Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Houston v Chief Commissioner of State Revenue [2016] NSWCATAD 126 Hearing dates: 10 May 2016 Date of orders: 22 June 2016 Decision date: 22 June 2016 Jurisdiction: Administrative and Equal Opportunity Division Before: A Verick, Senior Member Decision: The assessments for land tax years 2010-14 are affirmed. Catchwords: STATE REVENUE – Land Tax – whether land exempt - as land used for primary production – whether the dominant use was use for the maintenance of cattle – whether land along with other lands used for significant and substantial commercial purpose or character and whether engaged in for the purpose of profit on a continuous or repetitive basis – s 10AA – Land Tax Management Act 1956 Legislation Cited: Land Tax Management Act 1956 Taxation Administration Act 1996 Local Government Act 1919 Cases Cited: Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue[2010] NSWSC 867 Saville v Commissioner of Land Tax (1980) 12 ATR 7 Hope v Bathurst City Council (No2) (1983) 52 LGRA 79 Hope v Bathurst City Council (1986) 7 NSWLR 669 Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 American Leaf Blending Co v Director-General of Inland Revenue [1978] 3 ALL ER 1185 Bartholomew v The Valuer-General (1978) 5 QLCR 253 Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366 Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678 Vartuli v Chief Commissioner of State Revenue [2015] NSWCA 372 Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25 Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408 Category: Principal judgment Parties: Patrick Joseph Houston and Louise May Houston (Applicants) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: E Bishop (Respondent) Solicitors: L M Houston (Agent for Applicants) Crown Solicitors Office (Respondent) File Number(s): 1510003 reasons for decision 1. The applicants are the registered owners of land situated in Moss Vale, New South Wales ("Gibbons Road Land") which was assessed to land tax for 2010, 2011, 2012, 2013 and 2014 land tax years. 2. The applicants seek a review of the assessments on the grounds that the Gibbons Road Land in the relevant years was used for primary production and exempt under the Land Tax Management Act 1956 ("LTMA"), s 10AA which was in the following terms: Section 10AA exemption for land used for primary production (1) Land that is rural is exempt from taxation if it is used for primary production. (2) Land that is not rural 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, 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. Background 1. The applicants also own three lots ("462 Tugalong, 501 Tugalong 1 and 501 Tugalong 2") of land in Canyonleigh ("the Canyonleigh Land"), which are rural properties and are used by the applicants for their primary production operation. The Chief Commissioner has accepted that the Canyonleigh Land is exempt from land tax and the exemption applied in the years in dispute. One of the Canyonleigh properties was purchased in 1994 and the other two a few years later. The total area of the Canyonleigh properties is of approximately 102 hectares. 2. The Gibbons Road Land, constituting three lots, was purchased sometime in 1998. At the time of purchase, the applicants "understood the zoning to be rural" but the land is zoned "light industrial and rural landscape". The total area of this land is 5.144 hectares. 3. The Chief Commissioner treated all the properties as exempt until May 2014 when the Chief Commissioner issued assessments to impose land tax on both the Canyonleigh Land and Gibbons Road Land for the years in issue. 4. The applicants lodged an objection on 6 June 2014. 5. On 10 November 2014, the Chief Commissioner allowed the objection in relation to the Canyonleigh Land but disallowed the objection against the land tax assessments made in respect of the Gibbons Road Land. 6. The objection was disallowed on the grounds that the Gibbons Road Land was not rural land and did not in the relevant years have a significant and substantial commercial purpose or character and the applicants were not engaged in the cattle operations for the purpose of profit on a continuous or repetitive basis. Issues 1. This application relates to the assessment issued to the applicants for the 2010-2014 land tax years in respect of the Gibbons Road Land. 2. Essentially, there are two issues for determination. As the Gibbons Road Land is not zoned "rural", the applicants are required under s 10AA(2) to establish that, in the relevant land tax years, the dominant use of the land was for primary production, in this matter cattle grazing. 3. If the applicants are able to establish dominant use, they are further required to establish the use of the land had a significant and substantial commercial purpose or character, and that in the years in issue the applicants were engaged in the primary production activity for the purpose of profit on a continuous or repetitive basis. Relevant Legal Principles 1. The relevant principles to determine the dominant use of land are well settled. 2. The issue requires a determination relating to the use of the Gibbons Road Land in the relevant years. As the land was not rural land in those years, the onus was on the applicants to establish that the dominant use of the land was for primary production. 