Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Bisvic Pty Limited v Chief Commissioner of State Revenue [2017] NSWCATAD 192 Hearing dates: 31 October 2016 and 16 February 2017 Date of orders: 19 June 2017 Decision date: 19 June 2017 Jurisdiction: Administrative and Equal Opportunity Division Before: A R Boxall, Senior Member Decision: (1) Affirm the Respondent's decision that the Land is not eligible under section 62J(1) of the LTM Act for an unutilised value allowance in respect of tax years 2013 and 2014; and (2) Set aside the Respondent's decision that the Land is not eligible under section 62J(1) of the LTM Act for an unutilised value allowance in respect of tax year 2012. Catchwords: Land tax – rural land – grazing – carry on business of grazing – mainly used Legislation Cited: Interpretation Act 1987 Land Tax Management Act 1956 Local Government Act 1993 Taxation Administration Act 1996 Cases Cited: B&L Linings Pty Ltd v Chief Commissioner of State Revenue (2008) 74 NSWLR 481 Bisvic Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 293 Bisvic Pty Limited v Chief Commissioner State Revenue (No 2) [2014] NSWCATAD 166 Chief Commissioner of State Revenue v Metricon Qld Pty Limited [2017] NSWCA 11 Hope v Bathurst City Council (1980) 144 CLR 1 Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79 Hope v Bathurst City Council (1986) 7 NSWLR 669 Category: Principal judgment Parties: Bisvic Pty Limited as trustee for Yallah Unit Trust (Applicant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: Mr James Johnson (Applicant) Mr Adam Gerard (Respondent) Solicitors: Thomas & Bisley (Applicant) Crown Solicitor's Office File Number(s): 2015/00383449, 1510563 REASONS for decision Introduction 1. This application was originally one of three applications seeking the review of certain decisions made by the Respondent under the Land Tax Management Act 1956 (the LTM Act). The other applications were dismissed by agreement on 15 December 2015 and 26 July 2016. 2. It is an application under section 96 of the Taxation Administration Act 1996 for the administrative review by the Tribunal of the Respondent's decision dated 21 May 2015, in which the Respondent dismissed the Applicant's objection to its decision that certain land described below is not eligible under section 62J(1) of the LTM Act for an unutilised value allowance, and in consequence not to refer to the Valuer-General under section 62K(1A) of the LTM Act the Applicant's application for such an allowance to be ascertained. Although the suite of applications covered a wider range of land tax years, it is now agreed between the parties that the only years covered by the application are limited to the 2012, 2013 and 2014 land tax years. 3. The provisions of section 100 of the Taxation Administration Act 1996 apply to this review. Notably, sub-section 100(3) of that Act provides that the Applicant "… has the onus of proving the applicant's case in an application for review", an onus which attracts the ordinary civil standard: B&L Linings Pty Ltd v Chief Commissioner of State Revenue (2008) 74 NSWLR 481. Background 1. The relevant land is a parcel of approximately 28 hectares located south of Wollongong, at 160-164 Yallah Road, Yallah (the Land). It is Lot 1 in Deposited Plan 234771, and the Applicant is its registered proprietor. The Land was previously the site of an abattoir, and has on it several structures which were originally used for purposes of the abattoir. 2. The Land has figured on several occasions in review applications, both before the Tribunal (Bisvic Pty Limited v Chief Commissioner State Revenue (No 2) [2014] NSWCATAD 166) and its predecessor (Bisvic Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 293). These concerned decisions by the Respondent that the Land did not qualify for exemption from land tax under section 10AA of the LTM Act, which allows for the exemption of land used for primary production. In both cases, the Respondent's decision was confirmed. While the facts in those cases have some commonality with those in this review, the relevant legislative provisions differ significantly. 3. The starting point is section 62K(1) of the LTM Act, which allows the owner of land to apply to the Respondent for an unutilised value allowance to be ascertained for the land. Section 62K(1A) requires the Respondent to refer the application to the Valuer-General for the ascertainment of such an allowance, if the Respondent is satisfied that the land "…satisfies the description in any of the paragraphs of section 62J(1)". If so referred, the Valuer-General is required under section 62K(2) to determine the allowance, which, in accordance with section 9A(2) of the LTM Act, must be deducted from the land's value for the purpose of assessing land tax. If the land is sold or otherwise disposed of, or ceases to meet certain conditions which are not relevant for present purposes, then land tax for the preceding period of 4 years is reassessed as if section 9A(2) had not applied to reduce the land value for taxation purposes. 4. Section 62J sets out the tests used to determine whether land is entitled to an unutilised value allowance: 1. It provides that land "…is eligible to have an unutilised value allowance ascertained for its land value as at 1 July in a year if it satisfies … as at midnight on 30 June in that year.." the conditions prescribed in any one of three sub-paragraphs in that section. 