Spedding Estates Pty Ltd v Chief Commissioner of State Revenue - [2017] NSWCATAD 117

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation: Spedding Estates Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 117
Hearing dates: 4 and 5 February and 22 and 23 November 2016
Date of orders: 13 April 2017
Decision date: 13 April 2017
Jurisdiction: Administrative and Equal Opportunity Division
Before: N S Isenberg, Senior Member
Decision:
The decision of the Chief Commissioner under review is affirmed

Catchwords: REVENUE LAW – land tax – onus - primary production exemption – competing uses - dominant use – cultivation for the purpose of sale – rural land - s 10AA(3) Land Tax Management Act 1956
Legislation Cited: Administrative Decisions Review Act 1997
Land Tax Management Act 1956
Taxation Administration Act 1996
Cases Cited: Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250
Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183
Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184
Codlea Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 136
Delli-Carpini v Chief Commissioner of State Revenue [2015] NSWCATAD 12
Leda Manorstead v Chief Commissioner [2010] NSWSC 867
Reolon v Chief Commissioner of State Revenue [2013] NSWADT 96
Category: Principal judgment
Parties: Spedding Estates Pty Ltd ATF The Spedding Family Trust (Applicant)
Chief Commissioner of State Revenue (Respondent)
Representation:
Counsel:
A Gerard (Respondent)

JA Spedding, agent appearing by leave (Applicant)
Solicitors:
Crown Solicitor’s Office (Respondent)
Self-represented (Applicant)

File Number(s): 1510070

reasons for decision

Introduction

On 5 May 2014 the Respondent issued a Land Tax Assessment Notice (the Assessment) to the Applicant for the 2013 and 2014 land tax years (the Relevant Period) in respect of seven separate but contiguous lots of land at Carool in New South Wales (the Subject Land). The Applicant objected to the Assessment in respect of land tax on two of the lots, separately described as Lot 3 and Lot 4 and collectively described as the Property.
The Respondent disallowed the objection (the Disallowance Decision) and the Applicant applied to the Tribunal to review the Disallowance Decision (the Application).
The Applicant claims the Property was exempt from land tax under the primary production exemption pursuant to s 10AA of the Land Tax Management Act 1956 (the LTM Act).
The Respondent claims that in order for the s 10AA exemption to apply to the Property, the Applicant must prove that the dominant use of the Property throughout the Relevant Period, is for cultivation, for the purpose of selling the produce of the cultivation, and that the Applicant has failed to discharge its onus of proof.

Powers of Tribunal on review

Section 96 of the Taxation Administration Act 1996 (TA Act) provides that a taxpayer may apply to the Tribunal for an administrative review of a decision that has been the subject of an objection under certain circumstances including if the taxpayer is dissatisfied with the Respondent’s determination of the objection. The Tribunal may confirm or revoke a reviewable decision of an administrator or make a decision in place of the reviewable decision and make orders as to costs or otherwise as it thinks fit, s 101(1) of the TA Act.
In determining the Application, the Tribunal is to decide what the correct and preferable decision is having regard to the material then before it including any relevant factual material and any applicable written or unwritten law, s 63 Administrative Decisions Review Act 1997 (ADR Act).

The issue before the Tribunal

The Applicant sought a review of the Disallowance Decision. In Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 the Court of Appeal said at [28]:

… the right of review under s 97 is given by reference to the operative decision of the Chief Commissioner and not to a ruling made on an objection. Although the existence of an objection is a necessary precondition to the power of review by the Court, and it is the taxpayer’s dissatisfaction with the determination of the objection which provides standing to seek review, it is the initial decision which is the subject matter of the review.

There is no dispute that the Assessment (in respect of the Property) not the Disallowance Decision, is the subject of review by the Tribunal.
The Respondent stated at [2]:

The primary issue arising for determination by the Tribunal is whether …. [the Property] is exempt from land tax for the 2013 and 2014 land tax years in accordance with s.lOAA (1) of the [LTM Act], on the basis that it was "land used for primary production" within s.l0AA (3) of the [LTM Act]. In particular, the Applicant contends that the dominant use of the Subject Land is for "cultivation, for the purpose of selling the produce of cultivation" under s.l0AA(3)(a) …. The Chief Commissioner disputes that this is the dominant use of the Subject Land for either the 2013 or 2014 years

The Applicant did not dispute this description of the issue to be determined by the Tribunal.

Land tax law

The applicable substantive law is the LTM Act. References in this decision to legislative provisions are to provisions of the LTM Act unless stated to the contrary. Section 7 provides that land tax shall be levied and paid on all land in New South Wales other than land which the LTM Act exempts from taxation. Section 3 provides that a land tax year is the period of 12 months starting on 1 January for which land tax is levied and s 8 provides that land tax shall be charged on land owned at midnight on 31 December immediately preceding the year for which land tax is levied.
The exemption claimed by the Applicant is found in s 10AA which relevantly states:

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.
….
(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 ….

In summary, s 10AA provides that rural land that is used for primary production (as defined) is exempt from land tax. Except where indicated to the contrary, references in this decision to the phrase “land used for primary production” mean “land used for primary production pursuant to s 10AA(3)(a) or (b)”.

Material before the Tribunal

The Respondent relied on:

Documents filed with the Tribunal under s 58 of the ADR Act on 6 March 2015 (the s 58 documents);

An affidavit made by Rebecca Kiu on 20 October 2015 including annexures totalling 60 pages together with two volumes of exhibits comprising a further 433 pages of photographs;

An affidavit made by Oliver Berkman on 24 November 2015 annexed to which are 9 pages of maps;

An affidavit made by Haeran Chung on 26 November 2015 annexed to which are 10 pages of what are described as screen shots taken from a digital archive of the World Wide Web together with a disc containing what are described as two videos;

Report of 29 pages entitled Expert Witness Forestry Report made by Mr Nicholas Loane Cameron on 15 October 2015 (the Report);

Printout of home page from Summergrove Estate Website dated 4 February 2016;

Aerial map as at 17 May 2013 notated by John Anthony Spedding, a director of the Applicant who represented the Applicant during the hearing (Mr Spedding), marked Exhibit R7;

Bundle of unnumbered documents tabbed from 1 to 11 entitled Additional Documents filed 22 November 2016, marked Exhibit R8;

The Respondent‘s written submissions made 21 October 2015 (RS) and submissions entitled Oral Summary Outline received by the Tribunal 23 November 2016 (ROS); and

Oral submissions made by Mr Gerard during the hearing.

References to paragraph numbers of the Respondent’s submissions are to paragraphs of RS unless stated to the contrary.
The Applicant relied on:

Some of the documents filed by the Respondent;

The Application;

A bundle of 100 pages of documents comprising both submissions and evidence filed 9 June 2015 (AS);

A Response to Submissions dated 4 June 2015 (ASR) received by the Tribunal 2 February 2016 comprising both submissions and evidence, including signed but unsworn and unwitnessed statements by:

Donna Kaye Spedding made 28 January 2016 (Mrs Spedding) wife of Mr Spedding;

John William Ernest Spedding, father of Mr Spedding (Mr Spedding Snr) made 28 January 2016;

Barbara Ann Spedding, mother of Mr Spedding (Mrs Spedding Snr) made 28 January 2016;

Marcus Peter Grealy made 27 January 2016;

A 47 page document entitled Evidence In Relation of Non-Forestry Primary Production Issues Relevant to a Mixed Use Farm prepared by Mr Spedding on 25 August 2016 comprising submissions, opinions by Mr Spedding and evidence (Exhibit A7); and

Oral submissions made by Mr Spedding during the hearing.

References to pages of the Applicant’s submissions are to pages of AS unless stated to the contrary.

Onus of proof

The Respondent submitted at [38] and [39]:

…. an applicant must prove all matters necessary to enable a Tribunal to answer the statutory question(s) in its favour …
To that extent, the onus rests with the Applicant to demonstrate, by admissible and probative evidence, that Subject Land was used for "cultivation, for the purpose of selling the produce of cultivation" and, separately and in turn, that this was the dominant use of the Subject Land

The Applicant did not dispute that it bore the onus in this matter.
I confirm that the Applicant has the onus of proving its case in a review by the Tribunal, s 100(3) of the TA Act. The requisite standard of proof in such a review is the “balance of probabilities” Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25 at [31] and B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187.

