Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366 Hearing dates: 18 August 2011 Decision date: 29 November 2011 Before: Allsop P at 1 Campbell JA at 47 Whealy JA at 52 Decision: Appeal dismissed with costs. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: TAXES AND DUTIES - land tax - whether land exempt from taxation as land used for the dominant purpose of primary production per Land Tax Management Act 1956 (NSW), s 10AA(3) - cattle depastured on land - extensive earthworks carried out for future residential subdivision - earthworks not mere preparatory activities - land properly characterised as land "used for" purposes of primary production and commercial land development - necessary to evaluate competing purposes to determine which purpose dominant - commercial land development dominant purpose - land not exempt - not necessary or appropriate in circumstances to express a view on the operation and effect of Land Tax Management Act 1956 (NSW), s 10AA(2). Legislation Cited: Land Tax Act 1958 (Vic), s 9(1)(g), (j) Land Tax Management Act 1956 (NSW), s 10AA, (2), (3) Local Government Act 1919 (NSW), s 118 Local Government Act 1993 (NSW), s 515 Supreme Court Act 1970 (NSW), s 101 Taxation Administration Act 1996 (NSW), s 101(1)(a) Cases Cited: Applewood Residential Development Pty Ltd v Commissioner of State Revenue [2006] VSCA 207; 64 ATR 291 Bosa Development Corp v Coquitlam Assessor, Area No 12 (Bosa No 2) (1996) 30 BCLR (3d) 263 Burnaby/New Westminster Assessor, Area No 10 v Intracorp Developments Ltd (2000) BCCA 121 Burt v Commissioner of Taxation [1912] HCA 74; 15 CLR 469 Canwan Coals Pty Ltd v Federal Commissioner of Taxation [1974] 1 NSWLR 728 Commissioner of Land Tax v Christie [1973] 2 NSWLR 526 Council of the City of Newcastle v Royal Newcastle Hospital [1957] HCA 15; 96 CLR 493 Diethelm Manufacturing Pty Ltd v Federal Commissioner of Taxation (1993) 44 FCR 450 Educang Ltd v Brisbane City Council [2002] QSC 374 Federal Commissioner of Taxation v Murry [1998] HCA 42; 193 CLR 605 Hope v Bathurst City Council (No 2) (1984) 52 LGRA 79 Hope v Bathurst City Council (No 2) (1986) 7 NSWLR 669 Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1 Mayor, Councillors and Citizens of the City of Essenden v Cox [1967] VR 545 Meriton Apartments Pty Ltd v Parramatta City Council [2003] NSWLEC 309 Minister Administering the Crown Lands Act v NSW Aboriginal Land Council [2008] HCA 48; 237 CLR 285 NSW Aboriginal Land Council v Minister Administering the Crown Lands Act [2007] NSWCA 281; 157 LGERA 18 Sandhurst Holdings (Australia) Ltd v Commissioner of State Revenue [2009] VSCA 167; 25 VR 59; 2009 ATC 20-118 Saville v Commissioner of Land Tax (NSW) (1980) 12 ATR 7 Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 Whitfords Beach Pty Ltd v Federal Commissioner of Taxation (1983) 14 ATR 247 Category: Principal judgment Parties: Leda Manorstead Pty Ltd (Appellant) Chief Commissioner of State Revenue (Respondent) Representation: I M Neil SC and A C Harding (Appellant) R L Hamilton SC and A H Rider (Respondent) Verekers Lawyers (Appellant) I V Knight, Crown Solicitor's Office (Respondent) File Number(s): 2007/257920 Decision under appeal Jurisdiction: 9111 Citation: Leda Manorstead v Chief Commissioner [2010] NSWSC 867 Date of Decision: 2010-08-16 00:00:00 Before: Gzell J File Number(s): SC 2007/257920 Judgment 1ALLSOP P : This is an appeal under the Supreme Court Act 1970 (NSW), s 101 from orders made in the Equity Division (Gzell J) under the Taxation Administration Act 1996 (NSW), s 101(1)(a) confirming the assessment by the respondent issued to the appellant ("Leda") dated 6 February 2006 for land tax concerning 593 hectares of land in northern New South Wales, known as Cobaki: Leda Manorstead v Chief Commissioner [2010] NSWSC 867. 2The dispute concerns the meaning and operation of s 10AA of the Land Tax Management Act 1956 (NSW), which is in the following terms: " Exemption for land used for primary production (1) Land that is rural land is exempt from taxation if it is land used for primary production. (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 that the land is rural land." 3The first part of the dispute is whether at the relevant date (31 December 2005) Cobaki was "land used for primary production" within sub-s (3), by reference to para (b). The primary judge found that it was not. In the light of this conclusion it was unnecessary for him to deal with the application of sub-s (2). His Honour did not make factual findings related to the operation of sub-s (2) or consider the meaning and operation of the subsection. 