CITATION: Lease a Leaf Property Pty Ltd v Chief Commissioner of State Revenue [2010] NSWADT 289 DIVISION: Revenue Division APPLICANT Lease A Leaf Property Pty Ltd PARTIES: RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 106008 HEARING DATES: 21 September 2010 SUBMISSIONS CLOSED: 21 September 2010 DATE OF DECISION: 3 December 2010 BEFORE: Frost S - Judicial Member CATCHWORDS: Land used for primary production – whether land used for a commercial plant nursery – whether propagation of plants necessary – whether sale of plants necessary – whether definitions in a repealed Act can inform the interpretation of the Land Tax Management Act 1956 LEGISLATION CITED : Land Tax Management Act 1956 CASES CITED: Colusso v Chief Commissioner of State Revenue [2008] NSWADT 79 Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor [2004] NSWADTAP 19 APPLICANT R J Richardson, WHK Horwath Sydney Pty Ltd REPRESENTATION: RESPONDENT A H Rider, counsel ORDERS: The assessments are affirmed. REASONS FOR DECISION 1 The Applicant owns a block of land in Terrey Hills, a suburb about 25 kilometres north of the central business district of Sydney. 2 The Chief Commissioner of State Revenue (the Commissioner) says that the Applicant owes land tax, under the Land Tax Management Act 1956 (the Act), in respect of the land for the tax years 2005 to 2009. The Applicant resists the Commissioner's claim, arguing that the land is exempt from tax because it is used for primary production. 3 The basis of the Applicant's claim is the use to which its related company, Lease A Leaf Pty Ltd (LAL), puts the land for the purposes of LAL's business of hiring indoor plants to its customers. That use includes the nurturing and maintenance (but not the propagation) of plants which are transported to the customers' premises where they remain during the hire period. The Applicant claims that this use of the land amounts to the land being used for a "commercial plant nursery", in terms which attract the primary production exemption in the Act. 4 The question for the Tribunal's determination is whether that exemption is available. The legislation 5 Slightly different legislative provisions were in force for the 2005 land tax year as opposed to the 2006 to 2009 land tax years. At the outset it should be noted that the land is and at all relevant times has been zoned "non-urban"; this zoning is important because it means that further requirements – that the land be used in the course of the carrying on of a business of primary production (for the 2005 land tax year), or that the use of the land have a significant and substantial commercial purpose or character, and that it be engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made) (for the 2006 to 2009 land tax years) – do not have to be satisfied. 6 For all land tax years in question, and put at its simplest, exemption turns on whether the land is "land used for primary production", an expression defined in the Act. 7 For the 2005 land tax year, "land used for primary production" means (s 3 of the Act): land used primarily for: (a) the cultivation thereof for the purpose of selling the produce of such cultivation; (b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce; (b1) the purpose of commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) and the commercial farming of fish, molluscs, crustaceans or other aquatic animals; (c) the keeping of bees thereon for the purpose of selling their honey; (d) a commercial plant nursery, but not including a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public; or (e) the propagation for sale of mushrooms, orchids or flowers. 8 For the 2006 to 2009 land tax years, "land used for primary production" means (s 10AA(3) of the Act): land the dominant use of which is for: (a) cultivation, for the purpose of selling the produce of the cultivation; or (b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce; or (c) commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals; or (d) the keeping of bees, for the purpose of selling their honey; or (e) a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public; or (f) the propagation for sale of mushrooms, orchids or flowers. 9 The requirement for the 2005 land tax year is that the land be "used primarily" for one of the specified purposes or activities, while for the 2006 to 2009 land tax years the focus is on whether the "dominant use" of the land is for a specified purpose or activity. What is common to all years, however, is that the relevant purpose or activity is that of a "commercial plant nursery" – but provided always that the principal cultivation at that nursery is not the maintenance of plants pending their sale to the general public. The facts during the relevant tax years 10 The area of the land is 1.214 hectares, or 12,140 square metres. 11 The Applicant leased the land to LAL for $36,000 per annum. There was no written lease of the land from the Applicant to LAL. 12 The land was used partly for residential purposes and partly for business purposes. 13 There were two residential houses on the land. One of the houses (with a street address 4 Larool Road), together with its associated outbuildings, garages, gardens and lawns, took up about 1,524 square metres and was occupied by two people. The other house (with a street address 4a Larool Road), together with its associated outbuildings, garages, gardens, lawns and swimming pool, took up about 995 square metres and was occupied by four people. 14 None of the people occupying the houses paid rent to the Applicant. 