Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34 Hearing dates: 11 October 2018; Submissions 18 October; 25 October 2018; and 1 November 2018 Decision date: 28 February 2019 Before: Leeming JA at [1]; White JA at [35]; Emmett AJA at [67] Decision: 1. Appeal allowed. 2. Set aside orders 1, 2 and 3 made on 23 May 2018. 3. Remit the proceeding to the Equity Division for hearing and determination of the remaining issues raised in the Court below by the respondent, with the costs incurred to date at first instance to be within the discretion of the judge who hears and determines the remaining issues. 4. The respondent Adams Bidco to pay the appellant Chief Commissioner's costs in this Court. Catchwords: TAXES AND DUTIES — land tax — exemptions — Duties Act 1997 (NSW) s 163D — whether third party was a primary producer within meaning of s 163D at time respondent acquired all issued shares in third party — construction of s 163D(2) — approach to be taken in determining whether a party's landholdings wholly or predominantly comprise land used for primary production — whether a quantitative approach based on land area or land value should be taken or whether a qualitative or evaluative approach should be preferred Legislation Cited: Duties Act 1997 (NSW) Interpretation Act 1987 (NSW) Land Tax Management Act 1956 (NSW) Stamp Duties Act 1926 (NSW) Stamp Duties Amendment Act 1987 (NSW) State Revenue Legislation Further Amendment Act 2009 (NSW) Supreme Court Act 1970 (NSW) Taxation Administration Act 1996 (NSW) Cases Cited: Chief Commissioner of State Revenue (NSW) v Metricon Qld Pty Ltd [2017] NSWCA 11 Ferella & Anor v Chief Commissioner of State Revenue (NSW) [2014] NSWCA 378 Gibb v Federal Commissioner of Taxation (1966) 118 CLR 628 Gudelj v Motor Accidents Authority of New South Wales (2011) 81 NSWLR 245; [2011] NSWCA 158 Gulic v Boral Transport Ltd [2016] NSWCA 269 Hope v Bathurst City Council (No 2) (1986) 7 NSWLR 669 Illawarra Meat Co Pty Ltd v Commissioner of Land Tax [1979] 1 NSWLR 188 Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12 Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2010) 79 NSWLR 724 Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9 Peter Sleiman Investments Pty Ltd as trustee for the Sleiman Family Trust v Deputy Commissioner of Taxation [2017] NSWCA 81; 105 ATR 431 Warringah Shire Council v Pittwater Provisional Council (1992) 26 NSWLR 491 Texts Cited: Oliver Jones, Bennion on Statutory Interpretation (6th ed, 2013 LexisNexis) at 517, 528 Category: Principal judgment Parties: Adams Bidco Pty Ltd (Appellant) Chief Commissioner of State Revenue (Respondent) Representation: Counsel: J Hmelnitsky SC with M Sealey (Appellant) M Richmond SC with T Prince (Respondent) Solicitors: Crown Solicitor for New South Wales (Appellant) PricewaterhouseCoopers (Respondent) File Number(s): 2018/186196 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2018] NSWSC 735 Date of Decision: 21 May 2018 Before: Pembroke J File Number(s): 2017/213403 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] In 2013, Adams Bidco Pty Ltd (Bidco) entered into an agreement with Mr Bob Ingham to buy all of the issued shares in Ingham Enterprises Pty Ltd, a poultry business. If, on 27 June 2013, Ingham was a 'primary producer' within the meaning of s 163D of the Duties Act 1997 (NSW), then Bidco's acquisition of the shares would be exempt from duty that would otherwise be chargeable under Ch 4 of the Duties Act. In September 2016, the Chief Commissioner of State Revenue (the Commissioner) assessed Bidco to pay duty in the sum of $7,967,073.60, plus penalty tax and interest. Bidco objected to this assessment under Div 1 of Pt 10 of the Taxation Administration Act 1996 (NSW), but following that objection, the Commissioner confirmed the assessment in May 2017. In July 2017, Bidco applied to the Supreme Court for a review of the assessment, pursuant to s 97 of the Taxation Administration Act 1996 (NSW). Section 163D(1)- (2) of the Duties Act 1997 (NSW) provides that: (1) Duty is chargeable under this Chapter in respect of an acquisition of an interest in a primary producer only if, when the acquisition is made, the primary producer is land rich. (2) For the purposes of this section, a primary producer is a landholder whose land holdings in all places, whether within or outside Australia, wholly or predominantly comprise land used for primary production or land that would be considered to be land used for primary production if it were land in New South Wales. It was common ground that at 27 June 2013, Ingham was not land rich within the meaning of the statute, so the application of the exemption depended on whether it was a primary producer. The phrase 'land used for primary production' was defined in the Duties Act 1997 (NSW) as 'land that is exempt from land tax under s 10AA (Exemption for land used for primary production) of the Land Tax Management Act 1956.' Relevantly, s 10AA(3)(b) includes in the definition of 'land used for primary production' land 'the dominant use of which is for … the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce'. Given these definitions, the key point of contention between the parties concerned what factors should be relevant in determining whether Ingham was a landholder whose land holdings were wholly or predominantly used for primary production. That is, the dispute concerned how s 163D should be applied. In May 2018, the primary judge ordered that the duty assessment be revoked, determined that Bidco was not liable to pay duty in respect of the acquisition, and ordered the Commissioner to pay Bidco's costs in the proceedings. These orders followed from the primary judge eschewing a quantitative approach to the question of how s 163D should be applied (that would have looked to factors like land value or land area), and instead adopting an evaluative approach. The Commissioner appealed on four grounds: Appeal Ground 1: the primary judge erred in holding that the words 'land used for primary production' where they appear in s 163D(2) of the Duties Act 1997 (NSW) have their ordinary meaning, and should have held that the words have the meaning given to them in the Dictionary to the Act. Appeal Ground 2: the primary judge erred in holding that the words 'comprise land used for primary production' in s 163D(2) were the 'operative part' of that provision and should have held that s 163D(2) requires the identification of the land holdings of the landowner in all places that comprised 'land used for primary production' and a determination of whether such land holdings wholly or predominantly comprise land used for primary production. Appeal Ground 3: the primary judge erred in holding that it was relevant to consider whether the business of Ingham was the business of primary production and whether, and the extent to which, land not used for primary production was 'linked' to that business. Appeal Ground 4: in circumstances where Ingham's land holdings actually used for primary production, measured by value, comprised no more than 35% of its land holdings in all places, the primary judge erred in holding that the land holdings of Ingham in all places wholly or predominantly comprised land used for primary production and should have held that the land holdings of Ingham in all places did not wholly or predominantly comprise land used for primary production. The Court of Appeal (Leeming JA, White JA, Emmett AJA) allowed the appeal. Emmett AJA approached the appeal on the basis that Ground 4 was the substantive Ground, and Grounds 1-3 were effectively just part of the reasoning process that the determination of Ground 4 required: [114]. The Court held: In relation to Appeal Ground 1: (i) Per Leeming JA and White JA: the primary judge erred in failing to apply the statutory definition of 'land used for primary production': [11], [16], [42]-[43]. In relation to Appeal Ground 2: (ii) Per Leeming JA and White JA: the primary judge erred in the manner asserted by the Commissioner: [12], [15]-[16], [42], [48]. In relation to Appeal Ground 3: (iii) Per Leeming JA and White JA: the primary judge erred in the manner asserted by the Commissioner: [12], [16], [53]. In relation to Appeal Ground 4: (iv) Per Leeming JA, White JA, and Emmett AJA: Ingham's landholdings in all places did not wholly or predominantly comprise land used for primary production: [31], [54], [65], [201]. (v) Though it was unnecessary to conclusively construe s 163D(2) for the purposes of deciding the appeal, White JA preferred a quantitative approach, referring to the value and area of the land in question in determining whether a landholder's landholdings 'wholly or predominantly' comprised land used for primary production: [53]-[58]. (vi) By contrast, Leeming JA and Emmett AJA preferred qualitative or evaluative approaches to the construction of s 163D(2): [28], [194]. Judgment 1. LEEMING JA: The factual and procedural background, the reasons for judgment of the primary judge, and the parties' submissions have been summarised by Emmett AJA, whose reasons for judgment I have had the advantage of reading in draft. I agree with his Honour that the primary judge erred in concluding that Ingham was a primary producer. The result is that the appeal must be allowed. His Honour's judgment enables me to express my own reasons concisely. The failure by the primary judge to determine all other issues 1. Unfortunately, although the appeal must be allowed, this Court cannot resolve the whole of the parties' dispute. The respondent taxpayer had also challenged the imposition of penalty tax and interest, on a variety of grounds. It was for this reason that the matter was set down for two days and witnesses prepared evidence and had been made available for cross-examination. It may be noted that penalties and interest were more than $2.4 million. However, the primary judge declined to receive evidence on the other issues and determined only the first. 2. It is open to a court to determine only those issues which are sufficient to resolve the litigation, and on occasions there may be good reason to take that course. However, it is not the usual practice, and if a judge takes that course, he or she should explain why. It is as well to reproduce what Macfarlan JA said, with the agreement of Gleeson JA and Garling J, in Gulic v Boral Transport Ltd [2016] NSWCA 269 at [7] "Contrary to the usual practice, his Honour did not make any contingent findings in respect of breach of duty or damages. He merely observed that in light of his finding on liability, the court was 'not minded' to afford an assessment on damages. If there is good reason to take such a course, the reason should be identified in the judgment. Otherwise, a judge should determine all issues before him or her to assist the appeal process and obviate recourse to a new trial. A statement to this effect appears in the Judicial Commission of New South Wales's Civil Trials Bench Book at [2-6330]. The statement is supported by the decisions of this Court in Nevin v B & R Enclosures Pty Ltd [2004] NSWCA 339 at [74]-[75] and Wolfenden v International Theme Park Pty Ltd [2008] NSWCA 78 at [3]-[4] and [53]." 1. This Court confirmed in Peter Sleiman Investments Pty Ltd as trustee for the Sleiman Family Trust v Deputy Commissioner of Taxation [2017] NSWCA 81; 105 ATR 431 at [70] that the principle was not confined to the assessment of damages for personal injury in cases where liability has not been established. 2. The primary judge gave no reasons for departing from the usual practice referred to above. There was no shortage of time; the hearing appears to have been completed by the mid-morning adjournment (the transcript occupies only 25 pages). Neither party appears to have asked the primary judge to adopt the course taken. There is no suggestion in the transcript that some other matter of the utmost urgency required the Court's attention later that day, or on the second day. The consequences of the course taken include the delay and additional irrecoverable costs to both parties, and the additional consumption of the public resource of court time that will need to be made available for a second time. Construction of s 163D(2) of the Duties Act 1. I turn to the question of construction. Emmett AJA has summarised the structure of this portion of the Duties Act 1997 (NSW). Section 163D(1)-(3) provides as follows: "163D Concession for primary producers—continuation of land rich requirement (1) Duty is chargeable under this Chapter in respect of an acquisition of an interest in a primary producer only if, when the acquisition is made, the primary producer is land rich. (2) For the purposes of this section, a primary producer is a landholder whose land holdings in all places, whether within or outside Australia, wholly or predominantly comprise land used for primary production or land that would be considered to be land used for primary production if it were land in New South Wales. (3) A primary producer is land rich if: (a) it has land holdings in New South Wales with an unencumbered value of $2,000,000 or more, and (b) its land holdings in all places, whether within or outside Australia, comprise 80% or more of the unencumbered value of all its property." 1. Subsection (4) deals with the consequence of ceasing to be a primary producer within 5 years of the acquisition. Subsection (5) is an anti-avoidance provision dealing with obtaining property for the purpose of reducing the ratio in s 163D(3)(b). 2. The only issue was whether Ingham was a primary producer within the meaning of s 163D(2): if not, the respondent taxpayer accepted that it was liable to pay landholder duty by reason of its acquisition of all of Ingham's issued shares, in an amount which (subject to penalties and interest) was agreed. 3. The parties were divided as to the approach to be taken to determining whether Ingham's landholdings "wholly or predominantly" comprised land used for primary production. The taxpayer favoured an approach based on a comparison of the relative area of Ingham's land which was land used for primary production; the Chief Commissioner favoured an approach based on a comparison of the relative value of Ingham's land that was land used for primary production. The primary judge eschewed both approaches, and held that the section required "an evaluative judgment to be made". His Honour indicated a preliminary view to that effect during the hearing, and no complaint was made by either party that they did not have a fair opportunity to be heard as to that construction. 4. The fact that the parties may agree as to the construction of a statute, or reduce their dispute to two competing constructions, does not relieve the Court from determining its proper construction, which may be different again: see for example Gudelj v Motor Accidents Authority of New South Wales (2011) 81 NSWLR 245; [2011] NSWCA 158 at [68]. The Court's obligation to apply the law is not circumscribed by the fact that the parties have adopted an erroneous construction. 5. Section 163D requires careful attention to defined terms. It is clear on a fair reading of the reasons of the primary judge that his Honour failed to have regard to the defined term "land used for primary production" (although both counsel in written and oral submissions had referred his Honour to it, and despite its significance to the operation of the concession). That appears to have caused the analysis undertaken by the primary judge to have miscarried. At paragraphs [9]-[19] the primary judge summarised aspects of Ingham's business, including explaining that most of Ingham's land which, it was agreed, was not used for primary production was "inextricably connected to the core business of primary production": at [17]. After briefly addressing various textual and contextual submissions tending against a construction on which the "wholly or predominantly" test was based on value at [20]-[25], his Honour expressed his dispositive conclusion at [26]: "In conclusion, I am quite satisfied that at the relevant date, Ingham was a primary producer within the meaning of Section 163D(3) of the Duties Act 1997 and that the plaintiff is entitled to rely on the primary producer exemption. The language of Section 163D(2) does not compel a determination of Ingham's primary producer status solely by reference to the area of its landholdings, let alone solely by reference to the value of those landholdings. The question is to be addressed pragmatically having regard to the ordinary and natural meaning of the words 'land used for primary production' where they appear in the operative part of subsection (2)." [emphasis added] 1. That conclusion discloses error. The assessment of "wholly or predominantly" required by s 163D(2) is about the character of the land, not the character of the business which the landholder operates on the land. And the meaning of the words "land used for primary production" is not their ordinary and natural meaning; rather, it is the meaning which is given to those words by the Dictionary to the Act. 2. "Land used for primary production" is defined in the Duties Act as follows: "land used for primary production means land that is exempt from land tax under section 10AA (Exemption for land used for primary production) of the Land Tax Management Act 1956." 1. Section 10AA of the Land Tax Management Act 1956 provides: "10AA Exemption for land used for primary production (1) Land that is rural land is exempt from taxation if it is land used for primary production. (2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land: (a) has a significant and substantial commercial purpose or character, and (b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made). (3) For the purposes of this section, land used for primary production means land the dominant use of which is for: (a) cultivation, for the purpose of selling the produce of the cultivation, or (b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, or (c) commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals, or (d) the keeping of bees, for the purpose of selling their honey, or (e) a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or (f) the propagation for sale of mushrooms, orchids or flowers. (4) For the purposes of this section, land is rural land if: (a) the land is zoned rural, rural residential, non-urban or large lot residential under a planning instrument, or (b) the land has another zoning under a planning instrument, and the zone is a type of rural zone under the standard instrument prescribed under section 33A (1) of the Environmental Planning and Assessment Act 1979, or (c) the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land. 1. There is no reason to displace the ordinary rule of construction that the references to defined terms are to be read by inserting the definitions, conformably with Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12 at [103]. However, some care nevertheless needs to be taken with these definitions. 