4For the reasons set out below, which fundamentally accord with the approach and reasons of the primary judge, the appeal should be dismissed. Given this, though I have given consideration to giving an opinion on the meaning and operation of sub-s (2) (cf Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1 at 6 [12]), I do not propose to do so for two reasons. First, we were not favoured with detailed argument on the topic, in particular by the Chief Commissioner. To resolve the factual issues concerning the application of sub-s (2) would require further submissions and further argument. This is a cost that the parties should not bear and an allocation of resources that the Court should not make. Secondly, the meaning of sub-s (2) is not the subject of authority. Some aspects of its meaning (in particular the content of "purpose" in paras (a) and (b)) are not without difficulty and the resolution of those matters should be left to an occasion where it arises for decision and is not best dealt with by statements of this Court that are obiter dicta . Factual background 5At all material times Leda owned 593 hectares of land near the New South Wales and Queensland border. The land was bought by Leda in 1995. In the 2006 land tax year the land was zoned other than rural, being zoned urban expansion, as well as small areas of residential, tourist, recreation and environmental protection zoning. As at 31 December 2005 the land carried between 268 and 279 head of cattle which was at or close to its carrying capacity. 6At the time of the acquisition of the land in 1995 (for $16M), there were two development applications lodged relating to the land. One was for bulk earthworks which was granted in January 1995. Later, in September 1995, approval was granted for a 730 lot urban subdivision. A number of other development approvals relating to the land were granted after Leda became the owner. It was common ground that at the time of the assessment Leda did not intend to develop the land in accordance with the development approvals previously obtained but in relation to further development approvals it anticipated applying for and obtaining. Approved bulk earthworks were undertaken by Leda prior to December 1999. Further development applications including for an additional 990 lot urban subdivision and associated bulk earthworks were made up to 2000. 7In 2004 the scale and the intensity of the earthworks expanded significantly, in furtherance of the process of developing the land for residential subdivision. According to the evidence, Leda had expended $8M by the year ended 30 June 2004, a further $4.5M in the year ended 30 June 2005 and $1.2M in the year ended 30 June 2006 on improvement to the land for subdivisional development. Mr Van Rij, a witness for Leda, put the expenses somewhat differently but nevertheless they were substantial. 8The earthworks need not be described in detail beyond referring to the findings of the primary judge at [97]-[98]. These are set out as follows: "[97] So Cobaki is the subject of a Part 3A Concept Plan application under the Environmental Planning and Assessment Act 1979. In the first instance it is required to obtain approval for a concept plan before development approval can be obtained. Mr Van Rij said that the Part 3A application had not yet proceeded to a point where the application was ready for submission for the Minister's approval. [98] In the year ended 30 June 2006, Leda spent $2.3 million on developing earthworks on the land. By 30 June 2006 its total investment in improvements to the land was $13.7 million according to one of the accountants who provided a financial report, Mark Bryant. The other accountant, James Edward Forrest Frayne, did not challenge these figures." 9At the same time as the earthworks and other associated activity for anticipated construction of residential buildings was taking place, Leda conducted cattle grazing operations on the land. The primary judge made the following findings at [77]-[87], about which there is no complaint: "[77] Cobaki was purchased by Leda in 1995 and included 330 cattle depastured on the property. At least since 1989 cattle have been continuously depastured on Cobaki. Existing use rights for grazing up to 400 cattle apply to Cobaki and that number might be increased by obtaining development consent from the council which, according to the evidence, could be obtained readily. [78] When Reginald Anthony Van Rij became the regional manager for Leda he was instructed to maximise the outcome of the cattle raising venture in terms of revenue and minimising cost. When Michael Lucas became farm manager of Cobaki he was told to get the best return and asked his advice on what to do. Mr Lucas advised that cattle should continue to be run on the property and the best return was the sale of yearlings to the supermarket trade. [79] Mr Lucas said the herd was in poor condition and he recommended the best way to improve the herd. He got rid of old cows and other poor breeding stock by sending them to market. He kept three quality bulls with the herd to be crossed with the existing cows. As new calves were dropped the steers were raised to yearlings and sold and the cow calves were kept. [80] When of breeding age, the first calves dropped by new breeders are usually of poor quality. They were sent to market. Mr Lucas said that from early 2004 new cow calves were sent to another property, Kings Forest, where they were crossed with three other quality bulls on that property. New calves dropped from these cows were then returned to Cobaki and later crossed with the bulls on that farm to keep strong bloodlines. Mr Lucas said the restocking in this way to levels suitable for achieving the best results at the market is approximately an eight-year process. [81] In the year to 30 June 2002 there were 433 cattle on Cobaki and in 2003 Cobaki carried 427 animals. In subsequent years drought affected pasture quality