15 The land had significant paved areas that were used as driveways and parking areas for both residential and business purposes. Two cars that were used for private purposes by the people living at 4 Larool Road were parked on the land. One car that was used for private purposes by the people living at 4a Larool Road was parked on the land. 16 LAL conducted its indoor plant hire business from the land. The land was LAL's principal place of business and it conducted its business from no other address. 17 LAL did not propagate any plants on the land. It purchased plants from nurseries in northern New South Wales and Queensland, trucked them to the land and placed them in various bush and shade houses and "igloos" where the plants were maintained. 18 Staff arrived at the land in the morning and selected plants they needed for the day in order to service plants hired to clients in the city and suburbs. Staff attended at the clients' premises to service plants (e.g. checked for water, removed dead foliage, pruned when required and controlled pests) and removed and returned to the land plants that were no longer presentable. These plants were either composted at the local tip or rehabilitated on the land. 19 The total approximate area of the land that LAL used for the maintenance of plants, office, warehouse and storage in connection with its indoor plant hire business was 2,770 square metres. A further area of 2,814 square metres was not used during the relevant tax years and was fenced off for future expansion of the business. Part of the land, being an area of about 1,500 square metres (roughly one-eighth of the total area), was not used at all because it was too steep. 20 LAL operated its business five days per week between 6:30 a.m. and 5:30 p.m. and on weekends if required. 21 LAL's business involved five employees, plus two of the shareholders and directors of LAL, namely David Gritching (the managing director of LAL) and his father, Joe. David Gritching lives in one of the houses on the land, and his father lives in the other. 22 LAL used on average six motor vehicles in its business, of which only two on average parked on the land. 23 During the relevant tax years, LAL's business generated revenues of between $800,000 and $900,000 each financial year and its annual operating results ranged between a loss of $13,000 and a profit of $56,000. 24 During the relevant tax years, LAL was an "allied trader" member of Nursery & Garden Industry, NSW & ACT Ltd, and a member of the National Interior Plantscape Association. What is a "commercial plant nursery"? 25 During the relevant tax years, the Act did not define the words "commercial", "plant" or "nursery" or the composite expression "commercial plant nursery". 26 The Commissioner submitted that there are two defining attributes of a commercial plant nursery. The first is that it is a place where plants are propagated, rather than merely nurtured or maintained. The second is that the plants are intended to be sold. Leasing the plants, as LAL does, is not sufficient. 27 The Applicant, on the other hand, submitted that a place could still be regarded as a commercial plant nursery even if no propagation took place there, and even if the plants were not intended for sale. It noted that two of the meanings of the word "nursery" given by the Macquarie Dictionary are "any place in which something is bred, nourished or fostered" and "a place where young trees or other plants are raised for transplanting or for sale". The Applicant noted that these definitions focused on bringing up, nourishing or assisting in the growth of trees and plants, and submitted that propagation was not necessary. 28 The Applicant also argued in its objection that "the use of the land has a significant commercial purpose and is engaged in for the purpose of profit on a continuous or repetitive basis", and although those words were evidently aimed at answering a legislative requirement which did not need to be met in the particular circumstances (see [5] of these reasons), the clear thrust of the point was that a nursery may be accepted as a "commercial plant nursery" even if it does not sell plants, but deals with them in some alternative way on a commercial basis. 29 The Commissioner noted that the exemption relating to commercial plant nurseries was expressed, prior to 2000, as "land used primarily for a nursery within the meaning of the Horticultural Stock and Nurseries Act 1969, being a nursery in respect of which a person is registered under that Act as a nurseryman". The Horticultural Stock and Nurseries Act 1969 (the 1969 Act), which was repealed in 2000, defined a "nursery" as "any place at which any horticultural stock is propagated for the purpose of sale"; "propagate" was defined, in relation to any horticultural stock, to mean "generate or multiply, by sexual or asexual means". 30 In 2000, it was necessary to amend the Land Tax Management Act 1956 as a consequence of the imminent repeal of the 1969 Act and the definitions contained in it. Those amendments were made by the State Revenue Legislation Further Amendment Act 2000 (the Amending Act). The Second Reading Speech to the Bill that became the Amending Act included the following comments: Land Tax Management Act … The bill proposes an unavoidable change to the definition of "nursery". Land used for a nursery is exempt from land tax on the basis that it falls within the definition of "land used for primary production". Concessions in the Duties Act use the same definition, which relies in part on the definition of "nursery" in the [1969 Act]. That Act is to be repealed, effective from 31 December 2000. The bill includes amendments to the Land Tax Management Act and the Duties Act to insert a definition in relation to nurseries with essentially the same meaning as the current provisions. 