Tribunal admitted a number of exhibits (some of which in the result proved to be of limited relevance) which will be referred to necessary in the body of the decision by reference to the exhibit number assigned to it.

An initial decision was made on 24 September 2012 in respect of the 2011 and 2012 relevant years. An objection to that decision was lodged on 16 November 2012 (Tab 3 of the s.58 documents). An assessment then issued in respect of the 2013 year. By letter dated 25 November 2013 the Applicant sought to have its objection extended so as to include the 2013 relevant year; the Chief Commissioner disallowed the objection in respect of all three relevant years on 6 February 2013 on the basis that the alleged use of the property was not dominant and because cultivation as required by the Act did not take place.

This matter was heard on four hearing days and being 9 September 2013 ("first day") 10 September 2013 ("second day") 5 December 2013 ("third day" and 6 December 2013 ('fourth day"); the Tribunal has received the transcript for all four hearing days; references to the transcript (or "TS") are sometimes prefaced by either 1 2 3 or 4 which should be regarded as references to the TS for the first second third and fourth hearing days respectively, however references to TS contained in this decision and quoted in RFS refer to the actual hearing dates involved.

The Applicant was represented by Mr R. Ennis, a director and also, so he informed the Tribunal, its liquidator in that it has been placed in liquidation. At 1 TS 4 lines 8 to 20 the Tribunal asked Mr Ennis to send to the Tribunal the resolution or other document pursuant to which he was appointed liquidator of the Applicant. The Tribunal ruled in the absence of any objection of the Respondent that it accepted that Mr. Ennis was entitled to appear on behalf of the Applicant. Mr. Ennis advised the Tribunal that he is himself a qualified solicitor although not in practice as such. After the hearings had been completed Mr. Ennis submitted a joinder application which described the Applicant as being in liquidation; that application will be referred to later in these reasons. In some of the documents submitted by him Mr. Ennis described himself as a retired solicitor.

When the hearings ended on the fourth hearing day, in December 2013, the Tribunal asked the parties to furnish it with final submissions and dealing in particular and in detail with the evidence which had been furnished to the Tribunal at the hearing. The Tribunal accepted that for this purpose the parties would require TS for all four hearing days and that it might be some while before TS became available. A time-table, which was generous as to time, was then formulated as to the dates by which final submissions would be required. The Applicant (belatedly) furnished its final submissions in April 2014; those final submissions are referred to as "AFS". The Chief Commissioner filed his final submissions ("RFS") on 16 May 2014. The Applicant was entitled in accordance with that time-table to a right of reply to be exercised within 2 weeks of receipt of RFS, but in the result has neither exercised that right of reply within that period nor has it sought an extension of time within which to do so. The Tribunal notes in this context that it has treated the two sets of final submissions as final in that they were so described by each of the parties; the Tribunal has however had regard to earlier submissions and in particular photographic evidence referred to in them.

The hearing on the first day commenced rather later than was scheduled to allow the Chief Commissioner to consider a lengthy statement (running to 136 pages) received on the day prior to the first hearing day. That document was belated bearing in mind that the hearing had been set down on 19 July 2013.

AFS was as, I have noted, submitted in April 2014. It consists of 24 separate parts each separately headed and consisting in aggregate of 461 pages. It is not necessary for me to burden this decision with the titles of those parts; suffice it to say that much of the content is of little or no relevance. By way of one example only I include the first page of part 6 (160 of AFS) as follows:

Part 6 How does tax influence the use of land?

Summary of this Part

This Part summarises the forward leaps and errors made by past generations with a view to pointing the way forward for determining the application of the land tax exemption to rural lands.

Egypt.

The ancient Nile of Egypt created cultivation of its floodplain delta on a vast scale. Records from that antiquity show taxation of the produce. Our modern numerals and numbering come from this era. It is from that era that trigonometry became important to set the boundaries of land. Since then and most likely before, almost all human civilisations have taxed land or its produce in some way or another for the common good of that society. Human societies naturally define and defend the internal and external marked boundaries of their cultivated land.

Window tax

It is not only land use that is influenced. The buildings on the land fall under that influence too.

From 1696 to 1851 a "window tax" applied in England and Wales. This was a tax on the number of windows in a building. The idea was a precursor to income tax which was an unpopular notion. It was thought that the larger the house the wealthier the owner and the more windows - so the more window tax that could be raised from the rich. This extremely unpopular tax was abolished when contrary to public health and good governance, windows were bricked up or houses were built without windows. The tax was generally a failure because it was perceived as a tax on light and air.

There are other statements in AFS which fall into the same category; even more to the point is the fact that AFS does not attempt to deal with the evidence furnished at the hearing. It did however include new evidence and being evidence which was not tendered at the hearing and of which the Tribunal can take no account.

In April 2014 the Applicant submitted a document entitled "Application to review and join an Applicant party" together with an affidavit by Mr. Ennis dated 17 April 2014. It may be noted that the application for review and joinder sought the removal of R. & E Drafting Pty Limited, which is the Applicant in this matter, as an Applicant, and the joinder of Richard John Ennis as an Applicant party. (It is relevant to note that the Applicant was therein described as being in liquidation.) It is hardly necessary for me to note that applications of this nature made after the hearings had ended and where only final submissions were outstanding, cannot be competent or dealt with at that stage and when the hearings have ended, and the Tribunal must therefore ignore the application.

RFS by contrast did indeed deal, as the Tribunal had requested, and comprehensively with the evidence given at the hearing. It is for this reason that the Tribunal has drawn on RFS to some considerable extent for the purpose of this decision. The Tribunal here notes by way of example that it has included a number of extracts from TS cited in RFS. The Respondent noted in RFS that he had found it difficult to deal with the content of AFS; that this is so is not surprising.

RFS contains under the head of "Background" a description of the properties and which in the view of the Tribunal (and having regard to all of the photographic evidence before the Tribunal and including photographs furnished in accordance with submissions prior to the final submissions) can be regarded as accurate; clauses 8 to 18 read as follows:

8. The subject properties, being No's 2, 42 and 45, were once part of a larger block owned by the Applicant. In about 2003 or 2004 that larger block was subdivided into 7 lots four of which were then sold and used for residences. The Applicant retained ownership of No's 2, 42 and 45, although during part of the period here under consideration it made efforts to sell them.

9. No 2 comprises approximately 2.38 ha of land. During all relevant tax years it was zoned "RU4 - Rural Small Holdings".

10. During all relevant tax years there has been a dwelling house located on No 2. The house has been rented during almost all of the period under consideration - the current lease commenced on 28 August 2010, i.e. prior to the first taxing date on 31 December and the tenants remain in occupation. The house is of brick construction with a concrete tile roof, and consists of three bedrooms, a study, a lounge room and a double garage Inspection reports undertaken by the managing agent in April and October show the house to be in good condition. The house and its associated yard (which is fenced off from the rest of No 2) occupies approximately 15.76 percent of the total area of No 2.

11. The balance of the land on No 2 comprises a large open space on which there is a dam, a metal shed and some eucalyptus trees. The Applicant asserts that hay or silage is cultivated on this portion of No 2 and that the eucalyptus trees are cultivated for hardwood and firewood. The Applicant refers to the eucalyptus trees as a forest, but this an overstatement as may be seen from the aerial photograph that is exhibit A6. A modest planting would be a more appropriate description.

12. Contrary to the Applicant's submissions at page 461, from the street No 2 has the appearance of a residence.

13. No 42 is approximately 2.37 ha. During all relevant years it was zoned "RU4 - Rural Small Holdings".

14. No 42 comprises open space and a dam. The Applicant asserts that it is used for cultivation of hay or silage.

15 The overall appearance of No 42 is that of a vacant block with a concrete drive leading into it.

16. No 45 is approximately 3.179 ha. During all relevant years it was zoned "RU4 - Rural Small Holdings".

17. No 45 comprises open space and a dam. The Applicant asserts that it is used for cultivation of hay or silage.

18. The overall appearance of No 45 is that of a vacant block with a concrete drive leading into it.

PART B - APPLICABLE STATUTORY AND CASE LAW

For the tax years under consideration S.10AA provided (and still provides):

10AA Exemption for land used for primary production Land that is rural land is exempt from taxation if it is land used for primary production.

Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land:

(a) has a significant and substantial commercial purpose or character, and

(b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made).

(3) For the purposes of this section, land used for primary production means land the dominant use of which is for:

(a) cultivation, for the purpose of selling the produce of the cultivation, or

(4) For the purposes of this section, land is rural land if:

(a) the land is zoned "rural", "rural residential" or "non-urban" under a planning instrument, or

(b) the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land.

As all three properties were zoned rural, only the test in s.10AA (3), i.e. the dominant use test, needs to be satisfied in order for the Applicant to obtain an exemption.

As to the dominant use test, in Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366 at [48], Campbell JA stated:

The enquiry that is called for by s.10AA (3) is:

(1) Is the land used for any of the purposes listed in s 10AA (3)(a)-(f)?

(2) Is the land used for any purpose that is not listed in s 10AA (3)(a)-(f), and if so what is it?

(3) If the land is used for one or more of the purposes listed in s 10AA (3)(a)-(f), and is also used for a purpose that is not listed in s 10AA (3)(a)-(f), is the use for one or more of the purposes listed in (a)-(f) the dominant use of the land?

In Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867; 79 NSWLR 724 at [69]-[70], Gzell J (at first instance) said of s.10AA(3):

Dominant in its ordinary meaning connotes ruling, prevailing, or most influential. The statute's reference to a dominant use presupposes that land may be used for more than one purpose and requires a determination of which use is the main chief or paramount use.

That is a question of fact and degree that may, in the end, be determined as an objective matter of impression having regard to the facts.

His Honour then referred (at [72]) to Hope v Bathurst City Council (1986) 7 NSWLR 669 (a decision under the old s.118 of the Local Government Act)) and noted that the Court of Appeal in that case held that the test "did not relate solely to the quantum of area used for relevant purposes but related to the end to be achieved by the use and included other criteria such as the nature and intensity of the use".

At [76], Gzell J quoted with apparent approval the following passage from Thomason v Chief Executive, Department of Lands (1994-1995) 15 QCLR 286 (a decision under s.17(2) of the Valuation of Land Act 1944 (Qld)):

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

These factors must be considered from both a physical and economic perspective: Cornish Group v CCSR at [42], per Judicial Member A Verick (although see the cautionary note of Judicial Member R Perrignon in Ball v Chief Commissioner of State Revenue [2010] NSWADT 114 at [60] and [65] concerning the use of revenue).

The approach of Gzell J in Leda v Chief Commissioner was approved on appeal by the Court of Appeal: see at [43], per Allsop P (with whom Campbell and Whealy JJA agreed). As to the period which should be examined, in Leda v Chief Commissioner Gzell J considered that in that case six months before and six months after the taxing date was a reasonable period: see at [4]. It is acknowledged that this is not a hard and fast rule, although it has been adopted as somewhat of a rule of thumb because it permits consideration of financial records. (It may be noted at this early stage that the Applicant contends that such a period is not appropriate in this case and submits that "the cultivation of rural land may be looked at holistically during the period under review without recourse to any artificial 6 month relation back and forward" (AFS 166-167). The Tribunal considers that and in any event, the consideration of a shorter period would not assist the Applicant as is apparent from the consideration of the evidence set out later in these reasons. The Applicant also seeks (AFS 453) to distinguish Leda on the basis that it was a decision under s.10AA (2) and not s.10AA (3). The Tribunal here notes that such a distinction is not competent because Leda was decided on the question of dominant use which is common to both subsections, and not on the business and commerciality tests unique to s.10AA(2)).

In this case the Applicant in order to succeed must discharge the onus of establishing that there was in fact during the relevant years, cultivation within the provisions of the Act. In this particular context the Tribunal refers to the Appeal Panel decision of Needham DP, Verick JM & Butlin NJM in Lease A Leaf Property Pty Limited v Chief Commissioner of State Revenue [2011] NSWADTAP 41:

The ordinary meaning of 'cultivation' is derived from the definition of 'cultivate' in the Macquarie Dictionary:

To bestow labour upon (land) in raising crops; till; improve by husbandry; to use a cultivator on; to promote or improve the growth of (a plant, etc) by labour and attention.

And from the Oxford English Dictionary:

The tilling of land; tillage, husbandry. Improvement (of land); increase of fertility; the production or raising of a 'crop' of any kind (as oysters, microscopic organisms, etc.); also the product of such cultivation (of bacteria etc.)

It will be noted that the word 'propagation' is not mentioned in either definition, the essence of the meaning of cultivation here being the development and care of a plant or plants.

Included within the concept of cultivation of land in paragraph (a) would be, for example, the planting of trees (whether propagated on the land or not) for forestry or fruit growing purposes, which are then nurtured by fertilising, watering, pruning etc. ( Safety Beach Estates P/L v. Commissioner of Land Tax 79 ATC 4032.)

The Tribunal refers also in this context to the decision of Senior Member Verickin Favello Pty Ltd & Ors v Chief Commissioner of StateRevenue [2014] NSWCATAD 47 (16 April 2014) as follows:

186. Cultivation is therefore the activity of caring and raising plants. It follows that merely planting seedlings is not sufficient. It is necessary to provide aftercare by way of irrigation, fertilisation and regular inspections to ensure the plants are disease free. Where there is no resident care, it is also necessary to provide protection from any damage by wild animals and vandals.

The term "cultivate" has received judicial attention in other contexts:

(a) in Stanway Oyster Cylinders Pty Ltd v Marks (1996) 66 FCR 577 at 585, Drummond J considered the meaning of the word in the context of a patent which included it. His Honour said:

The expression "cultivation", in ordinary language, commonly refers to the activity of producing or raising a crop. See the definition of "cultivation" in the Oxford English Dictionary and in the Macquarie Dictionary, 2nd Ed Both give "husbandry" as a synonym. As each dictionary shows, this term, in ordinary language, commonly refers to the business of a farmer; agriculture; farming. I consider that the language of claim 1 must be taken to refer to these notions. If claim 1 is read in a practical commonsense way, as those to whom it is addressed, viz, persons experienced in growing oysters and other molluscs, would read it, rather than being given a strict literal construction, the claim is for an apparatus for growing molluscs for use in the activity of producing a sufficient number of molluscs to be called a crop,

(b) In Collector of Customs (Tasmania) v Davis (1989) 23 FCR 378 Beaumont J was considering whether drying of parsley comprised cultivation in the context of a diesel fuel rebate for primary producers. At 383 his Honour said:

The first question in the appeal is whether the respondent's drying methods fall squarely within the description the "cultivation", or "gathering in", of his crop. By "squarely" is meant the notion that the dehydration procedure is an integral part of the cultivation, or gathering in, of the crop, as distinct from something merely ancillary or incidental to it.

According to the Macquarie Dictionary, three primary meanings of "cultivate" are:

1. to bestow labour upon (land) in raising crops; till; improve by husbandry.

2. to use a cultivator on.

3. to improve the growth of (a plant etc.) by labour and attention.

(And see, as to the meanings of "cultivate" and "agriculture", Frauenfelder v Reid (1963) 109 CLR 42, per Windeyer J (at 52-53).) [Frauenfelder v Reid is in fact of little assistance in the present context because consideration was given to agriculture not cultivate];

(c) in Eager v Smith (19 February 1988, SC NSW, unreported), Carruthers J was considering a charge of cultivation of cannabis. That term had a statutory definition, but his Honour considered that definition to be inclusive rather than exclusive. In relation to the charge at hand his Honour concluded that:

the watering of seeds and the preservation of them within wet tissue paper with the intention of planting them would, in ordinary language, involve the cultivation of those seeds".

