Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Dwayne Taylor FT Pty Limited as trustee for Dwayne Taylor Family Trust and DA and P Taylor v Chief Commissioner of State Revenue [2024] NSWCATAD 80 Hearing dates: 18 - 19 September 2023, 25 October 2023 Date of orders: 22 March 2024 Decision date: 22 March 2024 Jurisdiction: Administrative and Equal Opportunity Division Before: R J Perrignon, Senior Member Decision: The Land Tax Assessment notices issued on 30 November 2020 and 27 January 2021 in respect of the subject land are revoked. Catchwords: Administrative Law – land tax – whether primary production exemption applied – whether land was used for the maintenance of horses for the purpose of selling them, their natural increase or bodily produce Legislation Cited: Administrative Decisions Review Act 1997 Land Tax Management Act 1956 Taxation Administration Act 1996 Cases Cited: Chief Commissioner of State Revenue v Godolphin Australia Pty Ltd [2023] NSWCA 44 Ferella v Chief Commissioner of State Revenue [2023] NSWCATAP 50 Leda Manorstead v, Chief Commissioner of State Revenue [2011] 85 ATR 775 Thomason v Chief Executive, Department of Lands (1994-95) 5 QLCR 286 Taxation Administration Act 1996 Texts Cited: Nil Category: Principal judgment Parties: Dwayne Taylor FT Pty Limited as trustee for Dwayne Taylor Family Trust (First Applicant) DA Taylor (Second Applicant) P Taylor (Third Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: C Peadon (Applicants) O Berkmann (Respondent) Solicitors: Piper Alderman (Applicants) Crown Solicitor (Respondent) File Number(s): 2023/00054705 Publication restriction: Nil REASONS FOR DECISION 1. The applicants own a parcel of rural land (the Land) in New South Wales. On 30 November 2020, the Chief Commissioner issued a Land Tax Assessment notice, assessing the Land to land tax for the 2020 land tax year. On 27 January 2021, he did the same in respect of the 2021 land tax year. 2. The applicants objected, on the basis that section 10AA(3)(b) of the Land Tax Management Act 1956 exempted the Land from land tax, because it was used for the dominant purpose of maintaining horses for the purpose of selling them or their natural increase or bodily produce. The objections have been disallowed. 3. The applicants apply to the Tribunal for review of the relevant decisions. Section 96(1) of the Taxation Administration Act 1996 empowers the Tribunal to conduct an administrative review under the Administrative Decisions Review Act 1997. The Tribunal's task on review is to 'decide what the correct and preferable decision is having regard to the material then before it': section 63(1), Administrative Decisions Review Act 1997. 4. The applicants say that the dominant use of the Land was to maintain horses for the purpose of selling them, their natural increase or bodily produce (the 'horse sale purpose'), because most of the Land was used for that purpose, most of the outlay went towards it, and most of the farm equipment was used in pursuit of it. 5. The Chief Commissioner disputes that the horses were maintained for that purpose. If the Tribunal finds that they were, he says it would not be satisfied that it was the dominant use for purpose, because: 1. the extent and intensity of that use was not as great as the applicants submit, and 2. there were other, competing uses of the Land – namely: 1. rental of part of the house on the Land to the following tenants, as admitted on behalf of the applicants by their solicitors by email dated 5 May 2023: 1. Mr and Mrs McDonald from 23 September 2019 to 23 December 2020 at the rate of $1,390 per fortnight, which the Chief Commissioner says amounted to about $26,000 in respect of the 2020 land tax year, and $12,500 in respect of the 2021 land tax year ('rental use'), and 2. three others, including a lady who assisted Mrs Taylor to care for the horses, from 5 December 2019 to 30 June 2021 at the rate of $400 per week, 1. sale of horse-related items, 2. fees for agisting the horses of others on the Land, 3. selling horses owned by agisters at auction, and 4. maintenance of horses for the purposes of: 1. the equestrian disciplines of dressage, eventing (cross country work) and show jumping (all of which I shall refer to as the 'dressage use'), or 2. training them in those equestrian disciplines (the 'training use'). 1. The Chief Commissioner says the horse sale use, if any, was ancillary to the dressage use and the training use. So also, he says, was the construction of three structures on the Land – a covered horse arena, stables, and an equipment shed, together with associated earthworks and stormwater development. He relies on a series of aerial photographs of the Land, which appear to show: 1. significant works being conducted from at least 27 September 2019, by which date the dressage arena was covered with a roof, 2. completion of the dressage arena just north of the centre of the property by 2 November 2019, and 3. completion of the stables (adjacent to the south) and equipment shed (in the southeast corner) by 25 January 2021. 1. On the evidence, he says, the cost of those three developments was as follows in respect of each land tax year, taking into account the period of six months either side of the relevant taxing date: 1. 2020 land tax year: $363,683.09. 2. 2020 land tax year: $686,923.55. 1. In summary, he submits at [58] of his submissions, adopting the approach taken by the Queensland Land Appeals Court in Thomason v Chief Executive, Department of Lands (1994-95) 5 QLCR 286 at 3030: "… when taking into account the nature and intensity of the competing uses, the physical areas over which they are conducted, the time, labour and the resources spent for each purpose, a person viewing the Land as an objective observer would rightly reach the view that the dominant use of the Land was not for the maintenance of (dressage) horses for the purposes of sale but rather than the dominant use was in respect of the Dressage Use which included the development" 1. He also says that Sand Dancing's accounts disclose income of $165,233 during the 2020 income tax year, and $122,037 during the 2021 income tax year, which far exceeded the amounts earned from the sale of the only two horses sold with respect to the 2020 and 2021 financial years, which were respectively: 1. Negro Foal on 30 May 2020 for $4,150, and 2. Di Masterpiece Boy on 1 October 2020 for $10,000. 