3. In Leda Manorstead Pty Limited v Chief Commissioner of State Revenue (2010) 79 NSWLR 724, his Honour Gzell J noted that section 10AA(3) of the Act presupposes that land may be used for more than one purpose and the provisions requires a determination that as between competing uses of land, which use of the land is the main, chief or paramount use. His Honour went on to note – 70 That is a question of fact and degree that may, in the end, be determined as an objective matter of impression having regard to the facts. 71 In Saville v Commissioner of Land Tax (1980) 12 ATR 7, Roden J was concerned with whether land was used primarily for the maintenance of animals thereon under a former provision in the Land Tax Management Act. The primary use test was not unlike the dominant use test in the present legislation. His Honour said at 10: "I am of the view that, for any use of the land to justify the statement that the land is used primarily for that purpose, it is necessary not only that that use prevail over any competing use but also that it be sufficiently substantial to prevail over the proposition that the land is primarily to be regraded as unused land." 72 In Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79, Perrignon J was concerned with the definition of "rural land" as land that is wholly or mainly used for carrying on the businesses or industries of grazing amongst other uses in the Local Government Act 1919, s 118. At 84 his Honour said that what was called for where land was put to a number of uses, was the weighing of the evidence relating to various uses to which land was put, including, but not limited to, the nature and intensity of such uses, the physical areas over which they extended, and the time and labour spent in conducting them. 73 His Honour's decision was upheld on appeal (Hope v Bathurst City Council (1986) 7 NSWLR 669). A majority of the Court of Appeal held that the characterisation of rural land as land that is wholly or mainly used for carrying on the businesses or industries of grazing, amongst other uses, did not relate solely to the quantum of area of land used for relevant purposes but related to the end to be achieved by the use and included other criteria such as the nature and intensity of the use. 1. In Leda his Honour GzellJ also found helpful the approach that the Land Appeal Court of Queensland, presided over by Ambrose J in Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 at 303 had taken to the determination of dominant use of land: "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 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." 1. The necessary "evaluative task" undertaken by his Honour Gzell J to determine dominant use of land was approved by the Court of Appeal in Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366 which, in dismissing the appeal, noted that their reasons "fundamentally accord with the approach and reasons of the primary judge". 2. As regards the "dominant use" test, the Court of Appeal expressed the view that the use "is to be seen as a present use" (per Allsop P at 40) and "is just a question of what the land is used for" (per Campbell JA at 49). 3. By way of summary, the dominant use test is a question of fact and degree to be determined on an objective basis and upon a consideration of the actual nature of the uses of the land, evaluating the extent and intensity of the uses of the land to determine the dominant use. 4. Where there is no competing use, as was the case in this matter, it is necessary to determine if the single use is sufficiently substantial to prevail over the proposition that the land is to be regarded as unused land. 5. The additional requirement under the provisions of s 10AA(3)(b) of the Act is what has come to be described as "the commerciality test". The test required the applicants to establish that the cattle operations had, in the relevant land tax years, a significant and a commercial purpose or character and they were engaged in the cattle operation for the purpose of profit on a continuous or repetitive basis (whether or not a profit was made). 6. The courts have held that the test should be established on a consideration of the entirety of the primary production activities of the taxpayer in each relevant land tax year (see Vartuli v Chief Commissioner of State Revenue ([2014] NSWSC 678) The test to be satisfied required the applicants to establish the use of the Gibbons Road Land in conjunction with the applicants' operations on the Canyonleigh Land. 7. In Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25 the Appeal Panel in considering the commerciality test stated: This criterion eliminates hobby or token operations even though they may have passed the de minimis threshold to which we have referred in (1). The taxpayer then needs to show that the operation is run on a commercial basis with appropriate attention to the orthodoxies of income, expenditure and the aim of profitability; cognisant of the element of unpredictability of any business operation, especially primary production. This is a higher standard that the one that applies to rural land. 1. In Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 his Honour Gzell J also provided some useful guidance – Not every business will satisfy the commerciality test. The test distinguishes activities amounting to a business that is carried on in a small way or as a sideline from those of a more serious and weighty kind. It will usually also exhibit some such characteristics as size, depth, bulk, weight, seriousness, quality, intensity and prominence. To determine whether Maraya's cattle operation had a significant and substantial commercial purpose or character, the court should consider the intensity of the operation, the size and quality of the herd, the size and carrying capacity of the land and the resources (whether of time, labour or expenditure) put into the development and maintenance of the cattle operation. 