2. A person's liability for land tax is, in accordance with sections 8 and 9 of the LTM Act determined in respect of a land tax year beginning on 1 January by reference to the value, as at the preceding 1 July, of land owned by the person at midnight on 31 December immediately preceding the commencement of the land tax year. So, if for the 2017 land tax year a person owned taxable land as at midnight on 31 December 2016, the value of that land for taxation purposes would be determined as at 1 July 2016, and any unutilised value allowance which applied as at 1 July 2016 would reduce the taxable value of the land for the 2017 land tax year. That utilised value allowance would itself be determined by reference to the use of the land as at midnight on 30 June 2016. 3. There are three conditions specified in section 62J. Two of them relate to the use of land only for a single dwelling house although the land is authorised to be used for other (and economically more valuable) purposes. These two conditions are not relevant for present purposes, but reflect the underlying policy of the provisions, which is to shield a landowner from a land tax bill which, although commensurate with the potential use of its land, is disproportionate to its actual use. 4. The third condition is relevant for this review, and is set out in section 62J(c). This is that the land is: 1. "… a parcel of rural land (which may comprise one or more lots or portions in a current plan within the meaning of the Conveyancing Act 1919) which is zoned or otherwise designated under an environmental planning instrument so as to permit its use otherwise than as rural land, or its subdivision into two or more lots or portions, one or more of which has an area of less than 40 hectares". 2. Both the Applicant and the Respondent accept that the Land satisfies the latter elements of this condition, as to the zoning or other designation of the permitted uses of the Land. They differ as to whether the Land satisfied, as at 30 June in the relevant years, the first element of the condition, that it was rural land. 3. The expression rural land has a particular statutory meaning: 1. The starting point is section 62I(2) of the LTM Act, which provides that "Expressions used in this Division have the same meanings as in Division 2 of Part 8 of Chapter 15 of the Local Government Act 1993 …". Sections 62I and 62J are in the same division of the LTM Act. 2. This in turn leads to section 585 of the Local Government Act 1993, which is found in Division 2 of Part 8 of Chapter 15 of that Act. It contemplates concessions for local government rates on "rural land" in certain circumstances. This expression is defined in the Dictionary to that Act as follows: "rural land", in Division 2 of Part 8 of Chapter 15, means: (a) a parcel of rateable land which is valued as one assessment and exceeds 8,000 square metres in area and which is wholly or mainly used for the time being by the occupier for carrying on one or more of the businesses or industries of grazing, animal feedlots, dairying, pig-farming, poultry farming, viticulture, orcharding, bee-keeping, horticulture, vegetable growing, the growing of crops of any kind or forestry, or (b) ………. . The other limbs of the definition are irrelevant for present purposes. 1. Again, the Applicant and the Respondent both accept that the Land is rateable, valued as one assessment and more than 8000 square metres in area, and that the only rural activity conducted on it at any material time was horse grazing, in a non-technical sense. Where they diverge is as to whether the Land was at the relevant times "…. wholly or mainly used for the time being by the occupier for carrying on… the business … of grazing". This divergence requires consideration of three issues, in respect of each relevant tax year: 1. Who was the occupier? 2. Did the occupier carry on the business of grazing on the Land? 3. If so, did that constitute the whole or main use of the Land? Geography and delineation of use 1. The Tribunal in Bisvic Pty Limited v Chief Commissioner State Revenue (No 2) [2014] NSWCATAD 166 records at paragraph [12] evidence from Mr J Bisley, a director of the Applicant, that the Land fell into five identifiable parts: 1. Approximately 450 square metres, representing 0.16% of the Land, which is the site of a cottage occupied by Mr C Meharg; until November 2011 these premises were leased to Mr Meharg, but the lease was terminated at that time, although Mr Meharg continued to occupy the house; 2. Approximately 300 square metres, representing 0.10% of the Land, which is the site of a cottage occupied by Mr Pastrovic, a director of the Applicant; there was no change in this arrangement at any relevant time; 3. Approximately 1 hectare, representing about 3% of the Land, which is the site of abandoned abattoir buildings; there was no relevant change in this situation; 4. Approximately 400 to 600 square metres, representing about 0.2% of the Land, which at all relevant times was leased to R & H Hancock Pty Limited and used by it for purposes of its business, which included the repair and storage of wooden pallets and the receipt and storage of animal skins; again, there was no change in this arrangement at any relevant time; 5. An unspecified, but self-evidently small, portion which was made available by the Applicant, for a fee, to a third party as parking for two trucks; 6. The balance, of about 27.3 hectares, representing 96.5% of the Land, which was used to keep horses; the lease of this land to Mr Meharg was terminated in November 2011, so that the equine activities (to use a deliberately neutral expression) on that land ceased to be conducted by him, but were conducted from then onwards by the Applicant through the agency of Mr Meharg. 