Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Cornish Investments Pty Limited v Chief Commissioner of State Revenue [2012] NSWADT 204 Hearing dates: 30 August 2012 Decision date: 05 October 2012 Jurisdiction: Revenue Division Before: A Verick, Judicial Member Decision: The assessments for the tax years 2008, 2009, 2010 and 2011 under review are affirmed. Catchwords: Land tax - whether land exempt as land used for primary production - cattle breeding, cropping, riding and agistment of horses - whether the dominant use was "use for the maintenance of animals" - whether applicant failed the dominant use test - failure to discharge onus of proof Legislation Cited: Land Tax Management Act 1956 Taxation Administration Act 1996 Administrative Decisions Tribunal Act 1997 Cases Cited: Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 83 ATC 4015 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 Gauci v Federal Commissioner of Taxation [1975] 135 CLR 81 Glenworth Valley Pastoral Company Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 272 Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79 Hope v Bathurst City Council (1986) 7 NSWLR 669 Jones v Commissioner of Land Tax 80 ATC 4539 Krew v Federal Commissioner of Taxation 71 ATC 4091 Leda Manorstead v Chief Commissioner of State Revenue [2010] NSWSC 867 Palk v Chief Commissioner of State Revenue [2012] NSWADT 94 R v The War Pensions Entitlement Appeal Tribunal and another; ex parte Bott (1933) 50 CLR 228 Re Optimise Group Pty Ltd and Commissioner of Taxation [2010] AATA 782 Saville v Commissioner of Land Tax (1980) 12 ATR 7 Shanahan v Commissioner of Land Tax (1980) 80 ATC 4320 Thomson v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 Category: Principal judgment Parties: Cornish Investments Pty Limited as Trustee for Scenic Hills Property Unit Trust (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel I Hemmings (Applicants) AH Rider (Respondent) Marsdens Law Group (Applicants) Crown Solicitor (Respondent) File Number(s): 106033, 116079 REASONS FOR DECISION 1This is an application made under s.96 of the Taxation Administration Act 1996 (the "TA Act") to review the decision of the respondent (the "Chief Commissioner") to assess land tax on land situated at 176-178 St Andrews Road, St Andrews/Varroville comprising Lot 22 in Deposited Plan 564065, Lot B in Deposited Plan 370979 and Lot 1 St Andrews (being Lot 1 DP 218016) in respect of land tax years 2008 - 2011 (the 'Tax Years"). 2The Lots forming the land in question comprise one contiguous parcel ("the Cornish Land") and adjoin Lot 1 Campbelltown Road, Denham Court (Lot 1 DP 541916) and which was in the relevant Tax Years owned by C J and D Sweeney and Greg Sweeney and two others (the "Sweeney Land"). 3The issue to be determined in this matter is whether the Cornish Land, was "used for primary production" in each of the Tax Years under review and exempt from land tax under s 10AA of the Land Tax Management Act 1956 (the "LTM Act"). 4Section 10AA of the LTM Act relevantly provides: 10AA Exemption for land used for primary production (1) Land that is rural land is exempt from taxation if it is land used for primary production. (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. 5The Chief Commissioner accepts that the Cornish Land and the adjoining Sweeney Land was "rural land" during the Tax Years and it is not necessary for the Applicant to satisfy the "commerciality and profit making" tests set out in s 10AA(2). Thus, in order to obtain the benefit of the exemption, it is only necessary for the Applicant to show that the dominant use of the Cornish Land was in the Tax Years for one or more of the primary production activities accepted in s 10AA(3)(a)-(f). The Factual Background 6In addition to the documents produced under s 58 of the Administrative Decisions Tribunal Act 1997, the Chief Commissioner tendered a further bundle of documents as his evidence. The Tribunal also accepted the tender of an affidavit sworn by Brett Cornish for the Applicant. Mr Cornish gave additional viva voce evidence at the hearing and was cross-examined. Both parties also provided the Tribunal with written submissions. 7The factual background was usefully set out in the Chief Commissioner's written submissions (footnote references omitted) - 5. The Cornish Land is located near Campbelltown on the urban/rural fringe of Sydney's south-west and is approximately 120 hectares in total area. The Applicant acquired the Cornish Land on 26 June 2007. 