Romano v Chief Commissioner of State Revenue
[2011] NSWADT 73
•07 April 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Romano v Chief Commissioner of State Revenue [2011] NSWADT 73 Hearing dates: 13 December 2010 Decision date: 07 April 2011 Before: S Frost, Judicial Member Decision: The land tax assessments for the land tax years 2008, 2009 and 2010 are confirmed.
Catchwords: Land used for primary production - "dominant use" of land - land used for primary production also used for residential leasing - area of land used for primary production exceeds area of land used for residential purposes - factors to be taken into account in determining dominant use Legislation Cited: Land Tax Management Act 1956, s 10AA Cases Cited: Leda Manorstead v Chief Commissioner [2010] NSWSC 867
Saville v Commissioner of Land Tax (1980) 12 ATR 7
Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79
Hope v Bathurst City Council (1986) 7 NSWLR 669
Greenville Pty Ltd v Commissioner of Land Tax NSW (1977) 7 ATR 278
Ball v Chief Commissioner of State Revenue [2010] NSWADT 114Texts Cited: Revenue Ruling LT 22 Category: Principal judgment Parties: Pasquale Romano, Carmela Romano, Rocco Romano (Applicants)
Chief Commissioner of State Revenue (Respondent)Representation: S S Ahmed (Applicants)
H El-Hage (Respondent)
Lindsay Taylor Lawyers (Applicant)
I V Knight, Crown Solicitor (Respondent)
File Number(s): 106016, 106017, 106048, 106049
reasons for decision
Members of the Romano family own two adjoining properties in Catherine Field, 60 kilometres south-west of the central business district of Sydney.
One of those properties is owned by Pasquale and Carmela Romano. It fronts onto Deepfields Road and for the purposes of these reasons is referred to as the Deepfields Road property.
The other property, owned by Pasquale and Carmela's son Rocco, fronts onto Catherine Fields Road and will be referred to as the Catherine Fields Road property.
The Chief Commissioner has assessed land tax on each of these properties for the land tax years 2008, 2009 and 2010. The Applicants say that the assessments are excessive and should be revoked, on the basis of the primary production exemption in the Land Tax Management Act 1956 (the Act). They objected against the assessments but their objections were disallowed. They seek review of the assessments under the Taxation Administration Act 1996 (the TAA).
The issue
The question for decision is whether the primary production exemption in s 10AA of the Act applies. Section 10AA provides relevantly:
(1) Land that is rural land is exempt from taxation if it is land used for primary production.
(2) ...
(3) For the purposes of this section, land used for primary production means land the dominant use of which is for:
...
(b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce,...
It is common ground that both parcels of land are "rural land". It is also common ground that both parcels of land are used for the maintenance of animals, namely cattle, for the purpose of selling them or their natural increase or bodily produce.
The question is whether that use is the "dominant use" of each parcel.
The properties
Pasquale and Carmela Romano purchased the Deepfields Road property in 1963. The property is about 10 acres, or 4 hectares, in size.
The Catherine Fields Road property is about 5 acres, or 2 hectares, in size. Rocco purchased it in 1986.
The properties abut one another at the rear, and because there is no dividing fence between them they have the appearance of one uninterrupted tract of land extending from Deepfields Road through to Catherine Fields Road.
Residential buildings on the properties
There are residential buildings on each property.
The Catherine Fields Road property has a house and a granny flat, both of which have been occupied by tenants since 1986.
The Deepfields Road property has two separate residential buildings: one of them is a house, known as No 127; the other contains, under the one roof line, two houses (Nos 121 and 121A) and three garages. One garage belongs to No 121 and one belongs to No 121A. A rear extension to the building houses a granny flat, which is used by Pasquale and Carmela when they are on the property, and which also has access to the third garage. All the residences on the Deepfields Road property (excluding the granny flat and its garage) have been occupied for many years by tenants.
The Romanos do not live on the properties, and they did not live on the properties at any time relevant to the land tax years in question.
Dwellings separated from farming area
The dwellings on each of the two properties (and the areas immediately surrounding the dwellings) are separated from the rest of the land by fencing. On the Catherine Fields Road property, the fenced area represents about 12.34% of the total area of the land. On the Deepfields Road property, the fenced area represents about 7.4% of the total area of the land. These fenced areas are located at the front of each of the properties.