7. This summary, both of the use of the Land and of the changes in the arrangements relating to its use was accepted by both parties, subject to a minor - and essentially immaterial - divergence of views, as to whether Mr Pastrovic or the Applicant should be considered for purposes of the definition of rural land as the occupier of the cottage where he resided. 1. As at 30 June 2011, which is the relevant date for purposes of the 2012 tax year, the Land was therefore used as follows: 1. As to 96.5%, by Mr Meharg for purposes of his equine activities; 2. As to 0.26%, for residential purposes; 3. As to 0.20%, for R&H Hancock's business; 4. As to the small parking area, for truck parking; and 5. As to the balance, as the site of the unused abattoir buildings. 1. By 30 June 2012, the relevant date for the 2013 tax year, this had changed in two respects: 1. The lease to Mr Meharg had been terminated, and 2. the Applicant itself now used the land previously used by Mr Meharg for the purposes of its own equine activities. 3. Mr Meharg had ceased, too, to be the lessee of the cottage he occupied, but continued to occupy it in consideration of his managing the Applicant's equine activities on the Land. These arrangements remained in place as at 30 June 2013, the relevant date for the 2014 tax year. Subject to one minor possible difference, as to whether the occupier of the cottage which accommodated Mr Pastrovic was him or the Applicant, this summary is accepted by both parties; in any event, nothing appears to turn on the difference. Who is the occupier? 1. As outlined above, the first question to be answered concerning the statutory definition of "rural land" is this: who was the occupier at each of the three relevant dates? 2. Several people or entities occupied different parts of the Land. In my view section 8(c) of the Interpretation Act 1987, which provides that ".. a reference to a word or expression in the singular form includes a reference to the word or expression in the plural form" applies. The consequence is that the reference in the definition to "the occupier" should be read as a reference to all the occupiers of any part or parts of the Land at a relevant time, and the subsequent questions are to be answered collectively by reference to their respective uses of the Land. 3. The occupiers therefore were: 1. As at 30 June 2011, Mr Meharg, R&H Hancock Pty Limited, the Applicant and, arguably, Mr Pastrovic; and 2. As at 30 June 2012 and 2013, R&H Hancock Pty Limited, the Applicant and, arguably, Mr Meharg and Mr Pastrovic. Did the occupier carry on the business of grazing on the Land? 1. In Hope v Bathurst City Council (1980) 144 CLR 1 the High Court considered the definition of "rural land" which is relevant to the present application. Mason J, with whom the other justices agreed, stated at paragraph [14] that the definition's reference to the ratepayer's carrying on the business of grazing denoted "… grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis…". 2. The High Court did not consider what amounted to grazing activities, because the question was not posed, but the later decision of Perrignon J in the Land and Environment Court of New South Wales, in Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79 (which was approved by the Court of Appeal in Hope v Bathurst City Council (1986) 7 NSWLR 669) offers some guidance. His Honour there accepted that an arrangement under which the occupier of land, Mr Hope, accepted other people's stock on the land for a fee, where he grazed, watered and tended them under his control, amounted to a grazing activity for purposes of the definition. 3. It necessarily (and, I think, uncontroversially) follows, that where an occupier keeps, waters and tends his own stock on the land, whether himself or through an agent, he also conducts a grazing activity. Was a grazing business conducted on the Land as at 30 June 2011? 1. In its decision in Bisvic Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 293, the Tribunal found that: 1. Mr Meharg used the approximately 27.3 hectares leased to him during the tax years 2008, 2009 and 2010 as follows: 1. As to the bulk of the land, representing 9 out of 10 paddocks into which it was divided, he provided agistment for between 30 and 40 horses owned by other people. He charged horse owners an agistment fee, determined by reference to the number of horses agisted. In consideration of this fee, not only were horses kept on the land, but Mr Meharg actively saw to their care, by maintaining the paddocks and fencing where they were kept, ensuring that they were watered, and hand-feeding them when necessary. 2. Mr Meharg used the remaining paddock to keep and maintain his own horses. Some of these were for riding by him or family members, but most were horses which were in poor condition, and which he bought in order to improve their condition and sell at a profit. 3. As well, Mr Meharg acted as a selling agent for other people's horses, having successfully arranged the sale of between 30 and 40 horses for third parties between 2006 and 2010. 1. During those tax years, Mr Meharg conducted on the Land the farming enterprises outlined above as a whole for the purpose of profit on a continuous or repeated basis. 1. In his affidavit dated 4 December 2015, Mr Meharg: 1. Reconfirmed the accuracy of the evidence provided by him on 25 October 2010 as to his use of the Land, in connection with the proceedings in Bisvic Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 29; and 2. Stated that between October 2010 and November 2011 there was no significant change in his use of the Land, in that: 1. He continued to use the property for the purpose of grazing horses, buying and selling horses and agisting horses; and 2. Each of those uses involved the grazing of animals on the property. 