Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 Hearing dates: 4 August 2010, 15 and 16 November 2010, 10, 11, 15, 16 and 17 March 2011, 3 May 2011 Decision date: 02 November 2011 Jurisdiction: Revenue Division Before: S Frost, Judicial Member Decision: Assessments of land tax for 2007, 2008, 2009 and 2010 confirmed. Catchwords: Land tax - primary production use of land - "dominant use" of land - physical activity on the land undertaken by a person other than the owner of the land - whether "dominant use" is measured only by reference to physical activities conducted "on" the land - whether the primary production use of the land has a "significant and substantial commercial purpose or character" - whether the primary production use of the land is engaged in "for the purpose of profit on a continuous or repetitive basis" Legislation Cited: Land Tax Management Act 1956 Cases Cited: Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493; Sonter v Commissioner of Land Tax (NSW) (1976) 7 ATR 30; Greenville Pty Ltd v Commissioner of Land Tax (NSW) (1977) 7 ATR 278; Nancy Shetland Pty Ltd v The Melbourne and Metropolitan Board of Works (1974) 48 ALJR 448; Saville v Commissioner of Land Tax (NSW) (1980) 81 ATC 4373; Abbott v Commissioner of Land Tax [1979] VR 297; Australian Football League v Commissioner of State Revenue [2004] VCAT 1882; Minister Administering the Crown Lands Act v NSW Aboriginal Land Council [2008] HCA 48; Reysson Pty Ltd v Chief Commissioner of State Revenue [2009] NSWADTAP 17; Cornish Group Pty Ltd v Chief Commissioner of State Revenue [2009] NSWADT 191; Leda Manorstead v Chief Commissioner [2010] NSWSC 867; Thomas v FCT (1972) 3 ATR 165; Hope v Bathurst City Council (No. 3) [1994] NSWCA 139 Category: Principal judgment Parties: Ashleigh Developments Pty Ltd (Applicant) and Chief Commissioner of State Revenue (Respondent) Representation: Counsel A H Rider (Applicant) I S Young (Respondent) Hicksons Lawyers (Applicant) Crown Solicitor (Respondent) File Number(s): 096105 REASONS FOR DECISION 1REVENUE DIVISION (S FROST (JUDICIAL MEMBER)): Henry Porter has been a farmer in the Shoalhaven area for over 50 years. 2In 1980 he acquired a block of land in Milton (referred to in these proceedings as Lot 35). In 2006 Mr Porter sold Lot 35 to Ashleigh Developments Pty Ltd ("Ashleigh", or the "Applicant"). The evident purpose of Ashleigh's purchase of Lot 35 was to subdivide it and sell the subdivided residential lots. Despite the sale to Ashleigh, Mr Porter has continued to conduct farming activities on Lot 35. 3Ashleigh, as the registered owner of Lot 35, has been assessed to land tax in respect of the land tax years 2007, 2008, 2009 and 2010. It has resisted the payment of land tax on the basis that Lot 35 is exempt from land tax because it is used for primary production purposes. Ashleigh's objection against the land tax assessments was disallowed and the Tribunal is now asked to review the assessments. The legislation and the issues for determination 4Under s 8 of the Land Tax Management Act 1956 (LTM Act), land tax is charged on land as owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied. However, s 10AA of the Act provides an exemption from land tax as follows: (1) Land that is rural land is exempt from taxation if it is land used for primary production. (2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land: (a) has a significant and substantial commercial purpose or character, and (b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made). (3) For the purposes of this section, land used for primary production means 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. (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, or (b) the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land. 5Since Lot 35 is not "rural land" within s 10AA(4), the issues for the Tribunal are: (1)Whether the dominant use of Lot 35 is "for ... the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce": s 10AA(3)(b) (2)If the answer to (1) is "Yes", whether that use: (a)" has a significant and substantial commercial purpose or character": s 10AA(2)(a); and (b)" is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)": s 10AA(2)(b). The factual background 6The following broad factual background, as set out in the Applicant's Written Submissions dated 28 April 2010 (footnote references omitted), is not in dispute (with one possible qualification - see [8] below): 6. The Land is located near the small rural village of Milton in the Shoalhaven region on the South Coast of New South Wales. 7. The Land is 15.63 hectares in area. 8. During the Tax Years, the Land: comprised high quality grazing pasture with several dams and a stream running through it; did not have any structures erected on it, other than cattle fences around its perimeter; did not have any services (e.g. water, sewerage, gas, electricity) or kerbs, gutters or roads laid on or under it; was zoned 2(c) Residential (Living Area); was wholly and physically used only for commercial beef cattle grazing by Mr. Porter; and was used by Mr. Porter for commercial beef cattle grazing in conjunction with the 280 hectares of adjoining and other land he owned in the Shoalhaven region. History of ownership, use and zoning of the Land 9. Mr. Porter's father acquired the Land around 50 years ago. 10. The Porter family's land holdings in and around the Shoalhaven region comprised about 280 hectares of grazing and farm land. 11. Mr. Porter acquired the "Hilltop" property, including the Land, and the family's other land holdings in the area from his late father. 12. Mr. Porter and his family have commercially farmed the Land and their surrounding land for over 60 years. 13. Mr. Porter has been a commercial farmer in the Shoalhaven for over 48 years and farming has been his livelihood. 14. Mr. Porter leased the Land from 1961 onwards and acquired it in 1980. 15. Mr. Porter has commercially grazed beef cattle on his land in the Shoalhaven region for the last 29 years and on the Land since 1990. 16. In the mid-1980s, the City of Shoalhaven Council ( Council ) unilaterally rezoned the Land from "rural" to "2a3 Residential". 17. Since 2003, the Land has been zoned "2(c) Residential (Living Area)". 18. In November 2003, the Applicant and Mr. Porter entered into a put and call option agreement in respect of the Land. Under the agreement, the Applicant was permitted, at its discretion, to apply to the Council to subdivide the Land. 19. In late December 2003, an application to subdivide the Land was lodged with the Council. 20. On 24 September 2004, the Council notionally granted Mr. Porter approval to subdivide the Land in two stages, with Stage 1 being two development lots and Stage 2 being 50 residential lots, with consent lapsing on 24 September 2009. 21. On 29 April 2005, the Applicant and Mr. Porter exchanged contracts for the sale of the Land for $10.9 million. 22. The sale of the Land to the Applicant settled on 12 January 2006. On that date (and at all times during the Tax Years) the Land comprised grazing pasture and Mr. Porter's beef cattle continued to graze on the Land on and from that date. 23. On 27 July 2007, following action by the Applicant in the Land and Environment Court, the Council granted the Applicant approval to subdivide Stage 1 into 102 residential lots, thereby allowing the Land to be subdivided into 157 residential lots in total. The approval lapses on 27 July 2012. 7The "Land" as referred to in those submissions is Lot 35. 8As will become clear, it should not be assumed that the Respondent accepts the accuracy of the content of the second-last bullet point of paragraph 8 of the Applicant's Submissions, unless it is taken to mean simply that Mr Porter's beef cattle grazing activities were the only activities physically conducted on the land, and that they were conducted over the whole of the area of Lot 35. 9In addition to the summary facts at [6] above, it was asserted by the Applicant's solicitors, in a letter dated 1 March 2010 to the Office of State Revenue (s 58 documents, folio 838), that: [The Applicant] holds the land as trustee of a resulting trust. The resulting trust arose by operation of law by virtue of the joint venture parties providing the purchase monies to [the Applicant] to purchase the land on their behalf. The trust has no name and there is no executed trust deed by which [the Applicant] holds the land. ... 10Mr Ross Boakes, a director of the Applicant, eventually confirmed in cross-examination that the "partners" in the "Ashleigh Developments Joint Venture Partnership" (those partners being the contributors of the purchase money for Lot 35) are (or, at least for some of the relevant period, were) Tivoli Developments Pty Ltd (a company of which Mr Boakes and his wife are the shareholders) and Gregory Holdings Pty Ltd (a company controlled by a business associate of Mr Boakes). Although nothing turns on this, Gregory Holdings eventually withdrew from the arrangement. A preliminary question - which land? 11The Chief Commissioner accepts (Respondent's Final Amended Outline of Submissions - "RS" - at [30]) the following two contentions of the Applicant as correct propositions of law: first, that the relevant land for adjudging the availability of the exemption is not limited to Lot 35 only, but rather must be judged by reference to all adjoining and surrounding parcels employed by Mr Porter in his cattle grazing activities; and second, that within s 10AA(2) and (3) the relevant "use" of the land is not limited to uses only by the owner, but extends to a use by a non-owner. 12However, as to the first of those contentions, Mr Young for the Chief Commissioner provided clarification during closing oral addresses. He explained that it was common ground between the parties that the questions in s 10AA(2) should be determined by reference to the entire 280 ha of grazing and farm land on which Mr Porter conducts his operations, but as far as the application of s 10AA(3) is concerned, the parties are at odds. Specifically, the Chief Commissioner says that the enquiry as to "dominant use" of land is confined to Lot 35, whereas the Applicant says that "dominant use" should also be measured by reference to the entire 280 ha of Mr Porter's farming activities. (Mr Young conceded that his client's approach is a "hybrid" one.) 13In my opinion, the Chief Commissioner's view of s 10AA(3) is the correct one. The focus in s 10AA(3) must be on the particular land which would, in the absence of that provision, be subject to land tax under s 8. Here, that land is Lot 35. 