Reolon v Chief Commissioner of State Revenue
[2013] NSWADT 96
•06 May 2013
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Reolon v Chief Commissioner of State Revenue [2013] NSWADT 96 Hearing dates: March 5, April 17, 2013 Decision date: 06 May 2013 Jurisdiction: Revenue Division Before: Professor G.D. Walker, Judicial Member Decision: The decision under review is affirmed.
Catchwords: Land tax - primary producer exemption - "land used for primary production" Legislation Cited: Land Tax Management Act 1956 Cases Cited: Abbott v Commissioner of Land Tax (1978) 38 LGRA 417; Ashleigh Developments Pty Ltd v. Chief Commissioner of Land Tax (CCSR) [2012] NSWADT 25; Hoxede Pty Ltd v CCSR [2011] NSWADT 251; Leda Manorstead Pty Ltd v CCSR [2010] 2010 NSWSC 23; Maraya Holdings Pty Ltd v CCSR [2013] NSWSC 23; Romano v CCSR [2011] NSWADT 73; Ryde Municipal Council v Macquarie University (1978) 139 CLR 633; Southern Estates Pty Ltd v FCT (1967) 117 CLR 481; Thomason v Chief Executive, Department of Lands (1994-95) 15 QCLR 286. Category: Principal judgment Parties: A.D. Reolon, applicant
Chief Commissioner of State Revenue (respondent)Representation: Mr A.D. Reolon, (applicant in person)
Mr El-Hage (respondent)
Mr M. Twohill, Crown Solicitor's Office (respondent]
File Number(s): 126098
reasons for decision
Background
The applicant purchased the property 1378C Wiseman's Ferry Road, Maroota, New South Wales, being Lot 1 in DP 162911, in August 2008, the purchase being settled on 17 October 2008. The land area is 8.26 hectares or 20 acres.
It is not disputed that the land is zoned as rural land, although local council rates are levied on a residential basis. It is common ground that the property is "rural land" within the meaning of s 10AA(4)(a) of the Land Tax Management Act 1956 (LTM Act).
On 9 June 2010, the applicant lodged an "Application for Exemption -- Primary Production Land" claiming that he was entitled to the primary production exemption. In that application, he referred to his earlier application for the exemption dated 5 November 2009 in which he claimed that he was entitled to the exemption on the basis that the following activities were conducted on the land:
(1) Apiary production, commencing on 25 September 2008;
(2) Aquaculture, commencing on 20 July 2009;
(3) Herb and vegetable production, commencing on 2 October 2009;
(4) Cattle, poultry and goats, commencing 16 March 2010.
By letter dated 21 October 2011, the Chief Commissioner informed the applicant that his claim for the primary production exemption had been denied because the dominant use of the land was not primary production. The Chief Commissioner averred that the house on the property was generating an annual rental income of approximately $21,840, such that the renting of the house was the dominant use of the land. The Chief Commissioner accordingly issued an assessment to the applicant (Exhibit R1, tab 8), requiring payment for the 2009 -- 2011 land tax years.
By an undated longhand letter received by the respondent on 6 December 2011, followed by an e-mail dated 13 December 2011, the applicant objected to the assessment on the ground that he was entitled to the primary producer exemption.
In his letter dated 16 July 2012, the Chief Commissioner disallowed the objection but applied the exemption to the 2012 tax year and issued a reassessment accordingly (Exhibit R1, Tab 20).
The applicant then on 30 July 2012 applied for a review of the assessment of 21 October 2011 requiring payment of land tax for 2009 -- 2011.
Issue
As it is not disputed that the property is zoned as rural land within s 10AA(4)(a) of the LTM Act, the applicable test is s 10AA (1). Consequently the only issue is whether during the relevant years the property was "used for primary production" within the meaning of s 10AA(3).
Applicant's evidence
The applicant tendered an undated statement (part Exhibit A2, also attached to the application for review filed 30 July 2012) . As the statement contains a good deal of comment and argument as well as propositions of fact, only the factual propositions will be summarised here. After some introductory paragraphs, the applicant stated that when he had purchased the land in August 2008, the previous owner had always rented out the house and had at some time engaged in the horticultural production of flowers.
The purchase price was $955, 000, of which primary production assets and land accounted for between $750,000 and $800,000. Since purchase, he had invested at least $100,000 in primary production assets, while only $10,000 had been spent on rental house improvement.
In relation to horticulture production, he had intended to lease out approximately 1600 square metres of horticulture greenhouse structures already on the property, but about a month after purchase, while he was negotiating with a potential lessee, a severe wind storm blew the roof off the buildings, making it impossible to lease them. The applicant's insurer paid to the resulting claim only after 13 months and following and a decision of the Insurance Ombudsman on 11 December 2009 (part Exhibit A2). In his dispute with the insurance company the applicant said he had been required to leave the igloo greenhouses in their damaged condition as evidence.