Consideration

Agreed facts and parties’ concessions

The Property was purchased by the Applicant together with certain adjoining land, comprising five lots in a strata plan, on 30 November 2012. The Property and the adjoining land, together with another lot in the strata plan owned by an independent third party, collectively have the same postal address.
Lot 3 comprises 25.73 hectares (approximately 257,300 square metres) and Lot 4 comprises approximately 9,294 square metres.
The Applicant carries on business on the Subject Land under the name "Summergrove Estate”.
The Respondent conceded that, for the purpose of these proceedings, throughout the Relevant Period:

the Property is zoned “rural landscape” and is “rural land”; and

the Applicant cultivated the following crops and trees on the Property, on areas marked on the plan attached to a letter dated 21 April 2016 from the Respondent to Mr Spedding (the E-Plan) – olives, grapes, nuts, citrus fruits, mangoes, peach trees, guava trees, bush lemon trees, coffee and avocados, and maintained some chickens.

The Applicant conceded that it provided no evidence to the Tribunal as to the carrying capacity of any part of the Property to grow any relevant crops or trees or to keep chickens, either during the Relevant Period or at any other time.
The Applicant submitted that Summergrove Estate is a multi-facetted business with 3 main focuses, namely primary production, short term accommodation and a restaurant.
The evidence before the Tribunal showed, and the Applicant conceded, that notwithstanding the alleged “3 main focuses”, a substantial feature of the Applicant’s business on the Subject Land involved its use as a location for wedding ceremonies, receptions and associated purposes.

Requirements of the LTM Act in relation to use and dominant use of the Property

The Respondent outlined at [44] to [53] various court and tribunal decisions as to the requirements to be satisfied in order for the Applicant to establish that the Property was “land used for primary production” in accordance with s 10AA(3) and the meaning of “dominant use” of the Property.
In summary, the Respondent submitted:

44.   So far as s.lOAA(3) of the LT Management Act is concerned, for land to satisfy the definition of "land used for primary production", an applicant must establish, on the evidence before the Tribunal, that the dominant use of the land was for one of the activities set out in s.lOAA(3)(a)-(f) during the relevant period.
….
46. In Sonter v Commissioner of Land Tax (NSW) (1976) 7 ATR 30 ("Sonter"), a case involving land with mixed uses, Rath J held at p.35, "no refined consideration here is required of what is involved in the concept of 'use' of land; as I have said, the land is plainly used in a number of ways..." ….
47.   The concept of "use" is not limited to the actual physical use of the land, but rather extends to non-physical, indirect, and intangible uses ….
48.   In Sonter, …. Rath J said …
"... the land is plainly used in a number of ways and all the uses are substantial. The word 'primarily' as applied to the case, means that those uses are to be weighed and evaluated. There is no particular touchstone that can be used; all circumstances bearing on the degree, extent and intensity of the uses as land uses are to be considered. The question is one of fact and degree, and one to be approached on a broad, commonsense basis." (Emphasis added)

49. In Sonter, the court said:
"In this case therefore I am concerned with mixed uses, not only in the sense of distinct uses on the same land, such as horse and cattle breeding, but also in the sense of the maintenance of the same animals for different purposes, some of which are purposes of primary production and some are not. In these circumstances the financial gain from the various activities is some indication of the comparative intensity of the activities It is readily conceivable that where there are a number of uses of the same land it may be the least profitable use that is the most intense one, either in its demands on the land, or upon the labour to maintain it, or both. But where, as here, animals are being maintained on land for two business purposes, the problem as to whether the use of the land is primarily for the one purpose or the other will receive some clarification from the financial considerations involved. But I do not regard the financial considerations as necessarily decisive, at all events in this case. All the uses of the land must be considered. Here all the uses, even the maintenance of the foxhound pack and the breeding of foxhounds, are substantial. All of those uses that fall within the description of "the maintenance of animals ... for the purpose of selling them or their natural increase" must be together compared with the uses that do not fall within that description".

50. In Greenville Pty Ltd v Comr of Land Tax (NSW) (1977) 7 ATR 278, an area of 160 acres used as a golf course went out of use on 22 December and on 23 December, 11/2 acres were ploughed and sown with pumpkin seed. The owner contended that the land was used for primary production at midnight on 31 December. Helsham CJ said at 280 that the test to be applied was objective, and in applying it:
"... one must adopt a broad approach and a commonsense one. It would probably not be sufficient to look merely at the financial return from the cultivation; the fact that there was none would not of itself warrant a finding that the land was not used primarily for cultivation, nor would the existence of a more rewarding cottage industry carried on by the owner on the land at the same time. Likewise the quantity of produce of the cultivation taken from the land would not of itself be a determinant of its primary 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."

51. The meaning of "dominant", in the context of sec 10AA(3) can be taken to be settled by the decision of Gzell J in Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867 ("Leda Manorstead") at [69] to [76] where his Honour said:
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."...

74 In Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 the Land Appeal Court of Queensland, presided over by Ambrose J, had to consider whether, at the relevant date of valuation, the subject land was exclusively used ... for purposes of farming.
76 The Court, helpfully, gave its approach to the determination of dominant use of land (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 land is used for activities which are incidental to a common business or industry of a type specified in s 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."

52. The reasoning of Gzell J as to the meaning of "dominant" was expressly approved by the Court of Appeal in [2011] NSWCA 366 at [24] - [25] per Allsop P, Campbell JA at [47] and Whealy JA at [52]. …. at [24], Allsop P described the appropriate task as being an evaluative task which compares the different uses of the land, as follows:
"…. Upon evaluation of all the material [Gzell J] asked himself what the people who owned the land were actually using it for. Or, to put the matter another way, what was the purpose of what the owner was doing on the land so that the question as to what the land was being used for could be answered? "(Emphasis added)

53. What that survey of the cases reveals is that, what is the "dominant use" is a question of fact and degree and broad commonsense having regard to the enterprise conducted as a whole.

The Applicant did not dispute any aspect of the above submissions.
I accept the relevance of the Respondent’s submissions in this matter.

Relevance of intention in relation to the use of the Property

In Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183, Judicial Member Block said, in relation to the primary production land ("PPL") exemption:

29 The Applicants contend that intended use of land is a "use" for the

purposes of the [primary production land exemption]; the authorities do not support that contention. In this regard:
(a) In Parramatta City Council v Brickworks Ltd [1972] 128 CLR 1 at [18], the High Court (Gibbs J) held:
"I would agree that the word "use"... means a present use; it does not include a contemplated or intended use."

(b) In Greenville , the Court held at 280 that the "use" of land:
"Is an inquiry into actual land use, it is not to be tested by the intention of the owner."

(c) In Saville v Commissioner of Land Tax (NSW) (1980) 81 ATC 4,373, the Court held at 4,376-4,377 and 4,379:
"What is of direct concern for present purposes is the actual use to which the land was put [at the taxing date for the relevant years].
Basically, what is to be determined is the actual use of the land, and this of course may be quite different to from any intention that the owners may have as to its later or ultimate use, or indeed any wish.that the owners might have as to its use at that particular time."

(d) In St Pier v Chief Commissioner of State Revenue [2002] NSWADT 112, the Tribunal held at [36]:
"... the Applicant had undertaken all possible steps to commence the factual use of the land ... for primary production ...[but] had been frustrated by actions and circumstances beyond his control ... the Applicant clearly intended to use the land in a manner which may have had the effect of exempting the land as land used for primary production. The Applicant's intention was frustrated. As a matter of well established law the land was not used at the relevant dates for primary production."

(e) In Reysson Pty Limited v Chief Commissioner of State Revenue [2009] NSWADTAP 17 at [25] and Cornish Group Pty Limited v Chief Commissioner of State Revenue [2009] NSWADT 191 at [45], the. Appeal Panel and Tribunal held, respectively, that the holding of land for an intended future use was not a "use" of land for the purposes of the Act, but rather, the actual use of the land was decisive.
(f) The Applicants reliance on Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 is misplaced because the University's indirect use of the relevant land by leasing it out was an adjunct of the physical use of the land by the tenant.
30 It follows that …. in respect of [the subject land], use arises from physical activity on the land itself …. and intended use is not a use for the purposes of the Act.