14I should add that there is nothing inconsistent in the Chief Commissioner's "hybrid" approach. This is because the enquiry in s 10AA(2) is about "that use of the land" - namely, the primary production use of the land - rather than about the land itself. It is not surprising, in circumstances where primary production activities on a particular parcel of land form only part of a broader undertaking (as the Applicant contends here, and the Chief Commissioner seems to accept), that the question as to whether that broader undertaking has the requisite commercial purpose or character, or is engaged in for the requisite profit-making purpose, should be the focus of that enquiry. The physical use of Lot 35 15During the relevant years, there was only one type of regular physical activity conducted on Lot 35, and that was what Mr Porter described as "commercial beef cattle grazing". 16Mr Boakes explained in his first affidavit (Exhibit A1): 18. As the Applicant was not intending to develop the Land immediately, it verbally allowed Mr Porter to continue his beef cattle grazing business on the Land. 19. This arrangement was formalised in writing when the Company entered into the lease of the Land with Mr Porter which commenced on 1 June 2006 for a term of one year with a holding over provision. ... 20. The rent under the Lease was $1.00. Mr Porter was not liable under the Lease to pay any rates, taxes or other charges in respect of the Land. Rather, the Applicant paid all of these imposts. 21. The Applicant allowed Mr Porter to continue to use the Land to graze his beef cattle for the following reasons only: (a) to deter and prevent trespassers, particularly from adjoining residential development, from putting their animals, or riding motorbikes, on the Land; (b) to keep the grass to a manageable length to prevent infestation from weeds and vermin and fire risk; and (c) to ensure that the Land was maintained to avoid any notices from the various government authorities that monitor the upkeep of rural lands. 22. It was never the Applicant's purpose or intention in allowing Mr Porter to continue to use the Land to graze his beef cattle to attract the land tax exemption for primary production. 17Mr Boakes also stated in his affidavit: 24. During the Tax Years, the Applicant's physical use of the land was limited to its consultants, being surveyors and valuers, making inspections of the Land on one or two days in total over the entire period of the Tax Years. 25. Due to the significant deterioration of the South Coast property market during the Tax Years and the general decline in economic conditions, particularly during and following the Global Financial Crisis, the Applicant decided in 2006 to indefinitely postpone its development plans for the Land. As at the date of this affidavit [27 April 2010], the Applicant still has no plans to develop the Land at any time in the foreseeable future. 26. At no stage during the Tax Years did the Applicant carry out or procure any physical works, changes or improvements to the Land. Specifically, the Land was not connected to services, such as sewerage, water, gas or electricity, and no kerbs, gutters or roads were laid. 27. The Applicant did not offer or market the Land, or any part of it, for sale during the Tax Years, nor did it engage any agents to do so. The Applicant did not sell the Land, or any part of it, during the Tax Years. 18At [28] of his affidavit Mr Boakes provided a table of expenditure undertaken by the Applicant in relation to the land over the financial years 2006 to 2009 inclusive, which shows that in total over those years the Applicant spent the following amounts: Legal fees - $305,985 Council fees - $529,533 Surveys/engineering fees - $380,949 Rates/land tax - $206,827 Fees/permits - $265 Maintenance - $1,108 Sewer/water - $1,916 Valuation fees - $21,500 Insurance - $754 Utilities - $367 19Expenditure totalled $728,690 for 2006 (Mr Boakes' table incorrectly identifies the total for that year as $728,361), $395,134 for 2007, $275,601 for 2008 and $36,394 for 2009 (Mr Boakes' total of $49,779 needs to be adjusted to take account of a duplication). 20Mr Boakes further explained: 29. None of the above amounts related to any physical works carried out on the Land, which remained physically unchanged grazing pasture during the Tax Years. All fees related to ancillary processes or costs associated with the future development and/or holding of the Land. For example, the Council fees in 2006 were for water and sewer charges for the first stage (50 lots), even though no water or sewerage services ran through or were installed on the Land. The legal fees incurred in 2007 related to the Applicant's Land and Environment Court case to obtain its subdivision approval for the additional 107 lots. 30. During the Tax Years, the Applicant passively held the Land and neither developed nor planned to develop and/or sell the Land or any part of it in that time period. 31. The only income the Applicant derived from the Land during the Tax Years was the annual rental of $1.00 from leasing the Land to Mr Porter. 32. The value of the Land significantly declined over the Tax Years. [Annexed hereto] are copies of valuation reports which value the Land in 2006 at $4.7m, 2007 at $3.5m and 2008 as $2.5m. 21Finally it is relevant to note the following from Mr Boakes' second affidavit, Exhibit A2: 18. In or around 2006, the developer of the adjoining subdivision below the Land complained to the Applicant about water runoff on to his land. 19. In September 2009, the development consent for the first 50 lots of the Land was due to lapse unless the Applicant commenced some work on the Land. Had this consent lapsed, it would have cost the Applicant and council further time and money in making and considering a new application. 20. For the purpose only of addressing the adjoining landowner's concerns about water runoff and preventing the development consent from lapsing, the Applicant procured the construction of minor drainage works at the lower southern end of the Land in September 2009. These works merely involved digging a trench approximately 30 cm wide, 90m long and 1m deep along the southern boundary of the Land, laying standard agricultural pipe and backfilling the trench with gravel and soil. The drainage works took less than two days in total to complete. "Use" and "dominant use" of land - general principles and the authorities 22The Chief Commissioner contends at RS[32] that: (a)"Use" is not limited to actual physical activity that occurs "on" the land and can include an indirect use of the land as either trading stock of an existing land development business or the subject matter of a profit making scheme or undertaking; (b)there exist three (3) "uses" of the Milton Property, namely, a leasehold use, a cattle grazing use associated with that leasehold use and a use as the trading stock of an existing business of land subdivision and sale; (c)the cattle grazing use of the Milton Property arises from an artificial blatant and contrived arrangement designed solely to secure the exemption; and (d)the dominant use of the Milton Property is as trading stock of an existing business of land development and sale. 23The Chief Commissioner relies on a number of authorities to support his contention that "use" is not limited to the actual physical use of the land, but rather extends to non-physical, indirect, and intangible uses. Those authorities include Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493, Ryde Municipal Council v Macquarie University (1977) 1 NSWLR 304 (and on appeal (1978) 139 CLR 633) and Tourapark Pty Ltd v FCT (1982) 149 CLR 176. 24The Applicant contends, on the other hand, that in ascertaining the "dominant use" of land, the only activities that can be taken into account are actual physical activities that are conducted "on" the land. It relies on a number of authorities, which I deal with in turn. Sonter and Greenville 25I commence with a discussion of certain comments of Rath J in Sonter v Commissioner of Land Tax (NSW) (1976) 7 ATR 30 and Helsham CJ in Greenville Pty Ltd v Commissioner of Land Tax (NSW) (1977) 7 ATR 278. 26As will become clear, I do not think that these authorities establish the proposition for which the Applicant contends, and to which I have referred in [24] above. Sonter was a case where the subject land was physically used for several different types of activities, and the Court had to determine which of those activities was the dominant one. There was no occasion for the Court to formulate a proposition that activities other than those conducted physically on the land are not to be taken into account and, in my opinion, it did not do so. To the extent that his Honour discussed the relationship between physical and economic uses of the land, it was for the purpose of explaining how the financial performance in respect of the different activities might be used to assist in the identification of the primary use of the land. Specifically, his Honour commented at 34: ... I am concerned with mixed uses, not only in the sense of distinct uses on the same land, such as horse and cattle breeding, but also in the sense of the maintenance of the same animals for different purposes, some of which are purposes of primary production and some are not. In these circumstances the financial gain from the various activities is some indication of the comparative intensity of the activities. The economics of various aspects of the business conducted on land do not necessarily reflect the comparative extent of the use of the land. It is readily conceivable that where there are a number of uses of the same land it may be the least profitable use that is the most intense one, either in its demands on the land, or upon the labour to maintain it, or both. But where, as here, animals are being maintained on land for two business purposes, the problem as to whether the use of the land is primarily for the one purpose or the other will receive some clarification from the financial considerations involved. But I do not regard the financial considerations as necessarily decisive, at all events in this case. All the uses of the land must be considered. ... 