6. The Cornish Land adjoins the Sweeney Land. The Sweeney Land is approximately 200 hectares in area. During the Tax Years, the Sweeney Land was owned by various members of the Sweeney family. Also, an entity associated with the Applicant, Cornish Group Pty Ltd (CGPL), owned a minor interest in the Sweeney Land. 7. During the Tax Years, entities associated with the Sweeney family (see below) used all the Sweeney Land and adjoining Cornish Land (except for 76 hectares of bushland on the Sweeney Land and 20 hectares of bushland on the Cornish Land (collectively Bushland), all of which was "unused" land) for the following activities: (a) Sweeney's Function and Entertainment Centre (Reception Centre/Parking) (Sweeney Land only); (b) Residences and site office (Sweeney Land only); (c) Scenic Hills Riding Ranch, including canteen, picnic tables and shelters, public toilets and showers, car and horse float parking, horse stabling and riding trails (Horse Riding) (Sweeney Land and horse riding trails on the Cornish Land); (d) Horse agistment by private owners of horses used for recreational purposes (Horse Agistment) (Sweeney Land and Cornish Land); (e) Breeding and grazing horses for sale (Horse Grazing) (Sweeney Land and Cornish Land). (f) Growing barley, clover and rye for sale (Cropping) (Sweeney Land and Cornish Land); and (g) Grazing cattle for sale (Cattle Grazing) (Sweeney Land and Cornish Land). 8. The Reception Centre/Parking occupied about three (3) hectares of the Sweeney Land. 9. The Residences and site office occupied about 0.9 hectares of the Sweeney Land. 10. Cropping occupied about 20 hectares of the Cornish Land and 32 hectares of the Sweeney Land. 11. During the Tax Years, horses and cattle were at times grazed together and sometimes grazed separately on the Sweeney Land and Cornish Land. The land used for grazing horses and cattle comprised the balance of the Sweeney Land and the Cornish Land not comprising Bushland or used for Cropping (while crops were growing). However, the Sweeneys "harvested" the crops by letting animals graze on them, so the land used for grazing animals at times included the land used for Cropping. 12. Horse Riding took place on riding trails on the Sweeney Land and the Cornish Land. However, Horse Riding generally only took place on the Cornish Land on Sundays. 13. Attached to these submissions are tables which summarise the income generated from the various "uses" (and non-uses) of the Cornish Land and the Sweeney Land during each Tax Year. In each Tax Year, the income derived from the Horse Agistment and Horse Riding was substantial. Further, for the 2008 and 2009 Tax Years, the income derived from Horse Agistment was so substantial that it exceeded the combined income from all other activities conducted on the Cornish Land and Sweeney land. ... 8In his affidavit, Mr Cornish described the use of the Cornish Land as follows: 4. The land was purchased from the Jackman family. At the time of the purchase I was aware that the land was used for the purpose of grazing horses for sale, grazing cattle and cropping. 5. I was aware of these matters from my discussions and negotiations with the vendors and also from my own observations. I recall that at the time of the purchasing the land the cropping consisted of sowing, growing and harvesting of lucerne, hay, barley, clover and rye grasses. I also recall that at the time approximately 24 horses and 60 head of cattle were on the land for the purpose of grazing. 6. On or around 12 September 2008 the Applicant company entered into an Agricultural Lease agreement with HP and CJ Sweeney Pty Ltd allowing the lessees to occupy the land. ... 7. It was the intention of the Applicant company at all times to only allow the grazing of livestock and the cultivation of crops of cattle fodder upon the land. In this regard I refer to clause 10.1 and Schedule 2 of the Agricultural Lease which confirms the permitted use of the land. 8. At no time did the Applicant company agree to the use of the land being other than the permitted use identified in the Agricultural Lease and I am not aware of the land used for any other purpose. 9. Since the Applicant company has purchased the land I have visited the land on average once every two to three weeks. I usually visit the land on these occasions on a week day. 10. On each occasion I observed horses and cattle grazing on the land. On some occasions the horses and cattle were grazing together and on some other occasions the horses and cattle were grazing in separate areas on the land. ... 12. On most occasions that I attended the land I would estimate observing approximately 24 horses grazing and approximately 60 head of cattle grazing however on each occasion I did not undertake the exercise of counting the number of horses or cattle. 9In cross-examination, Mr Cornish confirmed that he did not keep any records of his visits to the Cornish Land and was also not able to provide any details of where and when the inspections occurred. He further confirmed that some of the inspections were made from the freeway. 10The Applicant derived $100 per annum as income from leasing the Cornish Land to the Sweeney Company. 