Varitimos v The Commissioner of State Revenue
[2024] QCAT 71
•7 February 2024
QUEENSLAND CIVIL AND
ADMINISTRATIVE TRIBUNAL
CITATION:
Varitimos v The Commissioner of State Revenue [2024] QCAT 71
PARTIES:
ANASTASIS VARITIMOS (applicant)
v
THE COMMISSIONER OF STATE REVENUE (respondent)
APPLICATION NO/S:
GAR251-20
MATTER TYPE:
General administrative review matters
DELIVERED ON:
7 February 2024
HEARING DATE:
21 November 2022, 22 November 2022, and 22 February 2023
HEARD AT:
Brisbane
DECISION OF:
Member Holzberger
ORDERS:
1. The application is dismissed.
CATCHWORDS:
ADMINISTRATIVE LAW – ADMINISTRATIVE TRIBUNALS – QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL – revenue and taxation whether exempt land – meaning of carrying on business – forestry activities – scale of activity
Land Tax Act 2010 (Qld) – s2A(d), s6, s9, s53,
Land Tax Regulation 2010 (Qld) – s2A
Queensland Civil and Administrative Tribunal Act 2009 (Qld) - s20(1), s24, s28(3)
Taxation Administration Act 2001 (Qld) – s71Uniform Civil Procedure Rules 1999 (Qld) - Rule 428(2)(b)
Hancock v East Coast Timber Products Pty Ltd (2011) 80 NSWLR43
R v War Pensioners Entitlement Tribunal Ex Parte Bott (1933) 50 CLR 228
Spriggs v FCT (2009) 239 CLR 1
Commissioner of Taxation v Stone (2005) 222 CLR 289
Puzey v Commissioner of Taxation (2003) 131 FCR 244
Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310
Thomas v Federal Commissioner of Taxation (1972) 3 ATR 165APPEARANCES &
REPRESENTATION:Applicant:
J Anderson of Counsel, instructed by Clinton Mohr Lawyers
Respondent:
E Hoiberg of Counsel
REASONS FOR DECISION
Anastasis Varitimos has, since 9 June 2002, owned a 57-hectare property at 87 Barclay Street, Blackstone (‘the property’).
From the date of purchase, he has claimed and received a primary production exemption from land tax.
On the 23rd of February 2018, the Commissioner of State Revenue (‘OSR’) sought to review his eligibility for the primary production exemption and requested from him evidence supporting the conduct of the primary production business on the land.
On the 21st of January 2020, OSR issued reassessments in respect of the property for the 2015-16 to 2019-20 financial years on the basis that OSR did not accept that the property was being used for a primary production business.
The reassessments totalled $655,701.40 with a further $132,687.40 in unpaid tax interest. The latter amount is not in dispute.
On 7 February 2020, Mr. Varitimos lodged an objection to the assessment, but the objection was disallowed by the Commissioner on 12 May 2020. Mr. Varitimos applied to the Tribunal for a review of that decision on 10 July 2020.
The issue for the Tribunal to determine is whether during the relevant time the property was used solely for the business of agriculture or primary production, so as to entitle him to the land tax exemption.
The Legislation
The Land Tax Act 2010 (Qld) (‘LTA’) imposes land tax for each financial year on all “taxable land” in Queensland.[1]
[1]LTA, s 6.
“Taxable land” does not include “Exempt land".[2]
[2]Ibid, s 9.
The exemption for primary production is contained in Section 53 of the LTA. That section was amended with effect from the 30th of June 2018.
For the financial years 2015-16, 2016-17, and 2017-18, Section 53(1) of the LTA provides:
(a)This section applies to land or a part of land that is used solely for the business of agriculture, pasturage or dairy farming.
For the financial years 2018-19 and 2019-20 Section 53(1) of the LTA provides:
(a)This section applies to land or a part of land that is used solely for the business of primary production, but only if the land or part of land is used for an activity prescribed by regulation that is carried on for the business.
Section 2A of the Land Tax Regulation 2010 (Qld) (‘LTR’) relevantly provides:
(a)For section 53(1) of the Act the following activities are relevantly prescribed - … (d) planting or tending trees in a plantation or forest for the purpose of selling the trees or produce from the trees…
It is not contended by either party that the difference in wording may result in differing outcomes in respect of any of the years.
Tribunal’s Review
The purpose of the Tribunal’s review of the decision is to produce the correct and preferable decision.[3] The Tribunal may confirm or amend the decision, set aside the decision and substitute its own, or set aside the decision and return the matter to the decision maker for reconsideration.[4]
[3]Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 20(1) (‘QCAT Act’).