27In Greenville , most of the land in question was not used at all, but one and a half acres out of the entire 160-acre parcel were used for the cultivation of pumpkins. The Chief Judge said at 280: ... I think the only question to be decided here is this: can it be said that land most of which is not being used at all is used primarily for the cultivation of it for the purpose of selling the produce of that cultivation if a very small part of it is under cultivation? Another way of putting the question I suppose is: when does land which is not being used at all become land used primarily for cultivation? The plaintiff would have the court answer the first question: yes, and the second question: as soon as any cultivation commences. As counsel for the plaintiff conceded, whether land is being used for primary production within the meaning of the definition must be decided by an objective test - the inquiry is an inquiry into actual land use; it is not to be tested by the intention of the owner (cf Southern Estates Pty Ltd v FC of T (1967) 117 CLR 481; 10 AITR 525). And in applying that test one must adopt a broad approach and a commonsense one. For example, it would not be sufficient merely to look at the area actually under cultivation at the relevant time, if cultivation were being relied upon as the use, so as to ascertain whether for example more than half of the whole of the land was under cultivation - because of course, the part not under cultivation might be unusable or lying fallow, although in the latter instance fallow land might be regarded as passive use of land similar to the kind that was held to be a use in Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493; [1957] ALR 277, and akin to the kind of use to which Lord Denning referred when giving examples in his judgment on the appeal from that decision, reported in 100 CLR 1; [1959] 1 All ER 734. 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 . (emphasis added) 28The Chief Judge's reference to "actual land use" is plainly meant to be by way of contrast with intended land use. And the later reference to the need to point to an activity "being conducted on the land that will give the land the character of being mainly used for that activity" is a natural consequence of the reality that land cannot be characterised as being mainly used for primary production purposes unless the actual, physical primary production activities conducted upon the land predominate over all other uses. But that is a long way from saying that non-physical uses of the land, if any, are to be disregarded. Indeed, his Honour actually referred to the possibility that "passive use of land" may need to be considered in the exercise of weighing up what is the dominant use of a particular parcel of land. The Royal Newcastle Hospital case 29The Applicant submits that its position is also supported by certain comments of Kitto J (in dissent) in Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493. In that case the question was whether certain land owned by the hospital was "used or occupied by the hospital for the purposes thereof". The portion of land in question was described by Kitto J as "virgin bushland, ... stony ridges and ... impassable gullies"; the evidence indicated that it had been purchased by the hospital so as to provide a "buffer" to prevent residential encroachment and to provide fresh air for the patients of its tuberculosis sanatorium. At 508 his Honour said: The word "used", on the other hand [as opposed to "occupied"], does not involve more than physical acts by which the land is made to serve some purpose. 30Fullagar J, also in dissent, identified the "fallacy" on which the case had been decided below as follows (at 506): The root of the fallacy lies in the assumption that deriving an advantage from the ownership of land is the same thing as using the land. The fallacy is helped out by the coining of an expression - "intangible user" - which has no real meaning. Actually, while using the land will practically always mean deriving an advantage from it, an advantage may clearly be derived from the ownership of it without its being "used" in any way. 31Taylor J, with whose reasons Webb J agreed, took a different view (at 515): The word "used" is, of course, a word of wide import and its meaning in any particular case will depend to a great extent upon the context in which it is employed. The uses to which property of any description may be put are manifold and what will constitute "use" will depend to a great extent upon the purpose for which it has been acquired or created. Land, it may be said, is no exception and s. 132 itself shows plainly enough that the "use" of land will vary with the purpose for which it has been acquired and to which it has been devoted. It may be used for a public cemetery, for a common, for a public reserve, in connexion with a church or school and so on. Each of the forms of user referred to in the section relate to use by the owner and some of them, no doubt, contemplate a use which is synonymous with actual physical occupation and enjoyment. Others contemplate a use in a less direct form. ... 32Williams J, the fifth member of the Court, decided the case on the basis of the hospital's "occupation" of the land rather than its "use". 33The Royal Newcastle Hospital case highlights two things: first, that reasonable minds may differ on the meaning of the word "used" in any particular statutory context; and second (in consideration of the first sentence quoted above from Taylor J's judgment), that the context in which a word is used in a statute can be critical to its meaning there. In Royal Newcastle Hospital five members of the High Court were divided on the application of the expression "used and occupied by a public hospital for the purposes thereof" to the facts of the case; to suggest (as both the Applicant and the Respondent do here) that the case points to the meaning of the word "use" in an entirely different statutory context is, in my view, misguided. Nancy Shetland 34The next case relied on by the Applicant is Nancy Shetland Pty Ltd v The Melbourne and Metropolitan Board of Works (1974) 48 ALJR 448 where at 448-449 the Court said: ... development and subdivision do not as such fall within the statutory definition of "use" [in the Town and Country Planning Act 1961 (Vic)] ... 35Nancy Shetland is plainly a statutory interpretation case dealing specifically with the Act there in question. As the Court said at 48: The appellant's case in essence is that the expression "use of any land" in s 17(1D) comprehends development of land including subdivision and ultimately sale. However, reference to other provisions in the Act makes it clear that the word "use" in the subsection does not extend to development or subdivision, let alone sale. The provision, it will be noted, permits continuance of the use of land but makes no reference to development or subdivision. The omission is significant for in other parts of the section, notably sub-ss (1), (1B) and (1C), the word "use" appears in association with the word "development" in the expression "use or development". The absence of any reference to "development" in sub-s (1D) is particularly significant in the light of its inclusion in sub-s (1C). ... Saville 36The next case the Applicant relies on is Saville v Commissioner of Land Tax (NSW) (1980) 81 ATC 4373, a case described by Mr Rider for the Applicant as "very important". The case is said by the Applicant (Summary Submission filed on 29 April 2011, page 18) to stand for the proposition that: what is to be determined [is] actual use, not intention, and where land is actually used for primary production, it takes its character from that use, even where the owner is applying for subdivision approval. 37In fact, Roden J said this, at 4377: 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. ... 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 the 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. 38His Honour went on to say at 4378: As is the case with all matters that are properly to be regarded as questions of fact and degree, a multitude of principles can be stated but none of them will necessarily be decisive. All criteria have to be considered, and there is no formula by which they can be weighed one against the other. In the final analysis, each case falls to be determined on its own facts. In this case, such use of the subject land for the purposes of primary production as there was at the relevant date was minimal and there was no competing activity . It accordingly is, in my view, appropriate to have regard to the intention and purpose of the taxpayers with regard to the land. ... (emphasis added) 39It must follow from Saville , and particularly having regard to the words emphasised, that the "dominant use" of land is not necessarily to be determined by reference to the sole physical activity conducted on the land. Abbott 40The Applicant relies on a comment of Lush J in Abbott v Commissioner of Land Tax [1979] VR 297 at 300 that: ... what is to be examined is the use of the land, and not the subjective attitude of the owner or other persons towards the land or the activities carried on on it. 41Since I do not understand the Chief Commissioner to take a different position, I deal with Abbott no further. The Australian Football League case 42Next the Applicant relies on Australian Football League v Commissioner of State Revenue [2004] VCAT 1882 where at [34] Morris J, the President of the Victorian Civil and Administrative Tribunal, said: In my opinion, the holding of land for future sale or redevelopment is not a "use" of land for the purpose of section 9(1)(g) of the Act. Where that provision refers to land which is "used for out-door sporting recreation or cultural purposes" it is referring to the physical use being made of the land at the relevant time. It is true that, in common parlance, land may be described as being "used" for a financial purpose (for example, to provide security on a loan), but this is not the type of use contemplated by the provision. 43The particular provision under consideration there did not require identification of a "primary" or "dominant" use of the land; all that was required was a determination as to whether the land answered the description of land "used for out-door sporting recreation or cultural purposes". Plainly enough, the "type of use contemplated by the provision", as his Honour put it, is an actual, physical use of the land, and the existence of a non-physical use of the land (even if one could be identified) would have nothing to say about whether the physical use of the land answered the relevant description. This case, in my view, does not provide any assistance in the resolution of the matter before me. The Aboriginal Land Council case 44The Applicant also refers to Minister Administering the Crown Lands Act v NSW Aboriginal Land Council [2008] HCA 48 as establishing a proposition that deriving an advantage from the ownership of land is not the same thing as using the land. This was a case in which the Land Council made a claim to some land under the Aboriginal Land Rights Act 1983 . The claim was resisted, the Minister concluding that when the claim was made the land was not claimable Crown land. The issue for determination was whether the land at the time of the claim was "not lawfully used or occupied" by the Department of Lands. 