1. First, the separate definition of "land used for primary production" in s 10AA(3) is of limited application: it is only "for the purposes of this section". The same defined term when invoked (twice) in s 163D(2), asks a slightly different and ultimately more restricted question, namely, whether the land is exempt from land tax. In the case of land which is not "rural land", that requires more than the land being "land used for primary production" within the meaning of s 10AA. 2. Secondly, it is necessary in every case, in order to address s 10AA, to determine whether the land is, or is not, "rural land". Subsection 10AA(4) requires regard to be had its zoning under a "planning instrument". "Planning instrument" is itself defined, in s 3 of the Land Tax Management Act, to mean "an environmental planning instrument, within the meaning of the Environmental Planning and Assessment Act 1979, and includes a deemed environmental planning instrument within the meaning of that Act". Thus, even without resort to the presumption in s 12 of the Interpretation Act 1987 (NSW), it is plain that land can only be "rural land" if it is land within New South Wales. This explains the necessity for the concluding words in s 163D(2) "or land that would be considered to be land used for primary production if it were land in New South Wales". 3. Thirdly, and significantly for present purposes, it is clear from the need to determine whether each land holding is or is not "rural land" that the task of applying these definitions turns on the individual land holdings of the putative primary producer, rather than its business. 1. It follows that the primary judge addressed the wrong question, and that grounds one, two and three of the Chief Commissioner's appeal are made out. But that does not resolve the main question presented by this appeal. The essential problem posed by s 163D(2) is how to apply the qualifying words "wholly or predominantly" to the assemblage of a landholder's land holdings. 2. It was accepted between the parties, and it is plainly correct, that the first step in applying s 163D(2) is to identify all of the land holdings which the putative primary producer either owns or is taken (by means, relevantly for present purposes, of s 158) to own. One then asks of each individual land holding whether it satisfies the test stated in s 10AA. Let it be assumed, as was the case here, that each land holding is a parcel of land. The test posed by s 10AA is binary: each individual parcel of land is either exempt from land tax or it is not. The result will be two groups of parcels of land (conveniently identified in the parties' addresses as two "buckets", with bucket "A" metaphorically containing the parcels which were exempt from land tax and bucket "B" containing the remainder). 3. If all of the putative primary producer's land holdings fall within bucket "A" and are exempt from land tax, then the owner is a person whose land holdings wholly comprise land used for primary production. 4. The difficulties in this litigation only arise because the qualifying words are not so strict. It is sufficient if the land holdings "wholly or predominantly" comprise land used for primary production. The question dividing the parties was: how does one assess whether the landholder's lands predominantly fall within bucket "A". 5. Textual considerations point strongly towards a qualitative assessment. First and perhaps most powerfully, the words in s 163D(2) are to be contrasted with the words in the immediately following subsection: "land holdings in all places, whether within or outside Australia, comprise 80% or more of the unencumbered value of all its property". Thus, where the section refers to value it says so in terms, and the word "value" is conspicuous by its absence in subsection (2). 6. Secondly, although the same verb "comprise" is used in both subsections, in sub-s (3) there is a necessarily quantitative evaluation ("80% or more"), and the criterion of value is specified. In sub-s (2) there is a prima facie qualitative qualification "wholly or predominantly". 7. Thirdly, both parties' oral submissions from time to time appeared to slip into submissions that identified which of the two categories was the "larger", or, as it was also put, whether the parcels of land in bucket "A" "predominated over" those in bucket "B". But "wholly or predominantly" is quite different from "more than half". Both on its natural meaning, and as reinforced by its collocation with "wholly", the word "predominantly" refers to a substantially greater proportion than 50.1%. It is true to say that Australians predominantly live within 100 km of the coast, because that is true of the overwhelming majority. But no one would say that Australians are predominantly female, even though that is true of a slight majority of the population. Indeed, in most contexts "predominantly" is a stronger word than "mostly" or "principally". 8. Fourthly, the force of "predominantly" is strengthened still further by the absence of any criterion against which it is to be evaluated. If the intent of the section is, for example, that it only applies when all but a tiny and relatively insignificant proportion of the landholder's land is used for primary production, then it will tend not much to matter whether that insignificant proportion is assessed by reference to value or area or some other criterion. 9. Confusion was perhaps caused because of other provisions which require an evaluation of the "dominant use" which is made of land. That is very different from the test in s 163D(2), although the words "dominant" and "predominant" bear a superficial similarity. But the words have quite different force, even viewed independently, and further "predominantly" takes its colour from "wholly", and both adverbs qualify "comprise", which is a very different notion from "use". 10. Fifthly, the question is whether an otherwise dutiable transaction falls within a concession. The underlying legislative purpose is not limited to the case where 100% of the land holdings are land used for primary production, but rather is available notwithstanding that a minority of land holdings are not so used. Perhaps the most obvious example is a farm with a homestead on separate title which is sold as a whole. That said, it is difficult to be any more precise in identifying the purpose of the provision. The Court was taken to the 2003 amendment which sought to preserve for the purpose of a tightening of the "land rich" provisions the higher 80% threshold for primary producers. In order to determine the purpose of the exemption, it would seem necessary to go back to the introduction of the land rich provisions in 1986; the parties did not invite the Court to do so. But in any event, it is unlikely that purpose would assist to resolve the particular question of construction arising in this appeal. 11. Much time was occupied in the parties' submissions with invocations of other decisions on the legal meaning of the same words in different contexts. The submissions were of a high quality. However, enough has been said to demonstrate their limited value. It is not likely that a decision on the words in a different statute will capture the precise grammatical context of the word, nor its place in the statute, nor the presence of a quantitative measure in the immediately following subsection applying to the same verb ("comprise"), nor the statute's purpose. It is axiomatic that the starting point for construction is the statutory text considered in light of its context and purpose. It must follow that a decision on the same or similar adverb in a different context is of limited value. 12. For completeness, I mention one complexity which I have so far passed over. As was pointed out in the taxpayer's careful submissions, there is a conflation between "land holdings" which are interests in land (see s 147) and the "land" which either is or is not exempt from land tax. An interest in land might be a lease of land or it might be a profit à prendre, but prima facie it is not necessarily straightforward to ask of a collection of interests in land whether they wholly or predominantly comprise land used for a particular purpose and therefore exempt from land tax. But that complexity does not arise in the present case, where so far as the evidence discloses, all the land holdings are parcels of land, save for a single interest under an uncompleted contract for sale. 13. I conclude that the question posed by s 163D(2) does not turn on whether the land holdings are predominantly land which is exempt from land tax when measured by value or when measured by area. I accept neither ground 4 of the Chief Commissioner's appeal nor the taxpayer's notice of contention. Rather, the "wholly or predominantly" test is an evaluative one, which will be informed by both the relative value and the relative area of the land which is exempt from land tax. I see no reason to confine the examination to those measures, and would not consider the purpose for which the land is used to be irrelevant. The statute contains no express limit upon the considerations regard to which may be had. However, the question posed is a relatively narrow one: can it still be fairly said that a putative primary producer's land holdings are wholly or predominantly exempt from land tax. That involves a qualitative evaluation. Ingham's land holdings 1. The evidence established that Ingham owned, directly or indirectly, 80 parcels of land in Australia and 10 in New Zealand. Of the 90 parcels in total, 57 were agreed to be land which was used for primary production, or would be considered to be land used for primary production if located in New South Wales, and 33 were not. There was also a parcel which was not used for primary production, and was valued at some $43 million, which was the subject of an uncompleted agreement for sale. The 57 parcels were 89% of Ingham's total land by area, and 33% of its total land by value. 2. There will be cases where the inherent imprecision of the s 163D(2) test gives rise to a contestable issue as to whether the company is a landholder whose landholdings wholly or predominantly comprise land used for primary production. This is however a moderately clear case. By value, some two thirds of Ingham's land is not land used for primary production. By area, there remains a significant minority of land – some 11% – which is not land used for primary production. The land which is not used for primary production is categorised in the evidence as "offices", "feed mills", "plant", "storage", and "residential", although one small parcel is vacant. There is no reason to discount their significance in the evaluative exercise posed by the statute. 3. Contrary to some of the taxpayer's submissions, the question posed by the statute is not whether the land which is used for primary production predominates over the land which is not used for primary production. The question is whether Ingham's landholdings wholly or predominantly comprise land used for primary production. When a significant minority of land by area, and a majority of land by value contributes to Ingham's business but is not itself used for primary production, Ingham does not fall within the terms of the statute. 4. I have also had the advantage of reading the reasons for judgment of White JA. All members of this Court are agreed in the outcome of this appeal. Although we have different views as to the proper construction of s 163D(2), they are immaterial to its application in the present case. It may very well be that the cases where the different approaches matter will be relatively infrequent. If such a case does present itself, that will be a better occasion for resolving those differences than the present appeal, where nothing turns on the point. Orders 1. It follows that the appeal should be allowed and the undetermined matters remitted to the Equity Division for determination. Costs in this Court should follow the event. Turning to the costs at first instance, it is clear that the Chief Commissioner should have succeeded on the only issue which to date has been determined. However, making a costs order at this stage may give rise to difficulties at some later stage, depending on the outcome of the undetermined issues, and the extent to which the parties' costs are attributable to particular issues. Accordingly, I favour leaving the costs at first instance to be determined by the judge who hears and determines the balance of the matter. Naturally, that discretion will fall to be exercised on the basis that the Chief Commissioner has been successful on the first issue. 2. I propose these orders: 1. Appeal allowed. 2. Set aside orders 1, 2 and 3 made on 23 May 2018. 3. Remit the proceeding to the Equity Division for hearing and determination of the remaining issues raised in the Court below by the respondent, with the costs incurred to date at first instance to be within the discretion of the judge who hears and determines the remaining issues. 4. The respondent Adams Bidco to pay the appellant Chief Commissioner's costs in this Court. 1. WHITE JA: I have had the advantage of reading in draft the reasons for judgment of Leeming JA and Emmett AJA. The relevant provisions of the Duties Act 1997 (NSW) ("the Duties Act") have been summarised by Emmett AJA and the critical provisions (s 163D(2), the definition in the Dictionary of "land used for primary production", and s 10AA of the Land Tax Management Act 1956 (NSW) ("the Land Tax Management Act")) have been quoted by Leeming JA. 2. The issue in this appeal is whether a linked entity of the respondent, Ingham Enterprises Pty Ltd ("Ingham") was a "primary producer" within the meaning of s 163D of the Duties Act. 3. For the reasons which follow I agree with the position initially taken by both parties that the answer to the question posed by s 163D(2) depends on a "quantitative" assessment based on either (or both) of land value and area rather than a "qualitative" or "evaluative" assessment preferred by the primary judge. 4. The primary judge found that in defining the expression "primary producer", s 163D(2) of the Duties Act "... focuses on whether the land of Ingham is used for primary production" and "... is concerned with 'use' – the way in which the land is worked, utilised or employed" (Judgment [4](b)). His Honour held that the operative part of s 163D(2), consisting of the words "comprise land used for primary production" is: "... concerned with the physical, the practical, the objective. It operates by reference to 'land' ..., that is used for primary production. ... It requires an evaluative judgment to be made as to whether the physical land ... is used for primary production." (Judgment [5] and [6]) 1. The primary judge's focus was on the whole of Ingham's land and whether, if considered in its entirety, its dominant use was for primary production as defined in s 10AA(3) of the Land Tax Management Act. 2. The primary judge then went on to refer to authorities on s 10AA(3) of the Land Tax Management Act on the issue of whether the dominant use of land is for one of the primary production purposes listed in subparas (a)-(f). 3. His Honour said (at [9]): "In order to address the particular question in issue, it is necessary to understand the operation and scope of the business of Inghams. That business was a fully vertically integrated poultry production business, including poultry production, (both chickens and turkeys), poultry processing, wet pet food ingredients and stock feed production. The business was conducted in both Australia and New Zealand. In addition, Inghams operated a piggery in Queensland and owned a number of beef cattle." 1. This approach was erroneous. It failed to have regard to the fact that s 163D(2) requires a comparison between the landholder's entire land holdings and those parts of the landholder's land holdings that are exempt from land tax under s 10AA of the Land Tax Management Act. The words "land used for primary production" are defined in the Dictionary to the Duties Act as follows: "land used for primary production means land that is exempt from land tax under section 10AA (Exemption for land used for primary production) of the Land Tax Management Act 1956." 1. This definition is comprehensive. It provides a full statement of the meaning of the phrase where used in the Duties Act, including in s 163D (Oliver Jones, Bennion on Statutory Interpretation (6th ed, 2013 LexisNexis) at 517, 528). 2. Section 163D(2) is to be construed on the basis that the words are used in their defined sense (Gibb v Federal Commissioner of Taxation (1966) 118 CLR 628 at 635; [1966] HCA 74 at [10]; Kelly v The Queen (2004) 218 CLR 216 at 253; [2004] HCA 12 at [103]). Hence, subs 163D(2) should be understood as providing that: "(2) For the purpose of this section a primary producer is a landholder whose land holdings in all places, whether within or outside Australia, wholly or predominantly comprise land that is exempt from land tax under s 10AA (Exemption for land use for primary production) of the Land Tax Management Act 1956 or land that would be considered to be so exempt if it were land in New South Wales." (My emphasis.) 1. The text of s 10AA is set out in the reasons for judgment of Leeming JA. The following points about the section are significant. 2. First, the determination of whether land is exempt under s 10AA is to be made on a parcel-by-parcel basis (Ferella v Chief Commissioner of State Revenue (NSW) [2014] NSWCA 378; (2014) 96 ATR 875, 882 [34]; Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9 at [10]-[15], [46]; Chief Commissioner of State Revenue v Metricon Qld Pty Ltd [2017] NSWCA 11; (2017) 105 ATR 11 at [11] and fn 4 ("Metricon")). 