11The income derived by the Sweeney family from activities conducted on both the Cornish Land and Sweeney Land in the relevant Tax Years, as extracted by the Chief Commissioner, was as follows: Tax Year Horse Riding Horse Agistment Cattle Grazing Horse Grazing Cropping 2008 $148,231 $328,952 $7,353 $31,457 $24,500 2009 $196,387 $327,768 $20,673 $19,253 $33,923 2010 $217,219 $356,567 $15,817 $27,104 $30,500 2011 $102,893 $331,268 $21,386 $55,834 Not available 12A great deal of reliance was placed by both parties on the "Transcript of Electronic Record of Interview" of Mr David Sweeney conducted by a senior revenue officer in the presence of another officer at the Chief Commissioner's office in Parramatta on 6 February 2012. This document was included in the bundle of documents as evidence tendered by the Chief Commissioner. Parts of the interview relied on by the parties in their written and viva voce submissions are produced below. The Applicant's submissions 13The Applicant's primary submission was as follows: 10. For the purposes of the s 10AA exemption the focus must be upon the use of the Cornish land. 11. The appropriate starting point for the use of the Cornish land, must be a consideration of the way in which it may lawfully be used. 12. In the relevant years, the land has been used pursuant to an Agricultural Lease. A copy of the Agricultural Lease is Annexure A to the affidavit of Brett Cornish. Relevantly the land was leased subject to the provisions of the Lease (see cl3.2). Pursuant to the Lease, "the lessee may only use the Land for the Permitted Use" (see cl10.1). Permitted Use is defined term (see Schedule 1) and is defined in Schedule 2 Item 6 to mean "grazing of livestock and cultivation of crops of cattle fodder". 13. They are the purposes for which the land may lawfully be used pursuant to the Lease. As can be seen from the evidence of Mr Cornish, they are the purposes for which the land was in fact used. Indeed, it appears to be accepted in the OSR letter of 2 March 2012 that the grazing of cattle and cropping that is carried out on the land constitutes primary production for the purposes of the exemption. 14. In Cornish's submission, that lawful use of the land - for grazing of livestock and cultivation of crops - relevantly results in the land being used for primary production. That is, the use of the land satisfies the requirements of the exemption in s 10AA. 14In relation to the "other not permitted uses of the Cornish land" and the suggestion by the Chief Commissioner "that those other uses are in fact the dominant use", it was submitted that "that suggestion does not survive consideration of the facts" for the following reasons - 19. The dispute then arises as to whether either, or both: Horseriding; and/or Horse agistment on the Cornish land, requires a different characterisation. Based upon the facts summarised, it does not. 20. It is first relevant to note that it may well be that Sweeney derived income - even considerable income - from agistment of horses and/or horse riding. With respect that is beside the point. The relevant question for the purposes of characterisation is to determine: Firstly, whether the Cornish land was used for either of those purposes; and Secondly, if it was, the extent of that use to see if it otherwise varies the characterisation of the use of the land for primary production. 21. It is correct that Cornish bears the onus. For the purposes of these proceedings, in Cornish's submission that onus is discharged both by the affidavit of Mr Cornish and also by consideration of the materials provided by, or on behalf of, Sweeney (and see [13] above). 15The applicant's counsel in his written submissions relied on the following statements made by Sweeney in his interview with officers of the Chief Commissioner - ... When asked in relation to the use of the land generally, the answer to question 90 (at page 16) was: "It (the land) was predominantly used for cattle and crops." 24. To the extent there were both horses and cattle grazing on the land, the answer to question 87 (also at page 16) was: "Q87 ... What would you use it predominantly for the cattle grazing or for the horses? A: Yes, the cattle." 25. Or expressed in another way, in answer to question 77, and remembering that Mr Sweeney was both operating his own land and some activities over the Cornish land, in relation to the agistment of horses on the Cornish land: "Q77 And at times you would put those horses over this property [Cornish land]? A: Yes" (the emphasis has been added by me). 26. Finally, and in relation to the horse riding, consistent with the submissions made above in relation to the Permitted Use under the Agricultural Lease, to the extent there may have been horse riding on the Cornish land, Mr Sweeney describes it as: "A78... I'd put the odd ride there ... on a Sunday morning we used to have a two hour breakfast ride and sometimes I'd sneak out through that way..." (the emphasis has been added by me). 27. Or expressed in a summary way the horses that were on the Cornish land were there: "A80: Minimally." 28. In Cornish's submission, upon a proper understanding of the facts, even accepting that there may have been the odd time that horse riding was taken onto the Cornish land, that horse riding simply cannot change the characterisation of the use. 16Counsel then in his submissions dealt with the use of the Cornish land for agistment of horses - 29. That leaves then only the question of whether there was a use of the land for agistment, so significant that it is the use of the land for that purpose which dictates characterisation for the purposes of the exemption. 30. Although Cornish bears the onus, it is submitted that is a positive onus. That is, Cornish has established - already to the satisfaction of the Respondent (see [13] above) - that the land was relevantly being used for grazing and cropping purposes. 