His intention from the outset had been to graze livestock on the land, but before that could be done the property needed approximately $20,000 of earthmoving and $50,000 of fencing work, as the previous fences had been destroyed by bushfires and lack of maintenance. In addition to being a major project, this had also required the co-operation of neighbours.
Once the fencing was in place, a herd of cattle and goats had been built up. Considerable time is required, however, for purchase, fattening and breeding to the point where livestock sales can commence. He said he had been informed by the Office of State Revenue (OSR) that livestock were considered for the exemption only if livestock sales exceeded gross rent. The applicant believed that was impossible to achieve in the early years, given the nature of livestock grazing.
His claim in relation to farming of fish products as a ground for exemption included the preparation for that activity. After buying the property he purchased a commercial quantity of fingerlings (juvenile silver perch) and yabbies for stocking the large dams on the land. These had been left to breed and grow out, and for that reason there had not yet been any sales of the output.
As to the keeping of bees for the purpose of selling honey, shortly after buying the property he invested in eight hives containing millions of bees. He also registered as a beekeeper and purchased equipment, and a large number of jars. With eight hives he thought he could produce hundreds of litres of honey per year, making it in his view a commercial undertaking beyond the keeping of one or two hives as a hobby. In apiary the number of hives is increased by partitioning some bees and introducing a new queen bee. That had been his intention for developing the business.
Although he did harvest some honey initially and supplied it to family and friends (free of charge in the case of family), all the hives were lost early on because of "swarming" and black beetle infestation.
Given the inherent risks of primary production, especially on small holdings such as this, his strategy and business plan had been to diversify into a number of primary production activities so that successes and failures would balance out. He considered the renting of the house to be one of those income streams for his farm business plan . He believed that this diversification strategy had jeopardised his case for exemption by giving OSR the impression that he was not serious about his farming activities.
He also believed that new purchasers such as himself were being discriminated against by OSR's alleged practice of using purchase as a trigger for a land tax assessment, while long-term owners who had not engaged in primary production for many years were continuing to enjoy the benefit of the exemption.
In his oral examination- in- chief, Mr Reolon said he had been extensively seeking a rural property for 10 years before purchasing the land in question. He had initially wanted to lease out the igloo greenhouses and had a prospect willing to pay $300 per week for them. Alternatively, he could have managed them himself. But the windstorm had blown off between 60 and 70 per cent of the total roofing, and mainly from the best and most modern greenhouses.
He then decided not to invest further in the property until the land tax issue was resolved, but in September 2012 he was told that the documentary records he had supplied to the respondent and his legal advisers had been mislaid.. During 2011 and 2012 he was solely engaged in his primary production activities and had no income other than the house rental.
Referring to his 2011 income-tax return (Exhibit A1), Mr Reolon said he had placed further beekeeping on hold after the loss of the hives, pending resolution of the land tax question. The return claimed a sum for the purchase of the yabbies and perch fingerlings as investment in aquaculture, but the fish and yabbies needed between two and three years to mature and also required the establishment of infrastructure. At present the fish were up to 30 cm long and stocks were growing. But again, the applicant had not invested in harvesting the products pending the outcome of the land tax question. In the meantime the stock would continue to increase.
The return also claimed an amount for earthworks needed before the fire-destroyed fences could be replaced. Obtaining the approval of neighbours required some time, and in one instance he had been forced to approach the relevant government authority to have the matter resolved. This total investment in fencing, tools and labour was $80,000, which he said showed that he was serious about raising livestock.
The applicant referred to an aerial photograph of the property (part Exhibit A2) that had been taken before he had acquired it. The house was shown as a small black dot in the lower left-hand corner of the picture. Two greenhouses had been added after the photograph was taken. Also shown were the machinery shed, another shed and the cool room. Another shed near the round dam housed a three-phase electric pump for the dam. The pump delivered water to two long pipes at right angles with taps every 3 or 4 m to which irrigation lines could be attached in either direction. By these means he could irrigate up to 90 percent of the property. He also installed three large troughs for the cattle.
The applicant referred to the livestock purchase receipts, return of land and stock, equipment purchases and asset register (part Exhibit R1) and stated that the property at the time of purchase included some $250,000 worth of agricultural infrastructure.
Asked by Mr El-Hage in cross-examination about his statement that the only work he had performed in 2011 and 2012 was for primary production, the applicant said he had resigned from his other position and dedicated himself to the property and to resolving the land tax question. That issue had caused him to put his plans on hold because although the amounts involved were not large, being between $6,000 and $8,000, he preferred to clarify the matter, which was stressful and time-consuming. Apart from that he spent eight or nine months clearing trees and generally cleaning up the property. From September 2012 he obtained employment as a project manager to raise more money. His business plan had not foreseen any liability for land tax because he thought he would be exempt as a primary producer.
