CITATION: R D Works Pty Ltd ATF Demanuele Unit Trust v Chief Commissioner of State Revenue [2009] NSWADT 204 DIVISION: Revenue Division APPLICANT R D Works Pty Ltd ATF Demanuele Unit Trust PARTIES: RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 086127 HEARING DATES: 9 June 2009 DATE OF DECISION: 3 August 2009 BEFORE: Hole M - Judicial Member CATCHWORDS: Land tax exemption, land used for primary production LEGISLATION CITED : Land Tax Management Act 1956 (NSW) Taxation Administration Act 1996 (NSW) Greenville Pty Limited v Commissioner of Land Tax (NSW) (1977) 7 ATR 278 CASES CITED: Saville v Commissioner of Land Tax (NSW) (1980) 81 ATC 4373 Commissioner of Land Tax v Christie (1973) 2 NSWLR 526 Sonter v Commissioner of Land Tax (NSW) (1976) 7 ATR 30 APPLICANT P Hunter, agent REPRESENTATION: RESPONDENT A Rider, barrister ORDERS: 1.The land tax notice of assessments for the 2006, 2007 and 2008 tax years are correct as issued. REASONS FOR DECISION 1 This is an application by R D Works Pty Ltd ATF Demanuele Unit Trust ("the company") in relation to land tax assessments for the land tax years 2006, 2007 and 2008 raised in respect of a parcel of land comprising three (3) lots ("the subject property"). 2 The property subject of the assessments was purchased in 1999 by another company as trustee for a Unit Trust, subsequently there was a transfer from that company to the present applicant as trustee of the same Unit Trust. 3 The principals of the applicant, being Jeffrey and Rose Demanuele, were assisted at the hearing by Mr Peter Hunter who is not a legal practitioner. Mr Hunter holds the position of Administration Manager for R D Works Pty Ltd. 4 At the time of purchase of the subject property there was a lease over that property in favour of a party for a period from 11 July 1995 to 10 July 2000. This lease also had an option to renew for a further 5 years. This lease provided that the lessee would not, without the consent in writing of the lessor, use the property otherwise than for the purpose of "Residence and Business of Greyhound Education Centre and purposes reasonably associated therewith". This lease continued into the option period and ceased prior to 12 August 2005. 5 On 12 August 2005 the company entered into a standard form residential tenancy agreement with another party for a period of 12 months. This lease did not disclose any other use than as a residential tenancy. On the expiry of that lease a further standard form residential tenancy agreement was entered into for a period from 11 August 2006 expiring on 10 August 2007 to the same lessee. On 7 September 2007 a further standard form residential tenancy agreement was entered into for a period of 3 years to expire on 6 September 2010, the lessee was one of the previous lessees together with that lessee's spouse. This lease came to an end on 9 January 2009 when the lease was terminated by the lessees. 6 There is a track constructed on the property for the purposes of greyhound training. The final lessees pursuant to the residential tenancy agreements operated a business, which they had purchased from the lessees in occupation at the time of purchase of the property by the applicant's predecessor's trustee. This business included the training and breeding of greyhounds. 7 Constructed on the property is a house which was occupied by a caretaker at all times. There was also provision for rearing of pups and for the education of those pups who were kennelled at the premises constructed on the property. The business operation by the lessee was registered with Greyhound Racing New South Wales and was so registered including the years 2005, 2006, 2007 and 2008. 8 Both parties agreed that the property was zoned rural and comprised of three lots in a deposited plan. Both the applicant and the respondent's representatives had attempted to calculate the percentage of the area of the property used for the purposes of the greyhound business and for the alleged use of the land for rearing cattle. The calculation of the competing areas was not undertaken in any scientific manner. 9 A land tax variation return 2005 tax year was forwarded to the applicant and was completed by the representative of the applicant and forwarded to the respondent on 1 January 2006. This form had been completed on the basis that an exemption from land tax was sought on the basis that it was used for primary production. The information on the form disclosed that the land was used for "cattle breeding for the purpose of selling them". 