1. In the absence of evidence from the applicants as to the source of the balance, he invites the Tribunal to infer that it was derived from agistment fees, auction services provided to owners of agisted horses, and from the sale of horse-related items, none of which attracts the exemption. 2. The applicants admit that part of their home on the Land was rented out to the McDonalds and three other persons, but they say that this involved a relatively small portion of the Land and was subordinate to the dominant use. The sale of horse related items, they say, was minor, ancillary or subservient to the dominant use for purpose. 3. The parties agree that, if I am satisfied that at all relevant times the 'dominant use' of the Land was 'the maintenance of [horses] for the purpose of selling them or their natural increase or bodily produce', the Land was exempt, and the assessment notices should be set aside. Otherwise, they should be confirmed. The applicants bear the onus of proving their case: section 100(3), Taxation Administration Act 1996. 4. The issues for determination are as follows n respect of the 2020 and 2021 tax years. 1. Whether and, if so, to what extent the Land was used to maintain horses for the purpose of the horse sale use. 2. Whether the maintenance of horses for the dressage use and the training use were distinct uses for purpose from the horse sale use and, if so, their nature and extent. 3. The nature and extent of other competing uses of the Land – namely, the rental use, the alleged agistment use, the alleged auction use, and the sale of horse related items. 4. Having regard to all uses for purpose to which the Land was put, whether the dominant one was 'the maintenance of [horses] for the purpose of selling them or their natural increase or bodily produce'. 1. At all material times, section 10AA(3)(b) of the Land Tax Management Act 1956 exempted rural land from land tax, if it was used for the dominant purpose of maintaining animals for the purpose of selling them or their natural increase or bodily produce. It is not in dispute that the Land was rural land. There was an additional requirement for non-rural land – namely that the use have 'a significant and substantial commercial purpose or character'. That did not apply where, as here, the land in question was rural land. 2. Land tax is charged on land as owned at midnight on the thirty-first day of December immediately preceding the relevant land tax year: section 8. The taxing dates for the land tax years 2020 and 2021 were 31 December 2019 and 31 December 2020 respectively. The periods in which the uses of the Land fall to be determined are the periods which fall within a reasonable time before and after each of the taxing dates, which can be about six months: Leda Manorstead v, Chief Commissioner of State Revenue [2011] 85 ATR 775 at [4]. Evidence of Mr Taylor 1. Mr Taylor gave evidence orally and by affidavit. 2. He said that he and Mrs Taylor are the directors of the Applicant trustee. Together with the trustee, they entered into a contract to purchase the Land in 2018 and settled the purchase on 12 June 2019. They did so, he said, because the rural zoning was most suitable for the maintenance of horses for the purpose of selling them or their natural increase or bodily produce. Under the contract, the purchasers were entitled to use part of the Land for some months before settlement. 3. He said he was also the sole director of Sand Dancing Pty Limited, a company which was licensed to use the Land for that purpose. I note in passing that the Commissioner relied on a written admission by the applicants' solicitor that the terms of the licence were not reduced to writing, because the parties were related. I do not understand that to be in dispute. 4. From 1 April 2018 to 31 March 2021, Mr Taylor said, Sand Dancing rented the adjoining property on which it maintained horses for the horse sale use, paying the whole rent three years in advance. From 12 June 2019 it also carried on the same use for purpose on the Land. 5. He relied on the company tax returns of Sand Dancing for the 2020, 2021 and 2022 financial years, in which its main business activity was described as 'horse breeding'. He said that Sand Dancing has at all material times conducted a horse breeding business for the purposes of selling horses. He said that during the 2020, 2021 and 2022 land tax years, Sand Dancing maintained horses on the Land for the purpose of selling them or their natural increase or bodily produce. 6. He relied on the company's financial statements for the same three tax years, which had formed part of its annual returns. They were before the Tribunal. Each included a profit and loss statement, balance sheet and livestock trading statement. In respect of the 2019, 2020, 2021 and 2022 financial years respectively, the livestock trading statements recorded gross losses on livestock sales of $78,598, $90,345, $57,192 and $91,490 respectively. They also recorded the sale of one horse (which from other evidence referred to below I take to be SD Nemo) in the 2020 financial year for $4,162 and another (which I take to be Di Masterpiece Boy) in the 2021 financial year for $10,000. 7. The trading statement for the year ended 30 June 2022 recorded natural increase of two foals during the 2022 financial year. That lies outside the period referable to the 2020 and 2021 land tax years. 