45In their joint reasons, Hayne, Heydon, Crennan and Kiefel JJ, after referring with approval to the "fallacy" identified by Fullagar J in the Royal Newcastle Hospital case (see [30] above), noted at [75] as follows: ... while it is probably true to say that a person who uses land derives an advantage from it, the converse proposition, that deriving an advantage from ownership of the land is using the land, is false. (original emphasis) 46But their Honours were not saying there that a person who derives an advantage from ownership of land is not using the land. They were simply saying that the conclusion does not follow from the premise - it is a false syllogism, and hence the use of the word "false". As they explained later in the same paragraph: In particular, taking steps towards selling the land may be directed to the owner deriving the advantages of disposing of an asset and receiving the proceeds of sale. But identifying that the owner seeks to derive these advantages does not show that the land is being used. Rather, what are the acts, facts, matters and circumstances which are said to show that the land is being used? (emphasis added) 47The expression "acts, facts, matters and circumstances" had been used four times earlier in the joint reasons, at [69] and [70], as follows (footnotes omitted): 69. No matter whether the question is framed in the statutory terms ("not lawfully used or occupied") or, as here, is framed more narrowly as one about use, attention must be given to identifying the acts, facts, matters and circumstances which are said to deprive the land of the characteristic of being "not lawfully used or occupied". Of course, it is necessary to measure those acts, facts, matters and circumstances against an understanding of what would constitute use or occupation of the land. But three points should be made. First, nothing that was said in the earlier decisions of the Court of Appeal, and nothing that is said in these reasons, should be understood as attempting some exhaustive definition of when land is not lawfully used or occupied or of what is relevant use or occupation that will take lands outside the definition of claimable Crown lands. Secondly, as Mason P rightly said, "use" is a protean word . Thirdly, recurring physical acts on the land, by which the land is made to serve some purpose, will usually constitute a use of the land. And a combination of legal possession, conduct amounting to actual possession, and some degree of permanence or continuity will usually constitute occupation of the land. But while these propositions may sufficiently identify the most common cases where it can be said that there is use or occupation of the land, they are not propositions that chart the metes and bounds of those ideas . As the decision in Council of the City of Newcastle v Royal Newcastle Hospital ("the City of Newcastle Case ") shows, land adjoining hospital grounds and purposely kept in its natural state to provide clean air and quiet undeveloped surroundings, can be said to be "used or occupied by the hospital for the purposes thereof". 70. Hence the importance of directing attention to what are the acts, facts, matters and circumstances which are said to show that land does not meet the description of "not lawfully used or occupied". It is the specification of those acts, facts, matters and circumstances which will provide the greatest help in deciding whether land meets the relevant description . And in the present case, the appellant contended that it was the steps taken towards sale of the land that prevented characterisation of the land as "not lawfully used". (italics in the original; the underlining is mine) 48The underlined portions of [69] are particularly important, in that they heavily qualify the transportability, from one case to another, of judicial pronouncements as to the meaning of particular words or expressions. One should be all the more cautious when the pronouncement was made in relation to an entirely different expression in an entirely different statutory regime. Reysson and Cornish Group 49Finally I turn to Reysson Pty Ltd v Chief Commissioner of State Revenue [2009] NSWADTAP 17 and Cornish Group Pty Ltd v Chief Commissioner of State Revenue [2009] NSWADT 191, cases which are claimed to support a proposition that holding of land for future development is not a "use" for land tax purposes. 50In Reysson the Appeal Panel held, in reliance on Saville , that actual use of the land is decisive - apparently accepting that it is irrelevant to that enquiry that the land was awaiting development approval (see [23] and [25]. In Cornish Group , Judicial Member Verick chose at [45] not to take into account what was described as the "Investment Use" of the land - paragraph 43 of the reasons in Cornish Group confirms that "Investment Use" was "the future residential development of the Land". 51I do not consider that either of these authorities advances the Applicant's case here. That is because in those cases there was no finding that the awaiting of development approval, or the intention to develop the land in the future, was a "use" of the land. I do not take those cases as authority for a proposition that an entity awaiting development approval or one intending to develop land in the future cannot be using the land; at most they are persuasive of a finding that without more, the identified circumstances will not amount to a use of the land. 52As will be seen later in these reasons, a characterisation of the Applicant's circumstances as the mere awaiting of development approval or the holding of an intention to develop land in the future would not be accurate. Summary in relation to "use" 53When one considers the breadth of the word "use" (the Macquarie Dictionary (Federation Edition, 2001) contains 14 separate definitions of the word "use" as a noun, including "the act of employing or using, or putting into service"; "an instance or way of employing or using something"; "a way of being employed or used; a purpose for which something is used"; and "the enjoyment of property, as by employment, occupation, or exercise of it; the benefit or profit of property (lands and tenements) in the possession of another who simply holds them for the beneficiary"), and also its "protean" nature ( Aboriginal Land Council case, at [69]), there would surely need to be very powerful indicators, either in the decided cases, the context surrounding the relevant provisions, or the overall purpose and object of the LTM Act, that an examination of the "use" of land should be confined to physical activities "on" the land, before it could be accepted that this is so. I have identified no such indicators. 54In fact, just as it was in the Aboriginal Land Council case, so it is here with Ashleigh: it is necessary to identify the "acts, facts, matters and circumstances" by reference to which it can be said that the primary production use of the land is, or is not, the dominant use of the land. And there is no warrant, either in any of the cases on which the Applicant relies, or in the context or purpose of the LTM Act, to exclude from that enquiry any acts, facts, matters or circumstances that relate to something other than physical activities conducted on the land. 55I agree, therefore, with part of the Chief Commissioner's contention at [32](a) of his submissions, as referred to in [22] above, namely that "use" is not limited to actual physical activity that occurs "on" land and can include an indirect use of land. But there is a further proposition that the Chief Commissioner puts forward, and that is that one such "indirect use" is the Applicant's use of the land as trading stock. That is not such a straightforward proposition. 56I had some initial doubts as to whether an entity's holding of property as trading stock truly amounts to a use of that property within the meaning of that word in s 10AA(3) of the LTM Act. Whether or not that doubt is well founded, there was more than a mere "holding" here. There was a significant write-down in the value of the land, which provided an initial, and an ongoing and very substantial, financial benefit - to such an extent that all, or almost all, of the profits of the joint venture were extinguished with the result that no tax, or almost no tax, was paid on the joint venture's other activities. I fail to see how that financial treatment of the land - a treatment that commenced virtually as soon as the put and call option was entered into - is not properly to be regarded as a "use" of the land. 57In this case there are, as the Chief Commissioner submits, three relevant uses of the land during the relevant years. First there is the physical use of the land by Mr Porter as a property for the grazing of cattle. Next there is the use of the land by the Applicant as the subject of a lease to Mr Porter, and from which the Applicant derives income of $1.00 per year. Then there is the use of the land by the Applicant, on behalf of the joint venturers, as an item of trading stock in the joint venture's property development business, and in respect of which significant amounts of money have been expended: see [18]-[19] above. Do the primary production activities constitute the "dominant" use of the land? 58I turn now to consider whether the primary production activities constitute the "dominant" use of the land as at each of 31 December 2006, 2007, 2008 and 2009. 59In Leda Manorstead v Chief Commissioner [2010] NSWSC 867, Gzell J said at [69]-[73]: 69. Dominant in its ordinary meaning connotes ruling, prevailing, or most influential. The statute's reference to a dominant use presupposes that land may be used for more than one purpose and requires a determination of which use of the land is the main, chief or paramount use. 70. That is a question of fact and degree that may, in the end, be determined as an objective matter of impression having regard to the facts. 71. In Saville v Commissioner of Land Tax (1980) 12 ATR 7, Roden J was concerned with whether land was used primarily for the maintenance of animals thereon under a former provision in the Land Tax Management Act . The primary use test was not unlike the dominant use test in the present legislation. His Honour said at 10: "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." 