10 A Primary Production Land (PPL) questionnaire was completed by a representative of the company and received by the respondent on 26 July 2007 including a copy of a plan of the land, a copy of rate notices from the Council where the rates had been charged at the business general rate, a copy of an invoice for supplies from the Rossmore Veterinary Hospital and a copy of accounts from William Inglis & Sons Limited disclosing sales of cattle and sheep. The invoices from the Rossmore Veterinary Hospital and William Inglis & Sons Limited did not specifically disclose supplies for the subject land or sales of cattle and sheep in relation to the subject land. 11 The respondent advised the applicant by letter on 16 November 2007 that the Chief Commissioner was unable to grant the exemption for primary production based on the information provided for the years 2006 and 2007. The respondent referred to the existence of a training track and associated facilities, residential rental in respect of the property and noted that those items were not considered to be primary production. The land tax notice of assessment for the 2006 and 2007 land tax years accompanied the letter and the assessment was dated 15 November 2007. 12 By letter dated 26 December 2007, along with other information included in that letter, the applicant's representative advised the Office of State Revenue that the lease for the dog training track had expired, the existing residence was leased on a residential arrangement, that 3 acres of the approximately 24 acres of the property was used by the residential tenant and that the bulk of the property was leased to a partnership and used for beef cattle production. The letter further noted that further advice should be forwarded to J & R Demanuele as the company had no details of the beef cattle production. 13 On 19 June 2008 the respondent advised the applicant that following a review of the assessment for the land tax years 2006 and 2007 that the assessment was confirmed as correct. This letter included a land tax notice of assessment for the 2008 land tax year. The letter noted that interest was imposed on the unpaid tax for the 2006 and 2007 land tax years and it was then due and payable. 14 The applicant lodged an objection to the assessment of land tax by letter dated 25 July 2008. This letter was accompanied by various attachments and copies of photographs. The objection did not raise an objection in respect of the interest now imposed on the payment for the land tax years 2006 and 2007. 15 The respondent advised the applicant and Mr and Mrs Demanuele by letter dated 6 November 2008 that the objection had been disallowed. This letter drew attention to the information available to the Office of State Revenue in relation to the use of the land as Rossmore Trial Track for Dog Training Purposes. It is from this decision that the applicant has brought this application which was filed on 27 November 2008. Legislation 16 The relevant legislation for the purposes of each of the land tax years 2006, 2007 and 2008 is Section 10AA of the Land Tax Management Act 1956 (NSW) ("the LTMA"): "10AA Exemption for land used for primary production (1) Land that is rural land is exempt from taxation if it is land used for primary production. … (3) For the purposes of this section, land used for primary production means land the dominant use of which is for: … (b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce … (4) For the purposes of this section, land is rural land if: (a) the land is zoned "rural", "rural residential" or "non-urban" under a planning instrument …" Applicant's submissions 17 The agent of the applicant submitted that the land was purchased in 1999 as part of a business plan for a cattle breeding operation owned, controlled and operated by J & R Demanuele. The purchase was made in the name of R D Works Pty Ltd ATF Demanuele Unit Trust. Mr and Mrs Demanuele have bred pure blood stock Limousin cattle for many years on properties in the Lithgow area and following purchase of this property it was and is used for cows with calves at foot which are transported from the breeding farm in the Lithgow area to the subject land for veterinarian care and observation and early growth monitoring. Mr and Mrs Demanuele have an industry reputation for quality stud bulls. 18 The agent of the applicant submitted that the various leases of the property related to specific areas of the property being the residence, the trial track and the kennels which amounted to a total percentage of the property of 36% and that the balance of the land was used for the purposes of raising the cattle as previously described. As previously noted this area was calculated by scaling off the areas used for training greyhounds, grazing cattle and construction works and did not involve a scientific analysis of the specific area of the land used. 19 The agent of the applicant noted that the tax returns filed by the Demanueles in relation to their business enterprises over the relevant years did not divide any of the income or expenses across the separate properties and that it was not possible to discern from those returns the numbers of cattle held on the property or the income derived from selling them or for the maintenance of the cattle on the property. Respondent's submissions 20 The respondent's representative noted that pursuant to Section 100(3) of the Taxation Administration Act 1996 (NSW) the applicant bears the onus of proving its case. 21 The respondent's representative drew attention to the changing uses in the locale of the subject property and that it was on the urban fringe and was now 2kms from a proposed railway station. 