Although he had not deferred 100 percent of the capital work on the property, he had not developed the full automated potential on which he had planned. The loss of the greenhouse roofs and the bee hives had also come as a surprise. He had proposed to purchase a new 200 acre farm but had not done so because he now placed the land tax risk at the top of his priorities.
He was then asked about the addresses he had given in various documents. His 2011 income-tax return gave his address as being at St Clair. That was his parents' address and he had lived with them for most of 2011, except when he had undertaken contract work for MLC at North Sydney and had leased an apartment at Waverton, as the contract involved a good deal of travel. In 2010 he owned a property at Narrabeen, but after disposing of it had lived for a period with his parents, except when he was overseas for two or three months during that time. He was not sure about his places of residence in 2008 and 2009 as he had moved 16 to 20 times in the last 20 years, and would need to check with his wife. He declined to do so, however, as she was on the day of the hearing consulting a medical specialist about a delicate pregnancy and he did not wish to stress her.
The applicant said he was not a "farmer born". He held a Bachelor of Business degree in accounting and had worked as a project manager, developing plans and organising resources. His corporate and business career had seen him working for the Commonwealth Bank for three years in their Comsec division full-time as well as periods with Westpac, the Sydney Futures Exchange, Sydney Water, Oakton Consultants, FNZ (a New Zealand software supplier), Societe Generale, AAPT, Vodafone and Louis Vuitton, among others.
The income from shares shown in his 2011 income-tax return (Exhibit A1) derived mainly from share trading, chiefly on his own account, but certain other figures related to dividends. He was qualified as a share trader but currently holds no shares, although maintaining a trading account. The manner in which $23,578 interest had been apportioned between primary production and the rental property was a matter determined by his accountant, and he relied on her. The accountant had also decided to list "stockbroking or trading" as his main business. He had given Maroota as the address of his stockbroking business as he had a small office in a shed on the property where he keeps all his business documents. He does this to avoid problems with mail forwarding when moving. The 2011 return showed zero income from primary production because at that time he was establishing the infrastructure and the cattle were maturing.
In relation to his 2010 tax return he said that his business model involved treating the whole farm as one business with separate income streams. At his accountant's suggestion, later returns had separated them.
Counsel pointed out that his 2009 tax return gave his main business as "share trading". That, he said, did not include the Comsec income, only his personal trading. His purchases of shares for trading involved large sums because he aimed at a large turnover with smaller profit margins. Nevertheless a loss had been incurred. Sometimes he would not trade for a year, depending on the state of the economy and other circumstances.
His statutory declaration of 5 July 2012 (Exhibit R3) was intended to set out his responsibilities as owner of the property. To simplify his business he would have terminated the lease, had one of the tenants not been suffering from cancer. He had made the statutory declaration as he had been asked to confirm that the tenancy was still operative. Originally the tenants had only the use and occupation of the house, but he allowed them to walk over the property and use it for walking their dogs. He had offered to lease the greenhouses to them but they were unable to take up the offer. Now the remaining tenant uses only the house and the shed.
Mr El-Hage pointed out to the witness that his Hotmail record showed 481 e-mails in relation to share trading but only six in respect of the farm, and this in an account he had held for 14 or 15 years. The witness agreed but said it was not his practice to separate his e-mails under topics and, as could be seen, his inbox contained 850 messages.
The applicant affirmed that he could not have leased the greenhouses while the dispute with the insurance company was pending, nor had he been able to carry out repairs to them as he judged that he should leave one igloo in its damaged condition. Nevertheless the invested $200,000 in the property. The land tax dispute had also affected his business.
He also agreed that he had worked in corporate positions for about 20 years, although also doing concreting for a friend at various times and farm work in 2011 and 2012, and had worked full time with Comsec until January 2011, and then with FNZ. Nevertheless it was also his practice to go and work on the farm. His 2010 and 2011 tax returns had given his home address as St Clair, although he had also lived at Waverton during that time. Those returns also stated his main business as share trading, together with salaried work, as did his 2009 return.
His returns for 2010 and 2011 correctly stated that he had received no primary production income, but he was expecting cattle sales to be realised in 2012. The $126 received for honey sales in the 2009 tax year represented his first sales when he was still learning, but in the event proved to be his only sales. He had been overseas for two or three months in 2010 and agreed that the bees had probably died during his absence. Nobody had been taking care of the farm while he was away, but it would not have been viable to engage someone because he wanted the farm to be a low maintenance operation. It was not, however, merely a hobby while he was working and engaging in share trading, as much work was needed and the early years were a "hard slog". He had worked every weekend on the property for the last four years, and it was necessary to check on the cattle every night. As a result the farm was now unrecognizable and was the best kept in the area. It was not unusual for farmers to hold a job off the farm. The Land had reported that one of Australia's leading beef producers also operated a trucking business.