31. Properly understood, the Respondent then seeks to rebut that by suggesting an alternative use of land: horse agistment. The statutory onus does not require that Cornish prove that is not correct. To the contrary, it being raised as a defence by the Respondent, that defence would only need relevantly to be negatived if the Tribunal was satisfied it is correct. 32. As a result, it is necessary to look at the evidence relied upon by the Respondent to attempt to establish the defence. 33. As Cornish understands it, firstly reliance is placed upon the extent of income. As already submitted, that is irrelevant unless or until it is demonstrated that the land was actually used for that income generating purpose. 34. Secondly, reliance is placed upon the interview with Mr Sweeney. As can be seen from the extracts set out above, it may be accepted that there was some incidental use of the land for the purposes of agistment of horses. However, based upon a proper understanding of that interview it simply cannot be suggested that the use of the land for agistment amounts to a dominant use of the land. 35. Finally, reliance is placed upon the "Planning Advice" contained at Tab 1 of the Respondent's evidence. Specifically reference is made to page 7. As Cornish understands that document, it was prepared to determine the proper characterisation of Lot 1 DP 541916. That is, it was not prepared for the Cornish land. As a result, a reading of the document - and references to "the property" and other similar descriptions - are not references to the Cornish land, rather they are references to the Sweeney land. 36. At page 7 there is a detailed description of the use of "the property". That is, of the Sweeney land. As far as Cornish can see, the only reference in the Planning Advice to the Cornish land is the reference in the second last line of the third last paragraph as follows: "Horses are also rotated through the property and adjoining land in accordance with appropriate pasture management practices." 37. Accepting that single statement to identify the occasional use of the Cornish land for the grazing of horses, it must be understood in context. That context is most succinctly described by Mr Sweeney in his formal interview where from question 81 to question 91 he answered questions specifically in relation to agistment. As has already been set out above the predominant use was for cattle (see questions 87 and 90) or, and as he states in the last answer (to question 91): "And I put some agistment horses over there and grazed them but the predominant use was cattle and crops." The Respondent's Submissions 17Counsel for the Chief Commissioner first drew attention of the Tribunal to s 100(3) of the TA Act under which he submitted "the Applicant bears the onus of proving its case". 18In relation to the actual use of the Cornish Land and the Sweeney Land, it was submitted that the evidence shows that during the Tax Years, the Cornish Land and Sweeney Land were used for horse agistment, horse riding, horse grazing, cropping and cattle grazing. And that because both had multiple uses during the Tax Years it was necessary to "consider whether any of these 'uses' comprised prescribed primary production activities under the Act". 19In relation to the primary production activities It was submitted as follows: 57. The ordinary meaning of "primary production" accords with the prescribed types of "primary production" activities under the Act, because those activities involve the use of land for bringing into existence live animals and plants or products comprising or derived from live animals or plants for the purpose of sale. 58. During the Tax Years, one such prescribed activity under the Act was the cultivation of land (e.g. the growing of crops in the soil of the land) for the purpose of selling the product. Here, cropping (which comprised such cultivation) was sold by HCPJ to SHRR. Thus, Cropping on the Sweeney Land and Cornish Land comprised of a prescribed primary production activity under the Act. 59. Also, the maintenance of animals for the purpose of selling them or their natural increase or bodily produce was a prescribed primary production activity under the Act. Here, Cattle Grazing and Horse Grazing on the Sweeney land and the Cornish Land satisfied the requirements of this prescribed activity. 20The Chief Commissioner then dealt with the use of the Cornish Land for both horse agistment and horse riding. It was submitted that - 60. However, Horse Agistment and Horse Riding, both of which involved the provision of a service, did not comprise a prescribed primary production activity under the Act. In terms of Horse Agistment, the Tribunal recently held in Glenworth Valley Pastoral Company Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADT 272 at [28]-[29]: "In Jones v Commissioner of Land Tax 80 ATC 4539, Woodward J held that the exemption then contained in section 10(1)(p) of the Act did not extend to the agistment of horses. The statutory provision with which the Tribunal is concerned is cast in the same terms as that considered by Woodward J. The Applicant contends (and perhaps correctly) that this particular finding of Woodward J in