3. Secondly, the application of s 10AA to each parcel of land will depend not only upon whether the dominant use of the land is for one of the stipulated purposes in s 10AA(3), but also on whether the land is or is not "rural land" which will primarily depend upon its zoning. If the land is not rural land, whether it is exempt from land tax under s 10AA will depend also upon whether the primary production use of the land (which must be the dominant use) has a significant and substantial commercial purpose or character and is engaged in for the purpose of profit on a continuous or repetitive basis. 4. The definition of "primary producer" in s 163D(2) requires a comparison to be made between land that is exempt from land tax under s 10AA (or would be so exempt if the land were in New South Wales) and the landholder's entire "land holdings". It is only if those land holdings "wholly or predominantly" comprise exempt land that the landholder is a primary producer. 5. When s 163D(2) is read using the definition of "land used for primary production" it can be seen that the section does not refer to use of land, or dominant use of land, except through s 10AA to identify which parcels of land are exempt and which are not. 6. "Land holdings" is defined in s 147 (relevantly) as: "147 What are the "land holdings" of a landholder? (1) For the purposes of this Chapter, a land holding is an interest in land other than the estate or interest of a mortgagee, chargee or other secured creditor, subject to this section." 1. The definition of "land holding" as being an "interest in land" (other than the interest of a secured creditor) is of some assistance in construing s 163D(2). Some land holdings, for example a profit a prendre, could be valued, but not readily assessed by area. The word "land" as defined in s 21(1) of the Interpretation Act 1987 (NSW) includes corporeal and incorporeal hereditaments and whatever may be the estate or interest therein. But in s 10AA of the Land Tax Management Act, "use" refers to a physical use (Metricon at [63]) and "land" refers to the physical thing. The relevant comparison in s 163D(2) is between land that is so exempt and the landholder's land holdings. 2. Section 163D(2) does not identify the criteria to be considered in assessing whether the landholder's land holdings predominantly comprise land that is exempt from land tax under s 10AA, or would be so exempt if the land were in New South Wales. Either land area or land value or both are candidates for being relevant criteria. 3. The third possibility advanced by the respondent in support of the approach taken by the primary judge is that the comparative significance of the exempt and non-exempt land to the landholder's business is at least a relevant and perhaps the determinative or principal criterion. I do not agree. Nothing in the language of s 163D(2) refers to the business of the landholder. Rather, the comparison to be made is between the totality of the landholder's land holdings and the exempt land. When s 163D(2) is read using the definition of "land used for primary production" there is no basis to proceed, as the primary judge did, by considering whether the dominant use of all of the landholder's land was for the purpose of primary production (either generally or as defined in s 10AA(3)). 4. If, contrary to my view, an "evaluative" approach as contended for by the respondent is available, I agree for the reasons given by Emmett AJA (at [201] below) that it is not possible to conclude that Ingham's land holdings predominantly comprised land used for primary production. 5. The question then is whether the criteria for determining whether the landholder's land holdings "predominantly comprise" exempt land is to be determined by reference to area or value. No other relevant criterion (other than that discussed above) was identified by either party and none springs to mind. 6. In the absence of any specification of relevant criteria, I do not think that either criterion can be dismissed as irrelevant. 7. The question of whether the landholder's land holdings wholly or predominantly comprise exempt land is not the same question as to whether the land holdings principally or primarily comprise exempt land (by analogy, Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9 at [154]-[157]). It would not be enough for the taxpayer to establish that the majority of the land holdings (whether assessed by area or value) comprise exempt land. I agree with the observations of Leeming JA on this issue (at [22]). 8. In my view the criteria of both land area and land value are relevant, but land value is more significant. I do not accept that the reference to value in s 163D(3) for determining whether a primary producer is land rich and the absence of specific reference to value in s 163D(2) is an indication that value is not relevant for the purposes of s 163D(2). Subsections (2) and (3) of s 163D address different questions. 9. Had s 163D(2) specified some criteria for determining whether a landholder's land holdings predominantly comprised exempt land which did not include consideration of value, then the reference to value in s 163D(3) would undoubtedly be highly significant. But s 163D raises two hurdles for an exemption from duty. The first is that the acquisition must be of an interest in a "primary producer" as defined in s 163D(2). The second and separate hurdle is that the primary producer be land rich. It is only in the case of the second hurdle that express reference is made to value. That express reference is explained by the purpose and history of Ch 4. The criterion in s 163D(3) reflects the provisions first introduced as Div 30 of Pt 3 of the Stamp Duties Act 1926 (NSW) by the Stamp Duties Amendment Act 1987 (NSW). Sections 99A, 99C and 99D imposed duty at ad valorem conveyance rates on, amongst other things, the acquisition of a majority interest in a "designated landholder" (ss 99E and 99F). A "designated landholder" was defined in s 99A to mean a landholder which was entitled to land: "(a) the unencumbered value of which (not including the unencumbered value of land the subject of a land use entitlement) comprises not less than 80 per cent of the unencumbered value of all assets to which it is entitled not including [and certain monetary assets were excluded], and; (b) the unencumbered value of which insofar as the land is in New South Wales, is not less than $1,000,000." 1. Provisions to this effect were included in the Duties Act. Prior to amendments made by the State Revenue Legislation Further Amendment Act 2009 (NSW), Ch 4A of the Duties Act imposed ad valorem duty at conveyance rates on a person who acquired a "significant interest" in a "land rich landholder" (Duties Act 1997, s 163F(1)). Section 163B, prior to its repeal in 2009, provided that the landholder was land rich if it had land holdings in New South Wales with an unencumbered value of $2 million or more and its land holdings in all places, whether within or outside Australia, comprised 60 per cent or more of the unencumbered value of all of its property, subject to specific exclusions. 2. The State Revenue Legislation Further Amendment Act 2009 (NSW) omitted Ch 4A of the Duties Act and inserted the provisions now found in Ch 4, including s 163D. The heading to the section "Concession for primary producers – continuation of land rich requirement" is not itself part of the Act, but is part of the extrinsic circumstances to which regard can be had in construing the Act (Interpretation Act 1987 (NSW), s 34(2)(a)). 3. Section 147(1) has been quoted above at [50]. Under s 146 an entity is only a landholder if it has land holdings in New South Wales with a threshold value of $2 million or more. Under s 150(2) a person with an interest in a landholder has a "significant interest" if, in the event of distribution of all of the property of the landholder, the person would be entitled either to 50 per cent or more of the property distributed (in the case of a private landholder), or 90 per cent or more of the property distributed (in the case of a public landholder). It is only where a person acquires a significant interest in a landholder that a relevant acquisition is made on which duty is charged (subject to aggregation provisions) (ss 148 and 149). The value of the property of the landholder is the key criterion for determining whether a relevant acquisition is made. 4. Under s 158A, a unit trust scheme, private company or listed company is taken for the purposes of Ch 4 to hold an interest in land or other property held by a linked entity of the unit trust scheme or company. For duty purposes, the value of the interest in land that the unit trust scheme, private company or listed company is taken to hold because of a holding by a linked entity is that portion of the interest's unencumbered value to which the unit trust scheme or private or listed company would be entitled in the event of the distribution of all of the property of each entity in the chain of linked entities (s 158A(2)). Section 163 prescribes how the entitlement of an interested person to participate in the distribution of the property of a landholder is determined. That entitlement is based upon the person's opportunity to maximise the value of its entitlement through the exercise of its powers and discretions. I accept the appellant's submission that: "It follows that value is the critical factor that determines: (a) whether an entity is a 'landholder' in the first place (and subject to the [sic] Chapter 4 at all); (b) if an entity is a 'landholder', whether there has been a taxable 'relevant acquisition' (and the extent of that relevant acquisition); (c) if there has been a 'relevant acquisition' in a 'landholder', the amount of duty that is payable under the Chapter; and (d) the extent to which the land holdings of 'linked entities' factor in each of these steps." 1. The possible abuse of s 163D if area were the sole or principal criterion suggests that the better construction is that value rather than the area of land holdings and exempt land should be the principal criterion for determining whether a landholder's land holdings predominantly comprise exempt land. If the landholder is a "primary producer" in the defined sense, the relevant acquisition will be exempt from duty if the primary producer is not land rich. Assume a case of a company that owns a factory in a city, the factory is worth more than $2 million and is less than 80 per cent of the unencumbered value of all its property, a putative taxpayer wishes to acquire the shares in the company and the acquisition would be otherwise liable to ad valorem duty under Ch 4. The company whose shares are to be acquired is not land rich. What would be needed for the acquisition of the shares to be exempt from Ch 4 duty is that the company, whose shares were to be acquired, be a primary producer. On the respondent's case, this could be done by the company's acquiring land of greater area than its factory site that was used either by the company or a lessee or licensee of the land for primary production. (The exemption for land tax under s 10AA depends on the physical use of the land, not the identity of the user; Metricon at [63].) Duty could be avoided by the sale of a paddock (after subdivision if necessary) to the company in question and its being leased back or licensed to the farmer. A construction of s 163D(2) in which the areas of the lands in question was either the sole or principal criterion for determining what land holdings were predominant would create a real risk of abuse of the exemption. Such a construction should not be preferred. 2. For these reasons, although the respective areas of exempt and non-exempt land are not an irrelevant criterion, the more important criterion is the respective values of the lands. Having regard to the value of the non-exempt lands, Ingham was not a primary producer within the meaning of s 163D(2). 3. For these reasons the appeal should be allowed. I agree with the orders proposed by Leeming JA and Emmett AJA. 4. EMMETT AJA: Introduction The question in this appeal is whether, as at 27 June 2013 (the Relevant Date), Ingham Enterprises Pty Ltd (Ingham) was a "primary producer" within the meaning of s 163D of the Duties Act 1997 (NSW) (the Duties Act). The answer to the question will determine whether the respondent, Adams Bidco Pty Ltd (the Taxpayer), has a liability for duty chargeable under Ch 4 of the Duties Act in relation to the acquisition by the Taxpayer on the Relevant Date of all of the issued shares in Ingham, pursuant to an agreement (the Sale Agreement) entered into on 9 March 2013 between Mr Bob Ingham, as seller, and the Taxpayer, as buyer. If on the Relevant Date Ingham was a primary producer within s 163D, the acquisition was exempt from duty. If it was not, the Taxpayer became liable to pay a significant sum of duty. 1. By notice of assessment dated 16 September 2016, the appellant, the Chief Commissioner of State Revenue (the Commissioner), assessed the Taxpayer to pay duty in the sum of $7,967,073.60, together with penalty tax and interest (the Assessment). The Assessment was confirmed by the Commissioner on 15 May 2017, following objection by the Taxpayer under Div 1 of Pt 10 of the Taxation Administration Act 1996 (NSW) (the Administration Act). 2. By summons filed on 13 July 2017, the Taxpayer applied, under s 97 of the Administration Act, for review of the Assessment. Section 97(1) of the Administration Act relevantly provides that a taxpayer may apply to the Supreme Court for a review of a decision of the Chief Commissioner that has been the subject of an objection. A review by the Supreme Court is taken to be an appeal for the purposes of the Supreme Court Act 1970 (NSW) (the Supreme Court Act). Under s 101(1)(a) of the Administration Act, the Court may confirm or revoke the assessment, make an assessment in place of the assessment to which the application relates and make any further order as to costs or otherwise as it thinks fit. 3. On 21 May 2018, for reasons given on that day, a judge of the Equity Division (the primary judge) ordered that the Assessment be revoked and determined that the Taxpayer was not liable to pay duty in respect of the acquisition of the shares in Ingham. The primary judge ordered the Commissioner to pay the Taxpayer's costs of the proceedings. By amended notice of appeal filed on 5 July 2018, the Commissioner appeals, under s 101(1)(a) of the Supreme Court Act, from the orders made by the primary judge. The Commissioner relies on four grounds as set out below. By notice of contention filed on 2 July 2018, the Taxpayer seeks to support his Honour's decision on grounds other than those relied upon by his Honour in the event that this Court is persuaded that any of the Commissioner's grounds of appeal is made out. Before dealing with the issues raised by the appeal, it is desirable to say something about the scheme of the Duties Act. Duties Act: Acquisition of Interests in Landholders 1. Chapter 2 of the Duties Act charges duty on a transfer of dutiable property and on certain specified transactions. Chapter 4 charges duty on certain transactions that are not dutiable transactions under Ch 2. The question in this appeal is whether Ch 4 applies to the acquisition by the Taxpayer of the shares in Ingham pursuant to the Sale Agreement. 2. Chapter 4 consists of ss 145 to 163L inclusive. Part 2 of Ch 4 charges duty on acquisitions of interests in landholders. Part 3 of Ch 4 states general principles to be applied under Ch 4 and Pt 4 of Ch 4 deals with exemptions and concessions. Part 5 of Ch 4 contains provisions relating to the interpretation of expressions used in Ch 4. 3. For the purposes of Ch 4, a private company that has land holdings in New South Wales with a threshold value of $2 million or more is a private landholder. [1] A land holding is an interest in land other than the estate or interest of a mortgagee, chargee or other secured creditor. [2] A liability for duty charged by Pt 2 of Ch 4 arises when a relevant acquisition is made. [3] A person makes a relevant acquisition if the person acquires an interest in a landholder that is of itself a significant interest in the landholder. [4] A person has a significant interest in a private landholder if the person, in the event of a distribution of all of the property of the private landholder immediately after the interest was acquired, would be entitled to 50% or more of the property distributed. [5] A person may acquire an interest in a private landholder by, inter alia, the purchase of shares. [6] The duty chargeable under Pt 2 of Ch 4 is payable by the person who makes the relevant acquisition. [7] 4. Section 158 of the Duties Act, as relevantly in force, dealt with constructive ownership, by linked entities, of land holdings and other property. A linked entity of a private company (the principal entity) is a person who is part of a chain of persons that includes the principal entity and is comprised of one or more links. A link exists in a chain, relevantly, if a person would be entitled to receive not less than 50% of the unencumbered value of the property of another person in the event of a distribution of all the property of the person. [8] 5. The effect of s 158(1) of the Duties Act is that, in addition to any interest in land or other property that a private company may hold in its own right, a private company is taken, for the purposes of Ch 4, to hold an interest in land or other property held by a linked entity of that private company. The value for duty purposes of the interest in land or other property that the private company, being a principal entity, is taken to hold because of a holding by a linked entity is that portion of the interest's unencumbered value to which the private company would be entitled, without regard to any liabilities of the linked entity or any other person in the ownership chain, in the event of a distribution of all the property of each entity in the chain of entities. [9] 6. Section 163 of the Duties Act deals with the maximisation of entitlements on distribution of property and applies to any calculation, for the purposes of Ch 4, of the entitlement of a person (the interested person) to participate in a distribution of the property of a landholder. First, a calculation is to be made based on a distribution carried out in accordance with the constitution of the landholder, and with any law relevant to the distribution, as in force at the time of distribution, and the entitlement of the interested person is to be evaluated accordingly. Next, a calculation is to be made based on a distribution carried out after the interested person had exercised all powers and discretions exercisable by reason of having acquired an interest in the landholder concerned in such a manner as would maximise the value of the entitlement. The entitlement of the interested person is to be evaluated accordingly. The results obtained by an evaluation of the interested person's entitlement, in accordance with those provisions, are then to be compared and whichever evaluation results in a greater entitlement is the correct evaluation, for the purposes of Ch 4 of the entitlement, unless the Commissioner is satisfied that the application of that provision would be inequitable. 