Ashton v Chief Commissioner of State Revenue [2006] NSWADT 158

CITATION: Ashton v Chief Commissioner of State Revenue [2006] NSWADT 158

DIVISION: Revenue Division

PARTIES: APPLICANTS James William Ashton and Wallace Mackenzie Ashton

FILE NUMBER: 056110

HEARING DATES: 4/04/2006

SUBMISSIONS CLOSED: 04/04/2006

DATE OF DECISION: 05/30/2006

BEFORE: Hole M - Judicial Member

CATCHWORDS: Land tax exemption - primary production

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Land Tax Management Act 1956

Clarke v Commissioner of Land Tax (NSW) 1980 [11 ATR] Greenville Pty Ltd v Commissioner of Land Tax (NSW) (1977) 7 ATR 278 CASES CITED: Illawarra Meat Co Pty Ltd v Commissioner of Land Tax (NSW) 1979 [9 ATR] Saville & Ors v Commissioner of Land Tax (NSW) (1980) 12 ATR 7 Shanahan & Anor v Chief Commissioner of Land Tax (NSW) 96 ATC 4320

APPLICANTS In person REPRESENTATION: RESPONDENT P Singleton, barrister

ORDERS: 1. The decision of the Chief Commissioner of State Revenue is set aside as the applicants are entitled to an exemption as the land is used for primary production in the terms of the definition in Section 3(1) of the Land Tax Management Act 1956