and the number of beasts carried fell. Over the past 10 years Cobaki has suffered from periods of drought and dry spells. [82] Monthly reports and stock records were maintained, Mr Lucas making regular reports on the progress of the herd. Cattle inventory reports were maintained that detailed stock held, stock transfers to Kings Forest and sales. [83] Mr Lucas worked for 25 hours per week on average on site at Cobaki. He also managed Kings Forest. [84] George Vougioukas was the Leda group internal auditor. He produced cattle trading summaries from 2002 to December 2008. He also reconciled cattle trading sales as per the cattle trading statement with audited cattle sale figures and the tax returns for Leda to produce a detailed analysis of cattle sales for each year from 2002 to December 2008 showing cattle sales made each year by sales invoice, a reconciliation of the yearly cattle sales with the audited financial accounts and disclosed tax return information relating to cattle sales. [85] In the 2005 and 2006 years there were sales of 121 head of cattle including 3 bulls and 19 calves. [86] Mr Lucas estimated that Cobaki's carrying capacity under non-drought conditions on poor quality pasture was approximately one beast per hectare and the carrying capacity on good quality pasture was approximately two beasts per hectare. He said with the breaking of the drought and the improvement of the pasture the carrying capacity of Cobaki had significantly improved and he continued to restock Cobaki to achieve its highest return. [87] Cobaki's carrying capacity can be increased. In terms of breeding units the estimated range is 266 plus or minus 15%. In terms of land usage measured in hectares, 84% is committed to grazing while less than 25% of the surface area undergoes earthworks at any one time. The council rating category for Cobaki is farmland." 10The primary judge made some further findings and indicated where further findings were difficult in relation to dealing with the evidence of two experts who were called, Mr Bryant (by the Chief Commissioner) and Mr Frayne (by Leda) in [99]-[102] of his reasons, as follows: "[99] Mr Bryant extracted figures totalling $66,912 as the costs of the cattle grazing operation in 2006. Mr Frayne's updated cattle trading results showed a figure of $64,598. The experts met and produced a joint report in which they agreed that audited accounts, tax returns and various cattle trading statements prepared by others at various times did not provide analyses of the profitability of the cattle trading that were completely satisfactory. In light of this opinion, the difference in the above figures cannot be reconciled. But they are reasonably comparable. [100] Issues that may not have been satisfactory were the value of inventories at each year's end; transfers of cattle from Cobaki to Kings Forest; whether some of Leda's employee costs should be attributed to operations at Kings Forest; An appropriate figure for depreciation; and the costs of using or holding the land. What they did agree was that on no basis of calculation had Leda made a profit in aggregate in the periods 2003 - 2006, or 2007 and 2008. [101] The cattle trading statement for the period 1 July 2005 to 30 June 2006 showed a closing stock value of $92,750. [102] The different figures for the loss on cattle trading in 2006 in the cattle trading statements, those adjusted by Mr Frayne, the company's financial accounts and the company's tax return makes it impossible to divine an accurate figure." The primary judge's reasoning 11A number of authorities from other jurisdictions concerning differently worded provisions were presented to the primary judge (and this Court) for consideration. It was accepted that none was determinative of the issue in the controversy. I will return to such of them as require discussion in due course. The essence of the reasoning of the primary judge is contained in [61]-[68] of the reasons. His Honour characterised the use of the land as a use for commercial development of the land. The likely manifestation of that development when finished was residential subdivision with associated commercial development. Crucial, however, to understanding the primary judge's reasons (and the debate in this Court) is to recognise that the characterisation of the use of the land was for the process or undertaking of commercial land development. His Honour did not say, and should not be understood as saying, that the earthworks and associated work were activities preparatory to, but sufficiently closely connected with, a future use for residential subdivision (as completed) to be seen as part of that future use for residential subdivision. 12Though the written submissions of Leda at times sought to criticise the primary judge's reasoning construed or interpreted in this latter way, in oral address on appeal, Mr I M Neil, of senior counsel, who, with Mr A C Harding, appeared for Leda, accepted that the former construction of his Honour's reasoning was in fact how his Honour should be understood. (See Appeal Transcript p 10 ll 26-47.) 13The primary judge thus found that the land was used for two undertakings: commercial land development and cattle grazing. For Leda's objection to be upheld, the cattle grazing must have been the dominant use for the land for s 10AA(3)(b). 