The Caruana principle was followed in Codlea Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 136.
The relevance of actual use in contrast to intended use in the primary production exemption context was also considered in Reolon v Chief Commissioner of State Revenue [2013] NSWADT 96 where Professor G.D. Walker, Judicial Member, said at [80]:

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".

The Applicant provided no conflicting authority and I have no reason to disregard the authorities relied on in Caruana, Codlea and Reolon.

The Applicant’s case

The Applicant’s evidence and submissions are that during the Relevant Period:

(at page 4) most of the Property, including 90% of Lot 3 and 60% of Lot 4 was used for primary production including, cultivating for the purpose of sale, various crops / produce such as macadamia nut trees, lemon trees, lime trees, grapes, mango, coffee, avocado, peach trees, pine trees, prickly pear cactus fruit, mulberry trees, protea flower trees, grass, loblolly and bunya pine trees, tallowwood trees, teak trees and camphor laurel, and maintaining chickens for the purpose of selling their eggs; and

4% of Lot 3 was used for weddings (page 46 of Exhibit A7).

At page 44 in Exhibit A7 the Applicant said:

…. it is difficult to make a primary production business profitable enough for it to exist in its own right. One way of dealing with this is to introduce tourism and hospitality into the business model in order to increase the return on the produce by sourcing your own market and maximise the revenue potential of the property via other income streams. This is a very important development as it secures the land for agricultural purposes, provides sufficient income for investors and provides educational and community awareness experiences for members of the public.

The Applicant’s evidence and submissions in AS, ASR, Exhibit A7 and Mr Spedding’s oral evidence include that the following crops/trees were grown on the following areas of the Property and had the value set out in the table below:

Crops / Trees

Area used for cultivation

Value to the Applicant

Olives

5,825 m² on Lot 3

$9,000 in each of 2013 and 2014

Macadamia nut trees

12,136 m² on Lot 3

$320 in 2013 and $960 in 2014

Lemon and lime trees

4,941 m² on Lot 3

$1,200 in 2013 and $3,000 in 2014

Grapes

15,100 m² on Lot 3

Nil in 2013 and no material value in 2014

Mango

5,359 m² on Lot 3

$4,250 in 2013 and $1,275 in 2014

Coffee

8,543 m² on Lot 3 and 886 m² on Lot 4

$290 in 2013 and $580 in 2014

Avocado

1,800 m² on Lot 3 and 10 avocado trees on Lot 4

$540 in 2013 and $4,400 in 2014

Grass

various areas in Lot 3 totalling from 60,000 m² to 104,000 m²

Nil

The Applicant stated at pages 19 and 20 in Exhibit A7 that the aggregate value of prickly pear, guava, mulberry, flowers for restaurant (Protea, Grevillea, Laconia, Camellia and Ginger) and cherry tomatoes was $470 in the 2013 financial year and $2330 in 2014. These values were not based on sales by the Applicant, rather the “prices used … are based on estimates of buying them in.” The Applicant stated that the land area used for these crops “including the roads needed to access them is estimated to be approximately 20,000 m²”. The land area is 7.5% of Lot 3 and Lot 4 and the value of estimated income is less than 0.7% of income derived from the Subject Land in 2013 and less than 0.5% in 2014.
Even if the Applicant’s evidence in relation to prickly pear, guava, mulberry, flowers and cherry tomatoes is accepted, the income apparently derived from this produce (albeit not from sales) is minimal when compared to the total income derived from the Applicant’s business activities on the Property. Accordingly, this argument does not materially assist the Applicant in satisfying its onus as to the dominant use of the Property during the Relevant Period. Nor does the reference to usage of a global “20,000 m²” area assist the Applicant, when the Property is greater than 265,000 m², without evidence as to the area actually used for each crop and the carrying capacity of the Property for that crop on that area.
The Applicant stated (page 23 of Exhibit A7) that new crops were grown from December 2014 to August 2016. Submissions were made as to what might be the value to the Applicant of these crops at some future time. To the extent that this is not evidence as to the actual use of the Property during the Relevant Period, it does not assist the Applicant.
The Applicant submitted at pages 3 and following in AS:

Due to the area of land being used for primary production significantly outweighs the other uses and the fact that the restaurant is only open a maximum of 2 days a week, it is sought that a Primary Production exemption is warranted given the intensity of the primary production activity conducted on the land, the initial investment compared to the other activities and the focus on expanding the variety of crops grown and primary production activities undertaken ….
….
Details of the types of crops/produce grown on the property
The size of crops grown on the property are as follows:
Macadamia Nut Trees- 350
Lemon & Lime Trees - 200
Olive Trees - 200
Coffee - 200 currently producing, however, another 1,000 under regeneration
Mango - 30
Avocado - 20 (various varieties to provide avocados from late April to Late December)
Grapes - 5 Acres of grapes
Peach Trees -10
Guava Trees - 22
Prickly Pear Cactus Fruit - 50
Mulberry Trees- 6
Protea Flower Trees -10
Herb Garden - A small herb and vegetable garden is on Lot 4
The total area under cultivation is approximately 7ha + area being used to cultivate grass for future livestock equating to 6ha
….

The Applicant’s evidence is that the human resources used in respect of primary production on the Property are family members and occasional volunteers. Mr Spedding works full time on the Subject Land doing whatever is needed.
The Applicant relied on statements by four other persons. Those statements, which were not challenged by the Respondent, included the following.

Mrs Spedding’s evidence is that for the six-month period from 30 November 2012 until the opening of the restaurant (about May 2013) she spent approximately 30 hours a week assisting the primary production activities. Subsequently she works approximately 10 hours a week on primary production.

Mr Spedding Snr’s evidence as at January 2016 is that he assists Mr Spedding for about 20 hours a week on average on the maintenance and harvesting of crops.

Mrs Spedding Snr’s evidence is that since the Applicant purchased the Property she has been assisting for about 10 hours a week in many activities focused on maintenance and harvesting crops.

Mr Grealy’s statement is to the effect that he has been assisting Mr Spedding with coffee plantation activities since the Applicant purchased the Property. That assistance includes processing coffee cherries, investigating regenerating a north facing area which had previously been a coffee plantation and investigating other areas of the Property, arranging a property inspection to see if the land would support a commercial harvester, providing advice and selling his own coffee to the Applicant to ensure a constant supply of local coffee for the Applicant’s business

Mr Spedding’s oral evidence included that there are paid staff and contractors who work in the restaurant and for wedding functions. Such functions and use of the restaurant is no more than two days per week (plus preparation). During the Relevant Period, there were initially two contractors, a husband and wife who were involved in setting up the restaurant. Once the restaurant was established the Applicant employed a chef and a trainee as permanent employees and a casual chef who worked between 25 and 30 hours each week. When functions were held and when the restaurant was open the Applicant would engage between four and seven additional staff depending on the expected number of guests. There would be a couple of days’ preparation for functions. On the wedding day, staff would be engaged for between eight and 10 hours. On days the restaurant was open without a wedding, service staff would work for about six hours.
The Applicant did not provide details of staff engaged to clean and service the five villas used for rented accommodation on the adjoining land owned by the Applicant.
The Applicant’s accounts show that the financial resources used for plant, equipment and repairs for the family residence, the villas and the restaurant and function area exceeds the expenses which the Applicant stated were incurred on plant and equipment for cultivation and regeneration.
The comparative income of the Applicant for the 2013 and 2014 financial years in the annual returns (at page 33) listed income derived from the following activities, which on my calculations represented over 95% and 99% respectively of the gross income declared by the Applicant for those years.

Description of business activity

2013

2014

Sale of produce

$17,050

$27,976

Villa rentals

$4,481

$90,821

Villas – weddings

$2,023

$44,274

Weddings

$13,627

$278,400

Restaurant

$13,135

$68,129

Functions

$2,351

$10,990

Rental income

$11,600

$20,800

In relation to what was described in the Applicant’s accounts as “sale of produce” the Respondent submitted at [28(b)]:

…. in the 2013 financial year, the entire amount of "sale of produce" revenue represents an "internal transfer" of the produce from the farm to the restaurant, not a sale to a third party. Accordingly, it is unclear how this value has been determined.
In the 2014 financial year, $23,545 of the "sale of produce" revenue represents an "internal transfer" of the produce from the farm to the restaurant, not a sale to a third party and the remaining $4,431 represents individual items of
fruit/vegetable sold to third party customers of the restaurant.

