Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Saliba v Chief Commissioner of State Revenue [2012] NSWADT 119 Hearing dates: 20 February 2012 Decision date: 19 June 2012 Jurisdiction: Revenue Division Before: S Frost, Judicial Member Decision: Land tax assessments for 2006, 2007, 2008, 2009 and 2010 confirmed. Catchwords: Land tax - primary production - whether "dominant use" of land is for primary production purposes Legislation Cited: Land Tax Management Act 1956 Cases Cited: Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 Category: Principal judgment Parties: John and Josephine Saliba (Applicants) Chief Commissioner of State Revenue (Respondent) Representation: Counsel D Mitchell (Respondent) Robert Richards & Associates (Applicants) Crown Solicitor's Office (Respondent) File Number(s): 106080 Reasons for decision 1REVENUE DIVISION (S FROST, JUDICIAL MEMBER)): During the 2006 to 2010 land tax years ("the Relevant Years"), the Applicants, Mr and Mrs Saliba, owned four properties in the north-western area of Sydney. The properties are located at: * 55-61 President Road, Kellyville ("No. 55-61"); * 75-83 President Road, Kellyville ("President Road"); * 10 Foxall Road, Kellyville ("Foxall Road"); and * 169 Maguires Road, Maraylya ("Maraylya"). 2This case concerns land tax exemption claims in respect of two of those properties - President Road and Foxall Road. It does not concern the remaining two properties. This is because the property at No. 55-61 has been accepted as exempt from land tax as Mr and Mrs Saliba's principal place of residence, and the property at Maraylya is rural land which the Commissioner accepts is exempt from land tax because of the primary production activities that were conducted there. 3As far as President Road and Foxall Road are concerned, the Applicants claim exemption because, they say, the properties are used for primary production purposes and all the criteria for exemption are satisfied. The Commissioner disagrees, and has made assessments in respect of both properties for each of the Relevant Years. The Applicants have asked the Tribunal 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: ... (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 ... (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. 5Section 10AA(1) is relevant to Foxall Road for the 2006, 2007 and 2008 land tax years because for those years the property was zoned Rural 1A. However, that zoning was changed on 19 December 2008 to "R2 Low Density Residential and RE1 Public Recreation". Therefore, land tax exemption for Foxall Road must be considered by reference to different criteria for the land tax years 2006, 2007 and 2008 from those that apply for the 2009 and 2010 land tax years. 6Section 10AA(1) is not relevant to President Road at all, because throughout the Relevant Years, the property was zoned "Residential 2(a)". 7The first issue for the Tribunal is whether the dominant use of each property during the Relevant Years was "for ... the maintenance of animals ... for the purpose of selling them or their natural increase or bodily produce". 8If the answer to that question in respect of the Foxall Road property for the land tax years 2006 to 2008 is "Yes", then that is the end of the matter for that property for those years. The exemption will be available. 9For the remaining land tax years (2009 and 2010) for the Foxall Road property, and for all of the Relevant Years for President Road, not only must that first question be answered "Yes", but it must also be the case that: * that use of the land had "a significant and substantial commercial purpose or character"; and * that use of the land was "engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)". The land President Road 10President Road is about 5 acres in area. It was owned during the Relevant Years by Mr Saliba alone. He acquired it in 1952 and sold it during the 2010 calendar year. 11During the Relevant Years there was a dwelling house located in the front corner of the property. Mr and Mrs Saliba built the house in 1958. The house (which has since been demolished) was of fibro construction. There was a free-standing garage at the rear of the house, and a driveway leading to the garage. There was a fence that separated the house, the yard surrounding it, and the garage and driveway, from the rest of the property. The house and its immediately surrounding area seem to have taken up a very small proportion of the total area of the property. Mr Saliba says it was between 1 and 5 percent; the Commissioner estimates it at somewhere between 7 and 10 percent. Based on the aerial photograph marked as page 28 of Exhibit R2, I find that it took up about 5 percent of the total area of the property. Foxall Road 12Foxall Road was owned during the Relevant Years by Mr and Mrs Saliba together. They bought it in 1999. 13The property is about 5 acres in area. It is mostly open farmland, but it has a house on it. The house was already on the property when Mr and Mrs Saliba bought it. The house is of brick construction and it has a double garage adjacent to it. The house is set back from the road, about a third of the way from the front of the property to the rear boundary. There is a long driveway from the road. Contrary to the Commissioner's submission that the house takes up around 20 percent of the total area of the property, I find, based on the aerial photograph marked as page 31 of Exhibit R2, that the house and its immediate surrounds take up no more than about 10 percent of the total area. Primary production uses of the land 14Prior to about 1990, Mr and Mrs Saliba were market gardeners and poultry farmers. However, as residential development grew in the Kellyville area, Mr and Mrs Saliba started receiving complaints from neighbours about the poultry farming activities. Also around this time, the Egg Marketing Board of New South Wales, which had regulated the production and pricing of eggs, was abolished. According to Mr Saliba, this caused prices to fall significantly. He thought cattle raising would be a more profitable activity. 15Since then they have used all four of their properties for cattle grazing purposes (although, as already noted, the President Road property was sold in 2010). They also grew some crops which they used to feed the cattle. 16The sheds on the President Road property that were previously used for the housing of poultry were later used for the storage of tractors. They also mixed cattle feedstock in the sheds, and used the sheds for the storage of equipment for that activity. When President Road was sold, all the machinery that had been stored on that property was moved to the Maraylya property. 17During the 2005 to 2010 years Mr and Mrs Saliba owned three tractors, a fork lift, and trailers for moving cattle amongst the various properties. The properties, although physically separate, are described by Mr Saliba as being in close proximity to each other. That is certainly the case with the three properties located in Kellyville, but Maraylya is somewhat more distant. 