14The primary judge then referred to the meaning of "dominant", saying at [69]-[70]: " The dominant use test [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." 15His Honour then referred to authorities to assist him in understanding the necessary evaluative task: Saville v Commissioner of Land Tax (NSW) (1980) 12 ATR 7 ("primary use"); Hope v Bathurst City Council (No 2) (1984) 52 LGRA 79, upheld on appeal (1986) 7 NSWLR 669 ("wholly or mainly used"); and Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 ("exclusively used ... for purposes of farming" where "farming" was defined by reference to the dominant use of the land). The primary judge drew particular assistance from what was said by the Land Appeal Court of Queensland in Thomason at 303, as follows: "In our view, the proper approach to be taken when ascertaining the dominant use of land is to consider such matters as the amount of land actually used for any purpose, the nature and extent and intensity of the various uses of the land, the extent to which land is used for activities which are incidental to a common business or industry of a type specified in section 17(2), the extent to which land is used for purposes which are unrelated to each other, and the time and labour and resources spent in using the land for each purpose. When undertaking this exercise, one cannot ignore the conclusion that an objective observer would reach from viewing the land as a whole." 16Approaching the matter thus, the primary judge at [77]-[102] examined the two uses (see [13] above). His Honour's resolution of the evaluation of the competing uses was set out at [103]-[117] of the reasons, as follows: "[103] While the relative amounts of expenditure on the cattle operation and the earthworks is not the only relevant factor in determining which was the dominant operation, there is a significant disparity in the levels of expenditure on the two operations. [104] From the land area perspective, while 25% of the land was involved in earthworks at any one time, Mr Van Rij said that approximately 50% of the land overall had been the subject of earthworks. His estimate was that 2.5 million cubic metres of earth had already been moved and there remained a further 2.5 million cubic metres to be moved. A job that would take at least two and a half years in ideal conditions. [105] Five non-accounting experts were retained and provided reports. For Leda there was Jasen Allen Somerville, a licensed stock and station agent and auctioneer of livestock; Neil Matthew Sutherland, a soil and water scientist and engineer; and Philip Leslie Mathew, an agricultural scientist. For the Chief Commissioner there was William David Hoffman, a technical specialist (beef breeding) and livestock officer (beef products) with the Department of Primary Industries; and Kerry Charles Moore, a district agronomist with the Department of Primary Industries. [106] They met together and produced a joint report. They agreed that 63% of Cobaki had an agricultural suitability class 4 and was used for grazing purposes consistent with the suitability class. 21% was heavily timbered and constrained to an extent that would best fit agricultural suitability class 5 and was used for low intensity grazing purposes consistent with the suitability class. The remaining 16% of Cobaki, they agreed, was not usable agricultural land and needed rehabilitation. 84% of Cobaki was committed to grazing. [107] From a land use perspective cattle grazing predominates over the areas the subject of earthworks. [108] Mr Van Rij gave evidence that the earthmoving operation involved the use of a substantial fleet of machinery - two large excavators, eight trucks, water carts, rollers and a blue metal crusher for the quarrying operation. The work was carried out by Ecovale Pty Ltd and samples of its invoices were in evidence. For December 2005 the total expenses were $114,973.17. [109] The scale, extent and intensity of the earthworks activities far outweighed those of the cattle raising operation. [110] At 30 June 2006 there were 268 animals depastured at Cobaki. Mr Vougioukas produced audited special purpose financial reports of Leda. The balance sheet as at 30 June 2006 showed that the written down value of plant and equipment used for the cattle operation was $96,232. [111] Again, there is a significantly greater scale, extent and intensity of use related to the earthworks operation as compared with the cattle raising operation. [112] When it comes to the numbers of persons working in each operation, the contrast is again weighted towards the earthworks activities. The operation of the fleet of vehicles required a workforce far greater than the 25 hours per week worked on Cobaki by Mr Lucas. [113] The earthwork activities at Cobaki required expenditure of significant funds, the employment of a reasonably large workforce and the utilisation of a substantial fleet of machinery. On the other hand the cattle grazing activities continued an existing non-conforming use of the land with a herd limited to 400 unless an application was made for an increase. The operation was subject to a gradual programme of herd improvement and a history of losses. [114] An increase in the