72. In Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79, Perrignon J was concerned with the definition of "rural land" as land that is wholly or mainly used for carrying on the businesses or industries of grazing amongst other uses in the Local Government Act 1919, s 118. At 84 his Honour said that what was called for where land was put to a number of uses, was the weighing of the evidence relating to various uses to which land was put, including, but not limited to, the nature and intensity of such uses, the physical areas over which they extended, and the time and labour spent in conducting them. 73. His Honour's decision was upheld on appeal ( Hope v Bathurst City Council (1986) 7 NSWLR 669). A majority of the Court of Appeal held that the characterisation of rural land as land that is wholly or mainly used for carrying on the businesses or industries of grazing, amongst other uses, did not relate solely to the quantum of area of land used for relevant purposes but related to the end to be achieved by the use and included other criteria such as the nature and intensity of the use. 60It is appropriate in this case to consider the various factors that Gzell J referred to in Leda Manorstead , namely the nature and intensity of the various uses of the land; the physical areas over which those uses extended; the time and labour spent in conducting them; and the end to be achieved by them. By considering those factors it will be possible to identify the "ruling, prevailing or most influential" use of the land. 61The most straightforward of these factors is the aspect of time and labour, and in this the physical activities of Mr Porter clearly predominated. It is difficult, in fact, to identify any particular amounts of time or labour devoted by the Applicant or the joint venturers towards the leasehold use or the "trading stock" use, although one might equally conclude that the land is used throughout the relevant years, without interruption, for those purposes. 62In relation to the physical areas, there is nothing to distinguish between the different uses; it is fair to say that all of them extend to the entire area of the land in question. 63But an examination of the nature and intensity of the different uses, and the end to be achieved by them (which examination must include the economic investment in relation to each of them), presents a telling picture. Although Mr Porter's level of investment in the activities he undertook during the relevant years is itself not a goodinsignificant, it is fair to say that it is dwarfed by the level of investment undertaken by the Applicant. 64First there is the amount represented by the difference between a market rent for the land and the $1.00 per annum actually paid. There is evidence from Mr Neil Menzies, a valuer with the firm Walsh and Monaghan Pty Ltd, that the "market rent" reasonably expected to be paid for the property would be $300 per hectare for the period 1 June 2006 to 31 May 2007, and $390 per hectare for the period 1 June 2007 to 31 December 2009. Mr Menzies did not include in his report any reference to the basis of those figures of $300 and $390; in cross-examination he said that the figure of $300 was "based on a definition of a market rental and is based on evidence of other market rentals for rural land in and around the area of the property" (Transcript, 16/03/11, p.10 lines 5-7). He said much the same thing in relation to the figure of $390. In neither case, however, did he provide any details as to comparable properties - whether by way of location, condition, extent of improvements, or types of activities conducted upon them. Despite those shortcomings, I can nevertheless comfortably conclude that the market rent for the property would have been, during the relevant periods, somewhat more than $1.00 per annum, without being specific about precisely what the market rent might have been. 65Next there is the actual expenditure on the "ancillary processes" (as described by Mr Boakes) which according to Mr Boakes amounted to almost $1.5 million for the four financial years 2006 to 2009 inclusive. Mr Boakes' assertion that the Applicant "passively held the Land" (Exhibit A1, at [30], quoted at [20] above) hardly does the facts justice. 66In addition to that is the fact that the "Joint Venture Partnership" significantly wrote down the value of Lot 35 in its financial statements. It first recorded the land as an item of trading stock in the 2004 financial year (Tab 7, folio 110, of the Respondent's Evidence Folder - although I confess that I do not understand how this is correct, given that the Applicant did not purchase the land until the 2006 financial year) but immediately wrote down its value by some $5.5 million. There were further write-downs in value in later years - to $4 million in 2005, and to $3 million in 2006. Each of these actions provided significant financial benefits for the joint venture partners in the form of sheltering of other income from tax, or at least significantly reducing the tax burden. 67The truth is that purchasing a property for $10.9 million, securing at considerable expense development consent for the purpose of selling residential lots, and writing down the value of the land with the result that significant taxation benefits accrued to the joint venturers, are actions that stamp the use of the property with a character that far outweighs any that it could derive from the primary production activities that Mr Porter conducted here. The Applicant did not merely "hold", in a passive sense, Lot 35 on behalf of the joint venturers; rather, the Applicant, on behalf of the joint venturers, spent considerable amounts of money so as to get the property into a condition that it needed to be in so that its full potential could be exploited. The joint venturers also took the taxation benefit of the write-downs in the value, totalling $7.5 million over two and a half years. Although the securing of the development consent did not involve physical activity "on" the property, it involved activity "in relation to" the property. That is a use of the land. The use of the land by the joint venturers as an asset that provided significant taxation benefits for them, on an ongoing basis, is also relevantly a "use" of the land. These are the purposes for which the land was used throughout the relevant years and, in my opinion, together they represent the "dominant" use of the land throughout those years. It follows that Lot 35 is not "land used for primary production" within s 10AA(3) of the LTM Act. The requirements in s 10AA(2) of the LTM Act 68In case I am wrong in my conclusion in relation to s 10AA(3), I proceed now to consider the provisions of s 10AA(2). 69The Chief Commissioner's written submissions contain a useful outline of the history of the legislative provisions, and the current requirements of s 10AA(2). Part of them I set out with approval here (RS [15]-[23]): The prior legislative provisions 15. Prior to the enactment of sec 10AA the primary production exemption was contained in sec 10(1)(p) of the LTMA which relevantly exempted: "(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 (ii) is land used for primary production (whether or not in the course of carrying on a business of primary production) if the land is within a "rural" or "non-urban" zone under a planning instrument or (in the case of land not within a zone under a planning instrument) is land that the Chief Commissioner is satisfied is rural land ... " 16. The expression land used for primary production was defined in sec 3 of the LTMA so as to include "the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce". 17. In that form of the legislation, a business, properly so called in contradistinction to a mere hobby or pastime, of primary production, sufficed, because the legislation did not require any particular scale of business activity. Prior judicial consideration - the intended mischief 18. Thus in the context of whether for income tax purposes a taxpayer was a "primary producer" that is, a person who carried on a business of primary production, Walsh J in Thomas v FCT (1972) 3 ATR 165 said at 171 as follows: "There is no doubt that the appellant's chief occupation was the practising of his profession and that the tree farming, if it had a business character, was relatively of minor importance both as to the time devoted to it and as to the returns to be expected from it. But a man may carry on a business although he does so in a small way . In my opinion the appellant's activities in growing the trees ought not to be found to have been carried on merely for recreation or as a hobby. I leave out of account the pine trees, the growing of which did not have, I think, a significant commercial purpose or character . But the appellant in planting the avocado pear trees and the macadamia nut trees set out to grow them on a scale that was much greater than was required to satisfy his own domestic needs and he expected upon reasonable grounds that their produce would have a ready market and would yield, if the trees became established, a financial return which would be of a significant amount, with a relatively small outlay of time and money, and that this return would continue for a very long time. In these circumstances I think it is proper to find, and I do find, that he set out to engage in producing the pears and the nuts as a business and that he was in the tax year carrying on that business, which was a business of primary production." (emphasis added by the Chief Commissioner) 19. The decision of Walsh J in Thomas v FCT was relied upon in the High Court in the first round of the litigation known as Hope v Bathurst City Council (1980) 144 CLR 1. There, a concessional council rate applied in respect of land "wholly or mainly used ... for carrying on ... the businesses or industries of grazing". In the joint judgment of Gibbs and Stephen JJ at page 3, it is stated: " ... it is perfectly clear that [Walsh J.] did not intend to suggest that a commercial activity cannot be described as a business if it is small in scale." 20. In the same case, Mason J with whom Gibbs, Stephen, Murphy and Aicken JJ agreed, said: "[Walsh J] had expressly conceded that a man may carry on a business though in a small way." 21. In the opinion of Mason J the ordinary or popular meaning of carrying on a business of grazing, denoted: " ... 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." 