Bellbird Ridge Pty Ltd as trustee for Bellbird Ridge Unit Trust v Chief Commissioner of State Revenue [2016] NSWSC 1637

Date of judgement 23 November 2016 Proceeding No. 2014/363026
Judge(s) White J
Court or Tribunal Supreme Court of New South Wales
Legislation cited Land Tax Management Act 1956

Taxation Administration Act 1996

Valuation of Land Act 1944 (Qld)
Catchwords TAXES AND DUTIES — land tax — Land Tax Management Act 1956 s 10AA — land owned by a company engaged in the business of property development — land used for the grazing and breeding of cattle — whether use of land for the grazing of cattle is the dominant use of land — use of land for residential development not commenced — use of land for the grazing of cattle the dominant use of land — whether the primary production use of land has a significant and substantial commercial purpose or character — financial return of cattle grazing small or negative — cattle grazing undertaken with only minimal time from the operator — cattle grazing operation small in size — no resources devoted to improving the pastures or stockyards of the land — grazing of cattle on the land does not have a significant and substantial commercial purpose or character
Cases cited Bunting v Federal Commissioner of Taxation (1989) 90 ALR 427

Federal Commissioner of Taxation v Gulland (1985) 160 CLR 55

Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310

Hope v Bathurst City Council (1980) 144 CLR 1

Leda Manorstead v Chief Commissioner of Sate Revenue (2010) 79 NSWLR 724; [2010] NSWSC 867

Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23; (2013) 88 ATR 379

Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408; (2013) 97 ATR 818

Meriton Apartments Pty Ltd v Parramatta City Council [2003] NSWLEC 309

Metricon Qld Pty Ltd v Chief Commissioner of State Revenue (No. 2) [2016] NSWSC 332; (2016) ATC 20-560

Thomas v Federal Commissioner of Taxation (1972) 3 ATR 165

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

Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 196

Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678

Vartuli v Chief Commissioner of State Revenue [2015] NSWCA 372

Background

The proceedings concerned an application for review of the Chief Commissioner of State Revenue’s (“Chief Commissioner”) decision to assess the Taxpayer as liable for land tax for the 2011 to 2015 land tax years in relation to land owned by the Taxpayer located at Bellbird North (“the land”) near Cessnock NSW. The issue was whether the primary production exemption applied pursuant to section 10AA of the Land Tax Management Act 1956 (NSW) (“the LTMA”).  The cattle operation was carried out by a Cessnock local, Alan Bailey.

Prior to 24 January 2011 the land was zoned rural and on that basis for the 2011 tax year, the sole issue was whether the dominant use of the land was for primary production.  From 24 January 2011 the land was given non-rural zonings.  Consequently, for the 2012 to 2015 land tax years the land use also had to meet the commerciality tests under sections 10AA(2)(a)&(b) of the LTMA.

Primary production use

After the land was acquired in 2007, the Taxpayer entered into an agistment agreement allowing Mr Bailey to graze cattle. The agreement provided that the agistment fee was $40 dollars per week plus GST, to be paid when requested, but no request for payment had been made, nor had any money been paid.  The Chief Commissioner argued that this was not a commercial agreement.

During the relevant period the number of cattle on the property varied between 39 and 67 head of cattle. The area of the land is 80 hectares. There was no dispute that cattle were grazed on the land.

Mr Bailey also used his own property at Nulkaba, on which he maintained cattle, sheep, goats, horses, bees and chickens. He lived on that land with his family, as did his father, who occupied a separate dwelling. The cattle grazed on both Nulkaba and the land from time to time. Mr Bailey was also employed as a full-time garbage collector with Cessnock City Council.

Use for commercial and residential development

Johnson Property Group (JPG), a company that was related to the taxpayer, is the lead developer for what is known as the Bellbird North development.  During the relevant land tax years, in excess of $2 million was expended for the purposes of applying for various development applications related to the development.  This involved engaging consultants who carried out activities on the land, such as the digging of holes for purposes of geotechnical testing.

Determining the dominant use

The expenses incurred in connection with the proposed commercial and residential subdivision of the land was small or minimal in 2011 to 2013, but increased during 2014 and 2015.  The Court noted that some of the costs related to other land that JPG had options over, and which were part of the Bellbird North development.

The Court accepted that during the tax years, the Taxpayer and/or JPG obtained various development consents and constructions certificates, entered into agreements and obtained reports.  However, the Court accepted the evidence of the general manager of JPG that no construction work had been conducted on the land by the Taxpayer or JPG, and that construction would not begin until about June to December 2017. 

The Court accepted that “uses” of the land are not necessarily confined to physical uses.  However, the Court determined that the primary production use of the land in terms of time, labour and resources, exceeded the physical use of the land by JPG’s consultants when they conducted testing or inspections. The Court held that the residential development use of the land had not commenced.

Justice White cited Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue at first instance with approval, emphasising Justice Gzell’s consideration of whether the Taxpayer had demonstrated its “commitment” to the purpose of using the land for residential or commercial development.

The Court held that the dominant use of the land for the 2011 to 2015 tax years was for primary production.

Significant commercial purpose or character – s.10AA(2)(a)

For the 2012 to 2015 tax years, the primary production use of the land also had to meet the test in section s.10AA(2)(a) of the LTMA because the land was zoned non-rural from 24 January 2011.  That is, the primary production use must have both a significant and substantial purposes or character.    

The Court noted the following features of Mr Bailey’s cattle operation:

  • Mr Bailey spent 2-3 hours every second day on the land;

  • Mr Bailey did not pasture improve, nor improve the stockyards on the land because of the insecurity of his tenure, but he was making optimal use of the land in its current state;

  • Mr Bailey did not have a set joining period for breeding, which reduced the amount of beef that could be produced per hectare and resulted in other inefficiencies for transportation, feed and labour costs;

  • to reduce costs, Mr Bailey often transported the cattle in his own vehicle;

  • the agistment fee was well below a commercial rate;

  • the return from the cattle operation was small;

  • if the land was considered alone, the average gross profit is consistent with the cattle operation having a significant commercial purpose or character but is not consistent with a substantial commercial purpose or character.

  • when indirect costs are considered, the cattle operation made losses, broke even or at most made a profit of $7000;

  • while many farms in the Hunter region may be of a similar intensity of operation, profit and herd size to Mr Bailey’s, the Court was of the view that this does not point one way or the other to whether the cattle operation had a significant and substantial commercial purpose or character.

The Court was not satisfied that the primary production use had a substantial commercial purpose or character.

Purpose of profit on a continuous or repetitive basis – s.10(2)(b)

The court found it unnecessary to express an opinion on this question in the present case

Orders

The Court revoked the assessment for 2011 but confirmed the assessments for 2012 to 2015.

Link to decision

Bellbird Ridge Pty Ltd as trustee for Bellbird Ridge Unit Trust v Chief Commissioner of State Revenue [2016] NSWSC 1637

Last updated: 13 February 2017