31 The Explanatory Note to the Amending Act provided: Commercial plant nurseries Land used for primary production is exempt from land tax. The definition of land used for primary production in the [Land Tax Management Act] includes a "nursery" which, in turn, is defined by reference to the [1969 Act]. The [1969 Act] is proposed to be repealed in the near future. In anticipation of the repeal, Schedule 3 [1] amends the definition of land used for primary production to preserve its effect. 32 The Commissioner's written submissions said: [79] Based on the above, the Respondent submits that the "commercial plant nursery" provisions merely re-enacted the effect of former subparagraph (d) of the definition of "land used for primary production". Thus, the Respondent submits that the exemption for commercial plant nurseries during the Tax Years only applied to a nursery which propagated or sold plants that were "proclaimed horticultural stock" under the [1969 Act]. [80] Therefore, the Respondent submits that a "plant" for purposes of the "commercial plant nursery" provisions means only a plant that: (a) was "propagated" (e.g. grown from a seed or cutting); and (b) would have been "proclaimed horticultural stock" under the [1969 Act]. [81] Based on the above, the Respondent submits that the word "nursery" in the current context refers only to a "nursery" within the meaning of the [1969 Act], being a "place at which any horticultural stock is propagated for the purpose of sale". 33 Those submissions are confusing. They introduce an unwarranted restriction to the word "plant" by limiting it to the concept of "prescribed horticultural stock" – an expression which, after the repeal of the 1969 Act, is no longer known to the law, and which in any event was not part of the old definition of "nursery" (see [29] of these reasons). 34 But they also suggest, wrongly in my view, that the repealed definitions from the 1969 Act still have a role to play in the interpretation of the words in the Act as currently drafted. I do not see how it is that the definitions in the 1969 Act, now repealed for almost ten years and to which for that entire period there have been no references in the Land Tax Management Act 1956, can possibly inform the interpretation of s 10AA of that Act (or the post-2000 version of paragraph (d) of the definition of "land used for primary production"). 35 The better approach, in my view, is that taken in Colusso v Chief Commissioner of State Revenue [2008] NSWADT 79, where Judicial Member Verick said at [72]: The term "nursery" is not defined in the LTM Act and the meaning of [the] term has to be its ordinary meaning in the context used. 36 The context in which the expression "commercial plant nursery" appears is an exemption from land tax based on the use of land for primary production activities. In my view, it cannot have been intended to include, within that primary production exemption, a place where activities are confined to the nurturing and maintenance of plants, but where no actual "production" of plants by propagation takes place. Instead, I consider that a "commercial plant nursery" for the purposes of the Act is a place, operated on a commercial basis, where plants or trees are propagated. 37 I would not go so far as to say, as Judicial Member Verick did in Colusso at [75], that the plants or trees must be produced for the purpose of sale, because there are other activities (such as, perhaps, leasing the plants or trees) that may satisfy the "commercial" element of the composite expression. But it is clear to me that the operations of LAL do not amount to the conduct of a "commercial plant nursery" for the purposes of the Act because no propagation activities are undertaken on the land. 38 It follows that the land was not used to any extent, during the relevant land tax years, for a commercial plant nursery and so it is unnecessary to examine whether it was used "primarily" for that purpose or whether its "dominant" use was for that purpose. Interest 39 The assessments of land tax included assessment of interest at the "market rate" as imposed automatically by the Taxation Administration Act 1996; the additional interest at the premium level was remitted. The Commissioner was content to regard the Applicant's objection as an objection not only to the Commissioner's decision to assess the land tax, but also to the Commissioner's decision not to exercise his discretion to remit the market rate of interest. For completeness, the application to the Tribunal should be treated similarly. 40 On the question of remission of the market rate interest, an Appeal Panel of this Tribunal said in Chief Commissioner of State Revenue v Incise Technologies Pty Ltd & Anor (RD) [2004] NSWADTAP 19 at [60]: "In our view the primary interest rate (the market rate component) is intended to compensate the Commissioner (on behalf of the Government of New South Wales) for not having the benefit of the tax payment from the time it was due. So a rate is set which fluctuates, and is connected to an external rate, the Reserve Bank's Accepted Bill rate. This, as we see it, is a component that could rarely, if ever, be waived as otherwise tax would be paid at a devalued amount thereby discriminating against taxpayers who meet their obligations on time. The Tribunal made the observation at [50] that to justify any remission of the market rate component of interest, it would be necessary to show that in some way the Commissioner contributed to the default. We agree with this observation." 41 There is, on that basis, no justification for any remission of the market rate component. 42 The assessments are therefore affirmed. 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.