7. Section 163A of the Duties Act provides for general exemptions. Under s 163A(e), an acquisition by a person of an interest in a landholder is an exempt acquisition if the land holding of the landholder comprises land used for primary production and the Commissioner is satisfied that, had the landholder transferred the land to the person acquiring an interest as a result of the acquisition immediately before that acquisition, the transfer of the land would not be chargeable with duty under the Duties Act because of the application of s 274. Section 274 is contained in Ch 11, which deals with general exemptions from duty. Under s 274, duty under the Duties Act is not chargeable in respect of a transfer or agreement for the sale or transfer of land used for primary production, together with any other property that is an integral part of the business of primary production, if the Commissioner is satisfied that the transferor is a member of the family of the transferee, that the land was used for primary production in connection with a business carried on by the transferee or by a member of the family of the transferee immediately before the transaction or the date of first execution of the instrument, and that the business is to continue to be carried on by the transferee. 8. Section 163D of the Duties Act, which is the critical provision for present purposes, also affords a concession in respect of primary producers. Duty is chargeable under Ch 4 in respect of an acquisition of an interest in a primary producer only if, when the acquisition is made, the primary producer is land rich. [10] A primary producer is, relevantly, a landholder whose land holdings in all places, whether within or outside Australia, wholly or predominantly comprise land used for primary production or land that would be considered to be land used for primary production if it were land in New South Wales. [11] A primary producer is land rich if it has land holdings in New South Wales with an unencumbered value of $2 million or more, and its land holdings in all places, whether within or outside Australia, comprise 80% or more of the unencumbered value of all of its property. [12] 9. Section 163D makes provision for a "clawback" in certain circumstances. If, at any time within the period of five years after an acquisition of an interest in a primary producer is made, the landholder by whom the acquisition is made ceases for any length of time to be a primary producer, duty is chargeable under Ch 4 in respect of the acquisition on the date on which the landholder ceased to be a primary producer. The Chief Commissioner must make an assessment of the duties so chargeable. Ingham and its Linked Entities 1. Mr Ingham owned all of the issued shares of Ingham. Ingham, in turn, owned all of the issued shares of three other companies, being Inghams Enterprises Pty Ltd, Ingham Finco Pty Ltd and Ingham 2 Pty Ltd. Inghams Enterprises Pty Ltd (Enterprises), in turn, owned all of the issued shares of five other companies, being Ovoid Insurance Limited, Aleko Pty Ltd, Agnidla Pty Ltd, Inghams Enterprises (NZ) Pty Ltd and Ovoid Insurance Pty Ltd. 2. At relevant times, Ingham did not itself own any land. However, its linked entities, being the wholly owned subsidiaries described above, owned many parcels of land and other property. The land holdings, consisting of 92 separate parcels, are particularised in a document in evidence before the primary judge described as "Appendix A". The effect of s 158 of the Duties Act is that Ingham was to be taken, for the purposes of Ch 4 of the Duties Act, to hold an interest in all 92 parcels of land described in Appendix A. The Question 1. As indicated above, duty is chargeable under Ch 4 in respect of an acquisition of an interest in a primary producer only if, when the acquisition is made, the primary producer is land rich. [13] It is common ground that, at the Relevant Date, Ingham was not land rich. Accordingly, the application of the exemption depends upon whether, at the Relevant Date, Ingham was a primary producer. 2. Relevantly for present purposes, a primary producer is a landholder whose land holdings wholly or predominantly comprise land used for primary production. [14] Under the Dictionary in the Duties Act, the phrase land used for primary production means land that is exempt from land tax under s 10AA of the Land Tax Management Act 1956 (NSW) (the Land Tax Act). Section 10AA of the Land Tax Act makes separate provision for whether land is exempt for taxation depending on whether the land is, or is not, rural land. Irrespective of whether or not the land is rural land, the land must be land used for primary production if it is to be exempt from taxation. However, in the case of land that is not rural land, it is also necessary for the use of the land to have a significant and substantial commercial purpose or character and to be engaged in for the purpose of profit on a continuous or repetitive basis. 3. For the purposes of the Land Tax Act: * land is rural land if the land is zoned "rural", "rural residential", "non-urban" or "large lot residential" under a planning instrument, or the land is not within a zone under a planning instrument but the Commissioner is satisfied that the land is rural land, [15] and * land is land used for primary production if the dominant use of the land is for any of the purposes specified in s 10AA(3). One of those purposes is: the maintenance of animals (including birds) for the purpose of selling them or their natural increase or bodily produce. [16] 1. Thus, the question in these proceedings is whether the land holdings of Ingham, which are described in Appendix A, wholly or predominantly comprise rural land the dominant use of which is for the maintenance of animals, including birds, for the purpose of selling them or their natural increase or bodily produce. Clearly, it cannot be said that the land holdings of Ingham wholly comprise land that fits that description. Therefore the question is whether it can be said that the whole of the 92 parcels of land described in Appendix A predominantly comprise land that fits the following description (the relevant description) of being "rural land the dominant use of which is the maintenance of animals, including birds, for the purpose of selling them or their natural increase or bodily produce". 2. The Commissioner contended for a construction of s 163D that called for a determination of the relative value of the land used for primary production and the land not used for primary production (the value approach). The Taxpayer, on the other hand, contended for a construction that called for a determination of the relative area of the land used for primary production and the land not used for primary production (the area approach). The Commissioner and the Taxpayer agreed that: * if the correct approach to the interpretation of s 163D is "the area approach", the test set out in s 163D(2) would be met; * if the correct approach to the interpretation of s 163D is "the value approach", the test set out in s 163D(2) would not be met. 1. The taxpayer and the Commissioner also agreed for the purposes of the proceedings that, as at the Relevant Date: * The unencumbered value of all land holdings and other property of Ingham in New South Wales was $154,809,273. * The unencumbered value of all property of Ingham was approximately $880 million. * The unencumbered value of all land holding of Ingham, whether within or outside Australia, was less than $704 million. Reasons of the Primary Judge 1. The primary judge did not accept that either the value approach or the area approach was appropriate. His Honour observed that the operative part of s 163D(2) consisted of the words "comprise land used for primary production", which his Honour considered were concerned with the "the physical, the practical, the objective", and that the section operates by reference to "land", not an "interest in land", that is used for primary production. His Honour said that the language of s 163D(2) required "an evaluative judgment" to be made as to whether the physical land, legally represented by the particular interest in land held by the "landholder", is used for primary production (the evaluative approach). 2. The primary judge concluded that, read in context, s 163D(2) imported an evaluative standard that requires determining whether the landholder's land holdings, considered as a whole, had the essential character of land used for primary production, having regard to a range of factors. Those factors included the nature, intensity and scope of the land use activities, as well as considerations such as area and value. His Honour considered that, in the context of determining whether individual parcels of land consist of land used for primary production, an evaluative approach was to be employed, the question being an objective one of fact and degree that depended on the whole complex of facts concerning the use of the land. 3. The primary judge then went on to say that the determination of whether the use of the physical land is wholly or predominantly for primary production is an age-old issue, which has been described as "a question of fact and degree that may, in the end, be determined as an objective matter of impression having regard to the facts". [17] His Honour said that the characterisation of rural land as land that is wholly or mainly used for carrying on the business or industry of grazing, among 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. [18] 4. The primary judge considered that, in order to address the question in issue, it was necessary to understand the operation and scope of the business of Ingham, which he described as a fully vertically integrated poultry production business, including poultry production (both chickens and turkeys), poultry processing, wet pet food ingredients and stock feed products. His Honour then described several components of the business of Ingham, being: * feed mills; * poultry production; * breeder farms; * hatcheries; and * broiler farms. 1. The primary judge then observed that Ingham held, directly and indirectly, substantial land holdings in connection with the business and that the overall position was that approximately 90% of Ingham's land by area was used for primary production and approximately 35% of Ingham's land by value was used for primary production. His Honour considered that the evidence suggested that the classification of land agreed by the parties "may possibly be conservative", observing that, of the 92 parcels of land in question, approximately 32 were not classified as land used for primary production. His Honour said, however, that the use of most of those parcels seemed to have been "inextricably connected to the core business of primary production" and included parcels of land on which feed mills as well as plant and storage facilities were located. 2. The primary judge considered, were it not for the Commissioner's argument based on "value", it to be obvious that, as a matter of practical utilisation of land, the land holdings of Ingham "wholly or predominantly comprised" land used for primary production. His Honour did not consider it surprising that, as the Commissioner contended, the value of land not used for primary production outweighed the value of land used for primary production, given the nature and extent of the business in question. His Honour gave as an example the fact that, while the value of many of the parcels of farming land was modest, the head office at Liverpool was valued at $17.025 million, a feed mill at Berrima was valued at $11.289 million, another feed mill at Cardiff was valued at $9.009 million and a plant in Queensland was valued at $52.64 million. His Honour said that there were many more examples, without giving any. 3. The primary judge concluded that there was no textual basis for importing into s 163D(2) the value approach contended for by the Commissioner, because the words were "simply not there" and "must be imported". His Honour adverted to the reference to "unencumbered value" in s 163D(3) and s 163E(5), for different purposes, concluding that those references did not justify any qualification of the language of s 163D(2). His Honour considered that the subject matter of s 163D(2) was quite different from the subject matter of s 163D(3) and s 163D(5). 4. The primary judge characterised the Commissioner's contentions as emphasising what was said to be "the commercial rationale" of the Duties Act. His Honour observed that minds frequently differ as to commercial rationale as they do as to commercial purpose, the text ultimately being paramount. His Honour considered that to identify "charging duty on a transaction based on value" as a general legislative purpose of the Duties Act, as the Commissioner contended, created a danger that the text of the relevant provision would not receive the attention that it deserved. His Honour considered that to say that much of the Duties Act involved charging duty on a transaction based on value said nothing about the scope of the exemption from duty in s 163D(2), emphasising that the language of the Duties Act itself required close attention. 5. The primary judge concluded that there was a distinct possibility that the value approach, as proposed by the Commissioner, could result in unintended consequences. His Honour observed that some businesses do not re-value their land and buildings on a regular basis and, instead, record asset values at cost. His Honour considered that, if s 163D(2) were to be construed in the manner contended for by the Commissioner, the effective practical result would be that landholders would be required to value their assets on a regular basis, including for five years after a relevant acquisition, for the purpose of determining whether s 163D(4) applied. His Honour was not satisfied that that could have been intended. 6. On the other hand, the primary judge did not consider that the language of s 163D(2) compelled a determination of whether Ingham was a primary producer solely by reference to the area of its land holdings. Rather, his Honour said, the question was to be addressed pragmatically, having regard to the ordinary and natural meaning of the phrase "land used for primary production" where they appear in the operative part s 163D(2). His Honour concluded that, at the Relevant Date, Ingham was a primary producer within the meaning of s 163D(2) of the Duties Act and that the Taxpayer was entitled to rely on the exemption afforded by s 163D. 7. In summary, the primary judge found that Ingham was a primary producer within s 163D(3) because: * the words "land used for primary production" have their ordinary meaning; * the words "comprised land used for primary production" were the operative part of s 163D(2); and * in determining whether the land holdings of Ingham were wholly or predominantly comprised of land used for primary production, it was necessary to consider whether the business of Ingham was a business of primary production and whether and the extent to which land not used for primary production was linked or connected with that business. The Appeal 1. The Commissioner relied upon four grounds of appeal as follows: 1. The primary judge erred in holding that the words "land used for primary production" where they appear in s 163D(2) of the Duties Act have their ordinary meaning, and should have held that the words have the meaning given to them in the Dictionary to the Duties Act. 2. The primary judge erred in holding that the words "comprise land used for primary production" in s 163D(2) were the "operative part" of that provision and should have held that s 163D(2) requires the identification of the land holdings of the landowner in all places that comprised "land used for primary production" and a determination of whether such land holdings wholly or predominantly comprise land used for primary production. 3. The primary judge erred in holding that it was relevant to consider whether the business of Ingham was the business of primary production and whether, and the extent to which, land not used for primary production was "linked" to that business. 4. In circumstances where Ingham's land holdings actually used for primary production, measured by value, comprised no more than 35% of its land holdings in all places, the primary judge erred in holding that the land holdings of Ingham in all places wholly or predominantly comprised land used for primary production and should have held that the land holdings of Ingham in all places did not wholly or predominantly comprise land used for primary production. 1. The Commissioner asserts that the issue between the parties before the primary judge was whether the value approach or the area approach was appropriate and complains that, in adopting the evaluative approach, the primary judge did not determine the question in a way that was consistent with the agreement of the parties. The Commissioner points to the agreement, prior to the hearing, that a "parcel by parcel" approach should first be adopted in order to characterise each parcel of land that was deemed to be owned by Ingham as either "land used for primary production" or otherwise. 2. The Taxpayer, on the other hand, contends that the evaluative approach to the interpretation of s 163D(2) is not inconsistent with any agreement reached between the parties, which, it says, was limited to the application to the facts of two alternative interpretations. The Taxpayer says there was no agreement as to the proper approach to the construction of s 163D(2) and, even if there were, the primary judge was not bound to select one of the opposing constructions advanced by the parties. The Taxpayer asserts that the Commissioner accepted, in the course of oral submissions before the primary judge, the correctness of an evaluative approach that has regard to, but is not limited to, value. 