... I note that in the judgment of the Court of Criminal Appeal of Queensland in R v Stratford McDonald [1985] 1 Qld R361, at 369, Macrossan J (with Ryan J concurring) said: "The concept of cultivation involves taking seeds or plants into care for the purpose of fostering growth or further growth from them, most frequently with a view to harvesting the plants";

(d) In R v Giorgi and Romeo (1981) 31 SASR 299 at 302-303, King CJ considered the meaning of the word in the context of South Australian legislation prohibiting cultivation of narcotics (which legislation did not provide a statutory definition). His Honour noted that the term could "encompass the whole process of production from the soil, including preparing the soil, sowing, tending and caring for the plant during the growth and reaping or harvesting".

The Chief Commissioner contends (and the Tribunal agrees) that, in the light of the above definition and authorities, cultivation requires more than allowing grass or trees to grow on land. There must be labour and attention devoted to ensuring this occurs. Furthermore, it is apparent that the term imports a purposive element in that the labour must be engaged in to achieve an end, i.e. production of a crop. For example:

(a) a person would not cultivate a weed which grows on their land of its own accord even if its growth is encouraged by the person accidentally fertilizing it while fertilizing other crops on the land;

(b) a person may cut grass to promote growth. Alternatively they may cut it because long grass is a nuisance to them. It could not sensibly be argued that in the latter example the person was cultivating as opposed to managing the grass.

This purposive interpretation is consistent with the need for the cultivation to be for the purpose of sale. It is also apparent from the passage from Safety Beach Estate v Commissioner of Land Tax included previously in this decision that cultivation should be "in accordance with the practices of husbandry applicable to that crop".

PART C - THE EVIDENCE OF MR ENNIS; EVIDENCE IN CHIEF

Mr. Ennis furnished one witness statement (Exhibit A11) prior to the first hearing day (and others after the hearings started); Exhibit A11 which can be regarded as containing to some considerable extent the evidence in chief of Mr. Ennis, reads as follows:

"On 20 May 2013, I Richard John Ennis of 24 Thornbill Glen Nambucca Heads NSW 2448, Retired Solicitor say on oath:

Applicant's share structure and my official role in it in determining a purpose for the Applicant's activities during land tax years 2011, 2012 and 2013.

At all material times, I am the sole director and sole shareholder of the Applicant (refer company extract in annexure A).

I hold the majority of shares in the Applicant non beneficially as executor of the estate of my late father, the late Douglas William Ennis, (Pa). I also hold one A class share in the Applicant non beneficially as trustee for my sister Suzanne Joy Walters (Sue). Sue is also a residuary beneficiary in Pa's deceased estate.

I understand the effect of this non beneficial ownership is that I am sole decision maker for the Applicant in determining its purposes and activities.

I am constrained in determining a purpose for the Applicant's activities by my fiduciary obligations due to Sue as executor and trustee.

As at the date of this affidavit I am further constrained as I am not satisfied that Sue has capacity to manage her own affairs by virtue of her mental illness.

Introduction to primary production purpose

In this affidavit, I refer to each property subject to the disputed land tax assessments as Lot 3, Lot 5 or Lot 7 as the content requires.
At all material times:

(a) the only land held by the Applicant was lots 3, 5 and 7.

(b) the only plant and machinery owned by the Applicant was associated solely with the cultivation of lots 3, 5 and 7.

(c) neither the Applicant nor myself nor members of my immediate family owned any other land where the agricultural product cultivated on lots 3, 5 and 7 could be used.

(d) no associated person of the Applicant has ever used the agricultural product cultivated on lots 3, 5 and 7 including but not limited to beef, chicken, vegetable, fruit or other like produce for their personal use.

(e) the agricultural product cultivated on lots 3, 5 and 7 has only been used for the purpose of selling to third parties.

Initial genesis of primary production purpose - 1968 onwards

In late 1968 when I left high school I worked as a station hand on the wheat fields at Gurley station near Moree NSW. I was involved in the wheat harvest and replanting for the next year's wheat crop. This work included driving headers, burning off the stubble, chipping, ploughing and replanting with seed drills. Gurley station also ran sheep and cattle.

Primary production as the purpose of Acquisition of the subject land - 1970's onwards

On 8 November 1971 as an articled law clerk I witnessed the Articles of Association of the Applicant. The owners of the initial subscriber shares were my late father, Douglas William Ennis (Pa), and my late mother, Elizabeth Joy Ennis (Ma).

In 1975, my legal firm posted me to Canberra to work. At that time, my late parents lived in Sydney.

In early 1976, Pa, Ma and I discussed buying a farm for beef production half way between Sydney and Canberra. On behalf of the Applicant as the purchaser, Pa negotiated the purchase of 2 lots of vacant rural land at Exeter NSW which is located half way between Canberra and Sydney.

The land acquired was part of a larger farm known as "Cornwall Park". Cornwall Park was used and pastured improved for grazing cattle (see Burton of Bowral Valuation in annexure 'B').

Haidee Joy Johnston (Haidee) then the infant first grandchild of my parents called the land "Parsland" [as in "Pa's land"]. This became the name of the Applicant"sfarm. The name was on a signpost at the truck entrance then located on Cornwall Road. Where the context requires I refer to the farm as "Parsland". Where the context requires I refer to the signage on Cornwall Road as "Cornwall Road signage" (refer photo #31).

Lots 3, 5 and 7 are part of the original acquisition of Parsland.

In April 1976, the Applicant commenced breeding and grazing cattle on Parsland. The Applicant purchased a Hereford bull to service the herd.

The Applicant expanded the grazing land for Parsland by buying adjoining vacant rural land to the North (the Carmen Block shown in Annexure I). Pa engaged a stock and station agent, Ewan Murdoch, to negotiate the purchase on behalf of the Applicant.

From March 1976 to about 1979 until I went overseas for work, Pa, my brother in law, Warren Cedric Walters (Warren), and myself laboured in the farm including but not limited to the following:

(a) Erecting windbreak fences on the boundaries;

(b) Erecting internal fencing and farm gates to create paddocks;

(d) Ploughing, slashing, broadcasting rye and clover seed, fertilising and scarifying the paddocks; and

(e) Drenching cattle.

The Applicant employed contractors to erect extensive wooden cattle yards equipped with holding pens and a metal cattle crush. Contractors also dug 2 dams and erected some sheds.

One dam built during this period is located on Lot 3.

The shed is located on Lot 7. Later additions were made to the original shed to accommodate more machinery, a farm trailer, seed broadcaster, slashers (2) and hay. Fence posts, fuel and miscellaneous farm bits were also kept in the shed under lock.

The original shed had a concrete strip for the tractor, primitive kitchen, outdoor oven, septic toilet and shower and space for other equipment. An old caravan was parked alongside. Pa and Ma mostly used the caravan for sleepovers. These 'rural worker' facilities were very unsatisfactory and, so far as I knew, not approved by Wingecarribee Shire Council in permitting construction of the shed.

Design of the farmhouse associated with primary production purpose

In 1979 the Applicant contracted with AV Jennings to build a farmhouse near the sheds.

Some short time after the farmhouse was built a garage was built next to the farmhouse on the Western side. So far as I am aware the construction costs are set out in the Applicant"sBalance Sheets supplied to the Respondent under the heading 'farmhouse'. Fertiliser and similar supplies were stored in one space behind a manual door to keep it dry under closer supervision to protect it from pests and weather. A motor vehicle was kept in the other space behind a door equipped with a remote control. Farm equipment (mainly trailers) was also kept in the garage when the fertiliser and seed was not stored there. The garage is designed to allow equipment to be moved in and out of it not only through the usual roller door on the Southern side but also by being able to access through an open Eastern wall. This wall was deliberately not bricked in. The arrangement allows close security of the garage. This scrutiny is aimed not only at thieves but also rat vermin attacking the seed.

Due to the design of the garage all the garage and its contents can be seen from the rear patio on the North side of the farmhouse.

The farmhouse kitchen was open to the living room along the North side of the farmhouse. The view looks out over all the paddocks. The view extended all the way to and included Carmen's Block.

The sheds on the Eastern side could be seen from the living room (a side double glass door was included in the farmhouse design of the living room especially for this). The shed could only be accessed through a locked truck entrance or by driving over a second noisy rumble cattle grid entrance off Cornwall Road and past the farmhouse. The old access lane to the sheds via the farmhouse is now the only one in use and passes a few feet away from the bedrooms of the farmhouse.