The remaining areas of the properties (that is, about 87.66% of the Catherine Fields Road property, and about 92.6% of the Deepfields Road property) have been used for cattle farming. Because there is no fence separating the properties from each other, the cattle are free to roam across the entirety of both properties (excluding the residential areas). This represents about 91% of the total area of the combined properties.
Farming activities
The evidence given by Pasquale and Rocco Romano about the cattle farming activities was not challenged by the Chief Commissioner. It was to the effect that they have maintained cattle on both properties "for the purpose of selling them or their natural increase" since the time the properties were purchased. Over the years they have bought and sold cattle, and Pasquale has attended auction sales for that purpose. They also say, and I accept, that some 60 to 70 cattle have been born on the properties over the years, although it is not apparent that any were born during the relevant land tax years.
Andrew Glover, the managing ranger for the Cumberland Livestock Health and Pest Authority, gave evidence that the carrying capacity of both properties is 4.1 cattle. Mr Glover explained in his affidavit:
The carrying capacity of land is a value that is attributed to land that indicates the capacity of land to sustain livestock production. The carrying capacity depends on a number of variables that go to the quality and ability of land to sustain livestock. The higher the carrying capacity, the greater number of livestock that can be sustained on the land.
After setting out in his affidavit his calculation methodology, Mr Glover concluded:
Therefore the Properties can sustain 4 cattle using the grass provided by the land alone.
...
In order for more cattle to be grazed on the Properties, it would be necessary for them to be hand fed.
It is my opinion that a carrying capacity of 4 cattle indicates the potential of the Properties for cattle farming.
At 30 June 2007 there were 7 cattle on the properties, at 30 June 2008 there were 5, and at 30 June 2009 there were 6. That suggests that the properties have been sustaining cattle at least at the level, and possibly above the level, of the calculated notional carrying capacity.
Farming infrastructure
The infrastructure on the Deepfields Road property comprises:
(a) A grass slasher weighing about 100 kilograms which is housed in the garage;
(b) Two lawn mowers - one ride-on mower and a smaller domestic-style mower;
(c) Watering facilities - two cast iron bath tubs which are manually filled. Pasquale fills the tubs twice a week and Rocco does it whenever he attends the property. Filling takes between 20 minutes and half an hour;
(d) A cattle loading dock which Pasquale constructed about 20 years ago. It is made of timber and is about 1 metre wide and 2.5 to 3 metres in length. It has a fence around it, which is known as the cattle yard, where the cattle are held before they are loaded;
(e) A hay shed, where grass is stored after the pastures have been cut and the grass dried. Pasquale constructed the shed about 30 years ago. It is made of tin and is about 5 metres wide and 8 metres long;
(f) Fencing - according to Pasquale, about 3000 feet (900 metres), and on Rocco's estimation, 700 metres. Both men say they inspect the fencing regularly to ensure that it is not broken. If minor repairs are required, then either one of them will mend the fence with tools located on the property;
(g) A garage, which houses tools such as fence-post diggers, wire for mending fences, barbed wire and other farming tools and hardware. It also houses a fridge, and table and chairs where meals can be eaten;
(h) A "portable room" (the rear extension referred to in [13] above) which, according to Pasquale, contains a double bed, lounge and a wardrobe. He says this is where he and his wife stay when they are required to remain on the property overnight to attend to farming matters. In his affidavit he said:
(i) "My wife and I enjoy the rural aspect of the Properties and we enjoy running the farm. I estimate that I would stay overnight for a day or two approximately 15-20 times per year."
(j) An exterior toilet which is for use by the Romanos when they are at the Properties.
The infrastructure on the Catherine Fields Road property comprises:
a)A cattle shed, made of tin, which was on the property when Rocco bought it;
b)Watering facilities - a cast iron bath tub with an automated system with a ball float. Pasquale and Rocco installed it shortly after Rocco purchased the property. Both men say they inspect it regularly to ensure that it is working properly. Either one of them will undertake any repairs that are necessary;
(i) Fencing - according to Pasquale, about 2600 feet (800 metres), and on Rocco's estimation, 450 metres. Both men say they inspect the fencing regularly to ensure that it is not broken. If minor repairs are required, then either one of them will mend the fence with tools located on the property.