3. Ground (4) raises that disagreement between the parties. However, before dealing with Ground (4) and that disagreement, it is desirable to say something about Grounds (1), (2) and (3). Ground (1) 1. The Taxpayer contends that, on a fair reading of the reasons of the primary judge as a whole, in the context of the question in dispute, the reference to "land used for primary production" as having an ordinary meaning was a slip for "wholly or predominantly comprised land used for primary production". The Commissioner says, however, that there is no basis for concluding that his Honour made a slip and that, to the contrary, the error in ascribing "an ordinary and natural" meaning to the phrase "land used for primary production" permeates his Honour's reasons. The Commissioner says that the error led to the irrelevant observation by his Honour that the classification of land in Appendix A as non-primary production land "may possibly be conservative". That is to say, his Honour was not assessing whether land was "land used for primary production" as defined in the Duties Act, but whether land was "land used for primary production" according to his Honour's understanding of the "ordinary and natural" meaning of those words. 2. The Commissioner says that the error led to his Honour's erroneous finding that, in determining the extent to which the land holdings of Ingham were comprised of "land used for production", it was relevant to consider whether the business of Ingham was a business of primary production and whether, and the extent to which, land that was not used for primary production was linked or connected to that business, leading to a focus on his Honour's observation that certain parcels upon which secondary production facilities (including feed mills, plant and storage facilities) were located were "inextricably connected to the core business of primary production". 3. The Commissioner says that the primary judge gave no explanation in his reasons as to what "inextricably connected" or "core business" meant for that purpose. Further, his Honour gave no reason for why it might not equally be said that the primary production land was "inextricably connected" to a core business of secondary production, in circumstances where the bulk of the value of the land holdings was in non-primary production land, much of which was used for secondary production and much of the focus of the business was on processing and secondary production. The Commissioner complains that the inherent imprecision and ambiguity of his Honour's approach makes it a highly undesirable approach, especially where a more certain and workable approach was available. Ground (2) 1. The Commissioner contends that the primary judge should have held that the statutory question posed by s 163D(2) required a consideration of the whole of the language of the provision rather than focusing on what his Honour described as "the operative part". The Taxpayer responds that the observations made by the primary judge, when read in context, were correct. It says that, subject to the qualification that the land holdings need not solely comprise land used for primary production, a qualification of which his Honour was clearly cognisant, the words in question identify "the key criterion" for the existence of the concession. 2. The Taxpayer says that the point made by the primary judge was that, while land holdings is defined in terms of interests in land, the requirement that the land holdings must comprise (wholly or predominately) land, in the physical sense, used in a particular way, means that the focus of s 163D(2) is on the physical use of all the land included in the land holdings so that the required comparison can be made. The Taxpayer asserts that there was no issue in identifying the land holdings that comprised "land used for primary production", as identified in Appendix A. Accordingly, the Taxpayer says, the first step was "a given" and the second step merely restated the statutory language. The critical issue, the Taxpayer says, is the meaning of the phrase "wholly or predominantly comprise". Ground (3) 1. The Commissioner contends that the primary judge erred in determining that it was relevant to consider whether Ingham's business was a business of primary production and whether, and the extent to which, land not used for primary production was linked or connected to that business. Rather, the Commissioner says, his Honour should have held that those considerations were irrelevant, since neither the text of the provision nor its context suggests that the business of the landholder, as opposed to the character of the land holdings, considered in the light of the test in the Land Tax Act, was a relevant consideration. 2. The Taxpayer's response is that, if the primary judge was correct in adopting the evaluative approach, the nature, scope and intensity of Ingham's business activities were clearly relevant, particularly when it is recognised that for land to be "land used for primary production" the dominant use of land must be for one or more of the purposes listed in s 10AA(3) of the Land Tax Act. Further, the Taxpayer says, the extent to which land not used for primary production is "inextricably connected to the core business of primary production", as his Honour said, is relevant to such an approach. The degree of connection between primary production land and non-primary production land assists in determining whether the essential character of the land holdings, taken as a whole, is that of land used for primary production. Ground (4) and the Appropriate Approach 1. The Commissioner contends that, having regard to the text of s 163D(2) and the purpose, structure and operation of Ch 4, value is the appropriate comparator. Accordingly, the Commissioner says, the primary judge should have held that Ingham's land holdings did not wholly or predominantly comprise land used for primary production because the land holdings identified in Appendix A as land used for primary production, measured by value, comprised no more than 33% of all of Ingham's land holdings. 2. While the Taxpayer supports the evaluative approach adopted by the primary judge, the Taxpayer relied on a notice of contention filed on 2 July 2018 that, if the relevant phrase is to be construed as requiring a quantitative approach, being the area approach or the value approach, then area is the only sensible comparator. The taxpayer contends, in the alternative, that the primary judge ought to have held that the land holdings of Ingham wholly or predominantly comprise land used for primary production because, measured by area, the land used for primary production comprised at least 89% of the land comprising Ingham's land holdings. 3. The Taxpayer asserts that the Commissioner's primary reliance on the value approach assumes that the phrase wholly or predominantly comprise in s 163D(2) requires the application of a quantitative standard and then seeks to demonstrate why the value of land holdings is the appropriate standard but fails to address the underlying question as to whether the phrase imports an evaluative standard, or a quantitative standard, such as the value approach or the area approach. The Taxpayer contends that, in the absence of any specific language of s 163D(2) indicating how a quantitative comparison, based on area or value, should be conducted, it is sensible to employ an evaluative approach when considering the character of the whole of the land holdings of a landholder, since construing the relevant phrase in accordance with the evaluative approach obviates the need to determine the extent to which each parcel of the land holding, being an interest in physical land, can be said to "comprise" physical land. While the Taxpayer contends that that exercise can be carried out in terms of land area, the evaluative approach avoids that inquiry altogether. 4. The Taxpayer says that the evaluative approach involves identifying the essential character of that which is to be considered, namely, the landholder's land holdings, in order to assesses, in the particular statutory context, whether land holdings, looked at as a whole, comprise chiefly, or for the most part, land used for primary production. On the other hand, each of the area approach and the value approach involves the measuring of the extent to which all land holdings are made up of land used for primary production and land not used for primary production. 5. The Commissioner and the Taxpayer both accept that Ground (4) raises the primary substantive ground and that Grounds (1), (2) and (3) are, in effect, merely part of the reasoning that led to the ultimate conclusion, based on the evaluative approach, which is in dispute. However, before dealing with the evaluative approach, it is desirable to address the Commissioner's submissions in support of the value approach and the Taxpayer's submissions in support of the area approach. The Value Approach 1. The Commissioner relies on several aspects of the scheme of Ch 4 that it says bear on the proper construction of s 163D(2). First, land holding is defined as an "interest in land", [19] which must be ascribed a value at the outset, since an entity only becomes a landholder and subject to Ch 4 at all where it holds the requisite aggregate "threshold value" of "land holdings". [20] 2. Second, under s 158(4), the "value, for duty purposes, of the interest in land or other property" that the principal entity is taken to hold, because of a holding by a linked entity, is "that portion of the interest's unencumbered value to which [the entity] would be entitled". In that sense, the Commissioner says, the interest in land of another entity that the principal entity is deemed to hold under s 158 only finds form as a "value". Thus, the Commissioner says, it is the "value" of the interest that is proportionately adjusted by s 158(4), and is then employed to determine: * whether the principal entity holds the requisite threshold value of land holdings; * the amount of duty payable under s 155; and * whether an entity is "land rich" pursuant to s 163D(3). The Commissioner says that s 158(4) is employed for each of those purposes, Ingham being the "principal entity". 1. Further, the Commissioner says, s 158 only makes sense when one deals with a "value" as opposed to the area of the physical land itself. That is because, in any case other than a linked entity that is a wholly owned subsidiary, it is not possible to determine which part of the "area" or physical mass of an interest in land owned by a linked entity should be attributed to a principal entity. Rather, s 158(4), works to adjust the values of the linked entities' interests in land and then to employ those values for the purposes identified. 2. Thirdly, for the purpose of Ch 4, even where an entity is a "landholder", a person only makes a "relevant acquisition" if the person acquires a "significant interest" in the landholder. For those purposes, s 163 applies to determine how one calculates the entitlement of a person to a distribution of property of a landholder. That calculation is based on value, in so far as one is required to calculate the entitlement "in such a manner as would maximise the value of the entitlement". [21] The Commissioner draws attention to the fact that s 163 applies in determining whether an entity is a "linked entity" of a principal entity, in so far as one is required to determine whether a person "would be entitled to receive not less than 50% of the unencumbered value of the property of another person in the event of a distribution of all the property of the person". [22] 3. Fourthly, the "unencumbered value of all land holdings of the landholder" is used to calculate the amount of duty payable under s 155. Therefore, the Commissioner asserts, value is the critical factor that determines: * whether an entity is a "landholder" in the first place; * if an entity is a "landholder", whether there has been a "relevant acquisition"; * if there has been a "relevant acquisition" in a "landholder", the amount of duty that is payable under Ch 4; and * the extent to which the land holdings of "linked entities" factor in each of those steps. 1. Accordingly, the Commissioner asserts, to the extent that s 163D(2) refers to the "land holdings" of a landholder, that reference imports the criterion of value. "Land holding", as used in Ch 4, is, in substance and practical effect, a reference to, or proxy for, a value that then forms the basis of each key step of the scheme. It follows, the Commissioner says, that the task under s 163D(2) is to determine whether, having regard to the aggregate value of all of the land holdings of a landholder, those land holdings "wholly or predominantly comprise" land used for primary production. 2. The Commissioner accepts that, while value permeates the entire scheme of Ch 4, area and the physical use of land still play an appropriate role under the value approach since, when the test in s 10AA is applied to each parcel of land to determine whether or not that parcel is land used for primary production, the issue of determining the "dominant use" of the land arises. The Commissioner accepts that in determining the dominant use of land, in the context of land tax, it is necessary to adopt a multi-factorial approach to the question, which is one of fact and degree that, in the end, may be determined as an objective matter of impression, having regard to the facts. The Commissioner accepts that that exercise takes into account various factors, including the amount of land actually used for any purpose, the nature, extent and intensity of the various uses of the land, the time and labour and resources spent in using the land for each purpose and the overall consideration of what conclusion an objective observer would reach from viewing the land as a whole. [23] 3. Thus, the Commissioner says, area and the physical use of land is not excluded under the value approach. Rather, it would be appropriately taken into account in the characterisation of each parcel of land deemed to be owned by Ingham for the purpose of determining whether the land is land used for primary production within s 10AA of the Land Tax Act. The Commissioner says that the scheme of Ch 4 depends upon the attribution of interests in land, measured by value, and says that the exemption in s 163D(2) operates coherently with that scheme once it is understood as involving a comparison based on value. 4. Those concessions lean towards the evaluative approach adopted by the primary judge. On the other hand, the concessions do not go so far as to accept the conclusion reached by his Honour after having regard to such matters. 5. The Taxpayer contends that there is no textual support for the Commissioner's construction, or the Commissioner's contention, that the reference to "land holdings" in s 163D(2) imports the criterion of value such that, in substance and practical effect, the reference to "land holdings" is a reference to, or proxy for, a value. The Taxpayer points to the definition of "land holding" in s 147 as meaning, subject to exceptions not presently relevant, "an interest in land other than the estate or interest of a mortgagee, chargee or other secured creditor". Thus, the Taxpayer says, while a value may be associated with a land holding, a land holding is not a value but, rather, is a legal concept, being an "interest". The Taxpayer says that to say that a "land holding" is a value is inconsistent with the terms of s 163D(2) when read as a whole. [24] 6. The Taxpayer asserts that the requirement under s 146 that land holdings have a "threshold value of $2 million or more" says nothing about the scope of the exemption from duty and is an example in support of the proposition that, where the Duties Act requires an assessment of value, it explicitly says so, in contrast to s 163D(2). The Taxpayer rejects the reliance by the Commissioner on s 149, whereby there is only a relevant acquisition for the purpose of charging duty if the person acquires a significant interest in a landholder and that value is a "critical factor" to that issue. Rather, the Taxpayer asserts, the critical factor in determining whether there is an acquisition of a significant interest is the extent to which the person acquiring the interest would be entitled to a particular proportion of the property distributed, if all of the property of the landholder were distributed. That, the Taxpayer says, is determined in the light of the constitution of the landholder. [25] That determination is to be done on the premise that all powers and discretions under the constitution of the landholder are exercised in such a manner as would maximise the "value" of the entitlement of the person. Nevertheless, it does not follow that the entitlement is calculated by reference to value, let alone the value of the underlying property of the landholder. None of that, the Taxpayer says, has any bearing on the meaning and scope of s 163D(2). 7. The Taxpayer asserts that, while, under s 155(1), duty is payable on the unencumbered value of all land holdings and goods of the landholder in New South Wales, the fact that the Duties Act charges duty on a transaction based on value says nothing about the scope of the exemption in s 163D(2). The Taxpayer says that none of the generalised features of the scheme of Ch 4 identified by the Commissioner is relevant to the construction of s 163D(2) and the fact that value is used expressly in some parts of the Duties Act is a reason to reject, rather than accept, the Commissioner's construction. The fact that unencumbered value is not mentioned in s 163D(2), but is expressly mentioned in s 163D(3) and s 163D(5) is, the Taxpayer asserts, a significant contextual feature denying the construction advanced on behalf of the Commissioner. 