The Applicant responded in ASR:

…. The internal transfer calculations were based on the costs of obtaining the same produce from our suppliers, should we source that produce from them ….

The Applicant then itemised what it described as the value of various crops and firewood items of produce to substantiate totals of $17,050 (in 2013) and $27,975 (in 2014).

The Applicant did not dispute that the only produce sold to customers in the Relevant Period occurred during the 2014 financial year and represented $4,431 of the $27,975 income derived from “Sale of produce transactions” that year.
The Applicant’s case as to the dominant use of the Property was set out in part at page 7 where it referred to Revenue Ruling LT022 from the Office of State Revenue to support the Applicant’s argument as to how the primary use of the Property is determined. The Applicant refers to the OSR statement that “Land used for primary production includes land use primarily for “cultivation thereof for the purpose of selling the produce from such cultivation””. That quotation is appropriately derived from wording of s 10AA(3)(a). However, the Applicant then describes how the Property is used for primary production in the context of the growth of crops and the degree, extent and intensity of the use without adequate focus on that part of s 10AA(3) and the quotation extracted from LT 022, which relates to the necessary purpose being the sale of the produce of the cultivation.
The Applicant’s discussion ends with “The restaurant is only open two nights a week, which demonstrates it’s not a primary activity of the land.” Having regard to my findings concerning the restaurant I reject the Applicant’s submission.
The Applicant’s evidence indicates that the main use to which the produce of cultivation on Lot 3 and Lot 4 is put is in accordance with the ‘paddock to plate’ philosophy enunciated by the Applicant. That philosophy is that produce is not produced for sale to third parties, it is produced to enhance the service provided by the restaurant.
To the extent that part of Lot 4 is occupied by a shed and used for storage of farm implements I find that such use is ancillary to cultivation carried out on the Property to provide produce for the restaurant, not for the purpose of sale required by s 10AA(3)(a).

Specific uses of the Property

I discuss below some of the Applicant’s evidence and submissions, and the Respondent’ response, in respect of certain activities on the Property and adjoining land during the Relevant Period.

Transfer of produce to the restaurant. Is there a sale by the Applicant to itself? Is there a sale of primary production product to third parties?

The Applicant conceded that the sale of whole of the produce from Lot 3 and Lot 4 for 2013 represented an internal transfer for use by the restaurant and the value was based on the cost of obtaining the same produce from the Applicant’s suppliers should the Applicant source that produce from them. The Applicant also conceded that the whole of the 2014 sale of produce was an internal transfer to the restaurant other than a sale of produce to 3rd party customers valued at $4,431.
In the summary at the end of Exhibit A7, the Applicant submitted:

…. The cultivation is for the purpose of selling the cultivation. This is an internal sale and improves our profitability …. Which is measurable, significant in relative terms and real. Additional tax is paid on improved income as a result of this activity. The suggestion that the transfer to the restaurant is not a true sale is extremely harsh, because if we were to sell the produce to a third party and then purchase it back at a higher price to satisfy the commissioners definition of a sale, then what (sic) would not really achieve anything for the business. The fact is that our menus are driven by the produce of the property and we are maximising the price received for the produce by selling it in this way and our overall profitability would be significantly reduced if we had to source this from a third party. …

The commerciality of the methods by which the Applicant conducts its business activities is not in dispute in these proceedings. The dispute relates to whether the Property is exempt from land tax during the Relevant Period in accordance with the statutory requirements of the LTM Act.
It may well be that the application of the LTM Act appears commercially harsh to the Applicant. Whether or not that perception is objectively correct is not a reason for the law not to apply.
The Respondent submitted that there was no sale of the “internally transferred” produce for the purposes of s 10AA(3)(a) as the “vendor” and “purchaser” of those notional sales are the same entity. The Respondent made submissions to this effect at [19] to [22] in ROS. In particular, the Respondent submitted:

21. An internal transfer ("journal entry") within the same legal person does not and could not constitute a "sale" according to ordinary concepts and the ordinary meaning of "sell", "selling" and "sale": see Victoria Gardens Developments Pty Ltd v Commissioner of State Revenue [1999] VSC 10 at [46] - [52].
22. The essence of a sale is "a transfer of property from one person to another for money or money's worth": Victoria Gardens at [50].

The Respondent expressly dealt at [65] to [73] with the Applicant’s submissions that a sale of meals at the restaurant was a sale of produce. The Respondent relied on the decision of the late Judicial Member Block in Caruana.
The Respondent’s submissions at [66] to [73] included:

66.   The Applicant's case involves a contention that it harvested some of the crops grown on the Subject Land during the 2013 and 2014 years and used …. an unidentified amount [of the produce] in meals prepared by the restaurant. The Applicant inferentially contends that the use of the produce …. as a constituent element in the meals and drinks made at the Applicant's restaurant …. constitutes using the Subject Land for "primary production" on the basis that sale of the meal or drink constitutes sale of "the produce" of the crops …. for the purposes of s.l0AA(3)(a).
67.   The Chief Commissioner contends that contention should be rejected.
68.   In Caruana …. Judicial Member Block considered the meaning of "primary" production in the context of the LT Management Act. [he] stated the following at [37]:
[Referring to the Macquarie Online Dictionary]...The ordinary meaning of "primary" is, relevantly, "of or relating to the production of naturally occurring foods as meat, grains, fish, etc., or of naturally occurring things as wool, cotton, etc" and "production" is, relevantly, "the act of producing; creation". The meaning of "produce" is, relevantly, "to bring into existence; give rise to " and "create " is "to bring into being; cause to exist; produce ".

….
[39] Accordingly the ordinary meaning of "primary production " is the act of bringing into existence live animals (and live plants) or products comprising or derived from live animals (or live plants); "primary production" is to be contrasted with "secondary production", which means "of or relating to the processing of primary products", with "processing" meaning, relevantly, "to convert (an agricultural commodity) into marketable form by some special process ".

[40] The ordinary meaning of "primary production" accords with the prescribed types of "primary production " activities under the Act...
[44] Primary production ends and secondary production …. begins when another process transforms a live plant or animal into a derivative product. For example, the processing of an orange to make orange juice …. is "secondary production " ….
[45] Thus, "primary production " involves the bringing into existence of a new product (i.e. the first step) comprising or derived from a plant or animal while it is alive and "secondary production" involves the processing of that primary product into further new products (i.e. the second step). Thus, secondary production...involves altering, not keeping in existence or continuance, the relevant thing.

71. In the present case, the Respondent submits that the meals on the menu at the restaurant (which may well contain portions of produce from the Subject Property) are prime examples of the sale of a "derivative product" which has been produced at the restaurant as a result of "secondary production" or "subsequent conversion of the produce" by the kitchen staff. This is not the sale of primary production as envisaged bys.lOAA(3)(a).
72. The harvesting of the produce for sale of that item of produce may well be primary production. However, the processes undertaken by the kitchen staff at the restaurant have converted "the produce" harvested into a different form, and it is that altered version of the produce which has been incorporated into a meal. It is then the meal which is being sold to the customer. The produce may constitute a constituent element of the meal but it has been altered from its natural state and it is but a mere component of a derivative product sold.

The Applicant’s submissions in ASR were stated to be in response to the Respondent submissions in RS. ASR relevantly submitted (using the Respondent’s paragraph numbering):

65.   I'm not sure how removing the middle profit making layers removes the satisfaction that there's a sale of the produce to the restaurant. Third parties sales are now occurring, but maximising return via restaurant sales and use is the main focus. The fact that third party sales have been occurring since the time excessive produce was harvested demonstrates that there has always been an intent to sell the produce.
66.   The amounts of the produce transferred to the restaurant has now been provided. The more detailed analysis of the calculation of the transfer value has been provided also, which should confirm that primary production is being performed on the land.
71.   The valuation of the produce transferred to the restaurant is based on the primary production element of that produce and the cost to purchase that produce directly from the market. Any further changes to that product in producing a meal isn't relevant as to whether or not primary production is being undertaken on the land. Once the primary produce is transferred to the restaurant, the primary production element has ceased. The menu used in the restaurant are driven by the produce of the crops on the property.
72.   I have never argued that the meals produced in the restaurant were part of the primary production process.
73.   The cultivation of the crops grown and harvested on the property and used in the restaurant must satisfy the "purpose of selling the produce" As stated previously, excess produce is now being sold to third parties, however, I can maximise the value of the crop by utilising it in the restaurant. Surely the effort of maximising the value of the harvested crops proves that there's intent to sell the produce.