3. Mr Meharg was examined on his evidence. His oral evidence was consistent with his affidavit, and with the earlier findings of the Tribunal as to the nature of his activities on the Land. There was no challenge to Mr Meharg's evidence on this point, which appeared to be accepted by the Respondent. 1. In Bisvic Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 29 the Tribunal was concerned to ascertain whether Mr Meharg's use of the Land for purposes which were qualifying purposes under section 10AA was such as to attract the exemption provided for in that section. The scope of paragraph (b) of the definition of "land used for primary production" in section 10AA(3) is limited to "the maintenance of animals …. for the purpose of selling them or their natural increase or bodily produce", and therefore excludes from consideration for purposes of that exemption any grazing activities conducted by way of agistment. No such limitation, however, applies in section 585 of the Local Government Act 1993, as incorporated by section 62I(2) of the LTM Act. When one considers Mr Meharg's agistment activities, it is reasonably clear that, however informal his business operations may have been, they were conducted in a commercially systematic way, with the cost of maintaining agisted horses being passed (with greater or lesser accounting precision) back to their owners through agistment fees determined by reference to the number of horses maintained. This, in my view, has a sufficient degree of commercial system to satisfy the relevant element of the test set out by Mason J. 2. Accordingly, I find that as at 30 June 2011 Mr Meharg was carrying on the business of grazing on the Land. There is no suggestion that on that date that any other occupier of the Land was carrying on any business which could be characterised as grazing. 3. That Mr Meharg's use of the Land to conduct his grazing business did not, as the Tribunal found in Bisvic Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 29, suffice to attract the exemption from land tax under section 10AA of the LTM Act for primary production does not detract from this conclusion, since the conditions for that exemption are different and more onerous. In particular, as the Tribunal found, Mr Meharg's use of the Land for the mixed purposes of maintaining his own horses for sale, maintaining other people's horses for sale, and the agistment of other people's horses, was not such that it could be satisfied that the dominant use of the Land by him was for the first and second purposes (which were qualifying uses under section 10AA) rather than the third purpose (which was not a qualifying use under that section). No such distinctions apply in the present case, where the issue is relevantly whether the Land is used to conduct a grazing business. Was a grazing business conducted on the Land as at 30 June 2012? 1. In November 2011, as outlined above, major changes occurred in the relationship between the Applicant and Mr Meharg, and their respective uses of the Land: 1. Mr Meharg's lease of the grazing land and the cottage were terminated; 2. The Applicant started to undertake equine activities on the Land; 3. Mr Meharg started to manage the Applicant's equine activities; and 4. Mr Meharg continued to occupy the cottage on the Land, but as an incident of his managerial functions, rather than as lessee. 1. Mr Bisley is a director of the Applicant. He gave evidence that the restructure of the Applicant's business activities in connection with the Land, to introduce into them a substantial component of equine activities, was with a view to ensuring that the use of the Land corresponded more closely to the conditions set out in section 10AA of the LTM Act for the primary production exemption. This, it should be noted, is a perfectly legitimate commercial objective, and no criticism attaches (or should be taken to attach) to the Applicant or its directors for deciding to reorder its affairs with a view to attracting the operation of that exemption. Relevantly, these conditions include that (subject to certain further conditions which are not immediately relevant) the Land be used for one or more qualifying uses. These qualifying uses include "…. the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce ..", but do not include the commercial agistment of animals. Indeed, it was a key element in the Tribunal's decision in Bisvic Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 29 that Mr Meharg's use of the Land for purposes which primarily comprised agistment was not such as to satisfy the qualifying use test. This consideration clearly underlies an important element in the reorganisation, which as Mr Bisley's evidence demonstrates involved the abandonment of traditional agistment activities for an arrangement under which the Applicant: 1. Acquired from their owners the horses formerly agisted on the Land; and 2. Granted to the former owners an option to reacquire their respective horses at a price equal to 110% of the price for which the Applicant acquired the animals. 3. The objective is clear: to transform a non-qualifying use (horse agistment) into a qualifying one (horse trading). 