18Mr Saliba's affidavit includes the following: [44] At all such times approximately 40 acres of land was devoted to the (sic) my wife's and my primary production activities. [45] ... My wife and I worked on each of the parcels of land every day, to attend to the feeding and the watering of their cattle, and attendance to any crops grown on the land. [46] Cattle was grazed on the various parcels of land according to the condition of the land and whether or not a parcel [of] the land was being "rested". [47] Cattle was moved between the various parcels of land on a regular basis. My wife and I own a trailer which was used for the purposes of carrying cattle between the various parcels of land. [48] My wife and I attended to the cattle seven days a week. Our first holiday since our marriage was in July 2010. That holiday was for 10 days only. Whilst we were on holidays our adult children attended to the farming properties. [49] My wife and I attended to our farming properties and cattle on a daily basis and have done so since acquiring cattle. We typically commenced by feeding the cattle on 55-61 President Road at about 6.00 am and then at [75-83] President Road. [50] On most days around mid-morning we would commence mixing feed. This would take us several hours. [51] After lunch we would travel to Foxall Road and then to [Maraylya] to feed any cattle on those properties. Later in the afternoon I would during weekdays travel to commercial bakeries to acquire stale produce which was fed to the cattle as supplementary food. I would also attend to farm maintenance during the afternoons. Each fortnight I would attend cattle yards to review prices in preparation for his own (sic) purchases and sales. [52] Since at least 2005 I have subscribed to the "Land Newspaper" and studied that paper for cattle prices. [53] My wife and I would normally buy and sell cattle every three months depending upon market prices and drought conditions. 19In his affidavit Mr Saliba also provided the following livestock information (based on financial years, ending on 30 June): 2006 2007 2008 2009 2010 Opening stock 28 42 27 16 26 ADD: Purchases 30 4 - 26 20 Natural increase 2 3 6 4 11 Sub-total 60 49 33 46 57 LESS: Sales 18 19 14 17 36 Deaths - 3 3 3 - Closing stock 42 27 16 26 21 20Livestock trading accounts reveal the following (again, for financial years): 2006 2007 2008 2009 2010 $ $ $ $ $ Sales 17,644 15,575 12,738 11,102 27,208 Opening stock 13,352 20,314 11,778 5,769 9,870 Purchases 15,628 1,000 - 11,614 9,514 Sub-total 29,980 21,314 11,778 17,883 19,384 LESS: Closing stock 20,314 11,778 5,769 9,870 7,225 Cost of sales 8,666 9,536 6,009 7,513 12,159 Gross profit 8,978 6,039 6,729 3,589 15,049 21In his oral evidence, Mr Saliba said that all four of the properties that he and his wife owned always had some cattle on them. He also explained that each property is large enough to contain a number of paddocks, so that his reference to "resting" a property needs to be understood as including also the resting of a particular paddock within any one of the properties. 22Mr Saliba explained that he and his wife spent about an hour a day, give or take, at Foxall Road. He was unspecific about how much time they spent at President Road. Non-primary production uses of the land 23During the Relevant Years the houses on both properties were rented to tenants. Partnership tax returns lodged for the Applicants declare that in each year the properties were tenanted for the entire 52 weeks of the year. The tax returns declare the following financial information in respect of President Road: Financial year Income ($) Expenses ($) Net rental income ($) 2006 10,273 5,805 4,468 2007 12,060 7,291 4,769 2008 14,107 7,584 6,523 2009 15,290 7,686 7,604 24The tax returns declare the following financial information in respect of Foxall Road: Financial year Income ($) Expenses ($) Net rental income ($) 2006 15,900 4,928 10,972 2007 15,000 5,347 9,653 2008 16,500 5,790 10,710 2009 15,300 5,823 9,477 25The Tribunal was not provided with the partnership tax return for 2010, but it may be reasonable to assume that the figures for that year were of similar magnitude. Is the primary production use of the land the "dominant use"? 26The "dominant use" question in s 10AA(3) must be considered by reference to each individual parcel of land: Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 250 at [13]. 27It is not enough for a taxpayer to establish that a number of properties, used for a common purpose such as the rearing of livestock, together have a "dominant use" for primary production purposes. For it may be that the overall "dominant use" outcome is achieved by having one of the properties used exclusively for those purposes, and the others only marginally. In such a case only one of the properties would qualify for exemption. 28Mr and Mrs Saliba have four properties which, I find, were all used to some extent during the Relevant Years for primary production activities. Two of those properties, Maraylya and No. 55-61, are not even the subject of these proceedings. The Commissioner has accepted that Maraylya attracted the s 10AA exemption. It is quite possible that Maraylya was used exclusively for primary production activities. 29But the problem facing Mr and Mrs Saliba is that I cannot conclude, in respect of President Road and Foxall Road, that the primary production use of either of them was the "dominant use". I do not have enough information to make such a finding. I have information about Mr and Mrs Saliba's overall primary production activities, but I do not have anything specific about the intensity of use of either of the subject properties for those purposes. 30I have quite vague references to the activities that they actually carried on at the properties. At President Road they grew crops that they fed to the cattle; they mixed cattle feedstock (for "several hours" every day); they attended to the feeding and the watering of the cattle; they attended to the crops; and they grazed the cattle. 31Overall, they "attended to the cattle seven days a week". But specifically where they did that, and the extent to which they did so, and how their activities contributed to their financial outcomes, and how those outcomes might productively be compared to the financial position arising from the rental activities, can be the subject of nothing but speculation. 32On the evidence, I cannot conclude that the "dominant use" of either President Road or Foxall Road was for primary production purposes. 33That makes it unnecessary to consider either of the questions posed by s 10AA(2) of the LTM Act. 34The 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: 19 June 2012