Jones was obiter; if it was obiter it must nevertheless be persuasive so far as this Tribunal is concerned. I refer to this context to a passage from the third page of the judgment in Jones reading: "Because of the definition contained in the Act of the words "land used for primary production" they must be read in the circumstances as land used primarily for primary production, and can in the circumstances relate only to the breeding of horses but not racing or agistment of horses." If the judgment in Jones can be questioned on the grounds that the relevant finding was obiter it is doubtful whether the same criticism can be levelled at the judgment of Newman J in Shanahan v Commissioner of Land Tax (1980) 80 ATC 4320 and where he came to the same conclusion that agistment was not within the exemption. In Shanahan the relevant property also included pasture which was cultivated for cattle feed and thus analogous to the pasture grown on the Property. The relevant legislation was as with Jones, in the same terms as the legislation relevant in this case. Newman J said towards the end of his judgment: "In this regard it was submitted that agistment involves merely the grazing of animals brought from without a subject property for the purpose of allowing such animals to graze. For instance if a property owner used his land solely for the purpose of allowing other persons' animals to come onto the property to graze ultimately being removed by their owners for the purposes of sale by them then such land would not fall within the exemption created by s 10(1)(p)". 61. In any event, the Applicant has failed to produce any evidence that owners of agisted horses intended to sell them. Also, the maintenance of horses for the purpose of hiring them out for riding is not, self-evidently, for the purpose of sale. 21Counsel for the Chief Commissioner also referred to the following responses provided by Mr Sweeney in the Sweeney interview, which supported the view that the Cornish Land was also used for non-primary production activities - The Cornishs requested that we didn't have a lot of riding upon the place for insurance reasons, which we abided to. We cropped, grazed cattle and grazed horses on there and mainly agistment horses. Cattle, horses mostly agistment but now and again if it was dry I'd put the riding school horses over there if there was a feed and then take them back but it was just because once I stopped forage harvesting it was the only common sense means of doing it and when we had the big drought several years back it was pretty bad and I didn't hardly get much of a result off those crops in two or three years, do you know what I'm saying? No, well, I always kept the mob (cattle) together, so some of the times they'd be on my place and a lot of the times they'd be on Cornish's place. It just depended on the season. Well, the horses for sale were in the riding school - a herd - and all the other agistment herds I had split up. I had quite a few horses in them days. I had up to 150-170 depending on the year, dropped down a little bit the last year or two, and I used to split them in half and then graze them, so I had substantial herds getting rotated. Without the Jackerman property and growing crops and putting my cattle and everything else if I didn't have that land to farm I could never have survived. On a Sunday morning we used to have a two-hour breakfast ride and sometimes I'd sneak out through that way just for the sake of change to break things up a bit cause otherwise the horses if they get used to one way it's not safe. There's more than meets the eye than having one just black and white thing. 22Having identified the various uses of the Cornish Land, it was submitted that the next step was "to determine whether any of these 'uses' was the dominant use of such land". Counsel for the Chief Commissioner referred the Tribunal in his written submissions to the various authorities that have considered the meaning of "dominant in s 10AA, in particular to Leda Manorstead v Chief Commissioner of State Revenue [2010] NSWSC 867, and made the following submissions: ..., it is clear that what is required in determining the "dominant" use of land is a weighing up and comparison of all uses and non-uses of the land. The relevant factors in this case are as follows. 72. First, Bushland occupied 76 hectares of the Sweeney Land and 20 hectares of the Cornish Land, but produced no income or any quantifiable economic benefit. 73. Second, in terms of physical activities, Cropping occurred on both the Sweeney Land and the Cornish Land. Further, the activities of Cattle Grazing, Horse Grazing and Horse Agistment occurred interchangeably on both the Sweeney Land and the Cornish Land and generally occupied the same land. 74. Third, on one view, the whole of the Sweeney Land and Cornish Land was "used" for Horse Riding (Royal Newcastle Hospital at 515), while on a narrower view, the land used for Horse Riding comprised the riding trials on the Sweeney Land and Cornish Land. 75. Fourth, the use of the Sweeney Land and/or the Cornish Land for the prescribed primary production activities of Horse Grazing, Cattle Grazing and Cropping occupied a significant portion of the usable land during the Tax Years. However, while these "uses" produced some income, it was significantly less that the substantial income generated by the non-primary production uses of the land comprising Horse Agistment and Horse Riding. 