1. On appeal, the Court of Appeal (Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408) agreed with the approach taken by Gzell J and made some further helpful observations. The Court of Appeal held that an assessment of the commercial purpose or the commercial character of the use of the Subject Land should be assessed having regard to the way in which land is generally used. The court also noted that lack of profitability is a relevant matter to take into account. 2. In Vartuli, in the first instance his Honour White J said that for the use of land to have significant and substantial commercial purpose or character, the use must have a character such that it generates, or can reasonably be expected to generate, profit that contributes in a real and not trifling way to the user's income, or purpose of generating such profit. His Honour was relying on the approach taken by Gzell J in Maraya. On appeal, the full court (Meagher JA, Ward JA and Gleeson JA) in Vartuli v Chief Commissioner of State Revenue [2015] NSWCA 372 affirmed the approach taken by his Honour Gzell J in Maraya. His Honour Gleeson JA who handed down the principal judgment said that – … to determine whether the use of the land had a significant and substantial commercial purpose, or a significant and substantial commercial character, it was necessary to consider the intensity of the operation, the size and quality of the herd, the carrying capacity of the land, the resources put into the development and maintenance of the operation and the profitability of the operation. 1. In Thomason, the Land Appeal Court of Queensland, in considering a similar test, first observed that – The Commercial purpose or character must be both "significant" and "substantial". Each word is imprecise. 1. The Court went to suggest that "it is difficult, and unnecessary, to state a precise and compendious meaning of the expression "significant and substantial commercial purpose" and "significant and commercial character" and that the test would apply if there is evidence that: 1. The business or industry is being carried on with a genuine and sizeable intention or desire that there will be reward, if not profit and is not being engaged in merely for recreational or some other purpose; or 2. The qualities or distinguishing features of the business or industry demonstrate that it is being carried on in a way which (ordinarily, at least) will generate reward, if not profit. 1. The court also noted that the use of the term "purpose" in the criterion that the business is engaged in for the purpose of profit on a continuous or repetitive basis "seems to have a subjective character in the sense that it refers to the intention of the persons engaged in the business or industry". The court went on to state: The question whether a particular business or industry is engaged in on a continuous or repetitive basis must be answered in light of the factual circumstances surrounding the business, or businesses of that type. Some type of farming may require frequent and intensive amounts of activity while in other cases "the activity may be intermittent with long intervals of quiescence in between" (American Leaf Blending Co v. Director-General of Inland Revenue [1978] 3 ALL ER 1185 at p. 1189 per Lord Diplock, also Bartholomew v. The Valuer-General (1978) 5 QLCR 253 at p.259). Submissions 1. The applicants were not represented and, at the hearing. Mrs Houston, quite ably, presented the applicants' case. 2. Mrs Houston tendered a lengthy statement of the facts and submissions in a bundle, which included a shorter statement by Mr Houston and copies of several of documents including a report from Landmark. 3. At the hearing, both applicants gave oral evidence as well and were cross-examined by counsel for the Chief Commissioner. Very little turns on the cross-examination. 4. Mrs Houston submitted that, on the basis of a number of grounds, the applicants have discharged the onus to establish that the Gibbons Road Land was used for primary production and that the property, when taken into account with the other properties owned by them in Canyonliegh, also "passed the commerciality test" in the relevant land tax years. 5. The grounds advanced by the applicants were as follows: 1. The Gibbons Road Land was purchased in 1998 because they thought it would be a good addition to their land at Canyonleigh, which has much poorer soil and less rainfall than the land in Moss Vale. 2. Their dream was to one day have a profitable medium size cattle operation that they would later in life make their full time occupation. 3. They have incurred expense in building a dam and providing electric fencing for purposes of cattle grazing at the Gibbons Road Land. 4. Regular visits to the property each week are necessary to check the animals and fences and maintenance is carried out as required. 5. In some years, it was necessary to take in hard feed for the cattle due to season conditions of drought and cold. 6. The property in Moss Vale (Gibbons Road Land) is used to graze their cattle in numbers they delegate and at times they have decided that it is necessary and advantageous. The property is in use all year round. 