herd size above 400 was unlikely even though beasts above that number were depastured at Cobaki at certain times. This is because of the joint report of the non-accountant experts. They estimated an increase in breeding units to 266 plus or minus 15%. That was the average of the estimates of 232, 273 and 300 breeding units by three of the experts who expressed an opinion on herd numbers. On that basis, Cobaki would not support an increase in herd size beyond 400. [115] On account of assets and risk, in addition to $16 million paid for Cobaki, Leda has expended a further $13.7 million on earthworks. This is to be compared with the value of the cattle herd at 30 June 2006 at $92,750 and plant and equipment at $96,232. [116] Finally, on a time basis the comparison favours the cattle grazing activities for they may be regarded as using the land continuously. [117] Having regard to these comparisons I take the view that the earthworks activities predominated. Putting it in terms of the Land Tax Management Act , s 10AA(3) it cannot be said, in my judgment, that the dominant use of Cobaki was for the maintenance of animals for the purpose of selling them or their natural increase or bodily produce." The arguments on appeal and their resolution Primary argument 17The fulcrum of debate on the appeal concerned grounds 1, 4 and 5 of the notice of appeal, which asserted error in the characterisation of the use for which the land was put and asserted that there could only be one use for which the land was put - cattle grazing. 18This primary argument was said to involve six propositions: (a) The enquiry required by s 10AA(2) and (3) is focussed on the actual use or uses of the land at the material date. (b) For the purpose of the enquiry there is a material distinction between a use of the land on the one hand and a preliminary activity carried out on the land to prepare it for a contemplated or intended use in the future, on the other. (c) The concept of a dominant use in s 10AA(3) requires comparison between uses and not a comparison between a use and a preliminary activity. (d) The cattle operations on the land constituted a use of the land within the meaning of s 10AA but the earthworks that were being undertaken did not do so because the earthworks were only a preliminary activity, that is an activity carried out to prepare the land for a contemplated or intended use in the future for residential subdivision. (e) There being no other use of the land at the material date to compete with the cattle operations as a use, it followed that the cattle operations were necessarily the dominant use of the land. (f) Because that use of the land for capital operations fell within s 10AA(3)(b) then sub-s (3) was satisfied and it was necessary to proceed to sub-s (2). 19The following can be stated by way of preliminary comment upon these propositions. The first proposition can be accepted and nothing in his Honour's reasons or in the submissions of the Chief Commissioner was to a different effect. In its own terms, the second proposition might be seen to be uncontroversial. It needs to be examined in conjunction with the fourth proposition, to which I will come. Likewise, the third proposition can be seen as uncontroversial in its own terms. The fourth proposition contained within it a factual evaluation and a proposition of law. In debate it became clear that Leda contended for a distinction between activity and use that was based upon productive return. Leda contended that it was not open to the learned primary judge to conclude that the land was used for commercial land development. It was submitted that there was no open or undefined notion of use to which a factual evaluation or characterisation could be made depending upon the underlying factual circumstances. Rather, it was submitted that a use required the productive return of the land. So, it was said, here, all activity must be seen as preliminary activity until the completion of the relevant development and the commencement of its use for residential living or commercial operation. These conclusions were said to flow from the meaning of the words "used for". Thus, here, all the matters that were being undertaken on the land were mere preparatory activities and not able to be characterised as a present use of commercial land development. 20The fifth and sixth propositions were valid assuming the validity of their premises. 21The core contention in the fourth proposition was said to flow from the concept of "use" involving the notions of "putting" the land to some purpose: Commissioner of Land Tax v Christie [1973] 2 NSWLR 526 (per Bowen JA, as he then was), making the land "serve" some purpose: Council of the City of Newcastle v Royal Newcastle Hospital [1957] HCA 15; 96 CLR 493 at 508 (per Kitto J) and 515 (per Taylor J) and Minister Administering the Crown Lands Act v NSW Aboriginal Land Council [2008] HCA 48; 237 CLR 285 at 306 (per Hayne J, Heydon J, Crennan J and Kiefel J) and "devoting" the land to a particular purpose: Royal Newcastle Hospital at 515. 22Reliance was placed on the ordinary dictionary definition of use, being: "The act of putting something to work, or employing or applying a thing, for any (esp. a beneficial or productive) purpose; the fact, state, or condition of being put to work, employed or applied in this way; utilization or appropriation esp. in order to achieve an end or pursue one's purpose"; the Oxford English Dictionary (online). 