76. Fifth, the area of the Sweeney Land and Cornish Land used for non-primary production activities, that is, ... Horse Agistment and Horse Riding, was similar to, if not greater than, the area of land used for the above primary production activities. Further, even on a standalone basis, the overlapping areas of the Cornish Land used for Cattle Grazing, Horse Grazing, Horse Agistment and Cropping meant that primary production and non-primary production activities effectively occupied the same land. However, the income generated from the non-primary production uses of the land (whether by reference the Sweeney Land and/or the Cornish Land) was substantial and exceeded the relatively minor income generated by primary production by a significant margin. 77. Sixth, as a matter of impression, the perceived "dominant" use of the land was different according to vantage point of the observer. ... However, an observer standing in the middle of the land (i.e. on boundary of the Sweeney Land and the Cornish Land) would perceive the grazing of animals, the growing of crops and the riding of horses. That perception would also change according to the day of the week (i.e. most horse riding occurred on the weekends and during school holidays). Consideration and Reasons 23Although I am required to make a finding concerning the use of the Cornish Land on 31 December for each Tax Year under review, but as suggested by his Honour in Leda Manorstead v Chief Commissioner of State Revenue it is permissible to look at the evidence in relation to a reasonable period before and after that relevant date. In Leda his Honour considered "six months before and after the relevant date is a reasonable period for inquiry". Onus of proving the applicant's case 24It is, however, first necessary to consider the question of the burden of proof, which is I think a question of much importance in this matter. The inquiry is, essentially, to establish whether the Applicant has discharged the onus placed on the Applicant under s 100(3) of the TA Act, which provides that the "applicant has the onus of proving the applicant's case in an application for review". Also note "in an application for review to an Appeal Panel of the Tribunal the applicant in the application for review continues to bear the onus of proving the applicant's case in an appeal if the Appeal Panel grants leave for the appeal to extend to a review of the merits of the decisions" (s 100(4)). 25There is no onus on the Chief Commissioner to show that the assessment was correctly made. This was made clear by Mason J when construing a similar provision in the Commonwealth income tax law in Gauci v Federal Commissioner of Taxation [1975] 135 CLR 81 at 89 - The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor, is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail. 26More recently the above view was approved by the High Court in Federal Commissioner of Taxation v Dalco(1990) 168 CLR 614. 27I think it is clear from the authorities that the onus of proof in relation to the main issues of fact is on the applicant (see Krew v Federal Commissioner of Taxation 71 ATC 4091) and that, if the applicant is unable to establish that it is entitled to the exemption under s10AA of the LTM Act, the assessment must stand irrespective of any error in the Chief Commissioner's assessment or his understanding of the facts. The latter is a principle of long standing (see Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 and affirmed by the High Court in Federal Commissioner of Taxation v Dalco). 28In Dalco, Brennan J, who handed the principal judgment and with whom all members of the Court agreed with his Honour's reasoning, provided the following guidance as how to discharge the onus at p 624: The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment ... 29Land tax, like income tax is an annual impost, in discharging the onus an applicant is required to consider each year separately and "it must be shown in respect of a particular year that the challenged assessment was wrong" (see Krew). 30To discharge the onus borne by the Applicant, the Applicant was required to establish affirmatively, on the balance of probabilities, that in each of the Tax Years under review the Cornish Land was predominantly used for an activity or activities recognised in s 10AA as a primary production activity or activities. 