1. In Bisvic Pty Limited v Chief Commissioner State Revenue (No 2) [2014] NSWCATAD 166 the Tribunal found that the Applicant's efforts to convert the base metal of agistment into the gold of commercial horse trading met the same fate as other attempts at alchemy. More precisely, the Tribunal found that: 1. the Applicant's equine activities in the tax year 2011 failed to satisfy the stringent commerciality test imposed by section 10AA(2)(a) of the LTM Act, and 2. the "dominant use" of the Land by the Applicant was not for a qualifying purpose, as required by the definition of "land used for primary production" in section 10AA(3). 1. The question in the present application is whether, despite their inability to satisfy section 10AA, the Applicant's equine activities on the Land as at 30 June 2012 nonetheless amount to the conduct of the business of grazing, as explained by Mason J in Hope v Bathurst City Council (1980) 144 CLR 1. My conclusions are as follows: 1. It is, I think, clear from the evidence that the Applicants undertook, through the agency of Mr Meharg, the activities of maintaining, buying and selling horses on the Land, and I consider that these constitute grazing activities, in terms of Mason J's formulation. 2. Equally, I note the Tribunal's finding in Bisvic Pty Limited v Chief Commissioner State Revenue (No 2) [2014] NSWCATAD 166 that the Applicant undertook its equine activities "… for the purpose of profit on a continuous or repeated basis", and consider that the evidence before me is consistent with that conclusion. While this conclusion was specifically directed at the test set out in section 10AA(2)(b) of the LTM Act, it is equally relevant to the final elements of Mason J's formulation, which appear to have substantially informed the drafting of section 10AA(2)(b). The evidence from Messrs Bisley and Meharg satisfied me that horses were bought and sold by or on behalf of on multiple (albeit infrequent) occasions during the period from November 2011 to 30 June 2012, and Mr Bisley's evidence satisfies me that, whatever the other purposes of the Applicant's activities, one at least of its purposes was profit. Indeed, just as nothing in Cawdor's life so became him like the leaving it (Macbeth, Act 1, scene 4), Mr Bisley's evidence in cross-examination of the dismay which he felt in November 2012 concerning the effect on the Applicant's profitability of the expenses of maintaining horses, underlines this conclusion. 3. I am not satisfied; however, that the Applicant's equine activities between November 2011 and 30 June 2012 satisfied the other element of the test proposed by Mason J, that they constitute a commercial enterprise in the nature of a going concern. In doing so, I should say that I do not read the final element of the test articulated by His Honour – "the purpose of profit on a continuous or repeated basis" – as a paraphrase of the expression "a commercial enterprise in the nature of a going concern". Rather, I read them as cumulative elements of a single test, with the conjunctive words "that is to say" indicating that the final element informs but does not supplant the earlier elements. 1. I reach this conclusion for several reasons: 1. The business model of purchasing as trading stock horses which were previously agisted on the Land, and granting their previous owners an option to reacquire them, is inherently commercially inconsistent. If the commercial objective was, as the Applicant says, to make a profit by a quick turnover in horses, then the option granted to their previous owners significantly restricts the ability of the Applicant to achieve it. Either: 1. any sale of such a horse to a third party must be conditioned on the previous owner not exercising the option, which limits the ability of the Applicant to deliver good title in a timely way, or 2. the Applicant would have to accept that the maximum gross return which it could achieve on such a horse was limited to 10%, which clearly places a significant constraint on its ability to maximise its revenues. 3. Such constraints might be commercially justifiable as a hedge against market fluctuations, but nothing in the evidence suggests that the Applicant viewed them in this way, or indeed even considered the commercial consequences of such an arrangement. 1. I fully accept Mr Bisley's evidence that when the business restructure took place in November 2011 there was no discussion between him and Mr Meharg concerning the holding costs for horses, and that his attention was not drawn to such potential costs. Mr Bisley is, however, an experienced solicitor, and the proprietor of his own firm. I doubt that he could have enjoyed the success which he has in his profession without a clear understanding of commercial principles, and in particular the fundamental commercial proposition, that profit is what remains after deducting business expenses from revenues. That he showed so little curiosity in the expenses which the equine activities might incur suggests either of two immediate conclusions: that he was a commercial naif (which his professional experience clearly makes highly implausible), or that he was simply unconcerned by the costs of the activities, because the objective, of qualifying for exemption under section 10AA, so outweighed the underlying commercial economics of the venture that these were immaterial to the Applicant. In either case, the wider conclusion is that the Applicant's equine activities were not truly a commercial enterprise. 2. This absence of commercial analysis is further underlined by the approach which the Applicant adopted towards the costs of maintaining horses which it purchased but which had previously been agisted on the Land. These could be covered in, or by a combination of, two ways: 1. The 10% price uplift on sale of the horse back to its previous owner might cover costs, but equally might not. Whether it would do so clearly depended on how long the horse remained on the Applicant's book as stock, and what relationship the 10% uplift bore to actual maintenance costs. There was no evidence that any analysis had been made of any such matters, or of the commercial effect of a flat 10% uplift (as distinct from one which varied according to the period for which the Applicant owned the animal). 