I find that the Applicant’s analysis of an “internal sale” is flawed in that it disregards the fact (conceded by the Applicant) that the primary purpose of the cultivation is to create produce for the restaurant on Lot 3, rather than for the direct sale of that produce to third parties.
There is no doubt from a legal perspective that management accounts by which the use for restaurant purposes of produce cultivated on the Property may be described as “sale of produce”, do not mean that a legal sale of the produce has taken place.
I also find that the Applicant is confusing the ordinary meaning of ‘primary production’ which involves the act “of bringing into existence” live plants or products, as referred to in Caruana at [39] with the statutory definition in s 10AA(3) which in my opinion, and having regard to Caruana, includes a purpose of sale of the plants or products without the occurrence of further production processes. Those further processes are described in [39] as converting “(an agricultural commodity) into marketable form by some special process”.
In Delli-Carpini v Chief Commissioner of State Revenue [2015] NSWCATAD 12, a dispute as to whether certain land was entitled to a primary production land tax exemption, I referred to excerpts from Caruana including [44] and [45] extracted at [63] above and said:

39 Section 10AA requires that the relevant dominant use of land is the maintenance of animals for the sale of their bodily produce, not the use of land for the subsequent conversion of that produce for the purpose of sale.(emphasis added)

I am not satisfied that the analogous conversion of primary produce into meals (consumed by third parties), some of the constituents of which have been cultivated on the Property, is a sale of primary produce for the purpose of s 10AA(3).

Growing grass as fodder on Lot 3

Mr Spedding said that the area marked 4.14 on the E-Plan is an area in Lot 3 used for growing grass intended to be fodder for livestock on the Property. Under a prior owner, the area comprised part of an18 hole golf course.
At page 3 the Applicant submitted:

We have been growing the grass areas of the old golf course (Lot 3) to prepare it for livestock. In previous correspondence I hadn't included this as we hadn't purchased the livestock, but on reflection the growing of the grass in preparation for livestock is a primary production activity and as such this significantly increases the area of land used for primary production on Lot 3.

In Exhibit A7 at pages 24 and 25 the Applicant’s submissions include:

Since purchasing the property we have been growing the grass on areas of the old golf course for the addition of cattle. The addition of cattle has been delayed due to the significant increases in prices seen since we purchased the property and financial concern that we may see a significant loss should we buy at the height of the market. Neighbouring cattle farmers have asked for an adjustment (sic) for their cattle, but we had held off as we have wanted to add our own and ensure enough feed is available on the land for our own cattle.
….
There are two main options we have been considering, namely breeding cattle or fattening cattle. Our initial investment is likely to be via the fattening route before progressing into the breeding cattle route after a few years.
….

Mr Spedding conceded in oral evidence in February 2016 that no cattle have been on the property since the Applicant purchased it other than neighbours’ cattle which accessed the Property without the Applicant’s consent. He said that it has been the Applicant’s intention to grow grass on that section of the Property since the Applicant purchased the Property in 2012. Mr Spedding submitted that growing grass on the property was a primary production activity because of the intention of the Applicant to maintain and breed cattle on the property in the future.
The Respondent submitted in ROS:

[the Applicant] was not cultivating the grass on the disused golf course for a purpose within s.lOAA(3)(a), that is, "for the purpose of selling the produce [the grass] of the cultivation" but rather for the non-qualifying purpose of "for future cattle grazing upon that grass": …. That use neither falls within s.lOAA(3)(a) or (3)(b). In relation to s.lOAA(3)(b) there were no cows on the land at any time during the relevant period and, as such, no cows were "maintained" on the land

There is a material difference between actual use of land on the one hand and the preparation of land for future use on the other hand. This issue was considered in Codlea by Senior Member Frost who said:

Were there uses of the land other than the beekeeping use?
35   There is no doubt that some activities were physically carried out on the land during the relevant period. Mr Fraser confirmed, for example, that surveyors had been present on the land from time to time – to survey the land, no doubt – and that representatives of a company named Waste Solutions had been on site to carry out water sampling and to examine the direction of water flows. Australian Wetlands Consulting Pty Ltd replaced Waste Solutions at some stage and carried out on-site groundwater investigations.
36   Consulting engineers also attended the property: CB303 is an invoice to Codlea from CivilTech Consulting Engineers which includes a charge for “site inspection re groundwater comments”.
37   Codlea has spent money on “slashing services”, on environmental assessments, and on town planning and traffic reports. All of these expenditures have been treated as “development costs” in its financial records. Some of the things that the suppliers have provided to Codlea (such as the slashing services) will have required the supplier to attend the property to carry out the activity. Sometimes the work could be done off-site, either with or without the supplier actually spending time on the land.
38   But all of these things are activities, undertaken either on the land or elsewhere. The fact that activities have been undertaken, either with respect to the land or even on the land, does not mean that the land has been used by Codlea, whether for a narrow purpose such as the preparation of an environmental report or, as the respondent contends, for the broader purpose of residential subdivision and development. And it is the use, or uses, of the land, not activities as such, that have to be identified so that the dominant use enquiry can be undertaken.
39   There is no doubt that Codlea’s desired outcome with respect to the land is that it will eventually be able to subdivide and develop it. It has wanted to do that from the very beginning. But the reality is that during the relevant period all it has been able to do is carry out some modest works directed towards that desired outcome. To characterise those works as amounting to a use of the land is, in my view, to overstate the position.

It may well be that it has been the Applicant’s intention for some time, including throughout the Relevant Period, that in the future it would maintain cattle on Lot 3 for the purpose of selling them or their natural increase or bodily produce in compliance with s 10AA (3) (b). It may also be that during the Relevant Period the Applicant grew grass on some part of Lot 3.
The Applicant’s evidence as to the relevant area has varied from 6 ha to 10.4 ha. The Applicant stated at page 26 in Exhibit A7 that the area is 8.65 ha (86,500 m²). If that statement is correct, the area is approximately 33.6% of Lot 3.
It is also the Applicant’s evidence as late as August 2016, the date of Exhibit A7, that no cattle have been maintained on Lot 3 and the relevant area was fallow.
Having regard to the Applicant’s own evidence, I find that during the Relevant Period growing grass on Lot 3 to use as fodder some years into the future for cattle which, more than 2 ½ years after 31 December 2014 have not been maintained on the Property, was not cultivation, for the purpose of selling the produce of the cultivation, nor was the land used for the maintenance of animals for any purpose.

Egg/chicken farm

The Applicant states in AS “three chicken coups reside on [Lot 4] stocking chickens and guinea fouls, all used for natural fertilisation and pest management.”
At pages 29 – 31 in Exhibit A7 the Applicant states there was during the Relevant Period a small egg farm / chicken farm on Lot 4. The Applicant states:

…. We have had approximately 25 chickens and 1 rooster since March 2013. The chickens are let out during the day to free range mainly around the area of Lot 4 below and through the coffee crop. They produce around 18 eggs a day on average and also assist in fertilising the coffee and avocado trees. They produce approximately 10 dozen eggs a week or 520 dozen a year. Free range farm eggs go for $5 + per dozen …. Most of the eggs are used in the restaurant, however, around 1 dozen of these is sold to the public each week on average (for $5 per dozen). …. Even though the majority of these eggs were utilised in the restaurant, we still needed to buy in an additional 10 dozen eggs for the restaurant each week. …. We also purchase in mixed grain, high protein … which is also said to the chickens daily ….
The Small Egg Farm produced 300 dozen eggs in 2013 and 450 dozen eggs in 2014. This information was not included in previous evidence or the transferred figures to the restaurant as an oversight.

In his final submissions, Mr Spedding said the chickens were initially provided by his father to start a chicken farm eggs produced by the chickens were for personal use until May 2013. Some eggs were sold to his parents, no eggs were sold to anyone else.
I am not satisfied that the evidence before the Tribunal shows that maintaining chickens on Lot 4 was a material use of Lot 4 for the purpose of s 10AA (3) (b) in either relevant tax year.