7. They are not able to produce "cattle moving records" because they are not required if the owner of all lands is the same person. 8. Absence of moving records should not lead to the assumption that the Gibbons Road Land was not used for cattle grazing. 9. The properties had a "significant or substantial purpose or character" if reference is made to "the numbers of cattle on the ground overall properties for years 2010 to 2014 have increased overall these years by 245% and this has been achieved whilst retaining stock to grow for breeding". 10. The numbers of cattle "ranged from 27 to 66 thereby far surpassing the recommended stocking number" of 14 cows for the Canyonleigh Land. 11. On the Gibbons Road Land there were a "minimum of 6 heavy steers of up to 15 heifers grazing on these lands at any one time". 12. The "running a cattle farm is not assessed by how many hours are spent checking cattle grazing. A small amount of time is needed to check fences and water supply and only when tasks such as marking, drenching, vaccinating or calving is there more time required". 13. A neighbour "checks the cattle daily in any case" if the applicants are not there. 14. Many farmers in the region have large numbers up to 200 cattle on isolated lands that are only checked every few weeks or longer. 15. In Northern Territory and Western Australia, cattle are mustered once a year. 16. Beef cattle are not like sheep or dairy cows that require daily attention. 17. All "spare time and leisure time and holidays is spent working on our cattle enterprise. 8 to 12 hours a week is a large amount of time and covers a lot of cattle tasks". 18. The "losses" disclosed in the tax returns "are accumulative over many years and most are expenses for infrastructure that is once off expense such as shedding, bore, roads, fences, etc." 19. Once "all the infrastructure and pasture improvement is in place there will be minimal expenses anticipated" and their enterprise will commence to make a profit from their primary production business. 20. The applicants have a business plan since they commenced breeding cattle and the plan is the subject of discussion on a weekly basis including getting advice from their accountant. 1. Mr Craig Thomas, Branch Manager/Licenced Stock & Station Agent of Landmark Moss Vale, was engaged by the applicants to provide a report "to outline the suitability and uses of the livestock enterprise for the various properties" owned by the applicants. 2. On 27 April 2015, Mr Thomas made a "visual inspection" of the properties and, on 28 April 2015, he provided the applicants with his written report. 3. Mr Thomas also attended the hearing and gave evidence. 4. In his written report, Mr Thomas first described the relevant properties. 5. In the case of 461 Canyonleigh, the "infrastructure and improvements carried out over several years include old existing home, extensive shedding, cattle yards, fencing, olive plantation, equipped bore and irrigation system". The total area estimated by Mr Thomas for this property was "25-30 ha with timber/treed areas, olives and service areas such a house, sheds, yards etc. removed". At the time of inspection, there were "21 cows, 4 calves and 10 weaner type cattle" and " 6 horses were also sighted on the property, used for cattle work/mustering". 6. In the case of 501 Canyonleigh, he noted that the total "arable area would be 15-20 ha, with some regrowth of black wattle species" and "natural bush makes up the balance". He also noted that there was an "old un-inhabitable hut situated on the property" and there "is an equipped bore on the property linking into the irrigation system". He further found as follows: There are no services connected to this property and is run in conjunction with the 461 ….. Canyonleigh property. Fencing for this property is still work in progress, and pasture improvement is minimal. Completion of this will allow longer stock rotations, forage crops being grown and further pasture establishment. Land class would be granite to sandstone ridges with predominantly native pasture. Little feed was present on this property which would suggest native animals compete with the cattle for feed. Earthworks include dams for stock water and extensive erosion control banks being constructed to slow down and direct water protecting the site from damaging storm waters. Suggested carrying capacity would be limited due to grass value, competition with native fauna species and soil type. Further pasture renovating and fencing would increase this, but would take a lot of time and effort at considerable expense. In the current state this property would run 5 dry cows. 1. In the case of the Gibbons Road Land, Mr Thomas estimated that the "total arable area would be 4-5 ha based on some areas being wet". He further stated that – Land would be classed as clay loam with introduced grass species being present. Currently well fenced for livestock production and a large dam constructed for stock water. Very recent control of blackberries was sighted to keep grazing area to maximum. Presently carrying 5 heavy steers, but with recent wet weather this is the limit. This block has several options; - Opportunistic grazing – Being in a higher rainfall area, this property is used in rotation with the Canyonleigh properties as an extension of existing pastures. - Wintering block-Calves weaned and introduced to this block to allow better feed in winter to fill winter feed gap at Canyonleigh locations. - Heifer paddock - Ideal to use for growing heifers out on good feed away from Bulls – both own and neighbours. Periodic 'crash grazing and immediate removal of livestock, would allow 10 dry cows or equivalent for suitable times of the year. Alternatively, this block could carry 10-12 weaner type cattle on a longer term basis with careful consideration for seasonal conditions. Grass recovers quickly using this method, and you will find that capacity will increase if managed correctly. 