8. Counsel for the applicant submitted in opening that the livestock trading statement for year ending 30 June 2020 (which was reproduced by way of comparison in the following year's trading statement) recorded natural increase of one foal during the 2020 financial year. However, that 'increase' is recorded as '(1)', which appears to mean the loss of a horse, rather than natural increase. That interpretation is consistent with the trading statement itself, which records opening stock of seven horses compared with a closing stock of six. 9. Similarly, the livestock trading statement for the financial year ended 30 June 2021, which is relevant to the 2021 land tax year, recorded no natural increase. On the basis of those trading statements, I cannot be satisfied that there was any natural increase referable to the 2020 or 2021 land tax years. The trading statements both suggest the opposite. 10. The trading statements are helpful to some extent, however, in recording the number of horses maintained on the Land: 1. In respect of the year ended 30 June 2020 (referable to the 2020 land tax year), the trading statement recorded opening stock of seven horses, and a closing stock of six. 2. In respect of the year ended 30 June 2021 (referable to the 2021 land tax year), the trading statement recorded opening stock of six horses, and a closing stock of eight. 1. The profit and loss statements recorded accumulated losses at the end of the 2019 financial year of $1,209,545, rising to $2,314,965 at the end of the 2022 financial year. Disbursements for feed, farier, training, transportation and veterinary expenses were included under the heading, 'Manufacturing costs'. 2. The financial statements (as distinct from invoices issued by Sand Dancing for agistment fees on the adjoining property, which were also before the Tribunal) did not differentiate between trading activities on the Land and those on the adjoining property, or other properties if there were any. 3. In cross examination, Mr Taylor's attention was drawn to five invoices issued by Sand Dancing to Dee McVicker between 2 February 2020 and 29 June 2020 for agistment fees. Copies of the same invoices had been produced both by Ms McVicker and Sand Dancing. All copies included the item, "Agistment", following by the number of horses and dates of agistment. The copies produced by Sand Dancing contained in addition the typed words: 'at [address of adjoining property]'. 4. Mr Taylor agreed that the invoices forwarded by Sand Dancing to Ms McVicker were not identical to those produced the Chief Commissioner by Sand Dancing in support of its objection. He explained: '… the words were added after we went through a series of back and forth with the Office of State Revenue over a period of almost two years, trying to make them understand the difference between the agistment that was going on [the adjoining property] and our breeding business … that was going on in [the Land] because the Office of State Revenue could not determine [sic, appreciate] the difference and we'd been through three or four case members or whatever they call them before this was submitted.' 1. He could not recall who added the words, but believed it was probably the accountant who was handling the objection for Sand Dancing. It was not put to him that he requested or authorised the additional words, or that he knew about it at the relevant time. 2. He was also shown invoices relating to the sale of horses by Sand Dancing. He said that in or about October 2019 one horse was transported from the Land to facilities in Sydney and Melbourne before being flown to London and the Netherlands, where it was sold after an extensive time. 3. He was also shown two copies of an invoice issued on 30 May 2020 by Sand Dancing for the sale of a horse. One copy had been provided to the Chief Commissioner in support of the objection. The other had been provided later. The earlier copy referred to the horse as 'Negro foal'. The later one referred to it as 'SD Nemo (Negro foal)', and added the name of the purchaser. 4. Mr Taylor agreed that the later copy had been altered. In re-examination, he explained: 'So we had numerous issues over the time dealing with the Office of State Revenue and we understand they have multiple staff, so we started readdressing our documents to make it clearer for them to understand what was going on because it was a very complicated setup as we had agistment going on at [the adjoining property], but we had all our horses that we use for breeding at [the Land]. So we went through the documents and made it clearer.' 1. Counsel for the Chief Commissioner submits that, having regard to Mr Taylor's admissions that Sand Dancing, its officers employees or agents altered these invoices, I would not accept him as a witness of truth, and would treat his evidence with caution. Mr Taylor was the sole director of Sand Dancing. He might have been the person who altered the invoices, but it does not necessarily follow that he was. 2. With respect to the sale invoice for SD Nemo, I interpret his use of the word 'we' in the paragraph quoted above as a reference to Sand Dancing itself, rather than any particular officer, employee or agent. Without more, it is not an admission that he personally altered the sale invoice, or authorised its alteration. He may have done so, but the evidence is not sufficiently precise to make a finding to that effect. 3. He made no admission that he had any involvement with the alteration of other invoices. He was not asked whether he did. His evidence was that the agistment invoices were probably altered by the accountant. I am not satisfied Mr Taylor was involved. The alteration of invoices does not assist Sand Dancing, but in the absence of better evidence it does not necessarily implicate Mr Taylor, and does not adversely affect his credit. 4. Even if there were persuasive evidence of his involvement, there is no evidence that it was done in order to deceive the Chief Commissioner as to the subject matter of any invoice. No such allegation was ever put to Mr Taylor. 5. So far as it goes, the evidence is that, whoever altered them, did so to make the true position clearer. The substance of the deception was that, in providing an altered invoice, Sand Dancing was impliedly representing that the altered invoice was the issued invoice. Even if that did affect credit in a general sense, the inference is readily available that it was a misguided attempt to clarify and demonstrate what the person making the alterations knew or believed to be true. The evidence, so far as it goes, would not persuade me to infer that it was done in order to deceive the Chief Commissioner as to the subject matter of any invoice. 