The farmhouse and garage remain on Lot 7 unaltered from 1979. Only the entrances off Cornwall Road have changed (see below).

Use of the farmhouse associated with primary production purpose

From about 1979-1983 I worked overseas. During this time I returned to Australia on short visits only. I saw that the farm was still being reasonably well operated for grazing cattle. The farmhouse was occupied by my late parents when Pa worked on the farm. At other times, my late parents lived at their matrimonial home at 27 Darling Street Chatswood.

In October 1983 I returned to Sydney due to my parents difficulties. Ma was in the final stages of cancer and living at 27 Darling Street Chatswood. She was receiving treatment from Royal North Shore Hospital and home nursing care as a bed invalid. Pa had taken full time leave from his business to provide round the clock care for her.

In October 1983 to assist my parents, my family and I took up a caretaker role and managed Parsland full time. We lived full time in the farmhouse for about 10-12 months.

1984 onwards

In February 1984 Ma passed away. I was an executor in Ma's estate. I still hold Ma's one A class share in the Applicant as trustee for Sue.

When I became co-director of the Applicant in 1984, Pa was the other continuing co-director.

After Ma's death my wife, my 3 children and I stayed in the farmhouse while I worked full time on Parsland and while Pa put his Sydney business up for sale. To support my family, I started a business in nearby Moss Vale.

Altogether, after returning from overseas, my family and I lived in the farmhouse as caretakers at Parsland for about 12 months. After returning from overseas I observed that Warren and Sue were not involved much in any labour associated with Parsland. All necessary work was on me personally or by rural contractors engaged by either myself or Pa.

During and after the time that I lived in the farmhouse, I personally erected all internal fencing to connect Carmen's Block with the cattle yards by laneways. I also erected windbreak fencing for Carmen's Block and planted extensive Pine tree wind breaks. At this time, Pa and I ran heifers with calves and there was much work to do at calving, drenching, and so on.

I became familiar with most of the rural contractors in Moss Vale.

I often bogged the tractor in the creek on the southern boundary of lots 3 and 5 and in low areas in the wood paddock leading to Carmen's Block. Pa and I spent an enormous amount of manual labour into building culverts and laying a sandstone base to the connecting laneway. None of this work was satisfactory as flood waters destroyed the culverts. The land in the low areas near the creek is clay which when wet sucks the sandstone into deep ruts. These problems were very relevant in later constructing Parsland Close as all weather paved truck access from Cornwall Road to Lot 7 to Lots 3 and 5.

Pa had become especially friendly with a local stock and station agent, Ewan Murdoch. Through interaction with Ewan and Pa, I became more interested in cattle breeding on Parsland using only Hereford cattle genes. Ewan and other stock and station agents later became my clients in my legal practice in Moss Vale.

Soon after Ma's death, I built a house for my family in Buskers Avenue Exeter. Buskers Avenue is located about 1 km from Parsland.

For the next 12 months after my family vacated the farmhouse it was occupied as required by Pa or I or both as we worked on Parsland.

About 2 years after Ma's death, Pa sold the former matrimonial home and his business in Sydney and moved into the farmhouse at Parsland as its full time caretaker. A year or so later he bought a flat at Ulladulla which he used for a break from farming or during school holidays and so on.

Pa controlled the daily farm management, accounts and banking. I was his unpaid farm labour. Through our working together on the farm, we became very close.

Pa was the family patriarch. I generally deferred to Pa's ideas associated with any changes to primary production on Parsland and the later sale of land forming part of Parsland.

Reasons for changes from grazing to cultivation as primary production at Parsland

Study and experience

My sons

While I lived at Exeter I sent my sons, Jamie and Scot, to Hurlstone Agricultural College which is a selective public boarding school providing courses in animal husbandry, agriculture farm management and associated courses as well as the usual high school subjects. The school has a farm and regular field trips. My sons also helped Pa and myself with our work on Parsland.

Pa was never formally educated in farming but together we learnt a good deal from day to day experience. For example, when we first started pasture improvement in 1984 at Pa's direction I chipped and ploughed a large paddock to the East (part of Lot 7 and other land). I thought that I knew all about ploughing following on from my experience at Gurley Station as a youth. After ploughing, broad seeding rye grass and fertiliser all that grew initially was a lush paddock of weeds.

Based on my later agricultural studies I would now say to Pa if he were alive that neither of us had understood the importance of only seed drilling established pasture and the proper use of herbicides and pesticides.

Better calving and drenching techniques were also developed by Pa and me through study and experience.

I reseeded Carmen's Block and the higher parts of Lots 3 and 5 without ploughing. Pa told me words to the effect: "I reseeded and fertilised other parts of Parsland".

Pa was interested in designing farm infrastructure - culverts, laneways, fences and the like.

Pa was not interested in agriculture as opposed to cattle grazing. Due to his views on agriculture, Parsland has never had a vegetable patch or other farm activity that could be used to privately support any parties related to the Applicant.

Over a period of years from 1985 onwards, I began and completed rural studies courses at Moss Vale TAFE which included but was not limited to:

-. Beef management.

-. Mushroom growing

- Land Economics

- Rural Aspects

-. Stock and Station Practice (refer academic record in annexure C)

In 1990 I qualified as a stock and station agent and still hold a licence for that profession (refer certificate evidencing licence in annexure D)

1990 onwards

By the early 1990's I had a network of stock and station agents (2 of whom I acted as lawyer) and teachers in rural studies (through my TAFE studies). I also met local farmers through Moss Vale Rotary and at the saleyards.

Through Ewan Murdoch I was introduced to CALM (Computer Aided Livestock Management) which was a kind of early form of EBay for cattle sales.

Through my studies and through my TAFE teacher I formed the opinion that if the Applicant's beef production activity was to continue, the best beef production on Parsland would be achieved by fattening vealers in spring and leaving the land fallow in late summer, autumn and winter. As I could not persuade Pa to his purpose, the Applicant continued to breed and fatten store cattle supplied by Ewan Murdock.

We were caught out a couple of bad seasons in a row. Parsland became over grazed (refer photograph of tractor attached to Lloyd Bruce's affidavit). We purchased expensive hay and fodder supplements for the herd to get by. I was involved in time consuming daily hand feeding. As best I can recall, the shed annex was modified at this time for storing hay bales by the addition of an extra panel.

By this time I had attended several hoof and carcass sales. Cattle sold on the hoof are slaughtered and the carcass is assessed. I had toured the Moss Vale abattoirs. I was not happy with the quality of our hoof and carcasses.

In 1991 there was an economic recession. I moved to Sydney for work as a contract lawyer. Between contracts and on weekends I was free to stay at Parsland and work the paddocks. My sons finished their high schooling at Hurlstone Agricultural College and began their tertiary education.

From Sydney, my wife and I still remained involved in the farm work at Parsland. Pa occupied the farmhouse as caretaker.

Ewan Murdoch continued to supply store cattle to Parsland as Pa directed. Once fattened, Ewan Murdock sold these store cattle for Pa at the local Moss Vale saleyards. On at least 2 occasions I said words to the effect to Pa:

"We are overgrazing Parsland. All the cowpats and hoof trampling is destroying pastures. We should restrict ourselves to just fattening vealers in spring".

Pa replied with words to the effect: "No. I will do what Ewan says".

First and Second Reduction in land area

In 1993, Pa said to me words to the effect: "I've decided to sell the block in the top corner. I need some money". I said: "OK". The block was sold with Ewan Murdoch acting as selling agent for the Applicant (refer deposited plans attached to Rengger affidavit).

Pa was friendly with a neighbour and his partner, Carmen Perkins. I saw that Pa would occasionally go to dinner at the neighbour's house. The day after one of these dinners, Pa said to me words to the effect: "I agreed to sell the block on Sally's Corner Road to Carmen ....."

A few days later Pa said to me words to the effect: "I instructed Alastair to prepare a contract for sale for Carmen's Block". 'Alastair' was Pa's late solicitor. A boundary adjustment was made to give effect the sale (refer to deposited plan in annexure I).