Asked if he had received any training in farming before 2008, the applicant replied that he had for the previous 10 years searched for a suitable farming property. He had completed a rural fencing course, joined the beekeepers' association and gained experience in aquaculture and other matters. He had also conducted a great deal of research.
When it was put to him that between 2008 and 2010 his main occupation and sources of income were as a business analyst and share trader, he replied that he had held the farm for only one month in 2008. Then he had been involved in investing in the property, collecting the livestock herd and related matters. Long lead times were involved, requiring patience and sustained management. It was a risky and challenging business requiring a great deal of time. He had rented out the house on the property, but so had the primary producer before him. The tenants had only used the property, apart from the house, for walking around and walking their dogs.
On 17 April 2013, the adjourned date of the hearing, the applicant tendered a statutory declaration by his wife Melissa Eleni Reolon dated 10 April 2013. The respondent objected to it on the ground that the applicant had closed his case and that the deponent was unavailable for cross-examination. The document was admitted over that objection as Exhibit A5. In it Mrs Reolon stated that she and the applicant were on an overseas trip from 6 July 2010 to 17 August 2010. While overseas they were still awaiting permission from the three sets of neighbours for consent to the construction of their boundary fences. It was consequently not possible at that time to have livestock on the property. They also did not consider engaging a caretaker for the bee hives or the aquaculture.
Mrs Reolon added that the tenants "John and Rocky" still occupy the house under the original lease, and that she and Mr Reolon visit the farm seven days a week, twice a day to check on the well-being of the livestock, to fill troughs, supply extra feed and for general maintenance.
Attached to the statutory declaration were two photographs showing part of the property and some cattle, together with Mr Reolon and his daughter.
The tendency of Mr Reolon's evidence to mingle matters of fact with extensive submissions and attacks on the respondent and its legal advisers has been noted above. A further problem was a pervasive vagueness about dates, a real difficulty in an exemption case such as this when the dates on which acts were done or activities were begun or finished is important, and indeed crucial.
For example, he said that in 2010 he was overseas with Mrs Reolon (as she now is) for "two or three months", whereas his wife's statutory declaration states that the trip was from six July 2 17 August, or a little more than five weeks. Again, he was highly critical of the Crown Solicitor's Office (CSO) request for further particulars dated 8 October 2012 which pointed out that "it is not entirely clear to my client what primary production activities took place on the land, and during what period". Yet after a direction by the tribunal dated 5 December 2012 to reply to the respondent's request for particulars, which among other things sought the dates on which the various activities had started as well as the farm PIC number, the applicant sent a reply that left blanks for the starting dates of beekeeping, goat activities, fencing work and cattle activities, and the concluding date of fencing work. He also left a blank for the PIC number and dismissed as "ridiculous" a question about the percentage of the land used for beekeeping.
The respondent called no oral evidence at the hearing but relied on the s 58 documents (Exhibit R1) and other documentary exhibits.
After the hearing had concluded, and following consultations with the parties, certain additional correspondence between the parties was taken into evidence as Exhibit ADT 1.
Applicant's submissions
Like his oral evidence, the applicant's submissions included extensive attacks and allegations of incompetence and impropriety directed at the respondent's staff and legal advisers, together with numerous propositions about what the law ought to be. Leaving those to one side, however, the applicant began by stating that he had always wanted to be a farmer. Some farmers inherit their property, some are wealthy to begin with, and some like himself had to work for it. The law should not discriminate against those who have to work to obtain their start in primary production, as he had had to work in business.
As regards aquaculture, he had been reluctant to invest in the necessary infrastructure to enable the fish to be harvested until the land tax issue had been resolved. In relation to beekeeping, he had purchased a commercial quantity of hives and undertaken courses in beekeeping. He should not be punished for having a bad year.
His intention had been to engage in horticulture, either by growing his own produce or by leasing the greenhouses or " igloos". Following the wind storm damage, however, he had been embroiled in a dispute with the insurance company for 13 months. The company had taken photographs of the damage, but the applicant had thought that another independent party might need to see the damage and that by repairing the igloos he might jeopardise his appeal to the Insurance Ombudsman.
The raising of livestock had always been part of his original business plan but had required infrastructure investment in troughs and in suitable fencing, especially as the property is located on a main road. Building the fences required the consent of neighbours, however. One neighbour had refused to consent and it had been necessary to pursue a statutory appeal procedure to obtain it. When he and Mrs Reolon had departed on their trip, only one boundary had been fenced. Further, he had wanted to resolve the land tax matter.
His strategy had always been to diversify his production, and the renting of the house was part of the plan. He took some time to find a suitable tenant, but once the house had been leased, there was no lead time before the resulting income stream commenced, unlike the position with primary production.