6. The sale of SD Nemo on 30 May 2020 demonstrates that at least one horse was sold within the period referable to the 2020 land tax year. The sale of Di Masterpiece Boy on 1 October 2020 demonstrates at least one horse was sold within the period referable to the 2021 land tax year. Evidence of Mrs Taylor 1. Mrs Taylor also gave evidence both orally and by affidavit. 2. She said that she also was a director of the applicant trustee. On 12 January 2015, she said, Sand Dancing Pty Limited was established for the purpose of selling horses, their natural increase or bodily produce. The business sold horses into a particular market. That market required horses already trained in three Olympic equestrian disciplines: dressage, eventing and show jumping. 3. Mrs Taylor herself had been riding and training horses in dressage for over 10 years in Australia, Europe and the United States. She said that Sand Dancing engaged her to advise on training and selling dressage horses, and that she had been involved in its primary production business (which, from its context, I take to mean its horse business) from its establishment in 2015. 4. She said that training horses for dressage involved work in the dressage arena, training under saddle, hand walking and grazing them, conducting strength and stamina training outside the arena, and teaching them to form bonds with humans responsible for their care. 5. No income was earned by Sand Dancing from training the horses, she said. Since 2015, Sand Dancing had bought and sold horses, bred and sold foals, and sold semen from its stallions. The Land was purchased because of its suitability for those purposes. 6. In April 2018, she said, Sand Dancing rented the adjoining property from a third party, prepaying the rent for three years. In July 2019, the applicants purchased the Land. Before the lease of the adjoining property expired, Sand Dancing had transferred its horses, and its entire business of maintaining them for sale of the horses, their natural increase or bodily produced, to the Land. Horses agisted on the adjoining property were not permitted onto the Land. 7. In October 2019, she said, Sand Dancing's agistment business, which it had conducted on the adjoining property, was taken over by Ms McVicker. Up till then, the agistment business had been operated on the adjoining property by Sand Dancing. 8. Since the purchase of the Land, Mrs Taylor said, the applicants have added three structures for use in the horse business: a stable block, an equipment shed, and a covered dressage arena where horses are trained in dressage movements which are displayed in the arena to prospective purchasers. 9. Approval from the local council for the construction of these structures required the execution of stormwater works whose 'size, scale and cost … I have not seen at any other horse facility'. 10. Upon purchase of the Land, she said, Sand Dancing moved its horses from the adjoining property onto the Land, where they have remained. 11. In December 2020, she said, she and her family moved into the house on the Land. Up till then, they had rented a house on the adjoining property. 12. Since the purchase of the Land (which I take to mean settlement in July 2019), she said Sand Dancing has sold two horses, both males. One gelding with an injury was sold in Australia. I infer that was Negro Foal. The other, a stallion, was sold in Europe. I infer that was Di Masterpiece Boy. 13. Mrs Taylor said Sand Dancing has also sold semen from its stallions, which has been used to impregnate three mares. Three of its stallions – Starnberg, Jefferson and Fireball - have been licensed in Europe for that purpose and are registered on publicly reviewable European studbooks. Licensing a dressage stallion in this way increased its value, she said. 14. Mrs Taylor produced two Australian service certificates, showing that two mares had been served in NSW and South Australia using frozen semen from the stallion Starnberg on 29 October 2015 and 17 November 2021 respectively. 15. All of Sand Dancing's horses, she said, were dressage horses. She was engaged as their sole caretaker, though in cross examination she explained that she had had some help from one of the tenants in the house. For this purpose, she said, she lived in the house on the Land with her husband and two daughters. She added that none of the horses were used for recreational riding, riding sports or showing. I interpret that to mean that they were not used for cross country work, show jumping or dressage, despite being trained for each of those equestrian disciplines. 16. Apart from the house and its small surrounding yard, she said the entire property was used to maintain horses. She was shown an aerial photograph of the Land. She identified a house and surrounding yard at the south west corner, the dressage arena slightly north of the middle of the property, adjacent stables just south of the arena, an equipment shed in the south east corner of the property, and horse paddocks and shelters which comprised the balance of the property. 17. The photograph demonstrates convincingly that the largest structure on the Land is the arena, and that the house and its yard constitute a very small proportion of the Land – something less than one-tenth. Mrs Taylor said that, apart from the house and its yard, every part of the property was used to run, feed, care for or train horses, except when one or other of the three structures was in the course of construction, at which time the horses were kept away from the construction area. 18. Mrs Taylor was shown photos of horse related items for sale from Sand Dancing's website and FaceBook pages, posted during the period 9 September 2019 to 4 July 2021. She said the photos were out of date and did not relate to either of the tax years in question. She said a number of them appeared to have been taken at the adjoining property, during the period when Sand Dancing was still operating its agistment business there. However, she admitted that eight of the photos were taken on the Land, depicting items offered for sale during the periods referable to one or other of the 2020 and 2021 land tax years. Each item was offered for less than $100, except for some recording equipment offered for $900 and a horse bridle for $200. 