Time and labour devoted to cattle farming activities
Both Pasquale and Rocco said in their affidavits, and I accept, that they were involved in the following activities:
a)Attending the properties - Pasquale "a minimum of 2 times per week", and Rocco "approximately 52 times per year";
b)Filling watering tubs - which takes about 20 to 30 minutes per visit;
c)Inspecting fences - which involves walking around the perimeter to ensure they are not broken;
d)Checking on the cattle and their health and well-being - and in Pasquale's case, this included delivering calves, castrating male calves, administering medicine for pests and disease prevention and cure when required;
e)Feeding the cattle - Rocco acknowledged that his father had primary responsibility for this activity, but Rocco attended to the feeding "from time to time". Pasquale attends Flemington markets to collect feed for the cattle, usually surplus vegetable matter. He loads the feed on a box trailer and drives the trailer to the property. Then he unloads the feed for the cattle.
In addition to that, Pasquale undertook the following activities:
a) Dealing with the cartage of cattle to the saleyards, by rounding up the cattle in the cattle yard and supervising the loading of the cattle onto the truck;
b)Calling in a vet when cattle are sick or pregnant, and if necessary, carrying out all injections (after the first one) when multiple injections of sick cattle are required. This will entail tying the cattle up for the injection;
c)Attending auctions at the saleyards;
d)Burying dead cattle - for a small calf, Pasquale will dig a hole himself, but for larger animals he will arrange for someone to dig a large hole with a tractor;
e)Maintaining the infrastructure.
Rocco also undertook the following activities:
a)Mowing grass on public walkways to prevent the cattle breaking fences to eat that grass;
b)Cutting grass in the grazing pasture with the grass slasher to store for winter months;
c)Paperwork related to cattle auctions;
d)Maintaining appropriate accounting records to enable the accountant to prepare end of year tax returns;
e)Attending to any matters concerning the primary production business such as completing the annual return of land and stock for the NSW Livestock Health and Pest Authority, any audit requirements of Meat & Livestock Australia, or liaising with the local council;
f)Maintaining the infrastructure.
Income and expenditure on farming activities
Pasquale's tax returns show that the farming activities generated the following income and deductions:
| Year ended 30 June 2007 | Year ended 30 June 2008 | Year ended 30 June 2009 | |
| Gross income ($) | 1165 | 677 | 1185 |
| Deductions ($) | 1139 | 1407 | 1265 |
| Net primary production income/(loss) ($) | 26 | -730 | -80 |
Pasquale says, and I accept, that between January and October 2010, seven cattle were sold, generating approximately $3,000 in income.
Income and expenditure on property rental
The income derived from the Catherine Fields Road property is shared between Rocco and his wife.
As for the Deepfields Road property, Pasquale and Carmela share the income from Nos 121 and 127. But as far as No 121A is concerned, Rocco explained:
I do however receive rent from 121A which is owned by Pasquale and Carmela in return for their cattle grazing on [the Catherine Fields Road property] and for my labour in the primary production business and maintenance of the dwellings on the Properties.
The tax returns available to the Tribunal disclose the following income and deductions in relation to the residential leases:
| Year ended 30 June 2007 | Year ended 30 June 2008 | Year ended 30 June 2009 | |
| Income ($) | |||
| - No 121 | 11180 | 12276 | 13098 |
| - No 121A | 5720 | 5720 | |
| - No 127 | 9880 | 9880 | 10530 |
| - Cath Flds | 9646 | 9650 | |
| - Total | 21060 | 37522 | 38998 |
| Deductions ($) | |||
| - No 121 | 2804 | 2692 | 4274 |
| - No 121A | 3153 | 3318 | |
| - No 127 | 6235 | 5830 | 6494 |
| - Cath Flds | 4183 | 3825 | |
| - Total | 9039 | 15858 | 17911 |
| Net rent ($) | |||
| - No 121 | 8376 | 9584 | 8824 |
| - No 121A | 2567 | 2402 | |
| - No 127 | 3645 | 4050 | 4036 |
| - Cath Flds | 5463 | 5825 | |
| - Total | 12021 | 21664 | 21087 |
As at the date of the hearing the Applicants had not submitted tax returns for the 2010 financial year. However, documents produced to the Tribunal by the managing agents of the properties indicate that broadly similar amounts of income were generated from the two properties for the 2010 financial year as for 2008 and 2009.