22. By the time of the subsequent litigation involving Hope v Bathurst City Council (No. 3) [1994] NSWCA 139, the definition of "farm land" now provided that: 'farm land' means a parcel of rateable land which is valued as one assessment and the dominant use of which: (a) has a significant and substantial commercial purpose or character; and (b) is engaged in for the purpose of profit on a continuous or repetitive basis;" 23. In considering that new definition of "farmland" in the Local Government Act 1993 (NSW), Priestley JA with whom Meagher JA agreed, said as follows: "The new definition of "farm land" both adopted Mason J's definition of the ordinary meaning of business (in para(b)) and added (in para(a)) further requirements which such a business must have before it could be considered a farming business for the purpose of the new definitions. The additional requirements were that it have a significant commercial purpose or character (adopting the words of Walsh J in Thomas) and also a substantial commercial purpose or character. The view that in the new definition there was the deliberate addition of a requirement not in the old one seems to me to follow plainly enough from a consideration of the history I have earlier summarised." 70Section 10(1)(p) was repealed by the State Revenue Legislation Further Amendment Act 2005 and replaced by s 10AA with effect from 7 December 2005. The Explanatory Note to the Bill noted that the new s 10AA would bring the LTM Act definition of land used for primary production into line with the Local Government Act definition of farm land. 71It is tolerably clear from that brief history that s 10AA(2) requires not only that the primary production use of the land must be engaged in as a business ("for the purpose of profit on a continuous or repetitive basis" - paragraph (b) - and it is not to the point that a profit might not actually be made) but also that the use must have a "significant and substantial commercial purpose or character" - paragraph (a). That is what the Court of Appeal held in Hope (No. 3) , in relation to the definition of "farm land" in the Local Government Act 1993 (see the quote in paragraph 23 of RS in [69] of these reasons), and it is what is required in the corresponding provisions in the LTM Act as well. 72To put Priestley JA's comments in Hope (No. 3) into their proper context, it is as well to note a brief excerpt that precedes the one quoted by the Chief Commissioner, above. Immediately prior to the quoted paragraph, Priestley JA said: The High Court had made it plain in its 1980 decision, [ Hope v Bathurst City Council (1980)] 144 CLR 1, that it did not necessarily follow from the decision that an activity did not have a significant commercial purpose or character that it was not a business within the scope of the common or general meaning of the word. That is, the High Court left open the possibility that an activity engaged in for the purpose of profit on a continuous or repetitive basis (to use Mason J's words) would be a business within the ordinary or popular meaning of the word even if the business were carried on in a small way and irrespective of whether it had a significant commercial purpose or character. 73Later, in examining the findings made in the Land and Environment Court (from which Mr Hope was now, once again, appealing to the Court of Appeal), Priestley JA said this: The critical finding of fact made by [the judge] was that Mr Hope's use of the land for agistment, notwithstanding it was the dominant use of the land, did not involve a use for the business of grazing having a significant and substantial commercial purpose or character. [The judge's] reason for this conclusion was that Mr Hope's use of the land, maximising the carrying capacity of twelve acres of pasture land by agisting a handful of horses and generating gross annual income in the order of $1,000 was altogether too minor and small to satisfy the requirement of para (a) of the definition of "farm land" that the business should be one having a significant and substantial commercial purpose or character. It seems to me that if [the judge's] interpretation of "farm land" was correct, then on the facts before him his conclusion was one which was well open to him, and did not involve any error of law. ... The requirements in s 10AA(2)(b) of the LTM Act 74Against that background, it is convenient to start with an examination of the requirement in paragraph (b). Not surprisingly, Mr Porter gave evidence that he conducts his activities for the purpose of profit. In paragraph 42 of his affidavit sworn on 23 April 2010 (Exhibit A5) he said this: My use of the land was engaged in for the purpose of profit on a continuous or repetitive basis. My only purpose in using the land was to make a profit, that is, to generate a cash surplus (profit) from my business income exceeding my operating expenses. 75The Chief Commissioner notes, correctly, that statements of that kind must be carefully and cautiously considered and weighed against the objective facts and inferences to be drawn from those facts: Warriewood Pty Ltd v FCT 93 ATC 4653 per Lockhart J; Pascoe v Commissioner of Taxation (1956) 30 ALJR 402 at 403 per Fullagar J. 76Income tax returns lodged by Mr Porter for the financial years 2006 to 2009 (broadly corresponding to the relevant land tax years under consideration here) show that in each of those years Mr Porter incurred tax losses from his primary production activities. The tax losses were large: $50,687 for 2006, $105,812 for 2007, $79,111 for 2008 and $86,047 for 2009. However, there are a number of difficulties with those figures, not the least of which is that they include not only Mr Porter's activities in Milton, but also his forestry activities in Kyogle, in the State's north. It was also established through cross-examination of Mr Paul Mansfield, who prepared Mr Porter's tax returns for 2008 and 2009, that there is a major discrepancy in the cattle trading stock figures for 2007 (and possibly also for 2006). In particular, although the closing stock figure for 2006 was reported as $50,056, the opening stock figure for 2007 (which should be equal to the closing figure for 2006) was reported as nil. Wrong reporting of trading stock, or changing the method of valuing trading stock from one year to another, can have a significant impact on cost of sales and hence on profit. It follows that the tax results for at least some of the years 2006 to 2009 are at best questionable, and they are certainly inconsistent. 77But even if it could be established that Mr Porter habitually incurred tax losses, that says nothing about whether he "actually made" a profit (which is not a necessary requirement in any event) because profit should be measured by reference to revenue and expenditure, and perhaps by reference to balance sheet movements between two points in time, rather than by reference to the taxation concepts of assessable income and allowable deductions. Much less does the incurring of tax losses say about the question whether Mr Porter's primary production use of the land was engaged in for the purpose of profit. Expert opinion - Mr William Hoffman 78Mr Hoffman, an expert witness called by the Chief Commissioner, operates a beef consulting business in northern New South Wales. From 1973 until 2010 Mr Hoffman worked for the NSW Department of Primary Industries, primarily as a Livestock Officer (Beef Products) and Technical Specialist (Beef Breeding). Mr Hoffman prepared three reports in relation to these proceedings, marked as Exhibits R7, R8 and R9. Relying on the information provided to him about Mr Porter's income and expenditure, Mr Hoffman concluded that pages 5-6 of Exhibit R7 that: Mr Porter's beef grazing business was not capable of making a profit in the relevant years examined because very clearly expenditure far exceeded the business income. The business obviously lacks the scale and scope to produce sufficient kilograms of beef for sale at the prices available to generate a level of income to sustain the cost structure in place. Even without including an allowance for Mr Porter's owner/operator labour input, the business would still be returning a significant loss in Operating Profit (or Earnings Before Interest and Taxation). Based on the trends for income and costs evident across the four years reviewed, I do not believe that this business is likely to make a "profit" in the foreseeable future. Kilograms of beef produced could not increase by the level required to generate sufficient income to cover the costs currently being incurred in this business. The scale of the business (namely the land mass and cattle numbers) restricts the amount of saleable beef capable of being produced and in my opinion will continue to do so. 79Mr Hoffman had to acknowledge in cross-examination that, since the information provided to him did not differentiate between Mr Porter's beef activities in Milton and his forestry activities in Kyogle and therefore some, at least, of the expenditure recorded would relate to Kyogle, the quantum of the losses recorded in his reports would need to change. He also acknowledged that he had taken the tax records as he found them - and so, if amounts were claimed as deductions that were not actually allowable as deductions, then the "operating losses" summarised in Table 1 of Exhibit R7 would decrease. Expert opinion - Mr Mark Bryant 80Mr Bryant is a partner in the international accounting and business advisory firm Ernst & Young. He was asked by the Chief Commissioner to provide an expert opinion in relation to Mr Porter's activities. Mr Bryant eventually wrote four reports, Exhibits R10, R11, R12 and R13. In R10, he provided this helpful outline of the concept of "profit": 58. "Profit" is not defined in the Land Tax Management Act 1956 (NSW). 59. "Profit" is defined in the Australian Accounting Standards Board Glossary of Defined Terms (updated to 31 December 2009) as: The residual amount that remains after all expenses (including capital maintenance adjustments where applicable) have been deducted from income. 60. "Profit or loss" is defined in the same Glossary as: The total of income less expenses excluding the components of comprehensive income. 61. (Neither of the concepts of "capital maintenance" nor "comprehensive income" are relevant in the present context). 62. The meaning of "profit", less technically, is well understood: it is the measure of whether a person or entity is better off ("profit") or worse off ("loss") as a result of engaging in an activity. It is expressed as income less expenses. 81Mr Bryant acknowledged at [79] of Exhibit R10 that he could not comment on whether the purpose of the use of the land for cattle trading was profit; he could comment only on the reported outcomes . 