8. Finally, the Taxpayer rejects the Commissioner's assertion that the deemed interest under s 158 only finds a form as a "value". Thus, the operative part of s 158 is s 158(1), without which, s 158(4) would have no operation. Section 158(1) relevantly deems a person to hold "an interest in land … held by a linked entity". The indefinite article indicates that the deemed interest is not necessarily the same as the interest held by the linked entity. In contrast, the adjacent s 159 deems a beneficiary of certain discretionary trusts "to own or otherwise be entitled to" trust property. Thus, the Taxpayer says, it is apparent that the interest in the land that is deemed to be held by a particular landholder is a proportionate interest in the land equal to the proportionate entitlement that the landholder would be entitled to receive in the event of a distribution of all of the property of the linked entities in the chain below the landholder. The Area Approach 1. The Taxpayer asserts that the references to "land" in the phrase "land used for primary production" in s 10AA must be understood as a reference to land as a physical concept, namely, the concrete physical mass, commencing at the surface of the earth and extending downwards to the centre of the earth. [26] Accordingly, the Taxpayer contends, the reference in s 163D(2) to "land used for primary production" must be understood as a reference to the physical concept of land. Therefore, it says, s 163D(2) requires an assessment of whether a landholder's land holdings wholly or predominantly comprise physical land that satisfies the criteria in s 10AA, all of which focus on the practical use of land. The Taxpayer asserts that such an assessment would make no sense if land holdings were merely "values". 2. The Taxpayer begins with the proposition that, in a quantitative approach, the ordinary meaning of predominantly is more than one half. Accordingly, the Taxpayer says, when applying a quantitative approach to s 163D(2), it is necessary to make a determination of whether more than 50% a landholder's combined interests in physical land comprise physical land that is used for primary production, namely, land that satisfies the criteria in s 10AA. A quantitative approach would, the Taxpayer says, require, as a first step, the determination of the extent to which each interest in a particular parcel of land can be said to "comprise" physical land. 3. Where the relevant interest is an estate in fee simple, the issue is straightforward and the interest would comprise the whole of the land. Similarly, in relation to a leasehold interest, since a tenant has the exclusive right to occupation of the whole land, the tenant's interest would comprise the whole of the land that is subject of the lease. However, if a landholder has only an undivided share in a particular parcel of land, for example as a joint tenant or tenant in common, although the landholder has an interest in the whole of the land, the landholder's interest is shared with the interests of the other co-owners. The interests of all co-owners comprise the whole of the land. Therefore, the Taxpayer contends, each co-owner's interest comprises an undivided fraction of the whole of the physical land. For example, if a landholder owns a moiety in a parcel of land as tenant-in-common, that interest would comprise an undivided one half of the whole parcel of land. 4. The Taxpayer asserts that there would be no difficulty in determining the area of an undivided share in land for the purpose of s 163D(2). The relevant area is not the area of the whole parcel of land but the area of that fraction of the whole that is the same as the landholder's fraction of the interest in the land. There would be no question of identifying a divided part of the parcel since the landholder would have an interest in the whole of the parcel, albeit an undivided fraction or share. The Taxpayer asserts that there would be no difficulty with the approach in dealing with linked entities. Interests in linked entities are simply a particular example of fractional interests in land. The operation of s 158 is addressed below. 5. The Taxpayer contends that the value approach gives rise to difficulties concerning leasehold interests. For example, a beef cattle producing company may have grazing leases on 10 large parcels of land at market rent and may own the freehold of urban offices. Since the leases are at market rent, the leaseholds will have a minimal value. However, the urban offices may have significant value. In such a case, the Company would be unlikely to be entitled to the concession. On the other hand, if the landholder owned the freehold of the 10 parcels of rural land, the concession is likely to be available. Thus, the Taxpayer asserts, the applicability of s 163D(2) would depend on how assets are held rather than the underlying use of land by the Company. That would be an anomalous result. 6. The Taxpayer then contends that, once the extent to which each interest comprises physical land is determined, the natural and only sensible way of determining the proportion of the total land identified that is used for primary production is by reference to the area of the relevant parcels. Area of the land, the Taxpayer says, is the natural way of quantifying and comparing different parcels of physical land. Value, on the other hand, is not a physical concept and is an inappropriate mechanism for comparison. 7. The Taxpayer contends that, having regard to s 158(4), the interest in the land that is deemed to be held by a particular landholder is a proportionate interest in the land equal to the proportionate entitlement that the landholder would be entitled to receive in the event of a distribution of all of the property of the linked entities in the chain below the landholder. Thus, for example, if the holding company has a 60% shareholding in the subsidiary, which has an 80% shareholding in a sub-subsidiary, which owns an estate in fee simple in a parcel of land, the holding company's deemed interest in the land is a 48% proportionate interest in the estate in fee simple. Where the subsidiary is wholly owned and the sub-subsidiary is also wholly owned, the holding company is deemed to hold the whole of the land holdings of sub-subsidiary. 8. Thus, the Taxpayer contends, the area approach requires the following steps: 1. each land holding of the landholder is identified; 2. the extent to which each land holding comprises physical land is determined and the relevant areas of all such land holdings are aggregated to determine the total land area; 3. each of those land holdings of the landholder that is land used for primary production is identified; 4. the extent to which each land holding that is land used for primary production is determined and the relevant areas of such land holdings are aggregated to determine the total area of land used for primary production; and 5. if the area produced at step (4) is more than 50% of the area determined at step (2), the landholder is a primary producer. The Evaluative Approach 1. The Taxpayer supports the evaluative approach adopted by the primary judge, who rejected both the area approach and the value approach. The Commissioner contended that, having regard to the way in which the proceedings had been conducted before him, it was not open to his Honour to adopt the evaluative approach. In particular, the Commissioner drew attention to the agreement that had been reached between the parties that, if the area approach were to be adopted, s 163D(2) would be satisfied whereas, if the value approach were to be adopted, s 163D(2) would not be satisfied. 2. I am not persuaded that the parties conducted the proceedings before the primary judge on the basis that the area approach and the value approach were the only possible constructions open to his Honour. In any event, the construction of the relevant provision is entirely a matter of law. It was not put to this Court that, had the evaluative approach been advanced as the appropriate construction, the Commissioner might have adduced further evidence or adopted a different course in the conduct of the proceedings. Further, that contention was not advanced to the primary judge when it became apparent in the course of argument that his Honour may not adopt either the area approach or the value approach. 3. However, it became apparent during the hearing of the appeal that the written submissions of the parties did not fully address the evidence before the primary judge that might bear on the evaluative approach. While his Honour rejected the dichotomy alleged to arise from the agreement made between the parties as to the area approach and the value approach, his Honour's reasons did not address in full detail such evidence as there was that might bear on the evaluative approach. 4. Against that background, the Court afforded the parties the opportunity of providing supplementary written submissions on the factual material in evidence before the primary judge that would bear on the question if the evaluative approach were to be adopted. The parties accepted that that material could be considered by this Court without further oral argument, unless the Court considered that further argument was desirable. The Court received the supplementary submissions but had no further oral submissions. 5. The Taxpayer originally asserted in its written submissions that the Commissioner did not challenge the primary judge's findings that Ingham satisfied the evaluative approach. It is now clear that the Commissioner does challenge his Honour's conclusion in that regard. There is no real dispute about the primary facts and the submissions are concerned with the characterisation of the material in the context of the relevant provisions of the Duties Act. Before dealing with the contentions, it is necessary to deal with the factual background as to Ingham's activities. Ingham's business 1. Ingham and its subsidiaries operated a fully vertically integrated production process. Part of that process involved the growing of generations of birds, being first generation birds, great-grandparent birds, grandparent birds, parent birds and final generation birds. Part of that vertically integrated production process also included primary processing, which involves slaughtering the final generation birds and converting them into meat cuts, or whole birds, and further processing at plants situated on separate land, which involves further processing of the birds into products such as chicken nuggets and schnitzels. Ingram also conducted a number of feed mills where feed was produced, approximately 70% of which was used for the growing of birds and the balance of which was sold to third parties. Ingham's land holdings 1. The land holdings of the Taxpayer described in Appendix A as being land used for primary production are categorised in Appendix A as having the following uses: * Lab * Farm * Hatchery * Quarantine * Piggery. It is convenient to describe the land holdings in each of those categories. 1. The land categorised as being used as "Lab" had an area of 4.12 ha which represented 0.1% of the total area of Ingham's land. It had a total value of $1,846 million which represented 0.28% (by value) of the whole of Ingham's land. It was used as a laboratory and trial farm where feed and nutrition tests were conducted on a small number of birds in order to maximise bird performance. That included trialling different types of feed on birds to determine what type of feed produced optimal health and performance in the birds. It also included the trialling of a particular breed of bird as a replacement for a different breed that had been used in the business. That resulted in the breed being changed because of lower mortality and higher suitable eggs per hen and hatchability. Some of the birds maintained on the laboratory and trial farm were returned to other farms when they were no longer needed for trials. Others were sent to a primary processing facility or protein recovery unit. 2. Thus, the laboratory and trial farm were used for maintenance of a small group of birds, some of which could be returned to farms for their sale or the sale of their natural increase. The knowledge derived from the trials conducted at the laboratory and trial farm was applied to improve the health and performance of the entire flock and contributed to the maintenance of that flock and facilitated the sale of the flock. Therefore, the Taxpayer says, the dominant use of the laboratory and trial farm was for the maintenance of birds for the purpose of selling them or their natural increase. 3. Land characterised as being used as "Farm' was used solely as a grandparent breeder farm, a parent breeder farm or a broiler farm. Grandparent breeder farms were used for rearing and mating grandparent birds. Parent breeder farms were used for rearing and mating parent birds. Broiler farms were used for rearing final generation birds. The broiler farm was used for the maintenance of birds for the purpose of selling those birds. The grandparent breeder farms and parent breeder farms were used for the maintenance of birds for the purpose of selling their natural increase. 4. The land categorised as being used as "Hatchery" was used to incubate fertile eggs laid by the parent birds for approximately 21 days before hatching. The parent birds were located on the parent bird farms. The hatcheries were equipped with egg holding rooms and automated "setting systems" to control the hatching environment. When the eggs hatched, the final generation birds would be sent as day-old chicks to the broiler farms. 5. The hatcheries were used for the purpose of maintenance of the final generation birds that were ultimately sold to consumers. That maintenance involved the incubation of the birds while in the egg, facilitation of hatching and keeping of the birds until sent to broiler farms as day-old chicks. While inside the egg, the bird is still a discrete living organism. The Taxpayer contends that the process of caring for the bird while it is inside the egg, including through vaccination and turning every hour during incubation to prevent sticking, is maintenance of the bird inside the egg. It contends that maintenance of animals for the purpose of selling them extends to selling them whether alive or dead. [27] 6. The land characterised as being used as "Quarantine" was used as a quarantine facility where eggs imported from overseas were taken and then hatched to produce first generation birds. Those birds were then reared and mated at the quarantine facility to produce the great-grandparent birds. The great-grandparent birds were reared and mated at the quarantine facility to produce the grandparent birds, which were then sent to the grandparent breeder farms as day-old chicks. The quarantine facility was used for the maintenance of the first generation birds, the great-grandparent birds and the grandparent birds, the last of those being while in the egg. Therefore, the Taxpayer contends, the quarantine facility was used for the maintenance of birds for the purpose of selling the natural increase of those birds, being the first generation birds. 7. The land categorised as "Piggery" was used as a commercial piggery. The piggery had 1500 sows and produced around 450 baconers per week, which were sold live into the market. The Taxpayer contends that the land was used for the maintenance of animals for the purpose of selling them or their natural increase. 8. Three other parcels of land were categorised in Appendix A as land used for primary production. One parcel is described as being used for irrigation, a second as being vacant and the third as a house. The Taxpayer accepts that the evidence does not deal with the use of those parcels. It asserts that each of the items is small in size and value and ultimately is immaterial for present purposes. 9. The land holdings of the Taxpayer described in Appendix A as being land not used for primary production are categorised in Appendix A as having the following uses: * feed mills; * primary processing facilities; and * further processing facilities. Those parcels of land had an aggregate area of some 322.64 ha, representing about 8% of the total area of all Ingham's land holdings and an aggregate value of $411.51 million, representing 63% of the total value of all Ingham's land holdings. 1. The parcels identified as being used as feed mills had an aggregate area of 46.33 ha representing some 1% of the total area of Ingham's land holdings and an aggregate value of $64.38 million representing approximately 10% of the total value of Ingham's land holdings. The parcels listed as being used for primary processing had an aggregate area of 212.5 ha, being approximately 5% of the total area of Ingham's land holdings and an aggregate value of $225.57 million, being 34% of the total value of Ingham's land holdings. The parcels listed as being used for further processing had an aggregate area of 63.8 ha representing 2% of the total area of Ingham's land holdings and an aggregate value of $121.56 million representing 19% of the total value of Ingham's land holdings. Ingham's revenue 1. In the financial year ended 30 June 2012, 100% of the revenue of Ingham and its subsidiaries was generated from the sale of processed food products. No revenue was generated from the sale of live birds. Specifically, before their sale, poultry products, which accounted for 89% of total sales in the financial year ended 30 June 2012, were subject to: * primary processing, pursuant to which live birds are collected from broiler farms and transported to Ingham's processing facilities for processing into end products, accounting for 30.8% of revenue; * value enhanced processing, pursuant to which marinades, sauces, spices and sprinkles are added to the birds, accounting for 16.7% of revenue; or * further processing, where the required meat is transferred to a further processing plant for cooking and additional processing, including into 240 further processed products such as chicken nuggets and schnitzel, accounting for 25.7% of revenue. The remaining revenue was generated from the sale of: * processed free range chicken products, primary and further processed turkey products, pet food and other poultry products, collectively accounting for 16.3% of revenue; and * stockfeed, accounting for 10.6% of revenue. 