31Under s 73(2) of the ADT Act, the Tribunal is not bound by the rules of evidence and may inquire into and inform itself on any matter in such manner as it thinks fit, subject to the rules of natural justice. But in considering an application the Tribunal must, however, not ignore the commonly accepted rules of evidence as was suggested by Evatt J when considering a provision similar to s 73(2) in R v The War Pensions Entitlement Appeal Tribunal and another; ex parte Bott (1933) 50 CLR 228 at 256: Some stress has been laid by the present respondents upon the provision that the Tribunal is not, in the hearing of appeals, "bound by any rules of evidence". Neither it is. But this does not mean that all rules of evidence may be ignored as of no account. After all, they represent the attempt made, through many generations, to evolve a method of inquiry best calculated to prevent error and illicit truth. No Tribunal can, without grave danger of injustice, sit then on one side and resort to methods of inquiry which necessarily advantage one party and necessarily disadvantage the opposing party. In other words, although rules of evidence, as such do not bind, every attempt must be made to administer "substantial justice". 32More recently, Deputy President Forgie in Re Optimise Group Pty Ltd and Commissioner of Taxation [2010] AATA 782 at [32] explained to the extent a tribunal needs to rely on the rules of evidence in making a determination: For all practical purposes, there is often little difference between the task of a court bound by the rules of evidence and that of the Tribunal in assessing the relevance and probity of material. Each must assess the weight that it gives to the pieces of evidence or other material that it has. Each must also consider the weight, if any, to be given to the failure of a person to produce evidence or material in its control or to call a witness who might be expected to have relevant evidence. When considering omission, the principles in Jones v Dunkel are, on their face, just as relevant in Tribunal proceedings as in court proceedings even though they are regarded as among the rules of evidence. 33The Deputy President at [58] also made the important observation that - Merely establishing on the balance of probabilities that the Commissioner has made an error cannot satisfy the taxpayer's burden of proof ... 34Although there is no statutory requirement for an applicant to produce as a witness any particular person or produce any documentary evidence (see Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 83 ATC 4015), it is, however, necessary for the applicant to produce sufficient evidence to discharge the onus. Principles to establish dominant use 35In Leda, the principles to be considered when determining the dominant use to which land is put to use in any land tax year were usefully set out by Gzell J. In Palk v Chief Commissioner of State Revenue [2012] NSWADT 94 these were reproduced by the Tribunal in a summary form as follows: 57 ... His Honour first made the following preliminary observations: 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. 58. His Honour went on to examine a number of cases, which provide useful guidance in determining dominant use of land. By way of summary, the cases suggest the following considerations: The dominant use must not only prevail over any competing use but also be sufficiently substantial to prevail over the competing use. (Saville v Commissioner of Land Tax (1980) 12 ATR 7, Roden J at 10) What was called for where land is put to a number of uses. Was the weighing of the evidence relating to various uses to which the 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. (Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79, Perrignon J at 84) The test does not relate solely to the quantum of area used for relevant purposes but related to the end to be achieved by the use. (Hope v Bathurst City Council (1986) 7 NSWLR 669 (NSW Court of Appeal)) When undertaking this exercise, one cannot ignore the conclusion that an objective observer would reach from viewing the land as a whole. (Thomson v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286, Ambrose J at 303) Has the Applicant discharged the onus? 36The evidence upon which the Applicant attempted to discharge the onus constituted of the evidence given by Mr Cornish and certain responses by Mr Sweeney in the Sweeney Statement recorded by the Chief Commissioner's officers. 37I shall first deal with the Mr Cornish's evidence. He claimed that on each inspection, he observed approximately 24 horses grazing and approximately 60 head of cattle but confirmed that he "did not undertake the exercise of counting the number of horses or cattle". When asked in cross-examination when and from where the sightings were made, he was unable to provide any details. He kept no written diary or other records of the inspections. Further, in cross-examination he also confirmed that some of the sightings were made from the "freeway", whilst driving by. It is also important to note that his visits to the Cornish Land were on weekdays, whilst the horse riding activities occurred predominantly on Sundays. 38Mr Cornish's evidence was in my opinion general, vague and lacked the detail required to establish the dominant use of the Cornish Land in each Tax Year under review. 39Both parties attempted to rely on selective responses in Sweeney Statement of Interview. But, unfortunately, the responses, like Mr Cornish's statements, lack specifics which are essential "to consider and compare the nature, scale and intensity of the various uses of the Land in both a physical and economic sense in order to determine its dominant use" in each Tax Year under review. 