2. Alternatively, the Applicant could expect, as Mr Bisley indicates in his evidence, that the previous owners would – perhaps out of affection for their previous animals, or in anticipation of repurchasing them - undertake gratuitously various expenses in maintaining the horses. The Applicant appears to have proceeded on this basis, but there is no evidence that it sought to ensure that the previous owners did so, whether contractually or by some kind of economic inducement (for example an allowance factored into the repurchase price for maintenance costs). 1. If the commercial objective of the enterprise was, as the Applicant says, to generate profit through trading horses, then it might be expected that the Applicant would be concerned to ensure that there was a quick turnover of horses, and would be astute to monitor this. Yet, in the period from mid November 2011 to 30 June 2012, the Applicant: 1. bought 26 horses and sold only 9; 2. made no enquiries of Mr Meharg as to the financial performance of the trading business; and 3. took no steps to ensure that its ostensible commercial model, of buying and selling horses, was implemented in a vigorous or concerted way. Was a grazing business conducted on the Land as at 30 June 2013? 1. Turning to the 12 months ended 30 June 2013, a not dissimilar pattern, of proprietorial disengagement from the horse trading activities and inherent inconsistency in the business model, appears from the evidence. 2. For that entire period, the Applicant bought 2 horses and sold 8, in circumstances where only one of the 8 horses was sold for anything more than its purchase price. No horses were sold at all in the last 6.5 months of the period, and none were purchased in the last 6.75 months. The period for which the horses sold had been held by the Applicant between their purchase and their sale varied between 222 and 361 days, which is not reflective of the rapid turnover of a trading business. All horses were, however, maintained at the Applicant's cost. 3. This all suggests a fundamental ambiguity in the Applicant's activities. It says that its commercial objective was horse trading, and Mr Bisley recognised in cross-examination that ".. the secret of to try and make a profit out of this business [sic] was quick turnover". Its trading activity was modest at best, however, and non-existent for more than half the relevant financial year. Its primary activity, looked at objectively, was owning and maintaining horses which, without some substantial income producing element, did not demonstrate the commerciality which Mason J identifies as necessary to satisfy the test. 4. This ambiguity in the Applicant's business model is exemplified in an observation made by Mr Bisley in cross-examination. When asked whether the Applicant was aware at any point between 6 December 2012 and 7 May 2014 whether it had sold horses, Mr Bisley answered that: "I would not have even asked because it has no relevance. I mean things don't get sold – bought and sold – it is stock for goodness' sake". 1. That however is precisely what happens with trading stock: it exists to be bought and sold. If, as he may, Mr Bisley meant that the horses were fixed stock which remained a constant presence in the Applicant's activities, then that raises another question: what commercial purpose did such a fixed stock of horses serve for an enterprise whose stated objective was to turn a profit by trading horses? If the horses were used to breed from and their produce was sold, or if they were used in a riding school as instructional animals, there would be some identifiable commercial logic in having the horses as fixed stock. There is no evidence that any plausible commercial use was made of them. 2. Again, I am not satisfied that the Applicant's equine activities between 1 July 2012 and 30 June 2013 satisfied the test proposed by Mason J, that they constitute a commercial enterprise in the nature of a going concern. 3. What follows from all this is that I am not satisfied that for the tax years 2013 and 2014 the Applicant was conducting the business of grazing, within the meaning of section 585 of the Local Government Act 1993, as incorporated by section 62I(2) of the LTM Act. If so, did that constitute the whole or main use of the Land? 1. In view of my conclusion above in relation to the 2013 and 2014 tax years, I have no need to consider (and accordingly express no view) as to whether the Applicant's use of the Land for purposes of its equine activities constituted the whole or main use of the Land. In view of my finding as to Mr Meharg's activities as at 30 June 2011, the issue is one which I need to consider in relation to the 2012 tax year, having regard to the use of the land as at 30 June 2011. 2. The starting point is section 585 of the Local Government Act 1993, as incorporated by section 62I(2) of the LTM Act, which requires relevantly that the Land "… is wholly or mainly used for the time being by the occupier .." for a relevant purpose. As outlined above: 1. As at 30 June 2011, the occupier for these purposes was Mr Meharg, R&H Hancock Pty Limited, the Applicant and, possibly, Mr Pastrovic; and 2. None of R&H Hancock Pty Limited, the Applicant or Mr Pastrovic used the Land for any purpose listed in that section. 