23None of these elements of the meaning of use requires a conclusion that use must involve productive return to be present use. As Mason P said in NSW Aboriginal Land Council v Minister Administering the Crown Lands Act [2007] NSWCA 281; 157 LGERA 18 at 25 [32] "use" is a "protean" term and can be measured from a number of different perspectives. In the High Court in the NSW Aboriginal Land Council case it was held that use of land involves utilisation, exploitation or employment and that it requires actual physical use, not some notional or potential future or contemplated use: at 293-294 [22], 296-297 [30]-[32] (per Kirby J) and 306-307 [73] (per Hayne J, Heydon J, Crennan J and Kiefel J) and see Thomason at 293. 24I am unable to accept the bright line distinction made by Leda in its submissions. The words of the section (other than identifying particular uses in paras (a)-(f)) do not otherwise prescribe any particular use for which the land could be otherwise used. The particular uses identified in paras (a)-(f) are the uses for which the land must be dominantly used for the application of sub-s (3). As the appellant, Leda, submits, if there is another use for which the land is being put, it must be compared with the relevant use in, here, para (b). In evaluating any given circumstances there is no warrant within the words of the section or the meaning of the word "use" or the phrase "used for" to require beneficial return or any other like concept. There will be some circumstances in which activity on the land will be understood or evaluated as preliminary to the undertaking of a future use. That is not what s 10AA is directed to. There must be a present use for which the land is being used. That does not deny, however, the proper evaluation of any given circumstances. The appropriate task is the one which the primary judge undertook. Upon evaluation of all the material he asked himself what the people who owned the land were actually using it for. Or, to put the matter another way, what was the purpose of what the owner was doing on the land so that the question as to what the land was being used for could be answered? Here, looking at all the activities together with the surrounding circumstances of Leda's evident purpose in carrying out those activities, it could be concluded (and was concluded by the primary judge, rightly, in my view) that the land was being used for commercial land development. The fact that the land was, at that time, at the stage of earthworks does not deny the present use of the land for commercial land development. It does not matter, in my view, that the residential housing estates likely to be built in due course had not yet been completed, had not yet been sold and had not yet taken their place in a completed residential development. 25The primary judge's overall evaluation of the use for which Leda was putting the land, as commercial land development or residential development was, in my view, correct. 26The appellant submitted that the primary judge failed to give proper regard to the statutory purpose of s 10AA in its construction, in particular in giving content to the phrase "used for". It was submitted that an exemption that exists for the purpose of encouraging, rewarding or protecting some class of activity was to be given a liberal and not restrictive construction: Burt v Commissioner of Taxation [1912] HCA 74; 15 CLR 469 at 482; Federal Commissioner of Taxation v Murry [1998] HCA 42; 193 CLR 605 at 632; Canwan Coals Pty Ltd v Federal Commissioner of Taxation [1974] 1 NSWLR 728 at 733; Diethelm Manufacturing Pty Ltd v Federal Commissioner of Taxation (1993) 44 FCR 450 at 457; and Mayor, Councillors and Citizens of the City of Essenden v Cox [1967] VR 545 at 551. 27It was submitted that the manifest policy of s 10AA is to encourage and reward a class of activity, being primary production. It should therefore be construed by giving "reasonably wide and, indeed, liberal scope to the requirement that lands should be used for the specified purposes": Cox at 551. The primary judge was criticised for ascribing a different purpose to s 10AA at [28] of his reasons, where his Honour said: "... the goal of the Land Tax Management Act , s 10AA(2) was to prevent land destined for other purposes to be exempt from land tax as purported farmland in the interim." 