1. All or substantially all of the processing activities necessary to produce the products described above occurred on land holdings of Ingham. More particularly, the processing facilities included nine primary processing plants in Australia and one in New Zealand, seven further processing plants in Australia and two in New Zealand and eight feed mills in Australia and two in the New Zealand. Those extensive processing operations were the subject of substantial investment, which drove the further processed product market in Australia and Ingham's majority share in that market. Thus, between approximately 2002 and 2012, Ingham made capital investments of more than $1 billion to enhance and add to its production and processing facilities in Australia and New Zealand. Capital expenditure on primary processing, further processing and feed mills constituted some 73% of Ingham's capital expenditure over the period of 10 years to 2012. Ingham's costs 1. The largest single recurring cost of the business operations was labour, which accounted for 30% of the total costs in the financial year ended 30 June 2012. Ingham had a workforce of 8,867 employees, 6,839 of whom worked in the areas of primary processing, further processing and feed mills. They represented approximately 77% of all employees. Other cost categories related wholly or largely to processing included: * ingredients, cooking and packaging, accounting for 10% of total costs; * freight and storage, accounting for 8% of total costs; and * utilities and cleaning, accounting for 7% of total costs. Costs relating to the manufacture of externally sold stock-feed accounted for 9% of total costs and the costs associated with the manufacture of stock feed for internal use accounted for 17% of total costs. The Taxpayer's Contentions 1. Distinct from its submission as to the steps involved to determine whether Ingham was a primary producer under the area approach, as outlined above, [28] the Taxpayer contends that applying the evaluative approach to determine whether Ingham was a primary producer within the meaning of s 163D(2) requires the following three steps: 1. all of Ingham's land holdings must be identified. That was done in Appendix A; 2. those parcels of land holdings must be identified that comprise land that was exempt under s 10AA of the Land Tax Act, or would be considered to be exempt from land tax, being land used for primary production. That was also done by Appendix A; and 3. having regard to the land holdings identified in the second step, it is necessary to assess whether the land holdings, as a whole, predominantly comprise land of the kind identified in the second step. 1. With respect to step three, the Taxpayer contends that the evaluative approach does not require that more than 50% of land holdings by value or area should be land used for primary production within the meaning of s 10AA. [29] The Taxpayer contends that the evaluative approach would result in the parcels of land categorised as land used for primary production in Appendix A giving Ingham's land holdings as a whole their essential character. It advances several reasons for that conclusion. 2. First, the Taxpayer says, although the land categorised under step two as being land used for primary production comprised only 33% of Ingham's total land holdings by value, the land so categorised comprised 89% of Ingham's total land holdings by area. The taxpayer asserts, in effect, that area is of greater significance than value, even if it is not decisive. 3. Secondly, the Taxpayer says, Ingham's "core business" was growing and maintaining birds for their sale or for the sale of their natural increase or bodily produce. The Taxpayer asserts that chicken has a competitive advantage over other proteins and that Ingham has a competitive advantage over its competitors in the poultry industry. It asserts that the factors that produced those advantages related to chicken itself as a product and Ingham's method of growing poultry, rather than how Ingham processed that poultry. That is to say, the growing of poultry was the key factor that Ingram could adjust to meet customer demands, and other parts of its business, such as processing and feed mills, responded to the adjusted production of poultry. Accordingly, the Taxpayer contends, the other parts of the business were ancillary and subsidiary to growing poultry, such that the growing of poultry gave Ingham's land holdings, as a whole, their essential character. 4. The Taxpayer contends that Ingham's method of growing birds, rather than the subsequent processing of birds, resulted in poultry having a competitive advantage over other forms of protein and also resulted in Ingham having a competitive advantage over its competitors who also produced poultry. As to the first, it points to the fact that chicken is seen as the leading source of protein for Australian consumers, its popularity being due in part to its affordability, consistently high quality, health benefits, versatility and availability in free range form. Accordingly, consumer demand for chicken resulted substantially from either the inherent qualities of chicken itself, such as it being healthier than other proteins, or from its affordability and the greater availability of free range chicken, both of which depended on the manner in which chicken is grown. Consequently, a significant factor in the popularity of chicken among consumers is either what was being grown or how it was being grown, rather than how it was processed after having been grown. 5. As to the second matter, the stringent quarantine restrictions in Australia and New Zealand limit the opportunity to import poultry into either country. All major participants in the poultry production industry are vertically integrated, such that there is limited opportunity to obtain birds from other producers. Accordingly, the Taxpayer asserts, one of Ingham's key competitive advantages was its infrastructure, allowing it to grow substantial numbers of poultry, without which it could not conduct its business as it would have no raw material. Ingham had a world renowned technical services team that was responsible for livestock and quality assurance programs, including research and development into animal health and welfare, food safety and pathogen control. The work of its technical services team allowed Ingham to grow high quality healthy poultry efficiently, thereby allowing Ingham to capitalise on the factors that made chicken desirable to consumers, including its affordability and consistently high quality. The most significant factors that made Ingham competitive within the poultry industry were concerned with its ability to grow quality poultry efficiently and how it grew that poultry, rather than how it processed the poultry after growing it. 6. Thus, the Taxpayer contends, the factors that gave the poultry industry a competitive advantage over other industries that produced protein and the factors that gave Ingham a competitive advantage over its competitors in the poultry industry related to the nature of Ingham's product as chicken or the method by which Ingham grew the chicken, rather than the way in which Ingham processed the chicken during and after slaughter. Ingham's output was adjusted to meet demand by adjusting the rate at which birds were grown and primary processing facilities and feed mills were responsive to the rate of bird growth, as were the functions ancillary or subsidiary to the growth of birds. Therefore, the Taxpayer says, Ingham's growing of birds was the core of its business and the other parts of its business were ancillary or subsidiary. Therefore, it says, the essential character of its land holdings as a whole was given by the land on which Ingham conducted the core business of growing birds, being land on which it maintained birds for selling them for their natural increase. 7. Thirdly, the Taxpayer contends that the other economically significant parts of Ingham's business, being its feed mills, primary processing facilities and further processing facilities, were "inextricably causally connected with" poultry growing, which was the reason for the existence of the other land holdings of Ingham that were used for those other parts of its business. Those parcels used for the other economically significant parts of Ingham's business, the Taxpayer contends, had an "inextricable causal connection" with the land holdings of Ingham that were used for the maintenance of birds or their sale or for the sale of their natural increase such that the "essential character" of Ingham's land holdings as a whole was as land used for the maintenance of birds or their sale or for the sale of their natural increase. Thus, the Taxpayer contends that although some of Ingham's land holdings were not used for primary production, such as the land on which the feed mills and the primary processing facility stood, they were nonetheless "inextricably causally connected" with land holdings that were used for primary production. Land on which the further processing facilities stood also had that "inextricable causal connection", although the Taxpayer concedes that the degree of causal connection was more attenuated in relation to the further processing facilities. Nonetheless, it says, the produce from those facilities had its basis in chicken and other poultry products that were from birds that had been maintained and were to be sold. 8. The Taxpayer contends that a parcel of land is "inextricably causally connected" with other land that is used for primary production if the reason for the existence of the use to which the first parcel of land is put is the use to which the other land is put. Such a parcel of land, the Taxpayer contends, derives its essential character from the other land and, therefore, leads to the conclusion that the relevant landholder's land holdings, as a whole, predominately comprise land used for primary production. 9. The Taxpayer identified certain parcels of land categorised in Appendix A as "plant", which was used as a primary processing facility, where live birds were slaughtered and were subsequently converted into meat cuts or whole birds, a process completed within 12 hours. The Taxpayer accepts that that did not itself involve the maintenance of birds for selling them as live birds. However, it says, s 10AA(3)(b) of the Land Tax Act also extends to the maintenance of birds for the purpose of their sale after slaughtering, and converting them into meat cuts or whole birds allowed that sale of the birds to occur (noting that "selling [birds] or their … bodily produce" extends to selling the birds when dead after slaughtering, whether as whole birds or meat cuts). [30] 10. The Taxpayer contends that the primary processing in which Ingham engaged involved the slaughtering, de-feathering, eviscerating, cleaning and water chilling and then the conversion of the carcass of the birds into meat cuts or whole birds for sale. The birds that were maintained for sale had to be killed and processed in that way in order that they could be sold. That form of processing, the Taxpayer says, is incidental to the maintenance of the birds for the purpose of selling them or their bodily produce. [31] Hence, the Taxpayer says, the activities conducted at the primary processing facilities had as their reason for existence the fact that, on other parcels of Ingham's land, birds were maintained for their sale. There would, it says, be no reason for the existence of the primary processing facilities if it were not for the use to which Ingham put the land on which the birds were maintained. 11. In the light of the above, the Taxpayer says, the land on which the primary processing facilities stood had an "inextricable causal connection" with the land on which Ingham maintained birds for sale or for the sale of their natural increase. That, it says, contributed to Ingham's land holdings as a whole having "the essential character" of land used for primary production. Primary processing facilities were responsible for the employment of 5,328 employees, a significant proportion of the total workforce. They were involved in performing work that had as its reason for existence the use of other land for the maintenance of birds for sale or for the sale of their natural increase, thereby, the Taxpayer says, demonstrating the economic importance of the latter use. 12. Two other parcels identified in Appendix A were said to be used as a further processing facility, where some poultry, already having been processed in a primary processing facility, was sent for further processing into fully cooked products such as chicken nuggets and schnitzels. The further processing facilities had as their reason for existence the fact that, on other parcels of Ingham's land, birds were maintained for sale. However, the Taxpayer acknowledges that, in addition to allowing Ingham to meet the demand of the market for dead processed birds, the further processing plants also added value to the poultry products so that they were more desirable to customers, rather than simply being in a saleable condition. 13. Finally, the Taxpayer identified land categorised in Appendix A as "mill" as being used as a feed mill, where animal feed was produced for the purpose of feeding Ingham's poultry, which was strategically located throughout Australia and New Zealand. Approximately 70% of the feed produced by Ingham's feed mills was consumed by Ingham's animals. The balance was sold commercially. The rationale for producing more feed than would be consumed by Ingham's animals was said to be so that Ingham could constantly review and manage the composition and ingredients of the feed to improve feed conversion ratios so as to reduce its costs of production of the feed by operating at more efficient production levels than it would if it only produced enough to feed its own animals. 14. Hence, the Taxpayer says, the reason for the existence of the feed mills was to provide feed for Ingham's animals. However, because of the critical connection of the feed to the growing of the birds, the feed mills needed to allow a substantial buffer so that feed levels could be managed sustainably. Therefore, the feed mills had an "inextricable causal connection" with the land on which Ingham maintained birds for their sale or the sale of their natural increase. Ingham's ability to sell surplus feed for a profit was a collateral benefit for Ingham's taking advantage of economies of scale in its production of feed. The feed mills contributed to Ingham's land holdings as a whole, the Taxpayer says, having the essential character of land used for primary production. 15. The Taxpayer contends that the predominant purpose of the production of poultry feed was for use in the growing of poultry and that it was only surplus poultry feed that was sold to third parties. The Taxpayer contends that the parts of Ingham's business that did not involve the growing of birds were ancillary or subsidiary to the core business of growing the birds. Therefore, the Taxpayer contends, the core business gave the use of Ingham's land holdings as a whole the essential character of being for growing birds and, hence, being for the maintenance of birds for selling them or their natural increase. The Commissioner's Contentions 1. The Commissioner contends that, even if the land holdings of Ingham not used for primary production were "inextricably causally connected" with its land holdings used for primary production, that says nothing about whether the land used for primary production predominates or whether the land not used for primary production predominates. The Commissioner says that, regardless of whether or not those two categories of land holdings are inextricably causally connected, it is still necessary to determine whether the whole of Ingham's land holdings can fairly be characterised as predominantly being used for one or the other. That is to say, the fact that the land not used for primary production is inextricably causally connected with the land used for primary production does not mean that the land not used for primary production is being used for primary production. 2. The Commissioner contends that the evidence falls short of demonstrating that Ingham's land holdings, as a whole, were predominantly used for the relevant purpose. In support of the conclusion contended for, the Commissioner points to evidence concerning the following matters: * sales revenue; * processing facilities and investment; * costs; and * outsourcing of poultry growing to non-Ingham's land. 1. In relation to sales revenue, the Taxpayer responds that Ingham did not sell live birds since consumers are not inclined to slaughter, de-feather, eviscerate and portion birds themselves. Thus, the primary processing of poultry consisted of slaughtering live birds and converting them into meat cuts or whole birds for sale in either of those forms. Further, the sale of dead birds or pieces of birds requires that the birds or pieces be appropriately packaged, since it would be unhygienic to sell dead birds or pieces of birds without packaging. Accordingly, the Taxpayer says, the fact that all of Ingham's products were processed to some extent has no bearing on the relative importance of growing the birds, on the one hand, and processing them, on the other. That factor does not identify what it is that gave Ingham's land holdings, as a whole, "their essential character". The Taxpayer says that, because of the market in which it operated, Ingham was required to undertake primary processing of the birds so that it could sell them, either as meat cuts or as whole birds. While Ingham also undertook the value enhanced processing and further processing on separate parcels of land, the growing of birds by Ingham was the reason for the existence of all of the processing facilities. 2. Thus, the Taxpayer contends, it is irrelevant that no revenue was generated from the sale of live birds, since s 10AA(3)(b) of the Land Tax Act extends to land used for the maintenance of birds for the purpose of selling the birds or the natural increase or bodily produce of the birds, whether dead or alive and whether as whole birds or as meat cuts. That is to say, birds could be sold when dead, whether as whole birds or meat cuts, in circumstances where their maintenance while alive would bring land used for that purpose within s 10AA(3). Processing was incidental to the purpose of maintaining birds for sale when dead, whether as whole birds or meat cuts. Accordingly, the Taxpayer contends, it follows that the processing facilities owed their existence to the maintenance of birds for the purpose of their sale or the sale of their natural increase or bodily produce. [32] 3. The Taxpayer points out that all of the sales revenue from the three kinds of processing described above relates to the sale of dead birds or their bodily produce, as meat cuts, so that the sales revenue has a causal connection to the activities undertaken on the land holdings of Ingham that are used for primary production. The Taxpayer says that, even if the focus was only on the sales revenue from birds sold after mere "primary processing", that sales revenue was greater than the sales revenue from each of the other two kinds of processing and the other sources of revenue. That, it says, points to the conclusion that the land used for primary production was predominant. Thus, the Taxpayer says, despite the fact that Ingham processes its poultry, the essence of its business is that it is a poultry grower. 