He had contacted OSR when his initial exemption application had been rejected, and the lady he spoke to had said that the exemption would have been granted if he had only been raising cattle, but as his operations were so diverse, it had been thought that he was not serious about primary production.
CSO had contacted him in October 2012 stating that there had been technical difficulties in accessing his documents, and one staff member had told him they had been lost. Mr Martin's letter seeking particulars had said that it was unclear what activities he had engaged in and when. But he had left a box of documents with them for a month and it must have been possible for them to assess his application. There had obviously been a fundamental mistake in CSO and they had later asked him again for the same documents.
The law should give an exemption when a property owner has the intention to engage in primary production and makes the necessary investment. It should not punish a farmer who has had a bad year or is getting started. Further, he was being discriminated against because one of his neighbours had tenanted his property and engaged in no primary production activity but was still benefiting from an exemption.
OSR had admitted that he was entitled to the exemption for the 2012 land tax year. If he did not receive an exemption for the earlier years he would have to end the tenancy and leave the house empty or just bulldoze it. But his ambition was still to be a farmer. His 20 years of work history were irrelevant because he had to work hard to buy the property. He now visits it every day to ensure that the stock are doing well, that there is no theft and to fill troughs. The law should consider the effect of lead time and bad seasons. To that end OSR staff should have primary production experience.
In reply Mr Reolon said that his activities showed the necessary degree of intensity: for example he had installed a 15 kW 3-phase Southern Cross pump to oxygenate the water so that he could add more fish.
Nearly all primary production relies on growing, fattening or breeding. OSR had recognized his sales of goats and cattle for the 2012 year, but most of the production had taken place in earlier years. The aquaculture stream began in 2008 and continues today. It it takes time to add value, and growth patterns do not respect land tax years. He intended to resume beekeeping.
He had never lived on the farm, but primary production did not require that and it was irrelevant. The house occupied less than 5 percent of the land. His outside work was also irrelevant as most farmers needed to supplement their farm income by working in town. He had maintained up to 20 goats, cattle and alpaca on the property and had made over $100,000 of investments in cattle production and water equipment. The igloos were the only part of the operation that had been put on hold.
He had been engaged full-time in primary production in 2011 and currently visits the property twice a day, having done so back to 2008. He had a business plan, was recognized as a beekeeper and cattle producer, attended cattle sales, injected and drenched the cattle, ran the water pump every day and subscribed to The Land. The property was zoned rural and 95 percent of it was used for primary production, the house being fenced off. The entire property was fenced and contained sheds, cattle yards and dams.
He is a primary producer even though he might not have any sales in a given year. His share trading work was online and could be done from anywhere. For that activity he had to give an office address and had used the address of the property. As primary production has inherent risks, he had diversified . The land tax process was flawed and relied on obscure cases and unreasonable assertions, while CSO lacked integrity and hid behind technical arguments.
The legal framework
Land tax is an impost designed to encourage the improvement and development of land (JA Coughlan, "Land Value Taxation and Constitutional Uniformity" (1999) 7 George Mason Law Review 261). Under ss 7, 8 and 9 of the LTM Act, land tax is chargeable on the taxable value of the property for the 2009, 2010 and 2011 tax years on the basis of the ownership of the property in question at midnight on 31 December 2008, 2009 and 2010 respectively. It is not disputed that on each of the assessment dates, the applicant owned the property, which is zoned rural. The applicant is prima facie liable for land tax in respect of the years 2009 to 2011 on the basis of the taxable value of the property, unless he can establish that it was exempt from land tax.
The primary production exemption from land tax is in s 10AA of the LTM Act:
Exemption for land used for primary production
10AA Exemption for land used for primary production
(1) Land that is rural land is exempt from taxation if it is land used for primary production.
(2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land:
(a) has a significant and substantial commercial purpose or character, and
(b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made).
(3) For the purposes of this section, "land used for primary production" means land the dominant use of which is for:
(a) cultivation, for the purpose of selling the produce of the cultivation, or
(b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, or
(c) commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals, or
(d) the keeping of bees, for the purpose of selling their honey, or
(e) a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or
(f) the propagation for sale of mushrooms, orchids or flowers.
(4) For the purposes of this section, land is "rural land" if:
(a) the land is zoned "rural", "rural residential" or "non-urban" under a planning instrument, or
(b) the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land.
Thus a taxpayer seeking the benefit of the primary production exemption must establish a commercial or business element as part of the relevant activity that is claimed to constitute primary production.
Under s 100(3) of the TA Act the applicant bears the onus of proving the assertions he makes; see also FCT v Delco (1990) 168 CLR 614, 624. As the property was as at all relevant times zoned as rural land within s 10AA (4) of the LTM Act, the applicant would be entitled to the primary production exemption for the 2009, 2010 and 2011 tax years if the dominant use of the property as at 31 December 2008, 2009 and 2010 was primary production: Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23, [68]. But enquiry is not limited to the use to which the land is put on the relevant date. It extends to a consideration of its use during a reasonable period before and after the relevant date: Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867.