[4]Ibid, s 24.
The Taxation Administration Act 2001 (Qld) (‘TAA’) provides:
(a)the grounds on which the application for review is made are unless the Tribunal otherwise orders limited to the grounds of the objection;[5]
(b)the Tribunal hears and decides the review by way of reconsideration of the evidence before OSR unless the Tribunal considers it necessary in the interest of justice to allow new evidence; and
(c)the Tribunal decides the review on the same law that applied at the making of the original decision.[6]
[5]TAA, s 71(1).
[6]Ibid, s 71(3).
Objections to Evidence
Mr. Varitimos relies on a report of David Menzies, an expert engaged by him, dated 9 April 2021. OSR engaged Mr. Ian Robb, who provided a statement dated 5 July 2021.
Pursuant to the Tribunal’s direction, Mr. Menzies and Mr. Robb prepared a joint experts report dated the 5th of October 2021 which detailed substantial areas of agreement.
Mr. Varitimos filed a further statement dated 8 December 2021, the primary purpose of which was to comment on Mr. Robb's evidence and the evidence contained in the joint experts’ report.
OSR filed in the Tribunal on 31 January 2022 a further statement of Mr. Robb in response to Mr. Varitimos’ further statement.
Mr. Anderson, counsel for Mr. Varitimos, objected in writing to Mr. Robb’s further statement. In his opening written and oral submissions, he expanded on his objection to that statement,[7] as well as objecting to Mr. Robb's statement,[8] Mr. Menzies’ statement,[9] and the joint experts’ report,[10] which he says are infected by the inadmissibility or lack of relevance of the earlier statements.
[7]Applicant’s written submissions, paragraph 84 and 85; Paragraph 85 contains 30 specific objections.
[8]Ibid, paragraph 57-73.
[9]Ibid, paragraph 75-81.
[10]Ibid, paragraph 82.
At the Hearing I granted OSR leave to file and rely on Mr. Robb's further statement.
Unlike a court of record, the Tribunal is not bound by the rules of evidence other than to the extent it adopts them. The Tribunal may inform itself in any way it considers appropriate.[11]
[11]QCAT Act, s 28(3)(b)-(c).
This does not mean a Tribunal can simply ignore the rules of evidence. Both parties have referred me to R v War Pensioners Entitlement Tribunal Ex Parte Bott (1933) 50 CLR 228 at 256.
It is my view that in the Tribunal the acceptability of expert evidence generally is a question of weight rather than admissibility.[12]
[12]Hancock v East Coast Timber Products Pty Ltd (2011) 80 NSWLR43 at 83.
That is particularly so in this case, given the nature and circumstances of Mr. Anderson's objections.
Mr. Robb's further statement was filed in the Tribunal some nine months before the hearing.
The joint experts’ report was filed more than a year before the hearing.
Mr. Varitimos’ further statement at least evidences his disagreement with the contents of the joint experts’ report and the experts’ earlier statements in their individual reports.
He did not however indicate his objection to parts of the expert evidence until immediately prior to the commencement of the hearing. Neither did he seek to address with other evidence the significant gaps left as a result of the evidence he now seeks to remove.
Mr. Anderson's objections are noted and will be considered when assessing the weight given to the evidence under objection.
I cannot see that Mr. Varitimos is disadvantaged by this approach. He has not been surprised by Mr. Robb's further statement. It is so far as I can see a response to Mr. Varitimos’ further statement criticising his report and the joint experts’ report rather than a revision of Mr. Robb's evidence.
If, in so doing, he has supplemented his earlier evidence, there has been more than sufficient time to obtain Mr. Menzies’ comments on the further report and to define any objection or disagreement he may have with its contents. Both Mr. Robb and Mr. Menzies were available for cross examination.
Mr. Varitimos has objected to sections of the evidence of both experts in respect of the current and future value of forest products on the property. They have not, he claims, demonstrated specialised knowledge by training, study or experience, and in the case of Mr. Robb, have relied on the unqualified opinions of others; and both have failed to disclose the facts supporting their calculations.
Similar objections are raised to Mr. Robb's opinion as to defects in the gum topped box trees on the property. In his report, Mr. Menzies, at paragraph 21, describes infield estimates of forest products as “an inexact science”.
It seems that that description may be apt to describe forest management in general. It seems unreasonable to require experts in the field to identify which aspect of their training or experience supports each statement of fact or opinion.