1. Based on the above observations, Mr Thomas went on to conclude that "the combined properties do have merit for a cattle enterprise with consideration of the following: - A pasture renovation plan put in place as time and funds allow. A nutrient budget and soil test to begin with would be a good place to start. - Fencing finalised on 501 Canyonleigh block. This will free up additional area to allow longer rotations between the 3 properties/paddocks. - Gibbons Rd, Moss Vale block fertilised and allowed to grow. This block is best used as 'crash' grazing block to reduce feed burden and then left to regrow. Use cell grazing principles with long rotations and this will cut down on fodder use/purchasing taking the pressure off the Canyonleigh properties. This block is the ideal block to fill winter feed gaps, and with little work could be utilised for fodder/hay production. - Consider buying in heifers pregnancy tested in calf (PTIC). This will give you 1-2 years advance on return before retained heifers can give you an income. - Terminal Sire used over cows. Use a bull that provides a calf that is sold as a vealer or lighter trade with increased weight gains. This is softer on the country allowing cows to not compete with calves, when calf is weaned. Cows put weight back with smaller feed requirements setting them again for calving. In summary, using the supplied information, it is easy to see that all 3 blocks work in synergy with one another. Without all of them within the enterprise, the system would decrease production, numbers would have to reduce and therefore profitability and even animal health would suffer. Any suggested changes, especially infrastructure and pasture improvement come at a huge cost, and can only be implemented when funds allow. Farming is juggling act between seasons, carrying capacities and markets. Improvements can only be made when these factors are taken into account. In my opinion, utilising the different attributes of each property, some pasture renovation, minor management changes and fencing completed, the system has the ability in the future to sustain 40-50 cows and calves or equivalent. This will take several years to achieve and the maintenance is on-going. 1. The Chief Commissioner, in his written submissions, included the stock numbers of the cattle for the period 2009-2013 extracted from each applicant's Livestock and Produce Account, as set out in the table below: Income Year Stock on hand beginning of year Maximum stock during year Stock on hand end of year 2009 11 17 12 2010 8/9 13/14 11 2011 11 11 11 2012 22 38/39 32/33 2013 32 50 43 1. The Chief Commissioner has also usefully extracted the cash receipts and expenses of the applicants' cattle operations from their Livestock and Produce Accounts for the years 2009-2013 as follows: Income Year Receipts Expenses Profit 2009 7,310 43,116 (35,806) 2010 3,096 48,399 (45,303) 2011 Nil 60,288 (60,288) 2012 6,335 53,568 (47,233) 2013 3,546 46,076 (42,530) 1. In respect of the 2014 year, the applicants indicated the closing stock number was 43, with a maximum number of 66 during that year. The applicants also indicated the cash receipts for 2014 were $7557.01 but were not able to identify the full amount of expenses of the operation in 2014. 2. The Chief Commissioner, in his submissions, noted the following matters: 1. In September 2014, the applicants prepared a business plan in relation to the cattle operations. That business plan states that, in order for the Enterprise Land to support the target herd size of 50 breeders and 50 calves, the applicants must first complete a series of infrastructure and pasture improvements at a total estimated cost of $101,000. 2. The applicants assert that they expect the cattle operations to become profitable "in the next 5 years". 3. The work carried on by the applicants in relation to their cattle operations is on a part-time basis. The main full-time occupation of each applicant is the management of a residential building and product sales business. 4. On 5 July 2011, the applicants made a request to Wingecarribee Shire Council to consider rezoning the Subject Land from light industrial and rural landscape to residential. 5. The purpose of the request for rezoning was to "allow a residential development similar to the properties directly across the Gibbons Road to the immediate east of the subject site". 6. In the request for rezoning, the applicants offered to "contribute part of their rural zoned land along the northern side of the creek to the Council for public open space". 7. On 21 September 2011, the applicants wrote to the Wingecarribee Shire Council enquiring as to the status of the rezoning application, stating that "[w]e are very keen for a positive response". 