Forestry

The Applicant’s objection to the Assessment included the submission that primary production on the Property includes “elements of forestry activities”.
In AS the Applicant stated the primary use of Lot 3 was for primary production activities including “pine tree plantation and hardwood”. In Lot 4 the use included “a small pine tree plantation …[and] 10 large Bunya pines“.
In ASR and in Mr Spedding’s oral evidence the Applicant provided further information concerning timber grown on the Property. The Applicant conceded that what it had described as radiata pines were actually loblolly pines, the “private native hardwood rainforest” included both tallowwood and teak trees” and some hardwood trees grew on the Property in areas other than the private forest. Other timber on the Property included camphor laurel and bunya pines.
The Applicant’s only evidence of the sale of timber during the Relevant Period is that in December 2013 the Applicant had an open day for the public, some stalls were set up which provided lemons, limes, macadamia nuts, olives and avocados for sale and provided approximately 30 pine trees which had been cut for sale as Christmas trees.
The Applicant’s only evidence of any other use of timber on the Property during the Relevant Period is that some timber was used as firewood. Mr Spedding said two camphor laurel trees were harvested producing approximately 1.5 tonnes of timber in 2013 and 3 tonnes in 2014. This was used in the villas and restaurant, and the camphor laurel was being cultivated for firewood during the Relevant Period.
Mr Spedding said that his understanding of pine tree husbandry practices had been informed by his research on Google. He acknowledged that he was not a forestry expert.
The Applicant intended to commercially harvest pine trees in 10-12 years’ time utilising the larger stems. Mr Cameron’s opinion, expressed at page 22 of the Report, was that this activity was “not a recognised or accepted pine silvicultural practice”.
The Applicant’s intention was that a mobile saw could be used and logs could be towed out and transported to a mill. In Mr Cameron’s opinion, this activity would not be commercially viable even if it was physically viable. “Where a sale can be secured the cost of access, marketing, harvest and haulage is likely to offset much if not all of the value of the delivered product”. (Page 22 of the Report)
Mr Spedding said the Applicant had carried out some timber pruning and intended “natural pruning” to take place, especially where trees were growing close to each other. Mr Spedding said a colony of black cockatoos would germinate the pine tree seed so that trees would germinate naturally.
Mr Cameron agreed with Mr Spedding that his Report did not include all of the trees growing on the Property. He also agreed that a photograph shown to him during the hearing was evidence of pruning, although in his professional opinion the pruning had not been carried out at the appropriate location on the tree in order to produce a log free of knots.
Mr Cameron agreed with Mr Spedding that although camphor laurel trees were classified as a noxious weed, they could also be used as timber for several products including coffins. In Mr Cameron’s opinion, the camphor laurel trees did not have a commercial value as the trees would be difficult to get out and the trees were not of a scale that was commercially viable. In Mr Cameron’s opinion, the trees were also not subject to appropriate forestry cultivation and overall, he could not reconcile the Applicant’s passive approach to management of trees with accepted forestry practice.
Mr Cameron agreed that husbandry of trees takes a long time and there are periods between tending to the trees.
Mr Cameron and Mr Spedding disagreed as to the extent to which the Applicant was carrying out appropriate weed control. Mr Spedding acknowledged that some lantana had been removed in the private forest but there was still a lot there and the amount of time he was able to devote to the work was limited. Tending to the forest was on the Applicant’s list of work to be carried out.
I accept that it may well be the Applicant’s intention at all relevant times to cultivate trees for the purpose of sale. I have had regard to the evidence before me as to forestry husbandry practices of the Applicant, and Mr Cameron’s expert opinion. I have also had regard to the evidence as to the lack of priority given to controlled cultivation of trees and allowing them to grow wild, the lack of available time and resources to carry out as much work on the private forest and tree husbandry as Mr Spedding would have wished, and that the only use made of any trees during the Relevant Period was as firewood and, on one occasion, cutting 30 trees for sale as Christmas trees.
I have considered the Applicant’s evidence and submissions before me as to proposed timber sales and harvesting timber in comparison to Mr Cameron’s expert evidence as to the likely quality of any product and the costs and practical problems with harvesting and selling.
I find that the use of either Lot 3 or Lot 4 during the Relevant Period for the cultivation of trees does not assist the Applicant to satisfy me that the dominant purpose of the cultivation accords with s 10AA(3)(a).

Weddings

The use of Lot 3 as a site for wedding ceremonies and receptions is included in the Applicant’s written evidence as well as oral evidence by Mr Spedding and videos in evidence. The financial records show that the income derived from wedding and associated activities was the second largest income generator in 2013 and by far the largest income generator in 2014, the first full financial year in which the Applicant operated on the Property.
Mr Spedding oral evidence was that approximately one dozen wedding ceremonies took place in 2013 and approximately 40 in 2014.
The transcript of Mr Spedding’s oral evidence includes:

…. when we purchased the property …. our intention was to fix the crops and get the restaurant up and running, as we've discussed. Weddings were something we identified as an opportunity because we were getting contacted by people asking if they could have their wedding there, because the prior owner had done weddings a couple of years earlier - quite a few weddings as well. So for some reason his marketing was still out there and we were getting inquiries. So at that point, probably around the time we opened the restaurant, we started to market the property and spend more money on advertising the property for weddings, and the wedding business has grown since that point. …. we do limit it to two weddings a week maximum.

….
…. When we first opened our wedding packages …. we didn't need the wedding guests to book the villas. That probably lasted for the first 12 months, …. However, ….probably after about 12 months we were seeing more demand, so we changed the packages to include all of the villas
….
Q. Is one basic feature of, I presume, all wedding packages, the use of the
restaurant building?
A. Unless it's a ceremony only. Some weddings might just be a ceremony. In
that 12 I think there was one or two that were just a ceremony. They came up
to the property for an hour and a half, got married and left.
Q. There's, I think we've identified, an area of land on lot 3 that is generally
used as the ceremony area?
A. Correct.
Q. Presumably that's part of the wedding package that's purchased?
A. It is, yes.
Q. What about catering, is that part of a wedding package that is not just a
ceremony?
A. Yes, where they have their reception with us, it includes food, catering, and
drinks.
Q. What else is a general feature of the wedding experience that
Summergrove Estate sells?
A. It's use of the restaurant, it could be sitting on the grass area beside the
restaurant for their reception, and it's the ability to take photos.
Q. On various parts of the land?
A. Yeah, we don't restrict the photographers on where they can go generally,
but we do only allow the bride and groom to go down what was the old golf
course side for photos, as opposed to the bridal party as such, or other guests.
Q. In relation to the restaurant, depending on if a wedding party has booked a
wedding that week, does the restaurant open generally two nights a week?
A. It will be - well, it really depends on whether we've got any bookings, ….
Q. Would those videos depict wedding parties, and not just the bride and
groom, wedding parties taking photographs on various parts of lot 3?
A. They may have taken some at different areas. A lot of it is around the villas,
maybe, you know, they will be standing on the access roads, taking photos
near the grapes, near the shed, areas such as that.
Q. Areas that also aren't inside that 1 hectare of land that you've identified as
the-
A. That's right. That's correct. I think on one of the videos we allowed them to
have the ceremony down near the villas, but that was the only time we ever did that.
….