28Both parties provided the Court with extrinsic material relating to s 10AA and related provisions in the Local Government Act 1919 (NSW), in particular s 118. Much of the secondary material can be seen to be directed to the mischief or purpose of sub-s (2), rather than sub-s (3): see the Second Reading Speech to the State Revenue Legislation Amendment Bill 2005 and the definition of "farmland" in the Local Government Act 1993 (NSW), s 515 and the similarly worded earlier provision of the Local Government Act 1919 (NSW), s 118. Looking at the terms of s 10AA in its place in the Act, the provision is not to be understood as a statutory encouragement for primary production as that phrase is used in the colloquial sense. The provision concerns land used for primary production as defined. What the provision is apt to achieve and what can be taken as its purpose from its text and context in the Act is the provision of an exemption for land used for primary production to the extent and in the manner referred to in sub-ss (2) and (3). There is no requirement to approach the matter in some beneficial fashion striving to expand the reach of the exemption or to narrow the taxing operation of the section according to strict language. More particularly, there is nothing in the purpose of the legislation, drawn from its words and context or from the secondary material insofar as that addresses mischief to require used "for" to be limited to use of land which is producing beneficial or commercial return, as argued by Leda. 29The various cases to which his Honour made reference and which were referred to in argument do not advance the resolution of the appeal. None was directed to a statutory provision in the same terms as s 10AA. Each was directed to a particular form of words in which a particular use was identified and the question arose whether antecedent or collateral activity could be seen to be part of that use because of its proximity or connection or whether it was to be seen as antecedent and separate from the later particular use. A brief examination of these cases will reveal that this was their context and that they are of no particular utility in resolving this appeal. 30In Sandhurst Holdings (Australia) Ltd v Commissioner of State Revenue [2009] VSCA 167; 25 VR 59; 2009 ATC 20-118 the Court of Appeal was concerned with a provision (the Land Tax Act 1958 (Vic), s 9(1)(g)) that specified the relevant use or purpose of "providing or promoting cultural or sporting or recreation or similar facilities or objectives". The question was whether the land fitted that description while a golf course and associated recreational facilities were being constructed. At [17] of the reasons, the primary judge succinctly expressed the reasoning of the Court of Appeal as follows: "Dodds-Streeton JA, with whom the other members of the Court of Appeal agreed, said at 9,953 [77] that the exemption was confined to use for, or ancillary and incidental to, the prescribed end purposes and did not cover use for a preliminary activity such as construction or development preparatory to such use." 31In Bosa Development Corp v Coquitlam Assessor, Area No 12 (Bosa No 2) (1996) 30 BCLR (3d) 263 the relevant provision referred to land "used for residential purposes". Parcels of land were the subject of planning for residential, commercial and civil purposes; geotechnical and soil studies had been done as well as other investigative and assessment work. No development application or construction had been done. Unsurprisingly, the land was found not to fall within the statutory description. 32In Applewood Residential Development Pty Ltd v Commissioner of State Revenue [2006] VSCA 207; 64 ATR 291 the relevant provision (the Land Tax Act 1958 (Vic), s 9(1)(j)) referred (at the relevant time) to land "used and occupied as a retirement village and for no other purpose". Land had been acquired for developing a retirement village in stages. Again, unsurprisingly, the Court of Appeal found that the exemption applied only to so much of the land as was used and occupied as a retirement village and not to land on which development to that end purpose was occurring. 33Accepting that these cases were rightly decided does not advance the position of Leda once the validity of the primary judge's characterisation of Leda's use is accepted as within the boundary of the phrase "used for" in s 10AA(3). 34The acceptance of, or preference for, other cases, concerning different statutes, that concluded that land in a development phase could be regarded as a use for a specified purpose is not necessary to support the conclusion of the primary judge. In Burnaby/New Westminster Assessor, Area No 10 v Intracorp Developments Ltd (2000) BCCA 121 the question arose for the Court of Appeal of British Columbia as to when during the construction of a residential project it could be said that land was used for residential purposes. The primary judge quoted [28]-[31] of Donald JA's reasons in that case. The reasoning proceeded upon the basis that the development steps having been taken would be sufficient to amount to residential purposes if they had reached the stage where the owner was committed to that use. Similar ideas can be seen to have moved the Full Federal Court in Whitfords Beach Pty Ltd v Federal Commissioner of Taxation (1983) 14 ATR 247 at 254. 35It is unnecessary to decide whether this notion of commitment of land to a use not strictly speaking yet commenced has validity. 36In Educang Ltd v Brisbane City Council [2002] QSC 374 the relevant question was whether land was "used for" a school. White J expressed the view that there was an element of futurity in the expression "used for" (at [19]). The school was being built. Her Honour found that the construction activity was ancillary to its use for a school. 37In Meriton Apartments Pty Ltd v Parramatta City Council [2003] NSWLEC 309 Pain J was concerned with a legislative provision requiring a "use for" residential accommodation. Building had commenced for residential accommodation. Pain J held (at [22]) that the use of the land was for residential accommodation. 