Though no longer owned by the Applicant, Carmen's Block is still cultivated and cut for silage.
Pa continued to graze and sell cattle on the reduced land area; but no longer used breeders. He restricted the herd to store cattle.

In 1997, the Moss Vale abattoirs closed. Pa continued to graze and sell cattle.

Pa continued to live in the farmhouse as caretaker for the Parsland herd and farm operations generally.

I cut and sold fallen stands of hardwood as firewood on the hill between Lot 3 and Carmen's Block (we called this paddock the Wood Block - now lot 4 - see annexure I). The supply of fire wood from branches and fallen trees on the Wood Block was exhausted. From this experience, I knew that the native species grew well in the long term. I did not know much about eucalyptus species. I had the general idea that paperbark varieties grew better in wet soil and as the land rose out of the water table the more valuable hardwood species could be cultivated. I knew that trees on high ground acted as pumps to lower the water table on low ground through natural aspiration. I knew that a lower water table reduced salt levels and allowed for better pasture.

In about 1997 I became interested in cultivating the ridges of Parsland for commercial hardwood timber. At my request, Pa travelled to Goulburn to meet the local department expert on the topic. After soil sampling tests by the department that Pa arranged, Pa a selected a species of eucalyptus for trial. At my expense, I planted trials of this species of eucalyptus on lot 7, the Wood Block and at various other parts of Parsland. I fenced the trials areas off from cattle grazing

My purpose was that once the trees matured the timber could be logged and sold for valuable hardwood timber. In the meantime, the branches pruned from time to time could be sold for firewood. The gum branches would not require splitting and were popular firewood.

There is a problem with high water table levels in the low areas. I had seen pine trees in our windbreaks suffer in these areas. They were prone to storm damage and root fungi. Pine trees took hold quickly on higher ground.

Soil on the high ground at Parsland has protrusions of basalt. Soil in the low areas has a covering of clay and loam over basalt. The clay can quickly and with little warning bog heavy equipment when wet (see above) but because it closes up the soil in small particles it also drowns young trees when wet.

There is a problem with weeds suffocating young plantings and even small trees. This problem is made worse by watering the base of the planting. Yet the young tree needs a good water supply for a few years until the roots get down to the basalt.

My trials convinced me that good weed protection for the young eucalyptus plantings was essential. The trials were watered by me using a hose from our large tanker trailer towed by our tractor. This equipment compacted the soil and could be bogged without warning - a disaster in a row of trees. I became convinced that it was better to have a good drip water supply to each tree. I had seen this work very well in a well managed property further along Cornwall Road.

In 1999, I was satisfied that it was worthwhile planting a commercial forest. Pa did not agree to spend the money on a drip water supply. Pa had purchased a tractor attachment to dig water furrows (channels). At his direction, I dug channels using this attachment. I used wood chip mulch as protection and planted the forest at my expense. I purchased an electric Flymo to be used to knock down the weeds. The Flymo was to be attached to a generator mounted on the tractor trailer.

My first eucalyptus forest was successful on the high ground. It is located in the South eastern corner of lot 7 and pictured in the photographic montage.

The eucalyptus trial in a wet area on lot 7 was less successful. The tops were lopped to encourage secondary growth of branches for later firewood sales.

There is also a discernable lowering effect on the nearby water table which improves cultivation.

If the forest cultivation is to be repeated more successfully on other sites on the farm then I would have water supplied from the dam on each lot pumped to each planting through a dedicated drip reticulation system. Using a tanker is labour intensive, compacts or ruts the soil and sometimes damages the young trees. Weed control initially is best dealt with by a combination of Ecocover (a form of recycled paper compressed into weed matting) or similar with mulch on top. Then, when this protection naturally decomposes over time, apply herbicide and use a zero turn commercial mower. Eventually the eucalyptus forest will poison and smother most grasses and weeds (except blackberry). Systemic blackberry herbicide (I used Brushoff) must be applied by moistened hand glove to avoid spray drift issues on the forest.

If the forest cultivation is to be extended then I would probably extend the existing forest West along the ridge in lot 7 and plant a new forest on the Northern boundary ridge of lots 3 and 5.

2000 onwards

By this time, I had come to the conclusion that the days for beef production on Parsland were coming to an end. A combination of cropping hay and hardwood forestry was the way forward.

Some farms in nearby Sutton Forest had been planted out for vineyards. I did some research on vineyards and wine production combined with bee keeping for the sale of honey. This did not go forward. However, the dams I later installed on lots 5 and 7 with all weather paved road access along Parsland Close allow for this and other forms of cultivation.

The land had been effectively trampled and roughly compacted by Pa's hungry steers. Any grazed area needed to be left fallow to recover.

Nonetheless, Pa continued to graze and sell cattle.

Third Reduction in land area

About 2002 Pa said words to the effect to me: "I want to sell Parsland and use the money for my retirement. .... I've been offered ...... walk in walk out." We then discussed generally the financial return from beef production and the hard work involved and the risk of personal injury. Pa had crushed his big tow under the slasher. He had also injured himself in the cattle crusher.

As part of this general conversation I said words to the effect: ".... There is too much of both our time effort and capital invested in Parsland to throw it all away. It's not a good offer. ..... let me sell off some paddocks from the farm to get you some better money. ... ..... I don't want you to guarantee any new loans and put yourself at risk. You will need to resign as director so I can do all the negotiation with the bank. I can give all the guarantees the bank may need. Lorraine can be appointed co director to sign things too in your place or if I am away or die or whatever."

He replied: "Alright".

Pa had money to live on so far as I was aware but no funds to apply towards the development capital required by the Applicant. With the assistance of Arella Pty Limited (Peter Lowry and his son, Christopher Lowry), I looked after the finance, construction and all marketing matters associated with the sale of paddocks known as lots 1,2, 4 and 6.

About 2002 a rural contractor, Arthur Griffiths, removed the internal fencing with his own equipment. Arthur stacked the posts, scrap barbed wire and materials near the sheds on lot 7. I was surprised at how much debris there was.

The zoning certificate issued at the time for attaching to the Contracts for Sale of those lots shows a zoning of Rural 1C.

Sale of hay crop

The first hay crop was cut, raked and baled once all the paddock fences were removed.

At my direction and with my consent a hay crop was under harvested under the control of the late John Mail, the project manager for Arella Pty Limited. The crop was harvested by Arthur Griffiths initially at the expense of Arella Pty Limited. The Applicant reimbursed Arella Pty Limited for the costs of harvesting by Arthur Griffiths ($3,102) and Arella allowed the sale of the hay against its fee due from the Applicant ($4,733) for work in carrying out the development. The adjustment for the hay crop was taken into consideration in the final settlement over Arella's fee in assisting the subdividing of the farm paddocks into 7 lots and successfully marketing the sale of 4 paddocks.

I believed that the 4 lots sold were the least suitable for cultivation. These were lots 1, 2, 4 and 6 Parsland Close.

Lot 1 was not suitable as it has a large dam and boggy area above and below the dam. Lot 2 is not suitable as a large proportion is within the creek flood plain. At the time of sale it had a bulrush and blackberry infestation. Lot 4 was not suitable as it too had a large dam and boggy areas to the East and West of the dam (the new owners have since spent a fortune in drainage works and have approached me to drain their dam through lot 3). Lot 6 was in reasonable condition for cultivation but the low areas had not been pasture improved. In hindsight, I should have kept it. None of the current owners of the lots that were sold use their lots for baling hay and silage. Many neighbours do so.

As part of the works carried out under the supervision of Peter Lowry, the earth moving contractor created one dam on each of lot 5 and lot 7. This work accorded with my intentions for future cultivation on lots, 3, 5 and 7. Each of lots 3, 5 and 7 owned by the Applicant now had a permanent dam for reticulation.

At the time, cultivation of a vineyard, olive grove or Christmas tree plantation was a possibility too.

Income Stream and its effect on the use of the farmhouse

All 3 lots retained by the Applicant were zoned Rural 1C and a land tax exemption applied.

The Applicant continued its cultivation program on the 3 lots at Parsland.