22 The respondent's representative drew attention to Section 10AA of the LTMA. This section provides for an exemption for land used for primary production where the use of the land is for the maintenance of animals for the purpose of selling them or their natural increase or bodily produce. The exemption is available where the land is rural land. The subject land is rural land. 23 The respondent's representative provided various calculations concerning the suggested breakup of the physical uses of the subject land. Once again, as previously noted, the breakup was undertaken by way of definition by ruler and calculator and not by a scientific method. The submission was that the greyhound use of the subject land was 49%, that the grazing use was 50% and the dumping use was 1%. This referred to part of the land being allegedly used to dump material on the land that would at some later stage be used for the purposes of the land. 24 The respondent's representative drew attention to the development application in 2006 whereby two dual occupancies were constructed on part of the subject land and by calculation it appeared that this changed the percentage of use of the land so that the greyhound use was 49%, the grazing use was 49% and the construction use was 2%. 25 Attention was drawn to the requirements of the Section 10AA(3) LTMA concerning "use" of the subject property and to: "Commissioner of Land Tax v Christie (1973) 2 NSWLR 526, where Bowen JA (as he then was) held at p.533: ""Use" has regard to the purpose to which land is put." and Sonter v Commissioner of Land Tax (NSW) (1976) 7 ATR 30, where Rath J held at p.35: "No refined consideration here is required of what is involved in the concept of "use" of land; as I have said, the land is plainly used in a number of ways …"" 26 Attention was drawn to the comment by Helsham CJ in Eq. at p280 of Greenville Pty Limited v Commissioner of Land Tax (NSW) (1977) 7 ATR 278 (Greenville"): "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. … An activity going on on the land does not necessarily characterise the use of the land taken as a whole, so that one can say the land is used primarily for that activity. That is evidently a correct proposition if there is more than one activity going on on the land. ... It may follow that one activity being conducted on land means that the land is used primarily for that activity; but it does not necessarily follow. And for the plaintiff to succeed here, it must necessarily follow." 27 Further that Roden J at P.4377 in Saville v Commissioner of Land Tax (NSW) (1980) 81 ATC 4373 ("Saville") held that: "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 … that that use prevail over any competing use …" 28 As a consequence following the principles in Greenville and Saville as set out above, that as the physical areas of the land used for the greyhound and grazing uses were virtually the same for all land tax years there was no main, major or clear use of the land in terms of pure land area used. That while part of the land was set aside for the grazing use, the mere physical presence of cattle on the land would not, of itself, satisfy the dominant use test. In order to determine the dominant use of the land it will be necessary to consider and compare the nature, scale and intensity of the various uses of the land. 29 The respondent submitted that the greyhound use occupied about 49% of the total area of the land and that as part of that use the following was involved: - significant physical improvement to the land including the trial track and associated infrastructure, dog kennels and runs and the existing house; - connections to utilities such as electricity and water; - operation as a business with material revenues for the lessees and payment of expenses by the lessees; - regular operating hours available to the public and the public coming onto the land during those operating hours; - highly visible and unique services which specifically drew customers to the particular site and exclusively conducted on the land; - recognition of the site by the Greyhound Racing New South Wales; - the required live in caretaker who resided on the land fulltime to provide constant supervision and care to the greyhounds; and - required annual licencing and monitoring by regulatory bodies. 30 The respondent's representative submitted that the evidence referred to in the previous paragraph was contrary to the use as a grazing use in that the grazing use whilst it occupied up to 50% of the total area of the land the following items were relevant: - there is no evidence in relation to the number of cattle grazed on the subject property; - the grazing on the subject property was subsidiary to the main cattle breeding operation of the Demanueles carried on at Lithgow; - the infrastructure required fencing only; - there was no net requirement for connection to utilities; - there was no requirement for an onsite manager or constant supervision; - it did not involve persons coming on to the land other than Mr and Mrs Demanuele; - no evidence was provided that any of the cattle grazed on the land or that natural increase or bodily produce was ever sold; and - the subject property was not registered with Property Identificate Code ("PIC") or comply with National Livestock Identification System ("NLIS"). 