19. Mrs Taylor confirmed in cross examination that, of the horses kept on the Land at some stage during the 2020 and 2021 tax years, five were stallions: Starnberg, Jefferson, Fireball (who was imported from Europe), and the two horses which were sold. Evidence of Dee McVicker 1. Ms McVicker gave evidence by affidavit. She said that, by virtue of her involvement in the horse industry in the local area since well before 2020, she was aware that Sand Dancing had carried on a business of breeding and selling horses. She knew of people who had purchased horses from Sand Dancing, and had done so herself twice, once in 2015 and once in 2017. She produced the receipts. 2. She and others, whom she named, agisted their horses at the adjoining property with Sand Dancing. When Sand Dancing ceased its agistment business on the adjoining property, and moved its horses onto the Land, Ms McVicker took over that agistment business on the adjoining property. She observed no more than five or six horses on the Land, and observed that agisters on the adjoining property never had access to the Land for their horses. 3. She never observed any agistment or horse riding business being carried on at the Land. Despite operating a riding school herself on the adjoining property, and regularly attending dressage events, clinics and competitions, Ms McVicker said that, to the best of her knowledge, Mrs Taylor has not participated in any of them since she first purchased a horse from Sand Dancing in 2015. 4. Ms McVicker's evidence was not challenged. It is uncontradicted by other evidence. I accept it as correct. Evidence of Sharlene Miller 1. Ms Miller also gave evidence by affidavit. She said that Sand Dancing moved its horses from the adjoining property to the Land in 2019. From then, she said, she continued to agist with Ms McVicker on the adjoining property throughout 2020 and 2021. In infer that she had previously agisted there with Sand Dancing. 2. From the adjoining property, she said, one could observe a large proportion of the operations on the Land. She only ever saw five or six horses there. Agisters on the adjoining property were never allowed access to the facilities situated on the Land. 3. She was aware that Sand Dancing carried on a business of selling horses, and inquired of them at one stage about purchasing a horse. She did not purchase from them, as their horses were 'more highly trained in dressage that the sort of horse I was looking to purchase'. 4. Ms Miller's evidence was likewise unchallenged and was not contradicted by other evidence. I accept it as accurate. Evidence of Leo Tindall 1. Mr Tindall gave evidence by affidavit. Like Ms Miller, he said that he continued to agist his horses at the adjoining property when Sand Dancing moved its horses onto the Land in 2019, and continued to agist on the adjoining property with Ms McVicker in 2020 and 2021. I infer that he, too, had previously been agisting with Sand Dancing on the adjoining property. 2. Like Ms Miller, he said that from the adjoining property, one could see a large proportion of the facilities on the Land, and that agisters on the adjoining property did not have access to those facilities. 3. He, too, was aware that Sand Dancing was in the business of selling horses, and approached them in 2020 to see if they could offer a suitable horse. He did not indicate the outcome. 4. So far as it goes, his evidence is also unchallenged and is not contradicted by other evidence. I accept it as accurate. Findings of fact 1. On the basis of all that evidence, and having regard to the documents to which the parties have helpfully drawn my attention in submissions, I am satisfied of the following. 1. Sand Dancing contracted to purchase the Land in 2018, and completed the purchase in July 2019. 2. Until completion, it had conducted its horse business on the adjoining property. That included agisting other people's horses, maintaining its own horses for sale and selling horse related items. 3. After completion, it continued to conduct its horse business on the adjoining property until October 2019, when Ms McVicker took over its agistment business there. 4. From a little before June 2019 to October 2019, Sand Dancing transferred its horses on the adjoining property to the Land. 5. Sand Dancing offered horse-related items for sale from the Land from about 9 September 2019 to 4 July 2021. Most, if not all, appear from the photos to be used items. Though the prices at which they were offered are evident from the photo captions (mainly $100 or less), there is no evidence as to how many items were sold, or the total revenue or profit from sales for any relevant financial year. I am not persuaded that any such revenue equalled, exceeded, or even approached the revenue for the sale of horses in those years. 6. There is no evidence as to what, if any, expenditure was referable to the sale of these items. 7. There is no evidence as to what portion of the land this part of the business occupied. As it involved uploading images to social media, I readily infer that it involved the use of a computer, probably in an office. In the absence of evidence that there was any office on the Land, the only place from which such activities can reasonably have been conducted was a room in the house. If it occurred at all, that can have occupied only a very small proportion of the Land. 8. So far as the evidence goes, such sales of items as may have occurred are likely to have been of minimal significance. 