8. On 26 November 2013, Ms Houston wrote to Wingecarribee Shire Council enquiring as to the status of the request for rezoning. 9. Following Wingecarribee Shire council's preliminary assessment that the zoning of the Subject Land may not change, on 2 December 2013 Ms Houston wrote to Wingecarribee Shire Council urging it to reconsider its preliminary assessment. 10. On or about 15 July 2014, Mr Houston lodged a Development Control Enquiry Form with Wingecarribee Shire Council enquiring whether the applicants could build a house on Lot 4. 1. The Chief Commissioner further contended that, in each relevant land tax year, the dominant use of the Gibbons Road Land was not for primary production. It was submitted that the "proposition that the dominant use of the Subject Land was for primary production is contradicted by the following evidence concerning the cattle operations: 1. the applicants only spent between 8 to 16 hours per week at the Subject Land. 2. Further, for the land tax years in question, there is no evidence before the Tribunal concerning the appropriate level of stocking of the Subject Land or to the quality of the herd on the Subject Land; 3. the capital investment on the Subject Land to date is limited to a dam ($28,000) and fencing; 4. more capital investment is required to improve the productivity of the Subject Land; 5. for the land tax years in question, there is no evidence before the Tribunal of cash receipts and expenses of the cattle operation in so far as it concerned the Subject Land. In relation to the Enterprise Land, the applicants have not made a profit, or only a marginal profit, from the cattle operations; and 6. the material before the Tribunal is insufficient to permit the applicants to discharge the onus of proving that the dominant use of the Gibbons Road Land for the 2010-2014 land tax years was primary production. 1. Further, it was contended by the Chief Commissioner that the applicants' submission that the dominant use of the Subject Land was for primary production is contradicted by the evidence, which indicated that the applicants intend to redevelop the Subject Land for residential purposes. 2. The Chief Commissioner also contended "that the applicants' use of the Subject Land does not exhibit either a significant and substantial commercial character or a significant and substantial purpose". It was submitted that the time claimed by the applicants "spent by the applicants" of between 8 to 16 hours a week "is consistent with the use of the Enterprise Land as part of a hobby farm or as a weekend recreational activity". It was also submitted that no evidence was before the Tribunal "whether the Enterprise Land was appropriately stocked during the land tax years in question except for an assertion to that effect by the applicants". 3. The Chief Commissioner also submitted that there "is no direct evidence in relation to the financial performance of the cattle operation" before the Tribunal but that the "Tribunal may infer from the income tax returns of each applicant for the years 2009-2013, and from cash receipts and expenses recorded in each applicant's Livestock and Produce Account for those years, that the operation has not, at any relevant time, made a profit". 4. The Chief Commissioner, in his written submissions, also noted "that the level of cash receipts of the operation is both objectively and comparatively low. For the income years 2009-2013, the cash receipts of the cattle operation range from nil to $7310". 5. The Chief Commissioner submitted that there "is no evidence before the Tribunal by reference to which the Tribunal can test the applicants' assertion that they expect the cattle operation to become profitable in the next 5 years, apart from the business plan prepared by the applicants in September 2014". The plan it was submitted "is unclear" and there "is little material before the Tribunal by reference to which the Tribunal can test the reasonableness of the business plan". It was also noted by the Chief Commissioner in his submissions that "the proposition that the applicants' cattle operation will become profitable in 5 years, or at all, is not supported by the Landmark report, on which the applicants rely". 6. The Chief Commissioner finally submitted that the Tribunal should reject the applicants' contention that they used both their properties "for the purpose of profit on a continuous or repetitive basis" on the following grounds: 69. As to purpose, it can be inferred from the continuous pattern of a lack of profit that, while the applicants had a purpose of making a profit from the cattle operations, that was not the applicants only purpose, nor was it their dominant purpose. Rather, it may be inferred that the applicants were also using the Subject Land for the purpose of their own personal enjoyment and recreation. Further, the applicants' request to rezone the Subject Land to residential indicates that there may be a purpose of profit making by means other than primary production. 70. It can be inferred from the lack of proper record keeping (eg, no financial statements, no records of cattle kept on each property, and no proper records of cattle transferred between properties) that the applicants did not conduct the cattle operations continuously or repetitively with a purpose of profit during the relevant land tax years. Discussion 1. Land Tax is imposed on land in New South Wales on an owner of land upon the taxable value of the land owned by the owner as at midnight on 31 December immediately preceding the year for which the land tax is payable and which is not exempt. 