I agree with Ms Hoiberg's submission that Rule 428(2)(b) of the Uniform Civil Procedure Rules 1999 (Qld) does not require them to do so.[13]
[13]Respondent’s written submissions, paragraph 24(a).
Carrying on a Business
“Business” is not defined in either LTA or LTR. In determining its meaning the Tribunal is assisted by caselaw and public rulings issued by the OSR.
Public rulings LTA053.1.1[14] and LTA053.2.1[15] apply to the 2015-16, 2016-17, and 2017-18 financial years. LTA053.1.2[16] applies to the 2018-19 and 2019-20 financial years. None of the rulings are binding on the Tribunal.
[14]Section 21 documents, pages 283 to 285.
[15]Ibid, pages 280 to 282.
[16]Ibid, pages 272 to 279.
LTA053.2.1 acknowledges that a forestry operation can be an agricultural business involving the tending of trees intended ultimately for sale.
Tending trees includes but is not confined to the following activities:
(a)clearing of non-commercial species and diseased trees;
(b)seeding of commercial species,
(c)slashing undergrowth and control burning
(d)thinning of trees;
(e)spraying; and
(f)construction of fire and haulage roads.
After the 30th of June 2018 the term “primary production” replaces “agriculture”. As noted earlier, Section 2A(d) of the LTA includes “planting and tending trees in a plantation or forest for the purpose of selling trees or produce from the trees.”
Public ruling LTA053.1.2 provides that the use of the land must be an actual use rather than a potential future or contemplated use. There must be some recurring physical activity, although it is acknowledged that deliberate and appropriate inactivity may be considered a use of the land.
There is a significant and well settled volume of caselaw relating to the term “carrying on a business” and the meaning of “business”.
In Spriggs v FCT (2009) 239 CLR 1 at [59] (‘Spriggs’) the High Court stated:
The existence of a business is a matter of fact and degree. It will depend on a number of indicia, which must be considered in combination and as a whole. No one factor is necessarily determinative. Relevant factors include, but are not limited to, the existence of a profit making purpose, the scale of activities, the commercial character of the transaction, and whether the activities are systematic and organised, often described as whether the activities are carried out in a businesslike manner.
The four matters referred to in Spriggs are neither exhaustive nor are they a checklist. The absence of one or more of them will not necessarily be fatal to the claim that the business is being carried on.
The absence of a profit motive,[17] lengthy periods of inactivity,[18] or unprofitability do not themselves necessarily prevent characterisation of activities as a business, although they are clearly relevant considerations.
[17]Commissioner of Taxation v Stone (2005) 222 CLR 289
[18]Puzey v Commissioner of Taxation (2003) 131 FCR 244; Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310; Thomas v Federal Commissioner of Taxation (1972) 3 ATR 165.
The business can be carried on lazily and in defiance of expert advice and conventional wisdom. Carrying on business badly may still be carrying on business.
It is also clear from the case law[19] acknowledged by the OSR in Public Ruling LTA053.2.1 that the bar for the level of activity required to carry on a forestry business in particular is relatively low. It is the OSR's contention that Mr. Varitimos has failed to reach that low bar.
[19]Commissioner of Taxation v Stone (2005) 222 CLR 289; Thomas v Federal Commissioner of Taxation (1972) 3 ATR 165.
Profit-making Purpose
It is submitted on behalf of OSR that Mr. Varitimos has failed to establish a profit-making purpose.
Mr. Varitimos says he purchased the property in 2002 for the purposes of resting cattle[20] but that purpose changed to a forestry business in or around 2004 and that use has continued to date.[21]
[20]Statement of Anastasis Varitimos dated 12 January 2021 (First Varitimos Statement) [4].
[21]Ibid, [22]-[27].
During that time no trees have been harvested for sale.[22] No income, let alone profit, has been derived. Expenses associated with the property during the relevant assessment years were around $55,000 per annum.[23]
[22]Ibid, [15].
[23]Ibid, exhibit AV-66.
Mr. Varitimos paid $395,000 for the property.[24] It is zoned residential, low density.[25] For land tax purposes the property is valued for the 2019-20 land tax year at $6,900,000.[26] The adjoining properties are residential.
[24]Ibid, exhibit AV-17 HB3 page 1198.
[25]Ibid, exhibit AV-18 HB4 page 1206.
[26]Section 21 documents HB6 page 1193.
Mr. Varitimos, however, estimates the value of the property at “half a million”, it having “no potential” for residential subdivision and development as a result of “extensive mining”.[27] His position is based on conversations he has had with miners and an engineer. I have difficulty accepting that he could dismiss a significant commercial opportunity so easily on such little evidence.