9. From 23 September 2019 to 23 December 2020, part of the house on the Land was rented to Mr and Mrs McDonald at the rate of $1,390 per fortnight, totalling about: 1. $26,000 in respect of the 2020 land tax year, and 2. $12,500 in respect of the 2021 land tax year. 1. From 5 December 2019 to 30 June 2021, another part of the house was rented to three others at the rate of $400 per week, totalling about: 1. $12,000 in respect of the 2020 land tax year, and 2. $20,800 in respect of the 2021 land tax year. 1. Total income from the rental purpose was about: 1. $38,000 in respect of the 2020 land tax year, and 2. $33,000 in respect of the 2021 land tax year. 1. During the financial year ended 30 June 2020 (referable to the 2020 land tax year), Sand Dancing maintained between six and seven horses on the Land at any one time. 2. During the financial year ended 30 June 2021 (referable to the 2021 land tax year), it maintained between six and eight horses on the Land at any one time. 3. These stock levels are evidenced by the livestock trading statements, which show only opening and closing stock. It is possible that stock levels fluctuated more widely during the year, but in the absence of evidence to that effect, I am not satisfied that it did. 4. Sand Dancing engaged Mrs Taylor to maintain its horses on the Land. There is no evidence that she engaged in any other occupation. She was assisted at some stage by one of the tenants who lived in the house on the Land. 5. All of the land apart from the house and its yard were used for the purpose of maintaining horses, including their feeding, exercise and training. That amounted to about ninety percent or more of the total area of the land. 6. The only time when the land was not so used was in the period when the arena, stables and equipment shed were under construction. The purpose of their construction was to maintain the horses. 7. On the basis of admissions by Mrs Taylor in cross-examination, I am satisfied that five of these horses were male. The evidence does not establish the sex of the remaining horses. In the absence of any evidence to establish that at least some of them were female in the period relevant to the 2020 and 2021 land tax years, I cannot be satisfied that they were. 8. That does not mean that the horses cannot have been maintained for the purpose of obtaining natural increase, but the onus of proving they were is borne by the taxpayers. It is for them to prove that the purpose of maintenance was to obtain and sell offspring. The livestock trading statements do not assist them. They record natural increase of two foals during the 2022 financial year, but no such increase during the financial years ended 30 June 2020 and 2021, which are the periods referable to the 2020 and 2021 land tax years. 9. At the very least, the taxpayers must show that there were female horses on the Land at the relevant times, and therefore that natural increase was possible. They have not done so. I cannot be satisfied that the horses were maintained at the relevant times for the purpose of selling the natural increase of the horses on the Land. 10. Similarly, there is no evidence of semen sales during the financial years ending 30 June 2020 and 30 June 2021. There is no evidence of attempts to market it in those periods. However, I take into account the evidence of Mr and Mrs Taylor that at all times horses were maintained for the purpose of selling their bodily produce. That evidence is supported, at least to some extent, by the evidence of isolated semen sales before and after the relevant period. In the absence of persuasive evidence to the contrary, I accept their evidence that one of the purposes of maintaining the horses on the Land at the relevant times was to sell semen. 11. There is documentary evidence of sales of horses during the relevant period: 1. Negro Foal was sold by Sand Dancing on 30 May 2020 for $4,150. 2. Di Masterpiece Boy was sold by Sand Dancing on 1 October 2020 for $10,000. 1. I am satisfied that, in respect of the 2020 and 2021 land tax years, horses were maintained on the Land for the purpose of sale, notwithstanding the fact that sales were infrequent, and the business was conducted at a loss. 2. The arena and stables were devoted to maintaining horses on the Land. The equipment shed was used to house machinery for that purpose. The cost of their construction including ancillary works was very significant: 1. 2020 land tax year: $363,683.09. 2. 2020 land tax year: $686,923.55. 1. There is no evidence of investment of that nature, or anything approaching it, in respect of any other use of the Land. I am comfortably satisfied that the horse sale use attracted by far the most investment of any use for purpose to which the Land was put, both in terms of financial outlay and of Mrs Taylor's time. 2. My attention was not drawn to any persuasive evidence that the Land was used to conduct auctions of other people's horses. I am not satisfied that it was. 3. There is no persuasive evidence that the Land was used to agist other people's horses. Such evidence as there is favours the contrary conclusion. I am not satisfied that the Land was used for the purpose of agistment. 4. The financial returns of Sand Dancing disclose significant revenue from sources other than the sale of horses. The sources of this extra revenue are not disclosed. The evidence does not establish whether the extra revenue derived from a use of the Land at all. In its financial returns, Sand Dancing described its main business activity as horse breeding. The mere fact that it derived revenue from undisclosed sources other than maintaining horses for sale is not sufficient to persuade me that the extra revenue was derived from agistment fees or auction fees, though I am satisfied that a small part of it probably derived from the sale of horse related items. The evidence does not enable me to make a finding as to whether the balance derived from competing, undisclosed uses of the Land. Even if it did, the evidence is insufficient to enable that use or uses to be weighed against other uses of the Land, because revenue is alone is insufficient for that purposes in circumstances where, as here, the horse sale purpose was conducted over the vast majority of the Land and attracted very significant investment. 