REASONS FOR DECISION 1 This is an application by Mr James Ashton and Mr Wallace Ashton to review a decision by the Chief Commissioner to impose land tax on a property at Richmond. 2 The applicant has claimed that the decision should be reviewed as J W Ashton and W M Ashton run substantial grazing properties. "We breed, raise and graze in excess of 50 horses per year. These horses are finally trained and sold overseas or locally as trained Polo ponies. As an integral part of our production we have 30 acres at Richmond. We have had this land for 20 years. It is flood affected. It can only be used for grazing, cropping or horse schools." 3 A land tax notice was issued to the applicants dated 13 September 2005. On 18 October 2005 the Office of State Revenue responded to objections made by the applicants in their letter dated 27 September 2005. The assessment that issued on 13 September 2005 was reviewed and the objections made by the applicants carefully considered and then disallowed. The decision of the Chief Commissioner was to the effect that the land does not qualify for exemption in terms of Section 10(1)(p)(i) of the Land Tax Management Act 1956 ("the Act"). 4 The history of the matter appears to be from the documents tendered pursuant to Section 58 of the Administrative Decisions Tribunal Act 1997 that a form was forwarded to the applicants dated 1 August 2005 requiring registration in relation to the property owned by the applicants. This form was returned to the Office of State Revenue noting the land at Richmond as being flood affected land and that it was used for horse agistment. This form was returned to the Office of State Revenue on 10 August 2005. On 18 August 2005 the Office of State Revenue forwarded a letter to the applicants requesting further information as to the use of the land including: Please provide the following information relating to the horse breeding production activities carried on as at 2005. The purpose for which the horses were maintained eg: riding hacks, training, spelling or breeding. Number of horses maintained on the land during the year. If the horses were maintained for breeding the number of: horses sold, brood mares maintained, and foals dropped, during the year. Are any horse training facilities located on the property? If so please provide a description of these facilities and how they are used. Whether the activities are a hobby or business. Evidence of income received during each year from the sale of the horses. Please provide the following: Copies of profit and loss statements, Copies of balance sheets, Copies of income tax returns. Details of expenditure relating to the grazing of these horses. Provide details and evidence of outgoings relative to the land including: Rates, fencing and dams, any building costs, contract or labour costs, stock feed and machinery cost, any other expenses incurred. A sketch or plan showing location of: all internal and boundary fences, dams or other watering facilities, any other improvements (including description) erected on the land. 5 The applicants responded to this by letter dated incorrectly as 26 May 2005 and received in the Office of State Revenue on 30 August 2005 according to the stamp shown on the letter as follows: Training of Polo Ponies for sale Over Seas From 50 to none. $175005.21 year 02/03 $60011 ¾ 11 brood mares 9 foals dropped Exercise walker; polo ground; yards. Business Profit & Loss 03 Balance sheet 04 Income Tax return 04 See financials. Expenditure not split between properties. See financials. Expenditure not split between properties Copy enclosed Maintenance Maintenance. Flood affected so only sheds. 6 The applicants also provided to the Office of State Revenue a copy of various documents at that time including a large stock account, primary production trading statement, primary production account, detailed statement of financial performance, detailed statement of financial position, depreciation schedule and compilation. A copy of a rate notice from Moss Vale Rural Lands Protection Board for the property was also annexed to the letter disclosing a notional carrying capacity of 54 units, a copy of the Hawkesbury City Council rate notice for 2005-2006 rate year and a rough sketch of the land disclosing yards, shed, walker and ground area. As noted the Office of State Revenue considered the material and advised the applicants that the land does not qualify for the exemption as requested. Evidence 7 The documentary evidence supplied by the applicants consists of bald statements and copies of various business statements and notices together with a rough sketch of the subject land. 8 The respondent's representative cross examined Mr Wallace Ashton on oath and this examination was extremely helpful in eliciting sufficient information to allow consideration of the applicability of the provisions of the Act and to be able to determine the liability or otherwise of the applicants to assessment for land tax. The documents supplied by the applicants do not disclose various matters of fact that required consideration, these facts emerged in this examination of Mr Ashton. Mr Ashton impressed the Tribunal as a straightforward, honest and reliable witness. It was unfortunate that the matters of fact had not been supplied to the respondent previously so that a proper consideration of the issues could have been undertaken. It may have also been possible that related costs of both parties could have been minimised and the applicants could have understood their situation earlier. 9 The facts relating to the use of the land that emerged from the examination by the respondent's representative of Mr Wallace Ashton included:- - When invited to describe the use of the subject land, he described the following activity and in response to questions amongst other information, supplied the following details: He and his brother ran a common primary production business located at various properties in the central west of New South Wales. Mr Wallace Ashton's properties are in the Goulburn/Taralga area and his brother's property is between Orange and Cowra. They run their properties on individual accounts and combine them for a common result. No-one lives at Muddy Flats (the subject land) on a permanent basis, when horses are there then the brothers place caravans on the subject land for the living quarters of the grooms. - The reason that they use the land at the location of Richmond is that this is the area which is a centre for polo, it is suitable for training horses for polo as there is a need to have access to other people engaged in the training and using of horses for polo. When polo is on at Richmond then it becomes the centre for polo and this may run for perhaps 6 months of the year. It is an expensive facility maintaining land for this purpose. The general season for polo is for the months February/May and then October/November, although they are not tied to these months. Typically they would be there for the Autumn season to train up the horses from "stick and balling" then to slow chukkas and then on to proper games of polo. - The horses were taken up and down from the brothers' properties during the year, peak periods being during the polo season. Usually they did this with 23 to 24 horses at one time. 