The proceeds of sale from the unwanted lots were paid into the bank account of the Applicant. The Applicant invested the money raised in cash management accounts and a share portfolio. The income generated from these investments provided fully franked dividends from the Applicant for Pa. Pa received both a dividend and tax refund based on the franked dividends. I have never received any dividend or director's fees from the Applicant.

Div7A restraints on associated persons of the Applicant using the farmhouse

After the sale of lots 1, 2 4 and 6, my attention was drawn to changes in the application of Div7 A Income Tax Assessment Act (Div 7A). The change prevents any associated person of the Applicant occupying the farmhouse full time without paying market rent. To do so would create a deemed dividend under Div 7A and could adversely effect the franking account for Pa. For this and other family reasons related to Sue and Pa's directions regarding Sue, no associated person of the Applicant could occupy the farmhouse full time.

The Applicant entered into a loan that complied with Div7A Income Tax Assessment Act being a loan to an associated entity.

In the rating years after the sale of the paddocks, Wingecarribee Shire Council did not charge water charges to lots 3 and 5 as they were not connected to town water. Even though the farmhouse was vacant, water charges did apply to Lot 7.

After the sale of lots 1, 2 4 and 6, the lots kept by the Applicant, being lots 3, 5 and 7, were cultivated as per my purpose alone (Pa had resigned as director). Further rye grass was seed drilled on poor patches on the 3 lots created by heavy equipment used for creating Parsland Close. There were sprays for weeds and blackberries. There was regular slashing to promote growth and sweet grasses on every lot. Over a long period sour cow pat grasses eventually disappeared and were smothered by the rye. The soil was left fallow to allow deep earth worm aeration.

The cattle yards and holding pens on lot 7 were removed and debris stacked on site on Lot 7.

The lower branches in the eucalyptus forest were pruned to promote growth. Undergrowth in the gum forest was removed.

External finance arranged for extra farm infra-structure on Parsland

In 2006, the Applicant created a finance facility with Perpetual secured by mortgage on lot 7 and my personal guarantee as sole director. The finance facility would allow the Applicant to invest up to about $190,000 in planned farm infrastructure.

The Applicant did not need to use this finance facility from Perpetual and it was kept at nil balance.

Reduction in labour force supplied by associated persons of the Applicant

Sometime after arranging the finance facility with Perpetual, I lost the top of my right thumb in a mowing accident which also injured the fingers and tendons in my right hand. Thereafter contractors did most of the heavy manual labour on Parsland.

On 3 August 2009, Pa died. He was cremated and his ashes scattered at Parsland next to Ma's memorial under a Golden Cypress (see below).

1 January 2010 onwards - Beginning the first land tax year under review

At all material times I believed that Parsland was exempt from land tax.

In early January 2010 I took holiday leave and worked full time at Parsland.

I hired a power cutter in Moss Vale.

I worked on pruning the forest and cleaning up blackberries and the windbreaks generally. I picked up sticks and fallen timber.

I hired a utility and took some loads to the Moss Vale Recycling.

On Thursday 28 January 2010 I purchased a commercial mower and additional farm equipment for cultivating Parsland. I stored this plant and equipment with the other equipment in the shed at Parsland. I called Jason at Alpine Locks to fit new locks to the shed.

I returned to my office. At 13:48 on Tuesday 3 February 2010 from that office I called Jason at Alpine Locks and said words to the effect: "Have those locks been fitted. I have put some valuable gear in the shed." He replied "No not yet. I will do the locks today".

I have read the affidavit of Bruce Noble filed in these proceedings and agree with its contents generally. I confirm that on Wednesday 3 February 2010 from 11:41 to 12 noon I orally negotiated by telephone from my office with Bruce Noble on behalf of Noble Contractors to take away most of the debris on lot 7 and remove the concrete footings etc still lying around the former cattle yards. Noble Contracting also was engaged for spraying for weeds - in particular blackberry patches in all paddocks and in the eucalyptus forest. Part of the consideration for this work was to agree that Noble Contracting could cut and harvest the hay on the 3 lots and keep the ownership of the hay produced.

It suited me to do this as I was working in Coffs Harbour (about 700km away). It was difficult for me to drive the 10 hour trip every weekend to Parsland to make decisions on harvesting and supervise work. I was also severely grieving my father's death. I was taking leave from my job to deal with Parsland. My wife was carer for her bed ridden mother in Bellingen.

Storing hay in the shed after harvest was not feasible as the shed was infested with rats. From previous experience in storing hay in the shed, I knew that rats make their nests in the hay and the rats attract snakes. Snake infestation and aggression (brown and black) is a continuing late summer problem in the two culverts of Parsland Close and wet areas of Parsland itself. I wanted to get to the shed safely to access the newly purchased equipment. So my decision to allow Noble Contracting to remove the hay from the lots directly and store off site instead of storing it in the shed under cover was very useful for me.

Noble Contracting was also taking the risk of wet weather.

Noble Contracting was taking transfer of title to the hay before it was cut and as soon as the contract for its sale was agreed. There was no need for a written contract or any paperwork at all so far as I was concerned. I trusted Bruce Noble of Noble Contracting.

With hindsight if I had known that there was any risk of a land tax assessment on land that I was sure was exempt simply because I could not immediately produce an invoice or receipt or similar to the Respondent, I could easily have drafted a written contract.

On Monday 8 February 2010 I spoke by telephone to NRMA about farm building and contents insurance. I updated the insurance.

On Friday 12 February 2010 at 11:53 I ordered 32 tonne of soil from Highland Landscape for filling in the ruts in the paddocks. At the same time I also called Bruce Noble and he said to me words to the effect: "I will do the clean up next week".

I ordered Ecocover for weed protection of existing trees. On Friday 26 February 2010 I hired a van to deliver the Ecocover to Parsland and my wife and I laid it. We laid chipped mulch provided by Noble's chipper over the Ecocover. I used the van for other work on the paddocks.

During April and May 2010 I visited Parsland to do more work and purchased more gardening rakes and spreaders to better spread and compact the soil from Highland Landscape in the ruts by hand.

On 29 May 2010 I prepared Pa's memorial plaque and scattered his ashes under a golden cypress near the farmhouse next to the memorial plaque for Ma.

After the dedication while walking along Parsland Close I asked Warren words to the effect: "Are you still interested in co farming Parsland with me". I then explained the time taken to cut with the new mower and the hay harvesting process. He replied words to the effect: "No, I was once many years ago but not anymore".

In the lounge of the farmhouse I had a general discussion with Warren (in Sue's absence) about Parsland and Sue's inheritance. In the back of my mind was the Div 7A issue and the problem of dealing with Sue's behaviour. I had also asked K Barnsley for some plans to make renovations. I asked Warren: "What do you and Sue want to do about the house?" He replied with words to the effect: "How do we get some money for our retirement? Leave the house vacant for 2 years and see if Sue will use it. I have conferred with Haidee and Tim. Why did you suggest Haidee become involved? Aren't I part of the family?"

A. Page 4.

Q. Page 4, last paragraph where you talk about the definition of sale, you say the Applicant has kept sale and acted as a seller in making market inquiries. Then you say "it has reacted to the oversupply and drop in demand in the hay market and sought to enter a substitute market, silage instead of hay".

A. That's right.

Q. You did no such thing?

A. Well at that stage there was an oversupply of hay. I asked Menzies about silage.

Q. That's your reaction to the oversupply and seeking to enter a substitute market was to ask Mr. Menzies about silage?

A. That's right. And we had a discussion.

Q. But there was an oversupply of silage wasn't here as well?

A. That's right. It's my view, I think there was.

Q. Mr. Ennis you weren't reacting to the oversupply and drop in demand, you were reacting to the fact that at the end of March 2013 your grass was hopeless for hay, hopeless for silage and could only potentially be used as silage filler, correct?