82I will deal with other aspects of Mr Hoffman's and Mr Bryant's reports later in these reasons, in the context of the "significant and substantial commercial purpose or character" requirement in s 10AA(2)(a). Expert opinion - Mr Richard Ivey 83Mr Ivey is a Principal of the firm WHK Ivey. He is a chartered accountant, a certified practising accountant and a registered tax agent. He was briefed by the Applicant to provide an expert opinion on Mr Porter's primary production activities. He provided three reports (Exhibits A7, A8 and A9). 84Mr Ivey said the following in relation to the concept of "profit" (Exhibit A7, at 4.3.1): Types of Profit "Profit" is usually defined as income less expenditure for a particular activity. As there are many different measures of income and expenses, there are also a number of different measures of "profit" ... 85He then provided explanations of five different "profit" concepts, which he labelled "Gross Profit", "Enterprise Gross Margin Profit", "Net Profit before Interest", "Net Profit after Interest" and "Profit including Capital Appreciation". 86Mr Ivey identified various "inappropriate or inconsistent expenses" that had been reported in Mr Porter's income tax returns and, after making adjustments to exclude them on the basis that they should not be charged against the income of the beef cattle operation, Mr Ivey concluded that Mr Porter had made: (a)a "gross profit" on that operation for each year from 2003 to 2009 inclusive; (b)an "enterprise gross margin profit" on that operation for each year from 2003 to 2009 inclusive; (c)a "net enterprise" profit on that operation for 2004, 2005 and 2006; and (d)a "net enterprise" loss on that operation for 2003, 2007, 2008 and 2009. Summary of the expert reports on the question of "profit" 87The expert reports dealt comprehensively with the question whether Mr Porter "had made" a profit but ultimately I have found that information, and those opinions, of little assistance to the question under s 10AA(2)(b). Mr Bryant properly acknowledged that he was unable to express an opinion as to whether Mr Porter's primary production activities were engaged in for the purpose of profit on a continuous or repetitive basis, and of course the same restriction must apply in relation to both Mr Hoffman and Mr Ivey. 88As to what the word "profit" signifies in s 10AA(2)(b), there is a danger in over-analysing the concept. Mr Bryant's summary at R10 [62] (see [80] of these reasons) is entirely acceptable. An alternative formulation was provided by the Crown Solicitor in his instructions to Mr Hoffman, as follows (R7 at page 18): "profit" should be construed as meaning gross receipts less immediate costs of production and any non-operational expenses such as depreciation and provisions but excluding any land holding costs associated with the operation of the business. 89Ultimately, though, I was struck by the simplicity of Mr Porter's formulation (Transcript, 11/03/11, page 81): Yes, basically, I feel as though that things should change from red to black. 90It should not be any more complicated than that. Consideration of the "profit" question 91In this particular case, the surest guide to the resolution of this question is the largely uncontradicted evidence of Mr Porter himself as to the actual activities he undertook, and from which the Tribunal can infer the purpose for which he undertook them. He said in his affidavits, for example: * Farming has been his only livelihood for almost 50 years, with some minor exceptions (A5 at [2]); * For 29 years he has conducted beef cattle grazing activities, particularly in the Milton area (A5 at [3]); * From 1990 onwards he (with his wife, now deceased) used the whole of the Milton properties for commercial beef cattle grazing and turf farming (A5 at [9]); * During the relevant land tax years he continued to commercially graze beef cattle on Lot 35 in the same manner as he had done since before he sold the land to the Applicant (A5 at [27]); * In accordance with prudent commercial grazing practices, he rotated his beef cattle stock between the various paddocks and properties he owns or uses (A5 at [31]); * He sold 95 beasts in the 2006 financial year, 74 in 2007, 69 in 2008, 117 in 2009 and 74 between 1 July 2009 and 23 April 2010 (A5 at [36]-[40]); * During the relevant land tax years he regularly talked to cattle sales agents about the movement in market prices so as to optimise his sale price and reduce his purchase costs for his cattle (A6 at [3]). 92In oral evidence he said: * "... the whole purpose of my operation was to make a profit. I'll give you an example, like now the fodder, conservation of fodder, it doesn't come up on any of these figures within your taxation but the hay sheds are full, the corners of the paddock have silage in them, things like that. ... it's very, very hard to explain conservation of fodder, cleaning out dams, upgrading - like they're in expenses but your fodder when you do that by yourself there's a lot of expenses in there that don't show up in your balance sheet" (Transcript, 11/03/11, pp 68-69); * "If I could explain just a little bit on the sales of progeny. With the few bad years we've had the stock don't cycle, has to go back in calf, and at times we have to sell cows that haven't gone back in calf. Specifically that we want - I can recall losing calves in the December period that were very young calves because of the heat, scours, the flies carrying the scours, and I lost up to - I lost eight calves in two days because of scours and the heat and I lost another three about three days later. Now that cuts into profit and your selling profit and you can't - you just can't take those figures in, so what I'm doing is bringing them back into the calving pattern of winter where there's no flies, the cows don't have as much milk and the progeny is, as we come into the spring when there's more feed, the milking process, the calves are of an age to take it. These are the factors that when you get a heavy drought that cattle don't recycle. All these sort of things are left to the weather and you cannot farm against that." (Transcript, 11/03/11, pp 78-79). 93That is the talk of a farmer, not a hobbyist. 94On the basis of his affidavit and oral evidence, I am satisfied that Mr Porter engaged in his primary production activities as a business and not as a hobby or a recreational pursuit. A finding of that nature necessarily means that he engaged in those activities for the purpose of profit on a continuous or repetitive basis. Mr Porter may not be the most efficient farmer, or the most successful or profitable, and he may not have made the wisest decisions in relation to equipment purchases, or in the timing of his stock acquisitions or sales. But he is a farmer. He has always been a farmer. I am satisfied that there is no difference in the character of the activities that he conducted during the relevant land tax years and those that he has conducted throughout the period of his beef cattle undertaking. In short, and for the avoidance of doubt, I am comfortably satisfied that his life's work has been engaged in for the purpose of profit on a continuous or repetitive basis, and that applies equally to his primary production activities conducted during the relevant land tax years. 95Whether the "profit" requirement is one essential element of the business test, or is (as Priestley JA seemed to suggest in Hope (No. 3) (see above)) the full extent of the business test, I am satisfied that paragraph (b) of s 10AA(2) is satisfied for each of the land tax years in question. The requirements in s 10AA(2)(a) of the LTM Act 96It is now necessary to determine, within s 10AA(2)(a), whether, for the relevant land tax years, Mr Porter's primary production use of the land had "a significant and substantial commercial purpose or character". 97In its written submissions filed prior to the hearing, the Applicant said (footnote references omitted): 77. The Act did not define the phrase "significant and substantial commercial purpose or character" or the component words. The ordinary meaning of the component words are (relevantly) as follows: "significant" means "important; of consequence" "substantial" means "of considerable amount, quantity, size"; "commercial" means "capable of returning a profit"; "purpose" means "an intended or desired result; end or aim"; and "character" means "qualities; status or capacity". 78. Based on the ordinary meanings of the above words, the use of land for a primary production activity will have "significant and substantial commercial purpose or character" if the nature, scale and intensity of the activities on the land are of such importance and size that they actually, or are intended to, realise a profit. That is, only real, genuine, serious and weighty business operations (as opposed to recreational, hobby or "nominal, token, illusory, insubstantial or ephemeral" activities) will qualify for exemption. 79. Also, in Page v Council of the Shire of Parkes [1991] NSWLEC 4, the New South Wales Land and Environment Court (Cripps J, as he then was) held that "significant and substantial commercial purpose or character" was determined by the "farming use" and not the size of the applicable land. 80. In this case, the evidence shows that the Grazing Use, whether on the Land or the Milton Land, had a "significant and substantial commercial purpose or character" during the Tax Years because: it involved substantial areas of land - 15 hectares for the Land and 62 hectares for the Milton Land; the Land and Milton Land had a PIC (i.e. it complied with the necessary regulatory requirements for commercial beef cattle grazing); all of Mr. Porter's beef cattle that grazed on the Land and the Milton Land had NLIS ear-tags (i.e. it complied with the necessary regulatory requirements for commercial beef cattle grazing); it involved substantial numbers of cattle - up to 100 head on the Land and up to 163 head on the Milton Land, which was in excess of the Notional Carrying Capacity of the Milton Land of 112 steers; the Land itself could have supported commercial beef cattle grazing of 20 or more mature animals in a normal year; Mr. Porter's beef cattle grazed on the whole of the Land in excess of 60% of the time each Tax Year; it involved the sale of substantial numbers of cattle - 69 to 117, at least 70% of which grazed on the Land and 100% of which grazed on the Milton Land; and it generated substantial revenue from the sales of beef cattle that grazed on the Land ( $19,484 - $50,097) and the Milton Land ($27,835 - $71,568). 