Was the "dominant use" of the land for primary production?
In Leda Manorstead v Chief Commissioner [2010] NSWSC 867, Gzell J said at [69]-[73]:
[69] 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 of the land is the main, chief or paramount use.
[70] 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.
[71] 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."
[72] In Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79, Perrignon J was concerned with the definition of "rural land" as land that is wholly or mainly used for carrying on the businesses or industries of grazing amongst other uses in the Local Government Act 1919, s 118. At 84 his Honour said that what was called for where land was put to a number of uses, was the weighing of the evidence relating to various uses to which land was put, including, but not limited to, the nature and intensity of such uses, the physical areas over which they extended, and the time and labour spent in conducting them.
[73] His Honour's decision was upheld on appeal ( Hope v Bathurst City Council (1986) 7 NSWLR 669). A majority of the Court of Appeal held that the characterisation of rural land as land that is wholly or mainly used for carrying on the businesses or industries of grazing, amongst other uses, did not relate solely to the quantum of area of land 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.
While the reference in Saville to "unused land" is not relevant to the current proceedings, Roden J's comment in relation to a particular use "prevail[ing] over any competing use" has some relevance here, as do the comments of Gzell J in Leda Manorstead . The reasoning in Hope , both in the Land and Environment Court and in the Court of Appeal, is also relevant.
In Greenville Pty Ltd v Commissioner of Land Tax NSW (1977) 7 ATR 278, Helsham CJ in Eq, in considering whether certain land was used "primarily" for primary production, noted at 280 that "in applying that test one must adopt a broad approach and a commonsense one". His Honour continued:
... it would not be sufficient merely to look at the area actually under cultivation at the relevant time, if cultivation were being relied upon as the use, so as to ascertain whether for example more than half of the whole of the land was under cultivation ... It would probably not be sufficient to look merely at the financial return from the cultivation; the fact that there was none would not of itself warrant a finding that the land was not used primarily for cultivation ... Likewise the quantity of produce of the cultivation taken from the land would not of itself be a determinant of its primary use. The matter will be one of degree in each case. To claim an exemption under the Act the owner must be able to point to an activity being conducted on the land that will give the land the character of being mainly used for that activity, or that will enable a person having to decide the matter to say that the land is, in substance and looked at as a whole, being used for an activity that gives rise to an exemption.
The Applicants rely heavily on the decision of this Tribunal in Ball v Chief Commissioner of State Revenue [2010] NSWADT 114. In that case, almost half of the taxpayers' land (43.55% by area) was unused; the remaining 56.45% was divided between two uses, one of which (maintaining horses for training, breeding and sale) was a qualifying use, while the other (horse-boarding) was not. The evidence established that 53.1% of the total area of the land (in other words, 94% of the area of the land that was in use) was used for the qualifying purpose. Judicial Member Perrignon said:
[62] ... So far as the amount of land used for each purpose is concerned, the proper inference is that the main use was training and breeding horses for sale.
[63] On the other hand, by the taxing date, no revenue had been generated by the qualifying use, whereas some revenue had been generated by the non-qualifying use. Against that must be weighed the fact that the evidence is silent as to whether the latter use was returning a profit when interest and depreciation were brought to account.
[64] In terms of human effort, the evidence establishes Mr and Mrs Ball devoted very considerable time to setting up the horse breeding and training business, and the maintenance of [the two horses]. It is silent, however, on the amount of time spent by the couple on the horse-boarding business.
[65] The main factor weighing against the taxpayers is the lack of revenue generated by the horse training and breeding business. However, the significance of income as a factor is reduced by the lack of evidence as to the profitability of the horse-boarding business. The very nature of the horse breeding and training enterprise precluded the generation of revenue in the short term. It was none the less a use conducted with a view to generating income - indeed, to substantially more income than the horse-boarding business was expected to generate. The substantial amounts of time, energy and funds devoted to establishing the horse breeding and training business are compelling proof of that. To that must be added the caution expressed in the authorities against treating revenue alone as being decisive or determinative.