'Baby' horses are not included during the polo season. - During 2004 there were horses being trained on the subject land predominantly for the polo season, but not for 4 weeks of that season and then there were horses there for 6 weeks of the off season. During 2005 there were horses being trained there for a substantial part of the polo season except for 8 weeks and then for 2 weeks in the off season. - During 2004 the land was used for equestrian/polo activities for more than half of the year. The land was used for about 6 weeks to put the polish on ponies for competitive polo. The remainder of the time was spent trying to get the horses to competitive levels. - There had been a stallion at the subject land for 4 to 5 weeks in 2004 for servicing mares and for the same period in 2005. - The land is used for the grazing of the horses when they are there and for that purpose and for the health of the horses, from time to time it is necessary to keep the horses off to try to clean the country from parasites and worms. Legislation 10 The legislation applicable to this particular matter is Land Tax Management Act 1956 ("the Act"): Section 10(1)(p)(i): 10 Land exempted from tax 1) Except where otherwise expressly provided in this Act the following lands shall, subject to sections 10B, 10C, 10D, 10E, 10F, 10G and 10P, be exempted from taxation under this Act: … (p) with respect to taxation leviable or payable in respect of the year commencing on 1 January 1991 or any succeeding year, land that: (i) is land used for primary production in the course of the carrying on of a business of primary production, or … 11 Section 3(1) definition: 3 Definitions (1) In this Act, unless the context or subject-matter otherwise indicates or requires: … Land used for primary production means land used primarily for: … b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, … Applicants' submissions 12 Mr Wallace Ashton submitted, on behalf of his brother and himself, that they relied on the material that had been supplied to the respondent. He noted that they had bred horses for years and had used the subject land for the purposes described since its purchase in 1987, these horses were for sale and sometimes they were sold overseas. The horses were broken in and used for stock work on their properties at Millamolong and Gordon Vale. They were then taken to the subject property where they were taught to play polo. The various skills that the horses are taught include stopping, turning, calming then progressed to being schooled for polo. The schooling which took place on the subject property included 'stick and balling' then slow chukkas of polo. The horses' value varied according to their athleticism and performance. 13 Mr Wallace Ashton submitted that the subject property was flood affected when bought. As it is muddy flats, it is suitable for the purposes for which it is used. On the site there are horse yards and handling facilities. The property is used for breeding, raising, tending and bringing horses up to saleable condition with the purpose of making a profit from the enterprise. They have a long historical record of doing this. They have between none and 50 horses on the subject property at one time. 14 The applicant submitted that the property was flood liable land and that it was not possible to use the land to construct any permanent buildings and the land was only useful for grazing and raising of horses at suitable times Respondent's submissions 15 The respondent's representative submitted that the material supplied to the respondent did not provide sufficient information to disclose that an exemption pursuant to Section10 (1)(p)(i) of the Act was available for the 2005 tax year. That the documentation and information provided to the respondent in the letter dated 26 May 2005 from the applicants and then subsequently in the letter of objection dated 27 September 2005 from the applicants was insufficient to permit the respondent to exempt the subject land from land tax assessment. 16 The respondent's representative submitted that the documents provided by the applicants did not disclose how frequently the land was used for the purposes described by the applicants, that this only emerged in cross examination as the respondent was concerned to get sufficient evidence before the Tribunal to allow the matter to be considered. 17 The Tribunal was referred to the description in Section 10(1)(p)(i) of the Act where an exemption is available for land that is used for primary production in the course of the carrying on of a business of primary production and the definition of "business" as referred to in Shanahan & Anor v Chief Commissioner of Land Tax (NSW) 96 ATC 4320 where Newman J commented that: "In Hope's case, Mason J, with whom the other members of the court agreed, defined "business" on ATC p 4390; CLR p8 as follows: "I accept, then, that 'business' in the sub-section has the ordinary or popular meaning which it would be given in the expression 'carrying on the business of grazing'. It denotes grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis. Putting aside the question whether the activities have a 'grazing' character, the critical issue for decision is whether the material before the Court reasonably admits of different conclusions on the question whether the appellant's activities constitute a 'business'." In my opinion the activities of the appellant in grazing cattle on the property at the relevant time for the purposes of ultimately selling such cattle constitutes a business within the frame work of the interpretation of the word given by Mason J in Hope's case." 18 On this premise, the respondent's representative conceded only that the applicants were engaged in a business of growing ponies for playing polo. 19 Reference was made to Saville & Ors v Commissioner of Land Tax (NSW) (1980) 12 ATR 7 and attention was drawn particularly to the consideration given by His Honour Roden J to the exemption provided by Section 10(1)(p) of the Act at page 4377: "… With regard to those arguments, reference might conveniently be made to the following: 1. The meaning of the expression "land used primarily for". Consideration was given in argument to the question whether it is appropriate only to have regard to uses to which the land is put and to determine primacy among those uses, or whether non-use is a relevant consideration so that land use for one purpose only may still properly be regarded as not being land use primarily for that purpose. Strictly and grammatically, it would appear that the first of those interpretations is available. It would, however, lead to some absurd conclusions, it does not accord with interpretations that have been placed upon the Act in the past, and, as I understand it, ultimately at least, neither counsel contended for that interpretation. 