Mr Spedding then marked on Exhibit R7, the location on Lot 3 where a video in evidence indicated a wedding ceremony took place. The area marked by Mr Spedding comprised cleared and mowed lawn with small hedges in front of a large tree described by Mr Spedding as “weeping fig”. This area is situated in the lower section of Lot 3 about halfway down the easternmost border. It is perhaps 80% of the distance from the location where Mr Spedding said wedding ceremonies took place to the farthermost location on the Property. It seems to me to be an area specifically prepared for functions and group photographs and has nothing to do with primary production.
Mr Spedding was asked if the area was commonly used by wedding parties for photographs. He answered:

Yes, it's used - we have it there for access as well, to get down to the dam
and up into different parts of the area but we also allow our bridal party to take
photos at that tree but it's normally just the bride and groom down. When we
first started doing weddings we were letting the bridal party go down, but we
changed it ….
….
Q. You wouldn't disagree with the proposition, though, that part of your
marketing for the wedding side of the business is the ability to enjoy the
benefits of the 73 acre hilltop estate that's referred to in the home page?
A. Yes, and mostly it's used for viewing. Few of our guests actually go down to
that part of the property, very few, and in the case of weddings, which is what
we have most in terms of the restaurant building activity going on, it's the bride
and groom, no one else goes down there. Other than the photographer, of
course, to take the photos.
Q. Is that restriction part of the marketing that you've just mentioned?
A. It's part of what we tell the bride and groom, yes, we don't allow anyone else
to go down there.
Q. Is it correct that all of your wedding tours, or packages, include a visit to the
various crops on the property?
A. Yes, we normally do that on the way to show them a villa. If you look at,
say, the e-plan - and I'll explain that as best I can - our wedding tours start at
the restaurant and they walk down that road that goes along the side of the
southern part of lot 4 and often they will show them the coffee, if it's in season
or on the trees at that time, and they will walk them down the road, along to the
villas on the eastern side of the property, the three villas, normally just to the
first villa you come to, which is known as villa 3. They will show them the villa
and on the way back they will point out the olive trees, the lemon and lime
trees, the avocado trees, the coffee trees, on the way back up to the restaurant.
It's usually quite a - you know, paddock to plate is something we believe strongly in, obviously, so, your Honour, usually that's quite interesting for the
couples.
Q. Can I suggest this to you in terms of the marketing, to be completely fair
and accurate, do you market the weddings in a way on your website that says
that your estate includes an infinity of priceless photo opportunities?
A. They are the words we use, yes.
Q. In terms of the villas, you market the villas for rental?
A. We do, yes.
Q. In the main associated with the weddings, is it?
A. It has become less and less an effort for us to market them in their own
right, but we do have them listed on things like Google AdWords to pick up
people looking for accommodation, et cetera, and on the website and
Facebook.
Q. One of the parts of the marketing that's undertaken for the villas is the ability
to experience the benefits of the 73 acre estate; is that right?
A. Well, to experience the quietness of what is Summergrove Estate.
Q. The use of the tennis court?
A. That's correct, and the pool.
Q. The pool?
A. Yes.
Q, You describe that on your website as the resort pool?
A. Yes, and they can have a picnic if they choose.
Q. There's a marketing that involves taking a golf buggy throughout the estate
to have a picnic?
A. That's right.
Q. They can purchase, if they wish, picnic hampers; is that correct?
A. Yes, that's correct.
Q. They're prepared by the restaurant staff, I take it?
A. Yes.
Q. Would you agree with the proposition that lot 3 has a role in your marketing
of the villas then?
A. Well, only in terms of we have five villas on the property and they're not fenced off and they are on Summergrove Estate and that the guests, when
they're at Summergrove Estate, can see the property and can walk on certain
areas of the property. The reality is most people are looking for a relaxing
weekend away, because we're a retreat, and they surprisingly don't use much
of those facilities.
Q. You're not with your guests at all times, I take it?
A. I'm on the property at all times and you get a pretty good idea.

Mr Spedding also said:

…. We focus the marketing of the accommodation and restaurant mainly on the wedding market, as the majority of wedding couple like the idea of being able to stay onsite and if all the 5 villas are booked then they have exclusive use of these aspects of the property to themselves i.e. no other guests will be staying and we offer to close the restaurant to the public, resulting in exclusive use.

I find that the area of Lot 3 used in relation to wedding functions extends substantially beyond the 1 ha area initially stated to be used and beyond the bounds of the 4 ha area later conceded by the Applicant to be used for these purposes. It seems to me that the use of much of Lot 3 whether as a general background for the ceremony or reception, or for photograph opportunities, picnics, recreation such as use of tennis court and swimming pool, and enhancement of the wedding function experience by the consumption of locally grown produce in the restaurant plays a substantial role in the Applicant’s business on the Property. To that extent, I find that primary production activities on the Property are ancillary to and supportive of the wedding and associated activities.

Relevant Period and Financial Records

Land tax is levied on the owner of land at midnight on 31 December immediately preceding the year for which land tax is levied, s 8. The Relevant Period for this matter comprises the 2013 and 2014 land tax years which commenced 1 January 2013 and ended 31 December 2014.
In Leda Manorstead Gzell J said at 4:

…. inquiry is not limited to the use to which land is put on the relevant date. It extends to a consideration of its use during a reasonable period preceding and following the relevant date (Longford Investments Pty Ltd v Commissioner of Land Tax (NSW) (1978) 8 ATR 656 at 660-661). In my view, six months before and after the relevant date is a reasonable period for inquiry in this case. It allows for consideration of financial records pertaining to the uses to which the land was put.

The Applicant placed certain of its financial records in evidence. AS included from pages 13 to 51 what were described as the Applicant’s 2013 and 2014 Annual Reports. These reports each contained pages described as Compilation Report and Trustees Declaration followed by Profit & Loss, Balance Sheet and Notes to the Financial Statements. Pages 54 to 100 of AS comprised the Applicant’s 2013 and 2014 income tax returns (ITRs).
In both ITRs the main business activity of the Applicant was described as:

Private hotel operation - short-term accommodation

This description was referred to by the Respondent at [29]. In response, the Applicant stated at [29] in ASR:

Our accountant set up the ABN and selected the main business activity when the company was established without our input. In any case, all the short-term accommodation relates to the villas on the property, which we are not contending.

There is no evidence that the Applicant’s accountant was not acting as the agent of the Applicant in his/her preparation of the ITRs nor that the Applicant has made any effort to correct any miss-description or other errors in the ITRs in evidence. I observe that income derived from villa rentals comprises less than 7 % of the Applicant’s total income in the 2013 financial year and less than 17% of the income for 2014. Income from weddings is more than three times the villa rental for each year. Having regard to the banking background of both Mr and Mrs Spedding I find that the Applicant’s statement at [29] in ASR is highly implausible.
The ITRs disclosed total business income for 2013 of $67,185 comprising primary production business income of $17,050 and non-primary production business income of $50,135. The relevant figures for 2014 were total business income $546,686 comprising primary production business income of $27,976 and non-primary production business income of $518,710.
A partial breakdown of the income figures appears on page 9 of AS. This discloses in respect of 2013 total income of approximately $59,500 of which “primary production” accounts for $17,050 and other income comprises accommodation rental $13,400, weddings $13,600 and restaurant $15,500. The 2014 figures show accommodation $22,600, weddings $278,000, restaurant $79,000 and “primary production” $28,000.
The Applicant did not provide a reconciliation of the difference between the income figures in AS and the amounts disclosed in the Applicant’s income tax returns.
I have previously found that what the Applicant described as “primary production income” in 2013 and all but $4,431 of the 2014 “primary production income” comprised amounts prepared for management purposes and did not represent income from the sale of primary production produce.
I observe that the ITRs disclose that no expenses were incurred in either 2013 or 2014 in respect of the Applicant’s primary production business. However, the non-primary production business is said to have incurred expenses of $440,196 in 2013 and $561,640 in 2014.
This apparent lack of expenses incurred in respect of the primary production business of the Applicant during the tax years was noted in RS. The Applicant responded in ASR by stating “All expenses had been grouped together in the financial statements for simplicity reasons.” I find this evidence somewhat implausible having regard to Mr Spedding’s evidence that he and his wife, who were the only two directors of Spedding Estates Pty Ltd, had substantial experience in the banking industry.
The second page of AS includes on the second page under a subheading “Owners Background” statements that in his early years Mr Spedding had a reasonable exposure to primary production and on completion of his studies he “entered the banking industry and spend a number of years working overseas with my wife, who also had a farming background …. for all of her schooling years before also entering the banking industry.” Mr and Mrs Spedding were at all relevant times the two directors of the Applicant’s corporate trustee.
Having regard to the banking background of both directors of the corporate trustee, I find it implausible that they would allow income tax returns of the Applicant to aggregate non-primary production expenses and primary production expenses as non-primary production expenses, contrary to the requirements of the ATO income tax return forms, “for simplicity reasons”.
The Applicant attached to ASR a copy of what appeared to be Ground Maintenance Transactions ledgers of the Applicant for the 2013 and 2014 financial years. Those documents contain a handwritten note “circled indicates primary production” and circles around debit entries of the majority of the transactions recorded in the ledgers. There is a handwritten note at the foot of each of the ledgers stating for 2013 “Primary Production total = $10,849.84” approximately 85% [of total ledger expenses incurred during that year] and a similar notation for 2014 in the sum of $8661.57 which is apparently approximately 73% of the expenses incurred in that year.
The primary production business worksheet forming part of the 2013 ITR shows opening stock, nil; purchases $7000; closing stock $7000 and the cost of sales is nil.
The primary production business worksheet forming part of the 2014 ITR shows no opening stock, no purchases, no closing stock and no cost of sales.
No explanation or reconciliation was provided to the Tribunal in respect of the contents of the primary production business worksheets.
The non-primary production business worksheet forming part of the 2013 ITR shows opening stock is nil, purchases $30,347 closing stock $7500 and cost of sales $22,847.
The non-primary production business worksheet forming part of the 2014 ITR shows opening stock $14,500, purchases $143,514 closing stock $20,000 and cost of sales $138,014.
No explanation of the apparent discrepancy between the 30 June 2013 closing stock in respect of the non-primary production business and the 1 July 2013 opening stock was brought to the attention of the Tribunal.
Having regard to a range of discrepancies noted above, I am not satisfied that the Tribunal can place any substantial reliance on the figures contained in either the Applicant’s Annual Reports or the ITRs in evidence.
There is no evidence before the Tribunal that during the Relevant Period the Applicant carried on business other than at the Property and on the adjoining land at Carool owned by the Applicant.
I find that the description provided to the Australian Taxation Office of the main business activity of the Applicant and the figures referred to above do not assist the Applicant to satisfy me that the dominant use of the Property was for cultivation for the purpose of selling the produce of the cultivation.
The Applicant’s evidence includes descriptions of various methods by which the whole of the primary produce in 2013 and most of that produce in 2014 was altered into what I would regard as a secondary product which was then sold in the form of meals as part of a service in the restaurant. I am not satisfied that the sale of restaurant meals, whether or not as part of a supply of a wedding reception service, in respect of which natural produce has been transformed into a meal, is the sale of the produce of cultivation on the land as envisioned by s 10AA(3).