81. In summary, the evidence shows that the Grazing Use of the Land and the Milton Land comprised a real, genuine, serious or weighty business operation. Relevantly, in Taylor v Lismore City Council (2005) NSWLEC 146, the court held at [21] that land used for grazing which generated substantially lower revenues than the Land or Milton Land in this case was being used for a "significant and substantial commercial purpose or character". 98In those submissions: * "Land" means Lot 35; * "Milton Land" means all of the adjoining parcels of land in the Milton area that Mr Porter used for beef cattle grazing purposes; * "Grazing Use" means the commercial grazing of beef cattle; * "PIC" means Property Identification Code; and * "NLIS" means National Livestock Identification System. 99The Chief Commissioner submitted in RS: 117. If land is used for primary production but is not rural land as defined in sec 10AA(4) then to be exempt it must meet two further tests set out in subs. 10AA(2). The use of the land must be a significant and substantial commercial purpose or character and is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made). The use of land must not only be "significant" but also "substantial". 118. In Hope v Bathurst City Council No.2 [1979] 2 NSWLR 471 Glass and Samuels JJA used words, such as "important", "real", "genuine", and "weighty" in connection with the expression "significant". That interpretation advanced by Samuels JA was referred to with apparent approval by Mason J in the High Court (144 CLR 1 at page 9). 119. In the submission of the Chief Commissioner a significant commercial purpose or character requires that the activity is carried on for commercial reasons and in a commercially viable manner. The 'significant commercial purpose or character' indicator is closely linked to the other indicators and is a generalisation drawn from the interaction of the other indicators. It is particularly linked to the size and scale of activity, the repetition and regularity of activity, and the profit indicators and the commercial viability of the business in the foreseeable future. In Case H11 76 ATC 59 at 61; 20 CTBR (NS) Case 65 at 603, the Chairman of Board of Review No 1 said: In determining whether a business is being carried on it is, in my view, proper to consider, as one of the elements, whether the activities under consideration could ever result in a profit ... 100It can be seen from these excerpts from the parties' written submissions that, at least at a level of generality, there is a good deal of common ground between them. The Applicant submits, for example, that "significant" means "important", or "of consequence", while the Chief Commissioner refers to words such as "important", "real", "genuine" and "weighty". But beyond that level of generality, important differences emerge. 101The Chief Commissioner's attack in relation to s 10AA(2)(a) was directed towards what was described as the lack of viability of Mr Porter's primary production activities - the inherent unprofitability of the activities and the likelihood that no profit could ever be made (or, if it might ever be made, it would be so rare as not to reach even Mr Porter's unambitious goal of once every five years or two years in every ten (A5 at [43])). 102Indeed, this was the focus of much of Mr Bryant's evidence. Mr Bryant concluded that Mr Porter's use of the land did not have a significant and substantial commercial purpose or character (R10 at [81]) and he explained further at R10: 83. A business which makes losses continuously for 12 years could only have a significant and substantial commercial purpose or character if it was the type of business in which it is reasonable to assume might later achieve a profit which would make worthwhile both the prior losses and the costs of having funded them. 84. There are some businesses which have that character. Land development and building and construction are two examples: there may be outlays, but little or no income, for very many years. But the expectation is for a single future year (or for several future years) in which very large profits are to be made. 85. Mr Porter's business is not of this nature. 103The other limb of the Chief Commissioner's attack was supported by the evidence of Mr Hoffman, who was asked whether Mr Porter's beef grazing business, "having regard to its size, scope, scale, manner of operation and permanence as well as [Mr Hoffman's] knowledge of relevant market conditions and anticipated production levels, sales income and expenses", was, during each of the relevant tax years, "characteristic of, and similar to, that of a beef grazing business which had a significant and substantial commercial purpose or character" (R7, page 18). 104At pages 10 and 11 of Exhibit R7 Mr Hoffman explained that through his work with the Beef Cooperative Research Centre (CRC) he has been involved in benchmarking the performance of four Beef Profit Partnership (BPP) groups in New South Wales. By reference to two Key Performance Indicators (KPIs), namely Kilograms of Beef Produced and Cost of Production, he noted that Mr Porter's activities measured significantly differently from (and it could be said, adversely to) the particular BPP group (NSW 01) on which he focused. In particular, he concluded (R7, Table 10) that Mr Porter produced much less beef (the proportion ranges between about 12% and about 24% of BPP NSW 01's production for the years 2005/2006 to 2008/2009) and that his cost of production was much higher (Mr Porter's figure ranged between $4.17/kg and $7.29/kg against the BPP NSW 01 range of $1.26/kg to $1.66/kg). Mr Hoffman concluded (R7, page 11): I do not consider Mr Porter's beef business has the characteristics of, or similar to, that of a beef grazing business which has a significant and substantial commercial character when benchmarked against businesses such as those involved in the Beef Profit Partnership groups used in this example. 105For the same reasons as noted in [79] above, the "cost of production" outcomes for Mr Porter's operations cannot be regarded as entirely accurate, but it is impossible to gauge the extent of the inaccuracy. It may be that the outcomes do not change to any significant degree. But what can be made of those outcomes? It is not clear why it should be accepted that the control group of BPP NSW 01 provides the appropriate benchmark. Nor is it clear that those KPIs, and no others, should be the determinant in drawing the comparison between Mr Porter's undertaking and a notional (or even a real) business with a significant and substantial commercial purpose or character. 106My impression is that the Chief Commissioner, in seeking to rely on the opinions that Mr Bryant and Mr Hoffman have expressed, is setting the bar too high. The test in s 10AA(2)(a) must come down to the question whether, having regard to the nature, scale and intensity of the activities, it is appropriate to describe them as having a significant and substantial - that is, an important and a real or genuine - commercial purpose or character. 107In using the words "important", "real" and "genuine" it is not my intention to rewrite the statutory test; I am simply trying to give some flavour to the characteristics that are required. In doing so, I recognise that what is involved (at least in relation to the word "significant") is a question of fact, degree and judgment. 108"Substantial" is perhaps a less fluid word than "significant"; it can be said with a degree of comfort that "sham" arrangements, or artificial or contrived arrangements, will not be within the description. 109As for "commercial", it seems reasonably clear that the word means of or pertaining to commerce - the interchange of goods or commodities. A use of land that has a commercial purpose or character will be distinguishable from a use that has a private or recreational purpose or character or a use that rises no higher than the conduct of a hobby. 110These, then, are the factors that influence a finding, one way or the other, as to whether a particular use of land has a " significant and substantial commercial purpose or character". 111I commence by recording my view that Mr Porter's use of the land for beef cattle purposes, at each of the taxing dates of 31 December 2006, 2007, 2008 and 2009, had a commercial purpose or character. In fact, that conclusion follows more or less as a matter of course from my earlier finding that he engaged in his cattle activities for the purpose of profit on a continuous or repetitive basis. It is not easy to see how a profit purpose (to use a little shorthand) could stand comfortably beside a non-commercial purpose or character, but in any event I specifically find that his use of the land had a commercial purpose or character. 112The remaining question is whether Mr Porter's use of the land had a "significant and substantial" commercial purpose or character. This is a question that probably requires an answer from both an absolute and a relative perspective. 113The evidence establishes that, in absolute terms, Mr Porter maintained his stock levels at or around the notional maximum carrying capacity of the land described in the Applicant's written submissions as the "Milton Land": see [80] of those submissions, quoted in [97] of these reasons. Stocking at levels markedly below that notional carrying capacity would be an indicator against a significant and substantial commercial purpose or character; maintaining stock levels at or around capacity is, in my opinion, an indicator the other way. 114The numbers of cattle sold and the level of income generated from those sales (A5, [36]-[39]), the extent of use of Lot 35 and the surrounding land for primary production purposes (A5, [51]), and the level of investment in the beef cattle operation (A5, [45]) point in favour of characterising the activities as having a significant and substantial commercial purpose or character. 115In relative terms, the size of the primary production activities is not such that it tips the balance against the Applicant. This is not the largest beef cattle operation in the country, nor the smallest. It is of moderate size, but certainly sufficient to warrant its description as a "significant and substantial" operation. 116I am satisfied that s 10AA(2) of the LTM Act would have been satisfied if the primary production use of the land had been the dominant use of the land. 117However, since on my view of the law the "dominant use" question in s 10AA(3) must be decided against the Applicant, it follows that the land tax assessments must be confirmed. ********** 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: 02 November 2011