2. In this matter, the applicants' case was that the Gibbons Road Land was exempt because it was land the dominant use in the relevant years was for the maintenance of cattle. And that their cattle operation in conjunction with their other properties in Canyonleigh in the relevant years had a significant and substantial commercial purpose or character and they were engaged in primary production activities for the purpose of profit on a continuous or repetitive basis. 3. The applicants were first required to establish that the Gibbons Road Land had been predominantly used during the relevant years for maintenance of animals, in their case, cattle grazing. 4. The applicants made a number of assertions, mostly unsupported by any evidence. They have not produced any independent or corroborative evidence to affirm the various assertions they have made in relation to the use of the Gibbons Road Land. 5. The assertions by the applicants suggest that the Gibbons Road Land was used for grazing their cattle in the years in issue. There was no evidence before the Tribunal to suggest any other competing use. 6. The Chief Commissioner's case was that in the absence of any evidence of cattle grazing activity on the Gibbons Road Land it was not possible to determine the "intensity" of use required to establish the dominant use of the land. 7. There is some evidence that the applicants had sought to vary the use of the Gibbons Road Land to residential to undertake a residential development. But, on the authorities, it would seem to be a very passive activity by the applicants in relation to the land and did not constitute a particular use of land. 8. In my opinion, the dominant use of the land was either land used for cattle grazing or, in the alternative, land unused land in the relevant years. But the real difficulty in this matter is the absence of evidence of the actual use of the land. 9. But, even if the Tribunal accepts the assertions made by the applicants, at the highest level, the assertions only establish that the Gibbons Road Land was used for primary production in the ordinary sense of that phrase at some undetermined occasions and time. In order for the applicants to fully discharge the onus that the dominant use of the land in each of the relevant land tax years was as claimed for cattle grazing, they were required to produce facts and figures to support that the land was dominantly used for cattle grazing in the relevant years. 10. I agree with the Chief Commissioner's submission that the material before the Tribunal is insufficient to permit the applicants to discharge the onus of proving that the dominant use of the Gibbons Road Land in the land tax years in issue was for primary production. In the absence of evidence of the actual activities for each land tax year in issue, it is difficult to conclude that the dominant use, as against land unused, was its use for primary production. 11. The applicants had large resources for grazing at Canyonleigh and, in view of the rather few number of cattle in each land tax year in issue, there was little need for them to incur expenses to transport cattle to use the pasture at Gibbons Road Land. 12. The assertion that a dam was constructed on the Gibbons Road Land and electric fencing installed is not accompanied with details when these occurred. Clearly, prior to these infrastructures the land could not have been used for grazing. 13. It was claimed that the land was acquired for a long-term primary production use. This assertion seems to me to be in contradiction with several applications and follow-on action taken by the applicants to have the land rezoned as residential. Nothing it would seem, to turn on these applications as when they were made it did not give rise to any particular use of the Gibbons Road Land. 14. The real difficulty the applicants faced in this matter was the absence of evidence of the actual activities that occurred on the land in the relevant years. In order to establish the dominant use, the applicants were required to produce evidence of the intensity of cattle grazing in the years in issue. An assertion of some use for grazing was not sufficient to establish dominant use. As was observed by his Honour Gzell J in Leda Manorstead that, if the land was otherwise unused "and cattle grazing was confined to a small herd in a small area of the land such that the chief characteristic of the land was that it was unused land, Leda would again fail the dominant use test". His Honour's observation was consistent with what Roden J said in Saville – "it is necessary not only that that use prevail over any competing use but also that it be sufficiently substantial to prevail over the proposition that the land is primarily to be regraded as unused land". 15. Although Mrs Houston made a very detailed submission to support the applicants' case, unfortunately the submissions were made on the basis of assertions. There was no evidence to establish the intensity of the use of the land before the Tribunal. 