In Leda Gzell J explained that "dominant" in its ordinary meaning connotes ruling, prevailing or most influential. The provision presupposes that land may be used for more than one purpose and requires a determination of which use of the land is the main, chief or paramount use. It 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 (at [69]-[70]). His Honour quoted with approval the reasons of the Queensland Land Appeal Court in Thomason v Chief Executive, Department of Lands (1994- 1995) 15 QLCR 286 at 303:
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 the 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 might reach from viewing the land as a whole.
In Thomason, the court stressed that the land must be "used", that is, it must be applied to, or employed for, some purpose, put into service, or turned to account. For land to be "used" it must be actually used, not contemplated or intended to be used nor be merely suitable for use. That does not mean there must be activity on all the land. An owner can use land by keeping it in its unimproved state, where retaining it in that state is relevant to a particular purpose (at 3). Indirect or intangible use, such as leasing, may be included: Ryde Municipal Council v Macquarie University (1978) 139 CLR 633. But work carried out to prepare the land for primary production does not of itself constitute use of the land for primary production: Southern Estates Pty Ltd v FCT (1967) 117 CLR 481, 488. As Lush J. observed in Abbott v Commissioner of Land Tax (1978) 38 LGRA 417 at 423, "The predominance must be of such a degree as to impart a character to the parcel as a whole".
The amount of income generated is also relevant. In Romano v Chief Commissioner of State Revenue [2011] NSWADT 73, Judicial Member Frost noted that in the case before him the potential income to be derived from the non-qualifying purpose exceeded by a factor of over 30 to 1 that which could be expected to be achieved from the qualifying activities, and there was absolutely no possibility that the position could ever be reversed, or even that the significant discrepancy between them might be reduced in any meaningful way (at [43]). The renting out of the residential premises was so significant as to make it impossible to conclude that the dominant use was primary production. Income is not to be relied on as the primary determinant, however: Thomason at 304.
Dominant use of the land
As was noted above, much of the applicant's case consisted of attacks on OSR and CSO and complaints about the operation of the LTM Act, none of which are relevant to the issues before the tribunal. Part of the evidence on which the applicant seeks to rely relates to events and activities occurring after 31 December 2010 and therefore outside the relevant period. Some describes activities occurring at the present time or in 2012, despite the fact that the applicant has benefited from a primary producer and exemption for the 2012 year, and there is no evidence of any later assessment.
Further, as was also noted above, there was a certain vagueness about dates, as exemplified in the applicants reply dated c.17 January 2013 (Exhibit ADT 1) where a number of material dates were left blank. This shortcoming was only partially remedied subsequently.
Nevertheless, as would be expected from a landowner holding a Bachelor of Business degree in accounting and having extensive commercial and finance experience, the applicant had a business plan for the property. The original plan has not been produced, but what appears to be an updated version is in evidence (Exhibit ADT 1). The plan envisaged a diversified farm with maximum automation and minimal on-site care requirements. The rental received for leasing the house was expected to supplement farm income, especially in the early stages.
For the whole of the relevant period, Mr Reolon worked full-time in the Comsec division of the Commonwealth Bank, while also conducting a share trading business on his own account between 2009 and 2011. His income-tax returns during that period declared share trading to be his "main business" outside his employment with Comsec: see Transcript (TS) 50, 76. Nevertheless, he states that he had always wanted to be a farmer, and had gained qualifications in rural fencing and beekeeping, but had to work in order to realize his ambition to go on the land.
At the time of purchase the property had needed to have between $50,000 and $100,000 spent on it. The applicant had invested substantial sums in the venture, which he estimated as being $100,000 on primary production and $10,000 on the house (Exhibit A2). At the hearing he estimated his investment in the primary production side as being "in the vicinity of $200,000" (TS 34), a substantial difference. On the evidence it seems reasonable to conclude that the applicant had invested $80,000 in fencing work and materials, including earthmoving preparation, together with smaller sums on the purchase of beehives, beekeeping equipment, juvenile fish and yabbies and related equipment by 31 December 2010. On the principles enunciated in Leda and Thomason, that investment is relevant to the question of the "resources" committed to primary production on the land.
The house on the land has been leased since 17 January 2009 without interruption to the present day. It had previously been leased by tenants from April 2008 to September or October 2008. Consequently it was not under lease as at 31 December 2008, but as Gzell J explained in Leda, regard can be had to activities on the land for a reasonable period before and after 31 December.