38It is true that the primary judge said that he preferred the approach in Meriton , Educang and New Westminster to the approach taken in Sandhurst Holdings . 39It is unnecessary to come to a view whether his Honour was correct in the expression of that view, just as it is unnecessary to analyse each of these cases in order to consider whether they were correctly decided on their relevant provisions. 40It can be accepted that for the resolution of this appeal used "for" is to be seen as a present use. Leda was using the land for two purposes: cattle grazing and commercial land development. The question was whether the former was the dominant use so as to attract or satisfy s 10AA(3). Secondary argument 41Grounds 2 and 3 of the notice of appeal complain about the primary judge's conclusion as to the predominant use of Cobaki for earthworks and the holding that the dominant use of Cobaki was not for raising cattle. It was said that the primary judge failed to give any or sufficient weight to the differences inherent in the earthworks and raising cattle for the purpose of making the comparison and erroneously concluded that the scale, extent and intensity of earthworks far outweighed the scale, extent and intensity of raising cattle. Particular complaint was made about various paragraphs of his Honour's reasoning that Cobaki would not support an increase in herd size beyond 400 (see [114]) such that the primary judge gave too much weight to the facts and matters set out in [103], [108], [110], [112], [113] and [115] of the reasons and gave insufficient weight to the factors set out in [107], [116], [77] and [87]. 42The written submissions in support of these grounds direct attention to the distinction between use and activity. Once this distinction is made irrelevant by reason of the proper understanding of the correct characterisation of use made by his Honour this complaint falls away. 43As to the individual factual conclusions of his Honour at [103]-[117] set out at [16] above, I am not persuaded that his Honour made any relevant error. In particular, his Honour directed himself to the passage in Thomason , which was an appropriate way of approaching the evaluative task. His Honour compared uses of the land. His Honour correctly performed the task of weighing the competing uses. The appellant had expended $13.7M by 30 June 2006 in the development process as part of the use of the land as commercial property development. The value of the herd was less than $100,000, as was the related plant and equipment for the cattle. In my view, there is no reasonable basis to consider that his Honour erred in the factual evaluation of the competing uses once one declines to accept the distinction between activities of earthworks and uses of cattle production urged by Leda. 44For the above reasons the learned primary judge's conclusion that the land in question at the relevant date was not land the dominant use of which was for cattle production within para (b) of s 10AA(3) was correct. 45For the reasons indicated earlier I do not propose to express an opinion on the proper construction (or the operation on the facts here) of s 10AA(2). 46For these reasons the appeal should be dismissed with costs. 47CAMPBELL JA : I agree with the orders proposed by Allsop P, and with his reasons. I add the following remarks. 48The enquiry that is called for by s 10AA(3) is: (1) Is the land used for any of the purposes listed in s 10AA(3)(a)-(f)? (2) Is the land used for any purpose that is not listed in s 10AA(3)(a)-(f), and if so what is it? (3) If the land is used for one or more of the purposes listed in s 10AA(3)(a)-(f), and is also used for a purpose that is not listed in s 10AA(3)(a)-(f), is the use for one or more of the purposes listed in (a)-(f) the dominant use of the land? 49In asking whether the land is used for any purpose that is not listed in s 10AA(3)(a)-(f), the enquiry is not constrained by reference to any of the purposes that are listed in s 10AA(3)(a)-(f). It is just a question of what the land is used for. 50Where legislation is cast in the form of imposing a tax or conferring an exemption if land is used for the purpose of X, it can be relevant to enquire whether the land is presently being used for the purpose of X, or whether the activities being conducted on it are merely preparatory to its being used for the purpose of X. However that is not the sort of enquiry that is called for by step 2 of the analysis I have set out above. Land can be used, now, for purpose Y, even if its use now for purpose Y is also preparatory to its eventual use for purpose X. 51The judge was right to conclude that, at the relevant time for imposition of the tax in question, the land was used for commercial land development. It was used for commercial land development even though using it for commercial land development at that time was preparatory to its eventual use, when subdivided, as a vendible commodity, and to its eventual use, by people other than Leda, for residential purposes. 52WHEALY JA: I agree with Allsop P. ********** 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: 07 December 2011