16. Mrs Houston is correct in asserting that, if cattle are moved from one place to another, which are both owned by the same person, there is no requirement for obtaining any necessary permission for the movements. But the difficulty faced by owners of land seeking the primary production exemption is the onus placed on them under s 100(3) of the Taxation Administration Act 1996 to establish their facts to be entitled to the exemption. It would be prudent for owners seeking or wishing to seek the primary production exemption to maintain proper records and necessary documentary evidence which would assist them to establish the nature and intensity of the use or uses in respect of the relevant land. In this matter, unfortunately, very little or no records or documentary evidence was maintained by the applicants. 17. The applicants' own expert, Mr Thomas, in his report speaks of "several options" for the future and adds very little to the actual use of the Gibbons Road Land in the years in issue. At the Tribunal he confirmed that he had no knowledge of the use of the Gibbons Road Land in the years in issue. 18. The applicants, accordingly, failed to establish the dominant use of the Gibbons Road Land as being land used for primary production in each of the years in dispute. 19. The assessment can be affirmed merely on the failure by the applicants to establish the dominant use as required by s 10AA(3) of the Act. But I will, in case I have erred in evaluating the dominant use of the Gibbons Road Land, also consider the commerciality test required to be satisfied pursuant to s 10AA(2) of the Act. 20. Even if the applicants were able to establish the dominant use, I am of the firm view that the evidence in this matter does not establish that, in the relevant years, the primary production activities of the applicants were significant and of a substantial commercial purpose or character and the applicants were engaged in the cattle operation for the purpose of profit on a continuous or repetitive basis. 21. The applicants had to establish that the use of the Gibbons Road Land in conjunction with the Canyonleigh Land in the relevant years in issue had a significant and substantial commercial purpose or character and was engaged in for the purpose of profit on a continuous or repetitive basis. 22. The applicants did concede that they have not made a profit in the relevant years but are hoping to become profitable in 5 years time. Figures extracted by the Chief Commissioner indicate that in each of the relevant land tax years the applicants incurred large losses from their primary production activity. Based on those figures there is little prospect that the applicants are likely to make a profit in the foreseeable future. 23. Their own expert also does not support the forecast made by the applicants. Mr Thomas was of the view that the applicants had to carry out major infrastructure and pasture improvements at a huge cost before they could sustain 40-50 cows and calves or equivalent to make their cattle operation viable. This, he said in his report, "will take several years to achieve". Until such time, the applicants' beef cattle operation can only be seen as an activity that is without a significant and substantial commercial purpose or character. And the applicants are not engaged in the cattle operation for the purpose of profit on a continuous or repetitive basis. 24. The time spent by the applicants, between 8 to 16 hours as asserted by them, does not reflect intensive amount of activity on the properties. But I note their dedication. As they are both gainfully employed during the week, they are only able to work on the farm during weekend and holidays. As they are building up a beef cattle operation, their full time presence is not required. They also have some good neighbours to assist them to look after the cattle during the weekdays. 25. I also note that the applicants have incurred large capital expenditure. 26. When all these matters are considered, my own view is that they were not engaged in the primary production activities as a hobby or for some non-commercial purpose. 27. I also do not accept the Chief Commissioner's submission that "the applicants were using the Subject Land for the purpose of their own personal enjoyment and recreation". There is no evidence before the Tribunal to make that assumption. Of course, the applicants must in carrying out the work at their properties, get some personal satisfaction in building their cattle herd and attending to the cattle operations. 28. On their own assertion, they have carried out the preliminary operations to establish a viable beef cattle operation for their future retirement. Unfortunately, that is in the future. They need to carry out a great deal of further infrastructure work and build their cattle numbers as recommended by their Landmark expert and which, in his opinion, will take many years. 29. All that does not assist the applicants in respect of the years in dispute. 30. Against that factual background, in particular Mr Thomas' report, the use of the Gibbons Road Land and the Canyonleigh Land in the relevant years did not have a significant and substantial commercial purpose or character and the applicants were not engaged in the operations for the purpose of profit on a continuous or repetitive basis in those years. 31. Accordingly, the applicants have also failed to discharge the onus placed on them to establish that the cattle operation in the relevant years was a significant and commercial venture and that they were engaged in the operation for the purpose of profit. 32. The assessments must therefore be affirmed. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 22 June 2016