5. In the end, the existence of unexplained revenue neither supports nor disproves the assertion that the dominant use for purpose was the horse sale use. It does not cause me to doubt the conclusions of fact which I have reached above. Weighing the competing uses 1. For the reasons given, I am satisfied that the Land was put to three uses at the relevant times: 1. rental of part of the house to the McDonalds and three others, 2. sale of horse-related items, and 3. maintenance of horses for the purpose of sale and (if it is to be regarded as a distinct purpose) for the purpose of training them the equestrian disciplines of dressage, eventing (cross country work) and show jumping. 1. There is no evidence as to the revenue from, or profitability of, the sale of horse related items. Such scant evidence as there is supports the conclusion that it is unlikely to have been of any significance. 2. Of the remaining two purposes, the more productive of income in both tax years was the rental use. 3. The horse sale business was conducted at a loss, but in the absence of evidence as to outgoings on the rental use, I am not in a position to compare the profitability of the two. 4. Revenue alone is not determinative as to which use is dominant. As the Court of Appeal observed in Chief Commissioner of State Revenue v Godolphin Australia Pty Ltd [2023] NSWCA 44 at [34]: In Leppington Pastoral at [158] White J provided a useful summary of factors potentially relevant to the characterisation exercised required by s 10AA(3) in circumstances where there are competing uses, saying that it: requires weighing the nature and intensity of the competing uses, the physical areas over which they are conducted, the time and labour spent in conducting the different uses, the money spent or assets deployed in each use and the value derived or to be derived from it. 1. Applying that objective test, the vast majority of the Land in this case was used to maintain horses. All of Mrs Taylor's time was spent maintaining them. There is no evidence that similar effort or time was spent on any other use. On the evidence, the horse maintenance use attracted significant development investment. There is no evidence that any other use attracted such investment. 2. Having regard to those factors, notwithstanding the fact that the horse sale operation was conducted at a loss, and that the rental use attracted greater revenue, I am satisfied that the maintenance of horses constituted the dominant use of the Land, when compared with any other known use. 3. As indicated, the Chief Commissioner contends that horses were maintained not for one purpose, but for three: the sale purpose (if any), the dressage purpose, and the training purpose. 4. I have found: 1. that the horse sale purpose at all relevant times was confined to the sale of horses and their bodily produce, rather than sale of their natural increase; and 2. that the horses were not maintained for the purpose of using them to compete in dressage, eventing or show jumping. 1. Accordingly, the only two competing purposes were the sale of horses and their bodily produce on the one hand, and the training purpose on the other. 2. In Chief Commissioner of State Revenue v Godolphin Australia Pty Ltd [2023] NSWCA 44, the Court of Appeal found by majority (per Kirk and Simpson JJA) that, where the dominant use of the land is for the maintenance of horses for two distinct purposes, one of which qualifies for the exemption and one of which does not, s10AA(3)(b) requires a taxpayer to show that the dominant purpose is the qualifying purpose. Kirk JA described the relevant use, for the purposes of comparison, as 'use-for-a-purpose': 32. Thus the question here is not simply whether the use of maintenance of animals – which both sides accept to be the dominant use of the properties – can then be characterised as for a purpose of sale. Rather, the question is whether that use of the properties can be characterised as having the character of a dominant use for the purpose of selling animals, progeny and produce (ie, here, the sales purpose in the sense identified). 33. Characterising an activity as falling within or without a legal category is a familiar exercise. There is ultimately one question: can it be said that the dominant use of the land in question was for one of the categories of a use-for-a-purpose identified in one of the six paragraphs of s 10AA(3)? As is regularly stated with such characterisation exercises, it is a matter of fact and degree taking account of all the circumstances. 1. There was no issue between the parties that Godolphin maintained thoroughbred racehorses for two separate purposes: racing and breeding. Godolphin engaged in significant racing activities with a view to generating revenue. It also engaged in significant sale activities, including the sale of horses and of servicing by its stallions, also with a view to generating revenue. Of the two, the sale purpose generated the greater revenue. The two purposes were synergistic, in that success in horse racing increased the value of the sale operations, and the breeding operation produced horses suitable for racing. 2. Though revenue from sales was significantly higher than revenue from racing, Kirk JA did not consider income to be determinative. He found that the racing purpose was the dominant purpose at [122]: 122. … Godolphin undertakes a major racing operation constituting a significant revenue stream in its own right. Racing related operations occupy the greater part of what is undertaken on the two properties. That use for a purpose cannot, in my respectful view, simply be regarded as a merely incidental feature of Godolphin's other pursuit. … 1. And at [125]: 125. Godolphin established that a significant use of the two properties was animal maintenance for the purpose of selling animal produce and progeny. But it did not establish that that should be characterised as the dominant use. A more significant use of the land was animal maintenance for the purpose of racing. 