The lease commencing on 17 January 2009 to John Shepherd and Roxby Abbott for a weekly rental of $420 remained in place throughout the relevant period, producing an annual rental income of $21,840. In his statutory declaration dated 5 July 2012 (Exhibit R3), the applicant stated that the tenants had "use and enjoyment of house, shed and twenty acre block", meaning the whole of the land, and confirmed that in cross-examination: TS 66, 67. At no time during the relevant period did the applicant live on the property himself, although he maintained a small office and an office address there for business purposes.
It is now necessary to consider the use made of the land on the three relevant dates.
Use on 31 December 2008
On that date the house on the property can for the reasons given above be treated as having been leased at a weekly rental of $420, even
though the tenancy did not actually begin until the following month.
The applicant had proposed using the 1600 square metres of greenhouses on the property for horticultural production, the growing of organic herbs and vegetables. He had not decided whether to undertake that enterprise himself or to lease the greenhouses to another for that purpose, although he had received a serious offer to lease the greenhouses for $300 per week. On 23 November 2008, however, a violent windstorm destroyed between 60 and 70 percent of the "igloos", including the best and most modern ones (TS 4). The applicant obtained a quotation for repairing the greenhouses on 4 December 2008 amounting to $9,850 (Exhibit A2), but a dispute with his insurance company, which had to be resolved by the Insurance Ombudsman, delayed settlement of the claim for 14 months. If the applicant had proceeded to repair the greenhouses within a reasonable time after 31 December 2008, the greenhouse horticulture operation could be treated as continuing through 31 December 2008, as is the case with the lease of the house. (Whether it could then have constituted the dominant use of the land is another matter.) For tactical reasons connected with his insurance dispute, however, the applicant decided not to do so. He thus abandoned the horticulture project before it had produced any income (Exhibit R1, tabs 1, 9).
The apiary project had begun, according to the evidence, with the purchase of beekeeping supplies and equipment commencing on 1 December 2008 and with further purchases on 21 February 2009 (Exhibit A2).
Aquaculture did not commence until the purchase of infant stock on 8 April 2009 (TS 12).
Livestock raising had not yet commenced, nor had any significant preparations been made for it.
At about that time Mr Reolon decided to defer some 70 percent of his investment in primary production because the windstorm, the delayed insurance claim and his disputed land tax liability prevented him from implementing his business plan until 11 December 2011 (TS 32, 35).
On 31 December 2008, therefore, the only primary production activity on the land was beekeeping, which had yet to produce any income and subsequently only brought in a total of $126. Mr Reolon's intention to engage in other primary production activities is irrelevant. As the tribunal said in Hoxede Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 251 at [28], "an intention as to the use of the Property is just that, an intention, and in no way to be treated as a use; that term relates to actual and not contemplated use".
Nor is it the case that "any physical primary production use of land, however minor, is sufficient to qualify" for the primary production exemption: Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25 at [38]. It must constitute the dominant use of the land. In that context, as was noted in Romano, income is a relevant, but not a primary, factor.
Considering, therefore, that at that time the only primary production on the land was the early stages of a modest beekeeping operation that was not yet producing any revenue and that other primary production activities had yet to begin, an objective observer would conclude, viewing the land as a whole, that the dominant use of the property on 31 December 2008 was the leasing of the house, not primary production. Even if the leasing of the house had been disregarded, the beekeeping activities might still have been insufficient to justify a conclusion that the land was primarily used for primary production rather than predominantly unused: Saville v Commissioner of Land Tax (1980) 12 ATR 7, 10.
Use on 31 December 2009
At the end of 2009, the greenhouses on the property were still idle and the damaged ones had not been repaired.
The beehives had started to produce honey, and low- key sales, mainly through family and friends, had earned $126 (Exhibit R1, tab 3).
Aquaculture was under way with perch and yabbies growing in the dams, but no sales had been made as the fingerlings and yabbies needed two or three years to develop to marketable size. Further, substantial infrastructure was needed to protect and harvest the produce, and that investment had not been made (TS 12), apart from a 3-phase oxygenating pump and shed.
No cattle or other livestock had been introduced to the property as the necessary fencing had not yet been constructed and the applicant had substantially deferred further capital investment.
The applicant was not living on the property and was working full-time with Comsec. Apart from his employment, Mr Reolon was running his own share trading business, which he described for income-tax purposes as his main business apart from his employment: TS 50, 76. I do not regard his employment and share trading as being necessarily decisive factors weighing against his case, as today many genuine farmers are forced to find work, often full-time work, in town to supplement their incomes. Mr Reolon's commercial activities were more in the nature of a successful career than merely outside work, but there is no reason to doubt his claim that his long-term objective was to become a farmer.
Mr Reolon also said he worked on the property every weekend. As to his not living on site, the evidence does not show that the kind of primary production he contemplated would necessarily require residence on the property.