1. Moreover, although the Applicant leased most of the Land to, variously, Mr Meharg or R&H Hancock Pty Limited, this leasing is not (as the Respondent recognised in its submissions, in the light of the decision in Chief Commissioner of State Revenue v Metricon Qld Pty Limited [2017] NSWCA 11) properly considered as a separate or independent use of the Land. 2. The issue comes down to a comparison of the relative significance of Mr Meharg's use of the Land for his grazing business to the aggregated uses of it by the other occupiers. 3. There is no question but that the proportion of the Land used by Mr Meharg for purposes of his business dwarfed the proportion used by all other occupiers combined. Mr Meharg used 96.5% (or 96.66%, if his cottage is included) of the Land, while the proportion used by other users was at most 3.34%. If the question is to be answered simply by reference to the proportion of the Land used by Mr Meharg, then the answer would be self-evidently Mr Meharg's use, and of that use the vast preponderance of use by Mr Meharg was for purposes of his horse business. The cases, however, indicate that a more nuanced approach is required. 4. The leading case is Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79, where Perrignon J set out the following approach: "I think the proper approach is to consider all the evidence relating to the uses to which the land is put and if upon such a consideration it appears that the land is mainly used for one or more of the businesses or industries specified, it is "rural land". Such an approach calls for a weighing of the evidence relating to the uses to which the land is put, including, but not limited to, the nature and intensity of such uses, the physical areas over which they extend, and the time and labour spent in conducting them. If it can be said, weighing the uses which would bring the land within the definition of "rural land" against the other uses to which the land is put, that the former uses constitute the main or major use of the land, or, what I think is the same thing, the land is mainly devoted to such uses, it is "rural land" ..". 1. His Honour's approach was approved by the Court of Appeal, in Hope v Bathurst City Council (1986) 7 NSWLR 669, where Mahoney JA, with whom Priestley JA agreed, observed that: 1. The expression "wholly or mainly" may refer to ".. the end to be achieved by the use .."; and 2. "The determination of what is "wholly or mainly" the use of the land is determined, not solely by reference to the area, but by reference to other criteria of which area may be one of the relevant factors". 1. The present case differs in two significant respects from the circumstances in Hope v Bathurst City Council (No 2): 1. The first material difference is that in that case the only occupier was Mr Hope himself, who used his property for several purposes: 1. As "a pleasant rural home", to adopt His Honour's description; 2. As the location at which he conducted his practice as a consulting engineer; 3. As the location at which he conducted a grazing business, in the course of which, for remuneration, he depastured stock owned by third parties; 4. As the location at which he conducted activities associated with the design and fabrication of building components for houses, under the name "Precision Building Components"; and 5. As the source of land which he subdivided into residential lots and sold. 6. In the present case, however, the Land is used by several occupiers, each for their own particular purposes, separately and independently from one another. It is not a matter of identifying a main use of the Land from a number of overlapping and intersecting uses made of it by a sole occupier. 1. Mr Hope's uses of the land were not necessarily geographically clearly segmented. His "pleasant rural home", as Perrignon J described it, was not solely limited to the homestead, but effectively included all of the subject land. The homestead itself was also used by Mr Hope to conduct his engineering practice. The grazing activities used not only the farmland, which provided the setting in which Mr Hope enjoyed his rural lifestyle, but also a workshop, garage and storage shed. The workshop was also used for Mr Hope's activities of developing building components. In the present case, however, the areas used by the various occupiers for their respective purposes are clearly delineated and defined. It is, as the land use figures outlined above indicate, possible therefore to determine with precision what parts of the Land were used for what purposes, and by which occupier. 1. These factual differences suggest that, although it is clearly appropriate to consider the other uses of the Land in determining what was its main use, in the circumstances of 30 June 2011 they are perhaps less weighty factors in the investigation than such considerations were in the Hope cases. 