4. In relation to processing facilities and investment, the Taxpayer points out that a greater proportion of the capital expenditure of $1 billion in the period of 10 years (from 2002 to 2012) was directed to primary processing than was directed to further processing. Relevantly, 41% was directed to primary processing and 30% was directed to further processing. A significant factor that drove the growth of Ingham's business in that period was the growth in consumer demand for chicken as a more affordable source of protein and Ingham's increased capital expenditure was designed to increase production capacity in order to service the increased consumer demand. 5. The Taxpayer asserts that while Ingham's capital expenditure of $1 billion in the 10 year period increased Ingham's processing capacity, the amount of capital expenditure over that period was abnormally high, in that normalised growth in capital expenditure after 2012 was forecast as $10 million to $11 million per annum, far less than the capital expenditure of $100 million per annum on average in the 10 year period up to 2012. The Taxpayer contends that it is inappropriate to compare one off fixed capital expenditure that has an enduring benefit beyond any single year with an annual recurring expenditure. 6. The Taxpayer contends that the addition of processing facilities over the course of Ingham's history demonstrates that Ingham carried on a functioning business before it had those facilities. The additional processing facilities added to and enhanced its existing business. That, the Taxpayer contends, indicates that the processing facilities were ancillary or subsidiary to the core business of growing birds, to which all other functions were adjunct. That, the Taxpayer contends, supports the proposition that the land holdings of Ingham that were used for primary production gave Ingham's land holdings, as a whole, their essential character of being used for primary production. 7. The Commissioner contends that the costs incurred by Ingham in its business activities tell heavily against the conclusion that its land holdings were predominantly used for the relevant purpose. 8. The Taxpayer disputes that freight and storage costs related wholly or largely to processing. Rather, it says, freight costs related to the haulage of feed to farms, transporting of birds between facilities and transporting finished products to consumers. It points out that there are four stock movements of live birds, including eggs, for every one stock movement of processed birds. In the pre-processing phase, there is firstly a transfer of eggs from the parent breeder to the breeder farms, secondly a transfer of the eggs from the breeder farms to hatcheries, thirdly a transfer of birds from hatcheries to broiler farms and, finally, a transfer of birds from broiler farms to processing plants. In the post processing phase, there is only freight out to the customer. The Taxpayer asserts that there is no indication as to what portion of those costs related to processing but says, in any event, that would not assist in the task of characterising Ingham's land holdings as a whole. 9. The Taxpayer also disputes that utilities and cleaning costs related wholly or largely to processing, saying that cleaning and utilities costs are used at every stage of the production and processing process. That includes at the quarantine facility for maintenance of genetic stock, first generation birds and great-grandparent birds, the grandparent breeder farms, parent breeder farms and also the broiler farms owned by Ingham. The Taxpayer asserts that there is no reason to suggest that those facilities are any less clean than the processing plants and there is no indication as to what portion of cleaning costs related to processing. In any event, the Taxpayer says, that would not assist in the task of characterising Ingham's land holdings as a whole. 10. Husbandry fees, being the cost of outsourcing broiler growing to contract grower farmers in circumstances where Ingham paid contract growers a fee for every live bird fit for processing, was the cost most directly relating to the maintenance of birds, albeit on land not owned by Ingham. Husbandry fees accounted for only 7% of total costs. 11. However, the Taxpayer points out, the fact that Ingham uses contract growers during the growing of the birds means that the labour costs of those businesses is not included in Ingham's costs. That reduces the number of Ingham employees required for the growing of the birds. Therefore, the Taxpayer says, Ingham's labour cost is not a reliable guide for determining the evaluative assessment of Ingham's land holdings. Further, the Taxpayer says, all feed, medication, husbandry, technology and veterinary services are supplied by Ingham and contract growers supply only the sheds and husbandry services, consisting of labour. Since Ingham bears those costs, it is not unexpected that husbandry fees are low compared with total costs. In any event, the Taxpayer says, the quantum of husbandry fees says nothing about the relative significance of Ingham's own land holdings in the context of outsourcing of poultry growing. 12. The Taxpayer reiterates that the reason for the existence of the processing facilities was Ingham's growing of birds and that the processing facilities were inextricably causally connected with Ingham's growing of birds. Thus, the Taxpayer says, to the extent that Ingham incurred the costs highlighted by the Commissioner to establish or operate the processing facilities, those costs were incurred because Ingham grew birds for their sale or the sale of their natural increase or bodily produce. That is to say, the birds that were ultimately to be sold had to be processed. The costs incurred in relation to the processing facilities do not, the Taxpayer says, detract from the fact that Ingham's land holdings that were used for primary production gave the land holdings as a whole their essential character. 13. The Commissioner places emphasis on the fact that poultry growing is outsourced to land holdings that are not Ingham's. Thus, 95% of the growing of the birds that took place on the broiler farms was not undertaken by Ingham but by third party contract growers on land that was not owned or leased by Ingham but was owned or leased by the third party contract growers. The outsourcing of poultry growing operations on land holdings of third parties has been a longstanding practice of Ingham that began in the 1960s and was directed to the efficient utilisation of capital. 14. The consequence was that, by the year ended 30 June 2012, only 5% of the key stage of the growing of birds, from the time they were hatched until the time they reached the appropriate weight for slaughtering in the processing facilities, actually took place on land holdings of Ingham. That is in contrast with the extensive processing activities that took place on land holdings of Ingham, as described above. 15. The outsourcing of the poultry farming activities was not restricted to the growing of the poultry on third party broiler farms. Thus, in 2012, a leading global genetic material supplier entered into a contract to sell Ingham day-old parents. The contract included the gradual acquisition or lease of Ingham's great-grandparent and grandparent farms and the lease of the quarantine facilities. 16. The Taxpayer's response is that, to the extent that land was leased to that global genetic material supplier, that land was still owned by Ingham. To the extent that the land was to be acquired by that global genetic material supplier, the land had not yet been acquired at the Relevant Date. It was therefore still part of Ingham's land holdings. Thus, the Taxpayer says, at the Relevant Date, those land holdings were owned by Ingham and constituted land used for primary production. No lease or intended future transfer would affect that analysis. 17. The Taxpayer contends further that the use of land owned by third party contractors is not relevant to the question at hand, namely, whether, having regard to Ingham's land holdings as a whole, that part of its land holdings that is used for primary production gives Ingham's land holdings, as a whole, their essential character. That, the Taxpayer says, requires a consideration of the use of Ingham's land holdings and not the use of land holdings of other persons. The Taxpayer asserts that the focus by the Commissioner on the use of land owned by persons other than Ingham distracts attention from the real question. The Taxpayer attaches significance to the fact that Ingham owns all of the birds while they are on the broiler farms owned by third parties and supervises the activities occurring on the broiler farms to maintain quality standards. 18. The Taxpayer contends that the emphasis placed by the Commissioner on the final generation of birds, being those ultimately sold to customers as dead birds or parts of dead birds, ignores the preceding four generations of birds, being the first generation, the great-grandparent birds, grandparent birds and the parent birds. The Taxpayer contends that the earlier generations of birds had a significant effect on the rate of production of final generation birds, as changes to rates of production of final generation birds require planning between 11 weeks and 24 months in advance. By way of example, parent birds produced an average of 172 settable eggs. Accordingly, the number of birds produced in an earlier generation had a magnified effect on the number final generation birds produced. The growth of the earlier generation birds was the key factor in determining the quantity of final product produced by Ingham. The birds in the first four generations were reared on land owned by Ingham being the quarantine facility for first generation birds and great-grandparent birds, the grandparent breeder farms for grandparent birds and the parent breeder farms for parent birds. The final generation birds were maintained in the egg at hatcheries owned by Ingham. Some were transferred as day-old chicks to broiler farms owned by Ingham. 19. The quarantine facility, hatcheries and farms owned by Ingham constituted an aggregate area of 2,705 ha, being some 68% of the total area of Ingham's land holdings taken as a whole. Having regard only to land owned by Ingham, the Taxpayer says, a substantial amount of its land was used for the purpose of maintaining birds for the purpose of selling the birds or their natural increase or bodily produce. Much of that land was used to maintain the earlier generations of birds that were the key factor in determining the quantity of final product produced by Ingham. 20. The Taxpayer relies on the fact that parent birds were reared on Ingham's parent breeder farms for approximately 24 weeks, followed by approximately 38 weeks of egg-laying. Final generation birds in the egg were incubated at an Ingham's hatchery for approximately 21 days. Those final generation birds that were then reared on Ingham's broiler farms were fed and maintained for approximately 42 days. In contrast, primary processing was completed within approximately 12 hours. Conclusion as to the Evaluative Approach 1. There is much to be said for the view espoused by the primary judge, and supported by the Taxpayer, that the proper construction of s 163D is not to be determined by a simple dichotomy between the value approach and the area approach. Rather, the construction will depend upon what might generally be characterised as the evaluative approach, which may entail aspects of area and value as well as other aspects, such as those identified by his Honour. Thus, an assessment of the activities deemed to be carried on by a landholder, such as its business activities, and the relative importance of such activities on the various uses of the land holdings of the landholder, must take place. 2. The Taxpayer contends that the objective observer would conclude that Ingham's land holdings as a whole derived their essential character from that part of its land holdings that were used for primary production, that Ingham was a grower of poultry and that, in growing poultry for sale to customers, it was required to process the poultry into a form appropriate for sale in the market in which it operated. It says that the growing of birds was Ingham's core business and the processing facilities were subsidiary or ancillary to the land used by Ingham for maintaining birds for the purpose of their sale or the sale of their natural increase or bodily produce. 3. However, I consider, on balance, that the evidence, objectively viewed, demonstrates that, overall, Ingham's land holdings were predominantly used for large scale food and feed processing and secondary production. That is, the maintenance of animals, including birds, for the purpose of selling them or their natural bodily, was not the dominant use of Ingham's land holdings. 4. Food and feed processing and secondary production was the most extensive and resource intensive use of Ingham's land holdings as a whole, having regard to: * the time, labour and resources spent in relation to processing activities; * the ends to be achieved by the use of the land, being the production of processed products; * the large scale outsourcing of the poultry growing activities to land other than land holdings of Ingham; and * the relative values of land used for primary production as against land not used for primary production, being one third to two thirds respectively. 1. The business activities in which Ingham was engaged consisted of the supply, apparently at the wholesale level, of foodstuffs both for human consumption and animal consumption. While the maintenance of animals, including birds, was an aspect of the overall business activity of Ingham and its linked entities, the overall business of Ingham was the sale of processed foodstuffs. The maintenance of birds was no more than an incident or a step in the process of producing foodstuffs, the majority of which is for human consumption. 2. It is true that the business of Ingham can fairly be characterised as a fully vertically integrated business consisting of the production of foodstuff predominantly for human consumption, being foodstuff derived from poultry and pigs, but not the supply of live birds or pigs. It is also true that the total area of Ingham's land holdings that constitute land used for primary production is significantly greater than the area of the land holdings not used for primary production. However, the maintenance of animals including birds on the land used for primary production is not an end in itself, in the sense that live animals are sold. It may be that the ultimate consumers of Ingham's products would have no interest in slaughtering and preparing birds or other animals for eating. On the other hand, it is certainly easily conceivable that there might be processors who would buy live birds or other animals from Ingham for the purposes of carrying out the processing and further processing in which Ingham's engages. 3. Clearly, if that part of Ingham's business enterprise that constituted the processing and further processing were not in fact part of the enterprise, there would be a strong case for concluding that Ingham was a primary producer. However, it is not possible to ignore that the predominant part of Ingham's revenue and the predominant part of its costs are not concerned with the maintenance of birds and other animals. While it might be possible for Ingham's business to continue if birds ceased to be grown on Ingham's land, the same could not be said if the processing facilities ceased to operate, since that would alter the underlying character of the business, of providing foodstuffs for human and animal consumption. One must also have regard to the fact that the value of the land holdings that are not used for primary production is significantly greater than half of the total value of land holdings. 4. In those circumstances, it is not possible to conclude that Ingham's land holdings predominantly comprised land used for primary production. It follows that, as at the Relevant Date, Ingham was not a primary producer for the purposes of s 163D and the primary judge erred in concluding that it was. His Honour therefore reached an erroneous conclusion that the Taxpayer was entitled to the exemption afforded by s 163D of the Duties Act. Result of the Appeal 1. It follows from the above that the appeal should be allowed and the orders made by the primary judge should be set aside. Questions of penalty and interest were not resolved by his Honour. Accordingly, the proceedings should be remitted to the Equity Division for determination of those questions on the basis that Ingham was not a primary producer at the Relevant Date. The question of the costs of the proceedings at first instance should also be remitted to the Equity Division for determination in the light of the result as to penalty and interest. The Taxpayer should pay the Commissioner's costs of the appeal to this Court. ********** Endnotes 1. See s 146. 2. See s 147. 3. See s 148. 4. See s 149. 5. See s 150(2). 6. See s 151. 7. See s 154. 8. See s 158(2). 9. See s 158(4). 10. See s 163D(1). 11. See s 163D(2). 12. See s 163D(3). 13. See s 163D(1). 14. See s 163D(2). 15. See s 10AA(4). 16. See s 10AA(3)(b). 17. See Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2010) 79 NSWLR 724 (Leda Manorstead) at [70]. 18. See Hope v Bathurst City Council (No 2) (1986) 7 NSWLR 669; and Leda Manorstead at [73]. 19. See s 147. 20. See s 146. 21. See s 163(3). 22. See s 158(2)(iii). 23. See Leda Manorstead at [70], [76]. 24. Relying on Chief Commissioner of State Revenue (NSW) v Metricon Qld Pty Ltd [2017] NSWCA 11 (Metricon) at [55]. 25. See s 163(2) and s 163(3). 26. Relying on Metricon at [55]. 27. See Illawarra Meat Co Pty Ltd v Commissioner of Land Tax [1979] 1 NSWLR 188, 190-1 (Illawarra Meat Co). 28. See para [128]. 29. Relying on Warringah Shire Council v Pittwater Provisional Council (1992) 26 NSWLR 491 at 506B and 523E. 30. See Illawarra Meat Co, 190-1. 31. See Illawarra Meat Co, 190-1. 32. See Illawarra Meat Co, 190-1. Amendments 07 March 2019 - [23]: Second sentence, "not used" changed to "used" [49]: Quoting legislation, "use" changed to "used" [60]: "Ch 4AA" changed to "Ch 4A" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 March 2019