The applicant's 2009 income-tax return (Exhibit R1, tab 3) shows that his only income from primary production was $126, his other income totalling $373, 674. The only significant revenue stream from the property came from the leasing of the house.
Thus the only primary production activities on 31 December 2009 consisted of the eight beehives, which generated a return of $126, and the growing of the fish and yabbies, which did not, and at that time could not, produce any earnings.
Mr Reolon rightly submitted that account should be taken of the lead times involved in aquaculture and primary production generally. Even so, applying the criteria set out in Thomason and other cases, consideration of the amount of land actually used for those purposes, the nature, extent and intensity of the various uses of the land and at the time, the labour and resources spent in the various uses leads to the conclusion that an objective observer viewing the land as a whole would consider that the dominant use was not primary production but the leasing of the house, the apiary and aquaculture being of a purely subsidiary and peripheral nature.
Use on 31 December 2010
On that date the greenhouses were still in disuse and he was therefore unable to proceed with his plans for horticulture. "I didn't have the money to repair, and also did not want to jeopardise [the] legal case until resolved ", he wrote on 4 November 2011 (Exhibit R1, tab 9). He later wrote, "Further investment in this area on hold pending resolution of land tax exemption" (Exhibit ADT 1). He then turned to, beekeeping: "As my initial plan of horticulture hit this major issue,I then purchased eight bee hives with a view to expanding" (Exhibit R1, tab 9).
The beehives were no longer producing revenue, having been lost as a result of "swarming" and beetle infestation, probably in July -- August 2010, during his overseas trip with Mrs Reolon. Nobody was taking care of the farm in his absence because "I can't afford a caretaker.... it's not viable to pay someone in this particular business case and I tried to set the farm up to be low maintenance with automation...." (Exhibit A5; Exhibit R1, tab 9; TS 78). The applicant thereupon changed direction: "I decided to cut my losses on this and move on to livestock. I am now building [a] goat and cattle herd as well as aquaculture" (Exhibit R1, tab 9). Thus the initial honey sales amounting to $126 proved to be the last (TS 77).
Livestock production could not commence until the necessary consents had been received from all neighbours in late 2010 (Exhibit A5). By 31 December 2010, a total of two steers had been purchased, on 28 December 2010 (Exhibit R1, tab 16).
In his 2010 income-tax return, the applicant did not report any income from primary production (Exhibit R2). Meanwhile, the house was still tenanted and drawing a rental of $21,840 per annum (Exhibit R1, tab 8).
Thus the situation on 31 December 2010 was that following the collapse of the beekeeping operation, the applicant had decided to turn to livestock grazing. He invested in fencing and made the property ready to receive livestock, but that was in the nature of preparation and thus could not of itself constitute use of the land for primary production: Southern Estates Pty Ltd v FCT (1967) 117 CLR 481, 488. The only evidence of actual use for grazing was the acquisition of the two steers on 28 December 2010. That could only constitute a minor use of the land for primary production, as understood in Ashleigh.
The applicant stated that during 2011 he was building up his livestock herd. His return of land and stock (Exhibit R1, tab 7) is incomplete and does not show his cattle numbers as at 30 June 2011, while his exemption application dated 9 June 2010 shows no sales of cattle. The evidence does show, however, that he purchased three Murray Grey heifers on 30 January 2012 (Exhibit R1, tab 16), but that is relevant to the use of the property on 31 December 2011 (in relation to which date the applicant did receive an exemption for 2012) and has little bearing on the situation as at 31 December 2010.
I therefore conclude that the dominant use of the land as at 31 December 2010 was the leasing of the house, not primary production.
Mr Reolon submitted that if he were denied the primary production exemption for the 2009 to 2011 tax years, he would have to end the tenancy and leave the house empty, or else simply bulldoze it. That overlooks the fact that the applicant was granted the exemption for the 2012 land tax year, notwithstanding that the house was still tenanted on 31 December 2011. There is no evidence of any later assessment.
In making his submission that the rental of the house was the dominant use of the property for the relevant period Mr El-Hage compared the present case with Romano, in which the applicants adduced, and the tribunal accepted, evidence concerning the level of intensity of the land used for primary production purposes (at [17], [23], [39]). The applicants claimed that 91 percent of the land was used for keeping cattle. The evidence showed that the applicants generated a significant but not substantial sum from their primary production activities during the relevant land tax years, and as such were in a stronger position than the applicant here. Yet the applicant in Romano still failed to satisfy the tribunal that the use of the land for primary production was the dominant use, in light of the evidence about the amount of rental income earned from renting out the residential accommodation on the land. By comparison the applicant is in a significantly weaker position than the applicants in that case.
The applicant has therefore not discharged the burden of proving that the dominant use of the land on the three relevant dates was primary production. The decision under review is therefore affirmed.
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Decision last updated: 06 May 2013
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