A. I don't say it was hopeless for hay.

Q. Mr. Ennis, seriously?

A. We cut for hay even now.

Q. Mr. Ennis no-one was going to cut it for hay?

A. Not at that time, no.

Q. You were not reacting to an oversupply of drop in demand in the hay market were you?

A. No-one was going to accept it for hay at that time, that's true.

Q. Mr. Ennis that's another basis on which the final paragraph of page 4 of your submissions is misleading isn't it?

A. It gives cultivated grass a later opportunity to sell.

Q. Final paragraph, "It has reacted to the oversupply and drop in demand of the hay market and sought to enter a substitute market, silage instead of hay"?

A. I see what you mean.

Q. Right. "It has sought purchasers for the hay and silage without success". That is misleading isn't it?

A. If you say so. It's what I thought was happening at the time.

Mr. Ennis' evidence that he hoped the Applicant might be able to get a discount on work done on the lots by giving away its grasses to contractors who might (at some undefined time in the future) be retained to do work on the lots, even if accepted (albeit that it depends on Mr. Ennis' uncorroborated oral evidence and because it is inconsistent with the Applicant's practices on the properties and his attempts in 2013 to procure that Mr. Menzies took the grass without charge) does not establish an intention to cultivate grasses for the purpose of sale (even if sale includes barter). It establishes at best a willingness to part with grass which naturally occurs on the properties and which the Applicant would otherwise have to pay to get rid of. That willingness cannot found an intent to cultivate for the purpose of sale. It should here be borne in mind that:

(a) the Applicant spent in the order of $1,000 on slashing each year ($412.50 in November 2010, $646.25 in February 2011, $591.25 in November 2011, $742.50 in June 2012 and $206.25 in January 2013);

(b) that money could not have been spent with an intention of some possible future barter, particularly where the discount the Applicant might receive would not exceed $500 or $600 (being the approximate value of the offset work Mr. Noble did in February 2010 10/09/13 T77.31-47);

(c) such an arrangement was also most unlikely to ever be repeated in light of the fact that in March of 2013 Mr. Ennis could not even find someone to take the grass off the Applicant's hands without charge;

(d) Mr. Ennis did not give evidence that the Applicant intended to have any work done on any of the lots in the future which might give rise to the opportunity to obtain an offset.

Further, the fact that the Applicant did not have an intention to sell receives support from Mr. Blackwood's evidence that at the time of his inspection of the properties on 21 August 2013 no steps had been taken to ready the properties for the production of hay in summer 2013/2014. In particular, No's 42 and 45 were at the time of his inspection covered in improved grass species of mature, rank growth and dead pasture commonly at 50cm in height. This was shading the young pasture and preventing the emergence of any ryegrass and legume species present. As a result, there would be no grasses suitable for hay-making this summer on No's 42 and 45. The Applicant takes issue with this in AFS at page 325 asserting that the long dead grasses cool the soil, prevent evaporation and protect the new grasses. This submission is not supported by the evidence and, in any event, cannot be accepted in the face of Mr. Blackwood's evidence in this context which was not challenged in cross-examination. Mr. Noble gave some evidence on this topic and suggested that the rank growth might rot away and allow new growth to be harvested for hay, but his evidence in this regard was unclear and he accepted that the rank growth might need to be slashed first in some circumstances: "it just depends how rank that is otherwise you would just leave it alone" (10/09/13 T68.34-T69.17). Ultimately Mr. Noble conceded that if you were serious about making hay for the purpose of sale and had 50cm or so of rank, mature growth you would slash it (10/09/13 T70.43-46, T72.18-24). Mr. Noble also accepted that while the rank grass was at 50cm or so it would take the ground a long time to dry out (10/09/13 T71.50-T72.16), something which is required if hay or silage is to be made.

Taking each of the above matters into account, the Chief Commissioner contends (correctly) that the Applicant's assertion that grasses were cultivated with the purpose of selling them for hay (or silage) cannot be accepted. It is not necessary for the Tribunal to go further and determine what the Applicant's actual intention in undertaking the activities it did undertake, (namely slashing and on one occasion spraying for weeds), was. The simple fact is that grass, once established, grows. It needs to be cut, whether for amenity, appearance sake (a matter of particular importance when the properties were for sale on the market), to suppress weeds, to minimize bushfire risk or for some other reason. Each of those are compelling explanations for the Applicant's conduct. This is reflected in the following evidence given by Mr. Ennis in cross-examination (06/12/13 T35.5-22):

Q. Now Mr. Ennis can I ask you one last question? Assume for a moment you did not have an intention to cultivate grass for the purpose of sale as hay or silage you wouldn't have done anything different on the land to what you in fact did would you?

A. Assuming I didn't have any intention would I have done things differently?

Q. Well you still would have slashed regularly?

A. I see what you mean?

Q. You still would have slashed regularly wouldn't you?

A. I still would have weeded yes that's true.

Q. Still would have sprayed for weeds on the one occasion you did?

A. That's true, yes I would have done that, yes. It's hard to distinguish isn't it?

Q. Each of the things you point to as being cultivation for the purpose of sale you still would have done wouldn't you if you had no purpose of sale?

A. Yes.

Moving then to cultivation of eucalyptus trees for hardwood and firewood, the Chief Commissioner submits that the material facts are that during the period 1 July 2010 to 30 June 2013:

(a) the eucalypts were not tended to in any way;

(b) no hardwood was sold and no steps were taken to attempt to sell it. The Applicant asserts that the trees were not sufficiently mature to harvest for hardwood, but leads no expert evidence to corroborate that assertion. While such evidence may not be required if the trees were only a couple of years old, the eucalypts on No 2 were planted in 1997 and 1999;

Mr. Ennis' evidence on this topic in cross-examination is important, and in particular the fact that he recants from sale as firewood as being an intent held by the Applicant (06/12/13 T32.16-T33.41):

Q. Mr. Ennis it's important to regularly prune each of the trees you've described isn't it to encourage growth of firewood and for primary hardwood?

A. Not every year no. In fact if you do it too often in my view - I am not saying I am an expert in this but in my view you run a risk of introducing fungus attack into the timber. You see the timber bleeds when you cut it. You do get a secondary growth off that called epicormic growth. You often see it in bushfires and the tree is damaged from the bushfire. Little bits of green sprout out of the branch - out of the trunk and that epicormic growth eventually becomes part of the tree again after many, many years. With gum forests they are to a certain extent self-pruning. They drop smaller branches and sometimes larger branches without warning. And they tend to develop an area in their understory which is bare and barren because the tree itself has a natural poison that kills off everything in the understory. So after a while they tend to be sort of self-managing, unlike a deciduous tree such as hazel or walnut or oak or whatever which drops leaves in winter and the grass continues to grow under the tree and has to continue to maintain the grass or harvest it or whatever you want to do, slash it, harvest it as hay, whatever. That's a different sort of forest to a gum forest. If you cut a gum forest too often you will start to get fungus problems. That's my view.

Q. Mr. Ennis in any event you would accept that at least in respect of the second of the two groups of trees that during the relevant period you could have taken firewood from it to sell?

A. I could have harvested it in that period, parts of it, yes.

Q. And not once did you?

A. There would be trees in there that could be actually cut out all together and cut up as firewood.

Q. Right, but not once did you do that?

A. Not in the relevant period no.

Q. Not once did you prune any tree in the relevant period?

A. No. The last pruning was in February 2010.

Q. And no hardwood was taken or sold for hardwood?

A. No the trees aren't mature enough for that. They're not fit for logging yet.

Q. Mr. Ennis the trees are little more than a hobby or an experiment for you are they?

A. Hobby I'm not sure. It's not a commercial operation that's certain.

Q. You had no real intent to sell them or any part of them?

A. No, that's - based on what's happened this year now that I'm the owner of the property to be honest I'll probably knock all of them down and replace them with hazel and walnuts. That's what I'm looking at. I don't know whether I'll actually do it. I'm still considering that.