[27]Transcript 1-78 lines 32-34.
He has received a number of expressions of interest from developers but has not pursued any of them. He has acquired a number of properties but has never sold one.[28]
[28]Transcript 1-25 lines 6-8.
Even if the property is ultimately sold as a residential subdivision that does not prevent Mr. Varitimos operating a forestry business from it in the meantime.
There is considerable difference of opinion as to the value of the timber on the property once harvested.
In the joint expert report Mr. Robb estimated a value of $32,613 if harvested at the time of the report in 2021. Mr. Menzies estimated $40,190. A harvest in 2031 would yield $76,606 according to Mr. Robb and $74,861 according to Mr. Menzies.
Neither expert is critical of the other’s estimate or the methodology used to calculate it.
Mr. Varitimos estimated the value at $1,000,000 in his first statement, and $708,750 in his second. His methodology is unclear. It appears his estimates are based on his experience as a builder working with timber and his knowledge of timber prices.
He rejects the estimates of Mr. Robb and Mr. Menzies and the estimate of $40,190 if harvested in 2020 and $74,861.00 if harvested in 2030 given by Private Forestry Service Queensland Inc in 2020,[29] and the various sawmillers he has spoken to since 2004.[30]
[29]First Varitimos Statement exhibit AV-19 HB4 page 1212.
[30]Transcript 1-61 line 21.
I prefer the evidence of value of. Mr. Robb and Mr. Menzies to Mr. Varitimos’ estimates.
Both have considerably more experience and expertise in forestry management, in particular estimating the value of timber on the property. In calculating that value, making inquiries of sawmillers would appear to be appropriate.
The estimates are very similar as they are consistent with the estimate of Private Forestry Service Queensland Inc.
Despite the difference in the estimates, it is common ground that the timber on the property is commercially valuable, and while it seems, given my rejection of Mr. Varitimos’ estimates, that the harvest of the timber is unlikely to make the venture profitable, it will at the very least offset some, albeit a small portion, of Mr. Varitimos’ losses. The absence of a realistic profit motive does, however, mean that Mr. Varitimos will need to identify other factors to establish that he is indeed carrying on a business.
Mr. Varitimos said in cross-examination he would persist “until I get a profit.”[31] There is no evidence other than his own which suggests that a profit is achievable and there appears in any event to be no plan to achieve it. While I am of the view that it is unlikely that he will succeed in ultimately making it pay, that of itself does not mean that his forestry activities cannot properly be a business.[32]
Scale of Activities
[31]Transcript 1-77 lines 34 and 35.
[32]Commissioner of Taxation v Stone (2005) 222 CLR 289; Ibid at paragraph 55.
Sale of Forestry Products
As noted earlier, no trees have been harvested for sale by Mr. Varitimos. The joint expert report indicates that there has been no whole of property selective harvesting since at least 1993.[33]
[33]Hearing Book, Volume 5, page 1906.
Mr. Varitimos’ evidence is that he will not harvest until the trees are “ready for harvest”[34] and he does not know when that will be. Presumably the trees will be ready for harvest when the market meets Mr. Varitimos’ expectation of value of them if that ever occurs.
[34]Transcript 1-7737-40.
He says that the date of readiness for harvest has been delayed by a number of fires and extended periods of drought and irregular rainfall.[35]
[35]First Varitimos Statement paragraph 4.
Compliance with Code
The Department of Natural Resources, Mines and Energy (‘DNRME’) has produced code titled “Managing a Native Forest Practice: A Self Accessible Vegetation Clearing Code (‘code’).[36]
[36]Hearing Book, Volume 6, pages 2184-2220.
Among other things, the code requires that the DNRME must be notified before commencing a native forest business. It is uncontroversial that Mr. Varitimos did not so notify until 1st of May 2018.
Both Mr. and Mrs. Varitimos explained that failure to notify was a result of a number of conversations they had with DNRME in which it was indicated that they did not need to notify until harvesting (or thinning in the case of Mrs. Varitimos), was to occur.
Neither Mr. or Mrs. Varitimos had made notes of those conversations and could not recall the date on which they took place. Mr. Varitimos in cross-examination agreed that while “roughly”[37] aware of the code he did not think he had read it before 2018.[38]
[37]Transcript 1-50, line 23.
[38]Transcript 1-50, line 48-49.
Business Records
Mr. Varitimos’ business records appear to be limited to those required to complete his taxation returns, GST claims, and claims for exemption from land tax.
He has consistently filed one tax return for both his forestry and cattle farming activities. There is no reference in the returns to a forestry business save the deductions claimed for it.