2. The Commissioner also referred the Tribunal to a number of other cases, where the methodology outlined in Hope v Bathurst City Council (No 2) was used in determining the somewhat different question under section 10AA of the LTM Act, as to what was the dominant use of land, including Bisvic Pty Limited v Chief Commissioner of State Revenue and Bisvic Pty Limited v Chief Commissioner State Revenue (No 2). While these cases provide instructive applications of the methodology outlined in Hope v Bathurst City Council (No 2) they need to be treated with caution in the present context, because of the difference between determining whether a particular use is a dominant use, for purposes of section 10AA, or the main use, for purposes of section 585 of the Local Government Act 1993, as incorporated by section 62I(2) of the LTM Act. The former is a more stringent test, and while the existence of one or more geographically minor (but economically or otherwise significant) uses of land may be sufficient to ensure that a geographically major use is not the dominant use for purposes of section 10AA, it does not logically follow that the existence of such uses will have as decisive effect in the context of an investigation under section 62J. 3. The Commissioner argues that the disparity between the economic value of R&H Hancock's overall activities, as evidenced by its tax returns, and the value of Mr Meharg's horse business, is a relevant factor in identifying the main use of the Land. The Commissioner recognises that there is no evidence which allows an apportionment of the value of R&H Hancock's business activity as between the Land and other sites, so that any attempt to compare the values of the activities respectively conducted by them and Mr Meharg on the Land is really a matter of surmise, although this Is not to dispute that R&H Hancock's operations on the Land formed an integral part of its overall business, which was not insubstantial. 4. The Commissioner also argues that R&H Hancock's use of the Land was more intense than Mr Meharg's, essentially because R&H Hancock had 3 employees engaged on the Land for 5 days a week, while Mr Meharg spent about 4 hours a day working on the Land. Certainly R&H Hancock's use of the site occupied by them was intense, and R&H Hancock's 105 man hours per week of use significantly exceed Mr Meharg's 24 to 28 man hours per week. R&H Hancock's man hours are limited in application, however, to a minuscule portion of the Land, while Mr Meharg's are deployed over 96.5% of it. A passer-by might not be aware of R&H Hancock's use, unless he happened to see the Hancock personnel at work with pallets or skins. The same hypothetical observer, however, would likely encounter the results of Mr Meharg's labours at every turn: each fence he saw, every grazing horse and every trough filled with feed or water would be a manifestation of Mr Meharg's use of the Land. Which, then, is the more intensive use of the Land: the use which has more people at work on small part of the Land, or the use which impresses itself on the physical appearance of the Land? 5. The Commissioner argues too that the use of part of the Land by Mr Meharg and Mr Pastrovic for residences is another factor to be taken into account. I do not disagree with either proposition, but: 1. In the overall scheme of things, Mr Pastrovic's occupation of his cottage is a minor use, as for that matter is the Applicant's use of a small part of the Land for truck parking, and 2. The evidence was that Mr Meharg sought a rural lifestyle, and that the income from his horse business was used, in part at least, to fund the rent for his cottage. The earnings of his horse business on the Land were the source from which his ability to enjoy a rural residence in the cottage flowed. It follows that his use of the Land for his horse business was its primary use by him, rather than an adjunct to his use of the Land for residential purposes. 1. When it comes to weighing the relevant uses of the Land by its occupiers as at 30 June 2011, I am of the view that the main use of the Land was by Mr Meharg, for purposes of his grazing business. This is because: 1. the various users of the Land occupy distinct and separate areas; 2. a particular use is limited to the portion of the Land occupied by its user, and does not compete with other uses in respect of that part of the Land; 3. the utility of factors such as economic value or intensity of the various uses in order to determine the main use of the Land is less pronounced here than in cases where the various uses of land by a single occupier physically overlap; 4. the overwhelming – 95.6% – preponderance of the Land is used for grazing purposes; and 5. it is no longer suggested that the Applicant's use of the Land for rental purposes is itself a relevant use, 1. In these circumstances, the Applicant has satisfied me that there is no countervailing factor sufficient to outweigh Mr Meharg's use of 96.5% of the Land for his horse business as a determinant of whether the Land was, at 30 June 2011, mainly used by Mr Meharg for his grazing business. 2. In reaching this view, I am conscious of the Tribunal's conclusion concerning section 10AA of the LTM Act in Bisvic Pty Limited v Chief Commissioner of State Revenue. In that review, the relevant issue before the Tribunal was not the relative importance of Mr Meharg's use of the Land as compared to that of other occupiers, but rather a different question, as to whether Mr Meharg's use of the Land for qualifying purposes under section 10AA was the dominant use of the Land. The Tribunal found that there was no evidence to allow it to conclude that the qualifying uses by Mr Meharg were dominant, and nothing in my conclusion runs counter to that finding. Orders 1. Affirm the Respondent's decision that the Land is not eligible under section 62J(1) of the LTM Act for an unutilised value allowance in respect of tax years 2013 and 2014; and 2. Set aside the Respondent's decision that the Land is not eligible under section 62J(1) of the LTM Act for an unutilised value allowance in respect of tax year 2012. ******** 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 Amendments 14 July 2017 - Typographical error corrected in paragraphs 46 and 52, 2012 should be 2011 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: 14 July 2017