Q. Mr. Ennis can you come back to my question. You had no intent during the relevant period to sell any of these?

A. To sell any hardwood timber off them, no because they weren't ready.

Q. You had no intent to do so in the future either, did you? As at the relevant period your state of mind in the relevant period you had no intent to sell-

A. They were growing.

Q. -firewood or hardwood at any time?

A. Well not firewood, I would have sold firewood. But-

Q. But you didn't sell firewood?

A. No I didn't sell firewood.

Q. And you had no intent to sell firewood?

A. Well I can't say I didn't have no intent to sell firewood. Firewood was an option if I wanted to do it.

Q. But you didn't want to do it?

A. If I - well no I didn't' want to do it. I suppose that's true.

Q. Instead you let it fall to the ground or some of it fall to the ground in either waste or be taken away by your tenant's father?

A. He was free to take away what he wanted from the ground yes. But he wasn't instructed and asked to do any pruning that's for sure. No, I agree with you that that caretaker lease didn't extend to doing that but he was free to take away what he found on the ground in the forest and use it as he wished to get rid of some other timber that was there.

Taking the above matters into account, the Chief Commissioner submits that the Applicant's assertion that eucalyptus trees were cultivated with the purpose of selling them for hardwood and firewood cannot be accepted, particularly in circumstances where it depends on the uncorroborated evidence of Mr. Ennis. Again, is not necessary for the Tribunal to go further and determine what the Applicant's actual intention was in relation to the trees. Trees, like grass, grow of their own accord. Their presence can be of assistance for shade, privacy and appearance, they can act as a windbreak, and Mr. Ennis' evidence is that they are also of assistance with the water table.

PART G - No.2. THE RESIDENTIAL USE

This part G is relevant only if it I am not correct in my view that in respect of No 2 there was some primary production use (however minimal) in respect of the eucalyptus trees. If this is so it is clear to me that the rental use was by far the dominant use of No. 2. In the result, it is only in respect of No 2 that this further consideration is relevant.

Rental/Residential use of No 2

During almost the whole of the relevant period, No 2 was rented by the Applicants to residential tenants. That lease commenced on 28 August 2002. Prior to that time, preparations were being made to rent it. It is still being rented by the same tenants.

During the relevant tax years the Applicant received significant revenue from the investment uses - initially the rent w $360 per week but by 9 January 2012 it had increased to $370 per week. In January 2013 it went up to $375 per week The Applicant also made significant expenditure in relation to the residence.

The Applicant's tax returns show the following in relation to the rental use on No 2:

Financial year

Revenue from rent

Repairs and maintenance

2011

$15,955

$14,942

2012

$18,970

$3,062

The Applicant's 2013 tax return and financial statements had not been prepared at the time of the hearing. But based on a rental of $370 per week for 26 weeks and $375 for 26 weeks, the revenue would be $19,370.

As for the physical use, Ms Torpy's evidence is that:

(a) she has lived in the residence with her husband and two children since 28 August 2010, i.e. there are four people permanently in occupation;

(b) her husband often works from home - he works in his office in Sydney 3 days a week and the rest of the time from home;

(d) she and her husband look after the plantings in the front yard and her husband mows the grass along the road boundaries along Cornwall Road and Parsland Close;

(e) her husband picks up sticks in the paddock (being the paddock on which the Applicant alleges hay was cultivated) and around the eucalypt;

(f) her father mows the grass along the outside edge of the wire enclosure to the residential block (which presumably means within the paddock), removes scrap timber from the paddock and has carried out some fence repair.

Further, the Applicant procured landlord's insurance for the residence. The insured value of the building was:

(a) $350,000 for the period 8 February 2010 to 8 February 2011;

(b) $385,875 for the period 8 February 2012 to 8 February 2013; and $405,168 for the period 22 February 2013 to 8 February 2014.

The Applicant attempted (and still attempts: pages 12, 153, 176, 186 and 451 of AFS) to play down the significance of the residential use by describing it as being of a "caretaker nature". However, the managing agent, Ms Johnson, acknowledged that the lease was a regular lease and in so far as she had referred in her affidavit (at [8]) to caretakers of the farmhouse she meant no more than having someone living there so that the house does not become dilapidated (05/12/13 T16.20-28).

In Leda Manorstead v Chief Commissioner at [71], Gzell J stated:

In Saville v Commissioner of Land Tax (1980) 12 ATR 7, Roden J was concerned with whether land was used primarily for the maintenance of animals thereon under a former provision in the Land Tax Management Act. The primary use test was not unlike the dominant use test in the present legislation. His Honour said at 10:

"I am of the view that, for any use of the land to justify the statement that the land is used primarily for that purpose, it is necessary not only that that use prevail over any competing use but also that it be sufficiently substantial to prevail over the proposition that the land is primarily to be regarded as unused land."

(a) The unused land represents approximately 84.24% of the size of No 2 less a small deduction from this amount of say 10% to take account of the eucalyptus trees.

(b) The rental/residential use dominates over the primary production use in terms of appearance - an objective observer viewing No 2 from the street and as a whole would draw the conclusion that the property is a residence.

(c) The dwelling house (including garage and garden) on No 2 represents a significant physical improvement. While there is a small shed on the balance of the land, it is not used in connection with the Applicants' primary production activities.

(d) The intensity of the rental/residential use is far greater than the alleged primary production uses. There are four people living in the residence, one of whom worked from home for part of the week, another of whom worked only four days a week (and sometimes from home) and two of whom were children. By contrast the primary production use was essentially passive.

(e) The rental/residential use produces a source of significant revenue; the primary production use produces no revenue.

The Tribunal thus concludes that in respect of No.2 primary production use (if relevant) did not predominate over the rental/residential use. In this regard, the present case is a far more obvious case than cases such as Romano v Chief Commissioner of State Revenue [2011] NSWADT 73 and Saliba v Chief Commissioner of State Revenue [2012] NSWADT 119 where the primary production activities in question involved cattle present on the land and producing actual revenue. In Romano at [45] Judicial Member S Frost concluded that "the renting out of residential premises is such a significant activity that it renders it impossible to conclude, in relation to the land tax years in question, that the dominant use of either of the properties was for primary production". Those observations are apt to the present case. Further, this conclusion is compounded if the only primary production use the Tribunal finds to exist is cultivation of eucalyptus trees.

In the circumstances, the Applicants did not establish that the primary production use is the dominant use of No 2.

PART H - MISCELLANEOUS

The Applicant in AFS seeks an order for costs; it is clear that there is no basis whatever for such a claim. (It will be remembered that Mr. Ennis described himself as a retired solicitor and it clear that he did not represent the Applicant in a legal capacity; it follows that he must have done so either as a director of the Applicant or as its liquidator).

The evidence before the Tribunal, (taking into account its credibility findings), establish that in respect of the relevant years, there was no cultivation as required by the Act.

Putting it at its best for the Applicant the Tribunal finds that the Applicant has failed to discharge the onus on it.

Accordingly the objection decision under review is affirmed.

**********

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 06 June 2014

Medium Neutral Citation:	R. & E Drafting Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAD 75
Hearing dates:	9 September 2013; 10 September 2013; 5 December 2013; 6 December 2013
Decision date:	06 June 2014
Jurisdiction:	Administrative and Equal Opportunity Division
Before:	J.Block Senior Member
Decision:	The objection decision under review is affirmed
Catchwords:	Primary production - meaning of applicable tests "cultivation"
Legislation Cited:	Land Tax Management Act 1956
Cases Cited:	Collector of Customs (Tasmania) v Davis (1989) 23 FCR 378; Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867; 79 NSWLR 724 at [69]-[70], Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366 at [48]; Hope v Bathurst City Council (1986) 7 NSWLR 669; Lease A Leaf Property Pty Limited v Chief Commissioner of State Revenue [2011] NSWADTAP 41; Eager v Smith (19 February 1988, SC NSW unreported; Safety Beach Estates P/L v. Commissioner of Land Tax 79 ATC 4032; Favello Pty Ltd & Ors v Chief Commissioner of State Revenue [2014] NSWCATAD 47;
Category:	Principal judgment
Parties:	R. & E Drafting Pty Limited Chief Commissioner of State Revenue
Representation:	Counsel D. Mitchell (Respondent) R Ennis (Applicant) Crown Solicitor (Respondent)
File Number(s):	136013

Financial year	Revenue from rent	Repairs and maintenance
2011	$15,955	$14,942
2012	$18,970	$3,062