40There were various serious lacunae and contradictions in the responses. No questions were asked about the economic returns from the use of the Cornish Land. In particular, when the response was that "(W)ithout the Jackerman property (the Cornish Land) and growing crops and putting my cattle there and everything else if I didn't have that land to farm I could never have survived". (emphasis added) This statement was not further expanded to determine the nature of "everything else" because the appropriate questions were not directed to Mr Sweeney. The accounts for each year were not shown to Mr Sweeney to ask him how much of the income in each year was dependent on the use of the Cornish Land for each activity. The accounts produced by Mr Sweeney and collated by the Chief Commissioner clearly show large profits were made from horse riding and horse agistment activities. Mr Sweeney was not asked as to what extent these profits were dependent on the use of the Cornish Land in each of the Tax Years under review. Mr Sweeney was also not asked to ascertain what part of the income from cattle and horse grazing in each year was attributable to the use of the Cornish Land. 41The Applicant placed a great deal of reliance on Mr Sweeney's response that the land "was predominantly used for cattle and crops". This was his opinion but there is no evidence of the basis for that view in respect of each Tax Year under review. Moreover, later in the interview his response was that he "put some agistment horses over there and grazed them". He was not asked the number of the agistment horses grazed on the Cornish Land in each relevant Tax Year. It was again a general statement and not helpful. 42In his submission, counsel for the Applicant correctly pointed out that the "Planning Advice" contained at Tab 1 was in relation to the Sweeney Land and not in relation to the Cornish Land. But the document is helpful as to the extent that the Sweeneys used both their land and Cornish Land for all their operations. In particular, reference was made to cattle grazing and that cattle grazing "traditionally occurs for approximately 6 months each year" and the cattle "are shared with a farm at Grafton". None of these matters were raised with Mr Sweeney as to when the cattle would graze on the Cornish Land in each Tax Year. In particular, when asked in the interview if the cattle were confined to any particular area, his response was that he "had the cattle over the whole two properties". 43In terms of the number cattle and horses, Mr Cornish claimed that there were 60 head of cattle and 24 horses grazing on the Cornish Land. On the other hand, Mr Sweeney claimed that he had 80 cattle and he "always kept the mob together, so sometimes they'd be on my place and a lot of the times they'd be on Cornish's place". Mr Sweeney went on to say that he could not "write you (the OSR) a month to month map where they were over the two properties but when they ate that paddock out I'd move them, when they ate that paddock out I'd move them, and you just keep rotating and depending on the season". Absent are details necessary to determine on anobjective basis the location where the cattle was predominantly grazed. 44With the agistment horses, Mr Sweeney made a similar statement. He claimed that he "had up to 150-170 depending on the year, dropped down a little bit the last year or two, and I used to split them in half and then graze them, so I had substantial herds getting rotated". There are again no exact details before the tribunal as to the number and when they were grazed on the Cornish Land. In passing I should also mention that I agree with the submissions made by the Chief Commissioner that horse agistment does not comprise a prescribed primary production activity under s 10AAof the LTM Act. 45The interview took place at the Chief Commissioner's office and was conducted by a revenue officer in the presence of another revenue officer. It is difficult to make the assumption that Mr Sweeney in that atmosphere provided frank and candid responses. He was told that he did not have to give any response that would incriminate him. He was, therefore, not expected to give details of any breaches of the lease that the Sweeneys had with the Applicant. 46Importantly, the responses were not tested by way of cross-examination nor was the Tribunal given the opportunity to see and hear Mr Sweeney providing the responses and is thus unable to form its view on his credibility as a truthful witness. All this was essential in order for the Tribunal to give proper weight in its determination of the factual issues in this matter. 47There are, therefore, a number of reasons why little weight can be given to the Sweeney responses as recorded by the Chief Commissioner's officers. 48No independent evidence was produced to either support the general observations made by both Mr Sweeney and Mr Cornish or provide any further evidence to support the Applicant's claim for exemption under s 10AA of the LTM Act. 49It was incumbent upon the Applicant to prove its case but has failed to discharge the onus placed on the Applicant. 50The Assessments must therefore 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: 05 October 2012