31 The respondent's representative submitted that the fact that the subject land was purchased as part of a business plan would not be relevant to the claiming of the exemption unless evidence of the use of the subject land as the dominant use was provided. 32 The respondent's representative provided copies of letters from the lessees of the subject property from the company together with copies of rental instalments paid to the company. The lessees also provided a copy of a letter to the respondent forwarded by them to "Greyhound Racing NSW" on 31 December 2008 noting the reluctant closure of "Rossmore Trial Track", and a copy of a letter to GBOTA (Greyhound Breeders Owners & Trainers Association) dated 18 July 2008 seeking financial help to maintain the track. 33 The respondent's representative also provided a copy of the registration of the business name of "Rossmore Trial Track" disclosing that the business traded at the subject property; a copy of an entry in 'White Pages' telephone service of Rossmore Trial Track and Education Centre, (at the subject property) and a copy of a registration of the business name "Parklands Greyhound Trial & Education Centre" covering the period 13 January 1998 to 31 October 2007 at the subject property. 34 Attention was drawn to the lease which had operated from 1995 to 2000 and pursuant to the option to renew through to 2005 for the whole of the subject land. That lease discloses that the lessee covenanted with the lessor that: "(b) THAT the Lessee will not without the consent in writing of the Lessor first had and obtained use permit or suffer to be used the premises otherwise than for the purpose of Residence and Business of Greyhound Education Centre and purposes reasonably associated therewith." 35 The respondent's representative provided copies of a development application made on behalf of the company to the Local Council to construct a dual occupancy on part of the subject land affecting roughly 2% of the total area. This was consented to on 15 June 2006 and the occupation certificate given on 22 February 2008. The lessees of the subject property at the time of construction raised concerns with the company including concerns that a bull belonging to the lessors was climbing soil mounds and could fall into the pups' paddock. 36 The respondent's representative also provided a copy of a facsimile notice from the lessees to the company dated 5 May 2008 noting that the training track was open to the public five (5) days a week from 7.00am to 9.00am. Reasons 37 The subject property was leased, albeit under a residential lease, to persons who ran a business thereon of a greyhound training track known as "Rossmore Trial Track". The Lessee's bred and trained greyhounds, they attempted to obtain funding for upgrading of the trial track which had a significant history over 40 years. This operation continued until the lease terminated on or before 8 January 2009. The lessees leased the subject land including kennels for housing and education of pups, paddocks for rearing pups, the land upon which the training track was constructed, the house which was occupied by the caretaker (who looked after up to 40 greyhounds at a time) for the years 2005, 2006 and 2007 and then by the lessees from 2007 to 2009 (who looked after up to 25 greyhounds at a time) and the business operated the trial track. 38 The subject property was used as part of the business of the lessees for the breeding, training and kennelling of greyhounds. 39 The applicants did not provide evidence to disclose that the dominant use of the subject property was for the purposes of Section 10AA(b) LTMA. 40 It is not necessary to deal with the imposition of interest on late payment as the applicant has not sought that this be remitted. 41 There is no evidence to disclose that the ad hoc calculation as to the area used, being part of the subject land, which the applicant contends is used for primary production can be relied upon. In the absence of sufficient evidence to support the claim to exemption the calculation of the area is unnecessary. 42 There is a mixed use of the subject land. The evidence supports the contention that the dominant use is as a greyhound breeding and training facility and trial track for greyhounds. The subject land has the character of being mainly used for the purposes of the business run by the lessees from the company up to 8 January 2009. 43 The subject property is not registered with PIC nor does it comply with the requirements of NLIS. 44 The exclusion of the small part of the subject property upon which the dual occupancy is constructed does not alter the dominant use. 45 The dominant use of the subject land, from as early as 11 July 1995 to 8 January 2009, was for the business operated by the lessees. Orders 1. The land tax notice of assessments for the 2006, 2007 and 2008 tax years are correct as issued. 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