[66] It is appropriate to weigh all the factors referred to by Perrignon J in Hope - that is, the nature and intensity of the various uses, the physical areas over which they extended, and the time and labour spent in conducting them. In the peculiar circumstances of this case, neither revenue nor the amount of time spent on setting up the horse breeding and training business can be considered determinative. For that reason, it is unnecessary to decide whether time spent in setting up a business can be taken into account when assessing which of a number of uses is the dominant one.
[67] On balance, the Tribunal considers that the dominant use of the land at Terrey Hills was the business of maintaining horses for the purpose of selling them or their natural increase, because a greater portion of the land was used for that purpose than for any other, and most of the land was used for that purpose. Adopting the test formulated by Helsham CJ in Greenville's case , the evidence establishes that as at the taxing date, in substance and looked at as a whole, the Terrey Hills property was being used for the horse breeding and training business.
In their written submissions the Applicants emphasise the "staggering" proportion of the properties used for primary production activities which, they note, is far in excess of the proportion of the property that was used for qualifying purposes in Ball's case . They highlight the level of "human effort" devoted by the Romanos to the primary production activities, noting that Rocco attends the properties "approximately 52 times per year" and Pasquale "a minimum of two times per week". They cite paragraph 7 of Revenue Ruling LT 22 "Exemption of Land Used Partly for Primary Production" which says:
Where the level of investment in primary production is higher than the investment in any other activity, it will be accepted that the exemption applies. The value of the land allocated to each use should be included in the calculations of investments in each use.
They say that it follows that the level of investment in primary production is very significant indeed - representing between $800,000 and $990,000 for the Catherine Fields Road property and between $1.1 million and $1.3 million for the Deepfields Road property.
But LT 22 goes on to say at paragraph 9:
The amount of income is also a relevant consideration in cases where the land is used for several income-generating purposes. Income should be considered in conjunction with the level of investment to determine whether the investment in each use is a true reflection of the relative importance of each use. For example, it may be apparent from the level of income that the primary production activity is not being carried on at a level of intensity to justify classing that use as the primary use of the land. On the other hand, a relatively low level of income from primary production may simply reflect poor seasonal conditions or that the primary production use has not fully commenced.
It is clear that, based on land area, the areas devoted to farming activities far exceed those devoted to the derivation of rental income. There is also no doubt that the dominant physical activity that Pasquale and Rocco undertake on the properties is a farming activity. Furthermore, the level of intensity of land use for primary production purposes - which entails sustaining stock levels at or above the calculated notional carrying capacity of the land - is in the Applicants' favour.
But it still becomes necessary to ask, and answer, the question posed by the Act: is the dominant use of the land for the maintenance of animals? And that, according to Gzell J in Leda Manorstead , is a question of fact and degree and even perhaps one of impression. The approach to adopt in undertaking that enquiry is a "broad" and "commonsense" one: Greenville .
Taking into account the various factors referred to in the authorities, is it the case that the primary production use of the land is the "ruling, prevailing or most influential" use of the properties? Or, put another way, does the primary production use of the properties (which, it is inferred from Mr Glover's evidence, will always be restricted to a reasonably modest level) so predominate over the use of the land for income-producing purposes through the derivation of residential rent, as to stamp the land with the character of primary production land?
I do not see that it does.
The difference between this case and Ball is that in Ball , not only did the area of land used for qualifying purposes clearly predominate over the area used for non-qualifying purposes; the potential income to be derived from the qualifying purpose was also clearly in excess of what could be expected to be achieved from the non-qualifying activities. That is not the case here. The historical information relating to income shows that the rental income clearly predominates (by a factor of over 30 to 1) over the income from primary production activities, and there is absolutely no possibility that this position could ever be reversed, or even that the significant discrepancy between them might be reduced in any meaningful way.
One of the properties has three income-producing residences on it, and the other has one. While the evidence suggests that each residence is quite modest, there is a level of investment in them - represented by the buildings themselves, together with their curtilages - which weighs in the balance against the farming infrastructure referred to in [21]-[22] of those reasons.
Although there is no single factor that is determinative of the "dominant use" question, this is a case where 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.
The assessments must therefore be confirmed.
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Decision last updated: 08 April 2011
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