Fallow

Mr Spedding’s oral evidence included that land which is fallow was included as land used for primary production.
The Macquarie Dictionary, revised third edition, includes in the definition of “fallow”:

1 ploughed and left unseeded for a season or more; uncultivated. 2 land that has lain unseeded for a season or more after ploughing and harrowing. 3 the method of allowing land to lie for a free season or more untilled in order to increase its productivity. 4 to make (land) fallow for agricultural purposes.

In Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 Judicial Member Frost said at [27] and [28]:

27 …. whether land is being used for primary production within the meaning of the definition must be decided by an objective test - the inquiry is an inquiry into actual land use; it is not to be tested by the intention of the owner (cf Southern Estates Pty Ltd v FC of T (1967) 117 CLR 481; 10 AITR 525). And in applying that test one must adopt a broad approach and a commonsense one. For example, it would not be sufficient merely to look at the area actually under cultivation at the relevant time, if cultivation were being relied upon as the use, so as to ascertain whether for example more than half of the whole of the land was under cultivation - because of course, the part not under cultivation might be unusable or lying fallow, although in the latter instance fallow land might be regarded as passive use of land similar to the kind that was held to be a use in Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493; [1957] ALR 277, and akin to the kind of use to which Lord Denning referred when giving examples in his judgment on the appeal from that decision, reported in 100 CLR 1; [1959] 1 All ER 734. It would probably not be sufficient to look merely at the financial return from the cultivation; the fact that there was none would not of itself warrant a finding that the land was not used primarily for cultivation, nor would the existence of a more rewarding cottage industry carried on by the owner on the land at the same time. Likewise the quantity of produce of the cultivation taken from the land would not of itself be a determinant of its primary 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. (emphasis added)
28 The Chief Judge's reference to "actual land use" is plainly meant to be by way of contrast with intended land use. And the later reference to the need to point to an activity "being conducted on the land that will give the land the character of being mainly used for that activity" is a natural consequence of the reality that land cannot be characterised as being mainly used for primary production purposes unless the actual, physical primary production activities conducted upon the land predominate over all other uses. But that is a long way from saying that non-physical uses of the land, if any, are to be disregarded. Indeed, his Honour actually referred to the possibility that "passive use of land" may need to be considered in the exercise of weighing up what is the dominant use of a particular parcel of land.

Decision and orders

I have had regard to the Applicant’s evidence as to the actual use of the Property, the expressed intentions as to future use, the statements that substantial parts of the Property are deliberately lying fallow in contrast to Mr Spedding’s statements that the Applicant intended that husbandry work be carried out but this did not take place because of a lack of time and resources, the statements as to the area used for growth and intended use of grass, the Applicant’s focus during the Relevant Period to prioritise putting resources into preparing the restaurant, villas, family residence and areas to be used for wedding ceremonies, receptions and sites for wedding group photographs ahead of the cultivation of plants, vegetables and other produce, the marketing of the Subject Land, including the Property, for weddings and associated activities, and the substantial use of produce from the Property for restaurant purposes rather than the sale to third parties of that produce in accordance with the applicant’s “paddock to the plate” principle.

Having regard to the above findings on the material before me, the Applicant has not satisfied me that the dominant use of the Property was not to support the Applicant’s business activities involving wedding ceremonies, receptions and associated purposes, the restaurant and short term rental of villas.
I am satisfied that there are competing uses of both Lot 3 and Lot 4 in each tax year. I am also satisfied that the dominant, although not exclusive, use of the produce cultivated on the Property was for the purpose of its inclusion in meals provided in or near the restaurant after the produce had been prepared for those meals.
Accordingly, I am not satisfied on the balance of probability that the dominant use of the Property for the Relevant Period was for primary production in accordance with s10AA(3) of the LTM Act.
The correct and preferable decision of the Tribunal is that the decision of the Chief Commissioner under review is affirmed.

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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: 13 April 2017

Medium Neutral Citation:	Spedding Estates Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 117
Hearing dates:	4 and 5 February and 22 and 23 November 2016
Date of orders:	13 April 2017
Decision date:	13 April 2017
Jurisdiction:	Administrative and Equal Opportunity Division
Before:	N S Isenberg, Senior Member
Decision:	The decision of the Chief Commissioner under review is affirmed
Catchwords:	REVENUE LAW – land tax – onus - primary production exemption – competing uses - dominant use – cultivation for the purpose of sale – rural land - s 10AA(3) Land Tax Management Act 1956
Legislation Cited:	Administrative Decisions Review Act 1997 Land Tax Management Act 1956 Taxation Administration Act 1996
Cases Cited:	Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183 Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184 Codlea Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 136 Delli-Carpini v Chief Commissioner of State Revenue [2015] NSWCATAD 12 Leda Manorstead v Chief Commissioner [2010] NSWSC 867 Reolon v Chief Commissioner of State Revenue [2013] NSWADT 96
Category:	Principal judgment
Parties:	Spedding Estates Pty Ltd ATF The Spedding Family Trust (Applicant) Chief Commissioner of State Revenue (Respondent)
Representation:	Counsel: A Gerard (Respondent) JA Spedding, agent appearing by leave (Applicant) Solicitors: Crown Solicitor’s Office (Respondent) Self-represented (Applicant)
File Number(s):	1510070

Crops / Trees	Area used for cultivation	Value to the Applicant
Olives	5,825 m² on Lot 3	$9,000 in each of 2013 and 2014
Macadamia nut trees	12,136 m² on Lot 3	$320 in 2013 and $960 in 2014
Lemon and lime trees	4,941 m² on Lot 3	$1,200 in 2013 and $3,000 in 2014
Grapes	15,100 m² on Lot 3	Nil in 2013 and no material value in 2014
Mango	5,359 m² on Lot 3	$4,250 in 2013 and $1,275 in 2014
Coffee	8,543 m² on Lot 3 and 886 m² on Lot 4	$290 in 2013 and $580 in 2014
Avocado	1,800 m² on Lot 3 and 10 avocado trees on Lot 4	$540 in 2013 and $4,400 in 2014
Grass	various areas in Lot 3 totalling from 60,000 m² to 104,000 m²	Nil

Description of business activity	2013	2014
Sale of produce	$17,050	$27,976
Villa rentals	$4,481	$90,821
Villas – weddings	$2,023	$44,274
Weddings	$13,627	$278,400
Restaurant	$13,135	$68,129
Functions	$2,351	$10,990
Rental income	$11,600	$20,800