He retains no records of his conversations with sawmillers and the prices he has obtained.
He maintains none of the records recommended in the joint experts’ report.[39]
[39]Joint experts’ report paragraph 76; Hearing Book Volume 5, page 1928.
He drew up a business plan and carried out a forestry inventory only after OSR requested them during its investigation into the primary production exemption claims.
Advice and Research
Mr. Varitimos claims no prior experience or expertise in forestry management save for his experience with timber as a builder.
His research prior to commencing appears to be limited to oral inquiries with a local sawmiller and unspecified people in the timber industry about timber prices.[40]
[40]First Varitimos Statement [22]-[27][65].
He obtained a forest inventory in March 2020 and drew up a business plan only in response to OSR's investigation and appears to have used them only for the purposes of that investigation. There is no evidence that they have otherwise been applied to the conduct of a forestry business.
He has rejected as too low every price for timber he has received and every estimate of value he has obtained because he disagrees with them, not because he has received inconsistent data.
He obtained an expert’s opinion in relation to his operation only for the purposes of these proceedings. He has given no evidence of implementing any of the matters raised in Mr. Menzies’ report or the joint experts’ report.
Forest Management
Mr. Varitimos attends the property regularly. He, or a contractor he engages, undertakes works including weeding, spraying and removal and clearing of undergrowth, removal of dead or dangerous trees, mowing, and slashing to maintain fire breaks near neighbouring homes, power lines, and the highway.
He has acquired equipment which he regularly uses on the property including a backhoe, a harvester, and a woodchipper. He has also acquired a gradient dozer and two dozers which he intends to use in the future for the construction of access roads before harvest. Some of the equipment is used at other properties owned by Mr. Varitimos.
He undertakes backburning every two to three years.
Mr. Menzies and Mr. Robb agree that these activities are required to meet general land management obligations.[41] Mr. Varitimos conceded as much.[42]
[41]Joint expert report paragraphs 104 & 105 Hearing Book, Volume 5, page 1935.
[42]Transcript 1-39, lines 9-30.
The fact that these activities are confined to the perimeter of the property suggests that they are carried out as a bush fire mitigation strategy rather than a forest management strategy.
Mr. Menzies and Mr. Robb agree that there is no evidence of selective harvesting being carried out on the property.[43] Selective harvesting is the removal of useless trees to grow useful commercial trees. Mr. Varitimos has only removed trees around the perimeter that were dangerous or necessary to maintain firebreaks.
[43]Joint expert report paragraph 84; Hearing Book, Volume 5, page 1931.
Mr. Menzies estimates that approximately 40% of the trees on the property are useless or of little or no commercial value.[44] Mr. Robb estimates more than 50% are useless.[45]
[44]Mr. Menzies’ report, page 3, Hearing Book Volume 4, page 1530.
[45]Joint experts’ report, paragraph 14-15.
While Mr. Varitimos disputes this there is no evidence that his disagreement is a result of conflicting expert opinion, or any other research undertaken by him.
In re-examination, Mr. Menzies said, in relation to state forests the current practice was not to intensely manage them[46] and specifically to not “do any selective STEM control or thinning, chopper rolling, chemical stem injection.”[47]
[46]Transcript 2-32 lines 45-49.
[47]Transcript is 2-33 lines 1-5.
Conclusion
Mr. Varitimos’ expectation of eventually turning a profit is unsupported by any evidence other than his opinion. If harvested, the trees will provide income according to Mr. Robb and Mrs. Menzies, roughly equivalent to one year's outgoings.
Despite his lack of expertise and experience, there is no evidence that he did any research into forestry management and only formulated a forestry plan and business plan after the OSR's investigation commenced and the commencement of these proceedings.
Record keeping and administration appears to be the minimum necessary to claim deductions in his tax return and to maintain his land tax exemption.
Maintenance of the perimeter of the property is consistent with compliance with these general land obligations rather than forestry management. There is no evidence that he has undertaken any activity at all on the balance of the land.
Mr. Varitimos does not have to manage the property as Mr. Menzies or Mr. Robb would. He can manage it badly if he wishes, but he does have to manage it.
While I accept the level of activity may be low in the forestry business, there still must be some activity. Apart from basic record keeping, compliance with his general land ownership obligations and occasional informal enquiries about timber prices, there is no evidence of any activity throughout the period of his ownership in the relevant years, and in fact, his ownership of the property.
In those circumstances, I find that Mister Varitimos is not carrying on a forestry business. His application is dismissed.
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