Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23

Date of judgement 30 January 2013 Proceeding No. 2010/292820
Judge(s) Justice Gzell
Court or Tribunal Supreme Court of NSW
Legislation cited Land Tax Management Act 1956

Taxation Administration Act 1996
Catchwords Land Tax - land used for primary production - whether use had a significant and substantial commercial purpose or character within s 10AA(2)(a) of the Land Tax Management Act 1956
Cases cited ACI Pet Operations Pty Ltd v Comptroller-General of Customs [1990] FCA 398; (1990) 26 FCR 531

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41; (2009) 239 CLR 27

Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25

CIC Insurer Ltd v Bankstown Football Club Ltd [1997] HCA 2; (1997) 187 CLR 384

Clarke v Commissioner of Land Tax (NSW) (1980) 11 ATR 794

Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36; (1996) 186 CLR 389

Coombs v Bahama Palm Trading Pty Ltd [1991] Aust Contract Reports 90-002

EMAAAS P/L v Mobil Oil Australia Ltd [2000] QCA 513

Greenville Pty Ltd v Commissioner of Land Tax (NSW) (1977) 7 ATR 278

Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366

Minister for Immigration and Citizenship v SZJGV [2009] HCA 40; (2009) 238 CLR 642

News Ltd v Australian Rugby Football League Limited [1996] FCA 1256; (1996) 58 FCR 447

R v Brown [1996] 1 AC 543

Saville v Commissioner of Land Tax (NSW) (1980) 12 ATR 7

Thomason v Chief Executive, Department of Lands (1995) 15 QLCR 286

Tweddle v Federal Commissioner of Taxation [1942] HCA 40; (1942) 180 CLR 1

Summary

The Plaintiffs sought review of the assessments to land tax for 2006-2010 land tax years in relation to ten parcels of land, not all contiguous (“the Properties”), on the basis that the primary production exemption should apply.

Justice Gzell confirmed the Chief Commissioner’s assessments, holding that the Plaintiffs did not meet the commerciality test which requires that the primary production use of the land had a significant and substantial commercial purpose or character under s.10AA(2)(a) of the LTMA.

In relation to the profits test in s. 10AA(2)(b), Justice Gzell made some obiter dicta comments, including that this provision introduces a subjective element to the land use test. He stated that a continuous pattern of lack of profit, as occurred in this case, may lead the court to question and reject assertions and evidence that the primary production use of the land was engaged in for the purpose of profit.

The Plaintiffs have given notice of an intention to appeal to the Court of Appeal.

Background

In these proceedings the primary production use of the Properties, a beef cattle operation, is conducted by Antonio Giusti on behalf of Maraya Holdings Pty Ltd (“Maraya”), on the Properties owned by the Plaintiffs and on additional properties owned by entities not related to the Plaintiffs.
The Properties are zoned non-rural and are small in area, being up to 6 hectares. The taxable value of the Properties was $26,558,700.00.

As dominant use of the land was conceded, the question before the Court was whether the cattle operation satisfied the commerciality test in s.10AA(2) of the Land Tax Management Act 1956 (“LTMA”).

The evidence of the Plaintiffs was that in the relevant land tax years the herd was up to 40 head of cattle; in 2011 and 2012 it was up to 55 head of cattle. The operation was to graze and fatten cattle for market.

The parties agreed to briefing joint experts : Bill Hoffman as beef cattle expert, and Mark Bryant as financial expert. The Plaintiffs did not accept the reports of either joint experts in their entirety. The parties engaged their own experts on drought issues.

Mr Hoffman opined that the cattle business was unlikely to produce a positive financial return over the foreseeable future, and that it cost more to produce a kilogram of beef than was received when it was sold. Mr Hoffman also expressed the view that the kilograms of beef produced per hectare was a valuable indicator of productivity. Maraya’s beef operation produced on average 42.6 kilograms of beef per hectare, while Mr Hoffman’s peer network of beef producers produced on average 228 kilograms of beef per hectare.

Mr Bryant identified two approaches to measuring financial return : the marginal benefit approach and the shared costs allocation approach. In his view, on neither bases did Maraya have a positive financial return in the six years in aggregate, and produced a large negative return in each tax year.

Decision

Justice Gzell considered that the mischief intended to be addressed by the introduction of s.10AA of the LTMA was relevant to the correct statutory construction given to s.10AA. His Honour had recourse to the Second Reading Speech introducing s.10AA; and to the Second Reading Speech introducing s.515 of the Local Government Act 1993, on which s.10AA is based.

Justice Gzell held that s.10AA was concerned with the use and not the user of the land. He held that where the primary production enterprise is conducted on the Properties and also on additional properties, the tests in s.10AA are satisfied if the purpose or character is evident from either the use of the Properties in isolation from the additional properties, or the use of the Properties viewed as part of an enterprise.

Justice Gzell also held:

  • the “commerciality” tests in s.10AA(2) are to be considered objectively, and solely by reference to the existing use on 31 December immediately prior to the land tax year in question;

  • the commerciality test requires the use of the lands for primary production to have both a significant and substantial commercial purpose and character; that test requires the commercial purpose or character of the primary production use to have a relatively high degree of importance;

  • the test distinguishes businesses carried on in a small way or as a sideline (which are not exempt) from those of a more serious and weighty kind (which are exempt);

  • the Court should consider factors such as the intensity of the operation, the size and quality of the herd, the size and carrying capacity of the land and the resources (eg time, labour or expenditure) put into the development and maintenance of the cattle operation.

  • it is irrelevant that the Properties could have been used more profitably, whether by Maraya or by someone else.

  • it is not for the Chief Commissioner of State Revenue to dictate to a Plaintiff how he (or she) is to run his (or her) business.

  • a Plaintiff may conduct a business of primary production even though his (or her) husbandry is wanting.

Justice Gzell concluded that the Plaintiffs did not meet the test that the primary production use of the land had a significant and substantial commercial purpose or character under s.10AA(2)(a) of the LTMA having regard to the following factors in particular:

  • 40 or even 55 cattle grazing on the Properties with or without the other properties does not constitute a serious or intense primary production use when the grazing areas are taken into account;

  • accepting Mr Hoffman’s expert evidence, the output of beef per hectare was very low;

  • little attempt was made to improve the pastures;

  • Mr Giusti only spent 1.5 to 2 hours per week and his son 1 hour per week on the cattle operation, and those times are consistent with a part-time operation;

  • even with the omission of labour costs and holding costs, the cattle operation produced very small amounts of profit with respect to land valued at $26.5 million.

  • Mr Bryant’s expert evidence that the cattle operation was not and would not be commercially viable was accepted; Mr Bryant concluded that Maraya would have been financially better off had it not engaged in cattle trading, except for the possible land tax saving.

Justice Gzell also made some obiter dicta comments about the application of the profits test in s. 10AA(2)(b), indicating that:

  • the court was not bound to accept Mr Giusti’s assertions that Maraya engaged in its primary production use of the land for the purpose of profit;

  • for income tax purposes, no profit was recorded in any of the years in question; Maraya’s financial statements disclose “gross profit” from cattle trading, but this calculation does not include various expenses which are attributable to the primary production activities, such as holding costs and costs of labour;

  • the expert evidence of Mr Bryant indicated that Maraya did not achieve a positive financial return on either a marginal benefit approach or a shared cost allocation approach;

  • such a continuous pattern of lack of profit may lead the court to question and reject assertions and evidence that the primary production use of the land was engaged in for the purpose of profit.

Justice Gzell confirmed the Chief Commissioner’s assessments.

Link to decision

Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23

Last updated: 18 May 2016