1. Simpson JA accepted at [132] that section 10AA(3)(b) 'is directed to a single concept, expressed by Kirk JA as "use-for-the-purpose"'. 2. Unlike Kirk JA, Her Honour was not satisfied that the racing purpose predominated, expressing her conclusions at [143] in the following way: 143. Nor am I persuaded by the attempts to dissect, for example, the area of the land devoted to either of the activities, or the accounting records. It appears that the racing activity occupies a significantly greater area of the land than does the stud, but that throws little light on the purpose for which it is used. The accounting records, on which Griffiths AJA places considerable store, have to be seen in the light of the overall significant losses of the enterprise. Profit, or even revenue, does not appear to me to be a major factor in Godolphin's operation. 1. Simpson JA ultimately found, allowing the appeal: 154. A landowner seeking to establish that one use or purpose of the land is dominant over another or others is called upon to establish more than that two or more uses or purposes of the land are of equal or approximately equal importance. To avail itself of the exemption permitted by s 10AA(3)(b) Godolphin had to establish that the breeding purpose predominated over the racing purpose. It did not do so. 1. By contrast, in this case, the parties are at issue on the fundamental question of whether there were two distinct purposes. The taxpayers submit there is only one purpose: the sale of horses, their offspring and bodily produce. Unlike Godolphin, Sand Dancing did not submit horses for dressage competitions or other competition work for which it trained them. The taxpayers do not submit, as did Godolphin, that they conduct an integrated operation in which two distinct purposes are mutually synergistic. They say that Sand Dancing's training activities form part of the horse sale purpose, are not distinct from it, and are entirely subsumed within it, because training is conducted for no other purpose than to achieve sales. 2. In response, the Chief Commissioner submits that the training of horses in the three equestrian disciplines is a separate purpose from the sale purpose, and that the evidence cannot satisfy the Tribunal that, of the two, the sale purpose is dominant. 3. Having regard to the evidence as a whole, I am satisfied that Sand Dancing trained its horses in the three equestrian disciplines solely for the purpose of sale. They were not trained for the purpose of submitting them to competition or show in any of those disciplines. Sand Dancing did not submit them to competition or show. That is entirely different from the situation considered by the Court of Appeal in Godolphin, because Godolphin not only raised its horses to race, but conducted a very significant racing operation with them. 4. The use for purpose in which Sand Dancing engaged was the maintenance of horses for the purpose of selling them or their bodily produce. It did not maintain them for any other purpose, including competition in the three equestrian disciplines in which they are trained. The training itself, whether or not characterised as part of their maintenance, is for the sole purpose of sale. It is not a distinct purpose from the purpose of selling horses. 5. I am satisfied that the dominant use of the land was the maintenance of horses for the purpose of selling them or their bodily produce. It follows that the exemption applies, and the decision of the Chief Commission must be set aside. 6. At the end of the hearing, orders were made for the filing and service of submissions on the effect of the decision of the Appeal Panel in Ferella v Chief Commissioner of State Revenue [2023] NSWCATAP 50. In that case, the Appeal Panel confirmed the decision of the Tribunal below to the effect that the taxpayer had not proven that the maintenance of horses on the land in question was for the purpose of sale. 7. The Appeal Panel observed at [22]: 22. Land which is used for the purpose of agisting horses will not satisfy the primary production requirements of s10AA(3)(b) of the Land Tax Management Act, because while the land is used for the dominant purpose of maintaining horses, it is not done for the purpose of selling those animals or their natural increase or bodily produce. Similarly, simply maintaining horses on land for whatever reason, be it training them, or training riders, or as a hobby, will not satisfy the requirements of s10AA(3)(b). In Young v Chief Commissioner of State Revenue [2020] NSWSC 330 at [144] Payne J said: "Depending on the surrounding circumstances, the maintenance of horses on land leads to at least two possible conclusions. Horses, like other animals, may be maintained on land for the purpose of sale (including sale of their progeny). Unlike many other animals, horses may also be maintained on land for purely recreational purposes. There is no necessary conclusion that horses are maintained on land for the purposes of sale. That must be established by proof. I am not satisfied that the necessary conclusion was established here." 1. In this case, the evidence does not satisfy me that horses were agisted on the Land at all. For the reasons given, I have found that the purpose of maintaining and training the horses was to sell them or their bodily produce. I am not satisfied that the horses were being maintained solely for the purposes of training them or of training their riders. It was never put to Mr Taylor or Mrs Taylor that the horses were being maintained 'as a hobby', or for 'purely recreational purposes'. Neither gave evidence that they were. I am not satisfied that they were, whether or not the maintenance of horses for sale gave pleasure to one or more of the applicants. 2. The decision of the Appeal Panel, and of the Tribunal below, in Ferrella turned on different facts. ********** 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 Amendments 25 March 2024 - This decision was NOT under appeal. Coversheet amended to highlight correct proceedings. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 March 2024