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. 2. The relevance of intention with regard to use of the land. Basically, what is to be determined is the actual use of the land, and this of course may be quite different 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. Nevertheless, it having been stated that, even where there is only a single use of the land, that fact alone does not necessarily establish that the land is used primarily for that purpose, I believe that intention is a matter to which regard can properly be had as a matter capable of characterising a use of the land in a manner which may not emerge from a consideration simply of the rate of activity or the area of the land actually used or the period for which it is used. 3. The position if the relevant date falls during an "hiatus period". If, upon the relevant date, there is no activity relating to any use or claimed use of the land, it is clearly appropriate to look both to the period prior to that date and to the period subsequent to it in order to determine the nature of the use of the land during that hiatus period, as it has been termed. Such a period can arise in any of a number of different circumstances. If land is allowed to lie fallow before and after periods of cultivation, that clearly, it seems, does not represent an interruption of the use of the land for the purpose of that cultivation, and the land can properly be said at that time to be used for that purpose." 20 The respondent's representative referred to the definition of 'land used for primary production' in Section 3, submitting that it was insufficient that the horses were owned and kept elsewhere and then were at the subject property from time to time. The requirement was that the horses were maintained for the purpose of training them for polo and not for the purpose of selling them and therefore the primary use of the land was for the training of the horses not the maintenance of the horses. 21 The respondent's representative referred to the comment by Helsham CJ in Equity in Greenville Pty Ltd v Commissioner of Land Tax (NSW) (1977) 7 ATR 278 as quoted in Clarke v Commissioner of Land Tax (NSW) 1980 [11 ATR] at p803 as to the test being objective when considering the definition in Section 3 of the Act: "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." 22 The respondent's representative supported the submission that it was insufficient that the applicants were primary producers elsewhere and submitted that the issues considered in Illawarra Meat Co Pty Ltd v Commissioner of Land Tax (NSW) 1979 [9 ATR] were relevant. In that case Waddell J considered the circumstances where pigs were slaughtered some distance away from where they were maintained and the by-products of the slaughtering were sold. Thus the maintenance of the pigs was for the purpose of selling them or … their bodily produce. In this case the sale of the horses was for polo ponies and not for their bodily produce. Reasons 23 The evidence discloses that the applicants were engaged in a business of not only growing ponies for playing polo, their business included the raising of horses, breeding, tending, grazing, training and bringing the horses up to a saleable condition. In this case the applicants were using the land for the carrying on of a business. 24 The land is flood prone land and has few available uses. One of the uses to which the land may be put is limited grazing for parts of the year and for the keeping of horses on the land for the purposes of breeding, training and preparing them for sale albeit for use by purchasers of a large number of horses so bred for polo ponies. When the land is not used as described by Mr Wallace Ashton, there is a period when the land lies fallow to allow parasites and worms to die off and become 'clean' sufficiently to allow the horses to return. At times a stallion is in residence for the purpose of breeding with presented mares. 25 The definition as disclosed in Section 3 of the Act as 'Land used for primary production' means land used primarily for 'the maintenance of animals' (in this situation - horses) … 'for the purpose of selling them or their natural increase …'. The horses were kept at the subject land for periods of some months during the relevant year, they were fed, kept free of pests, their health was crucial to their sale. Where horses are maintained for the purpose of selling them it would seem that, to maximise the sale price, the training as polo ponies was a value adding exercise to ensure that they were sold at the best possible price; sometimes the horses being sufficiently valuable to export overseas. 26 In this particular matter if the Chief Commissioner had been provided with all the information that has been provided to the Tribunal then in making the decision as to whether the land was exempt the Chief Commissioner would have been able to say that the land, in substance and looked at as a whole, was being used for an activity that gives rise to an exemption. The observer of the land would see activity on the land where horses were grazing, being fed, being attended by veterinarians, being trained in various stages of handling including training to play polo. The applicants can point to the activities on the land so that the land has the character of keeping horses on it during parts of the year and keeping the land apparently unused while it recovers. In substance and taking into consideration all the activities relating to the horses and the maintenance of the horses when looked at as a whole, the land is used for the maintenance of the horses for selling them at an added value sale price for their training. The subject land appears to have little or no other sensible use. 27 The critical issue was the use of the land, as elucidated by Roden J in Saville, which was the maintenance of the horses for sale. The training of the horses was by varying degrees successful, which affected the sale price when they were sold. 28 With the benefit of the evidence supplied to the Tribunal under cross examination, which had not been available to the respondent prior thereto, the subject land was used in 2004 up to 31 December primarily for the maintenance of horses for sale. ORDER 1. The decision of the Chief Commissioner of State Revenue is set aside as the applicants are entitled to an exemption as the land is used for primary production in the terms of the definition in Section 3(1) of the Land Tax Management Act 1956 .