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Bisvic Pty Limited v Chief Commissioner of State Revenue (No2) [2014] NSWCATAD 166

Date of judgement 8 October 2014 Proceeding No. 136052
Judge(s) R J Perrignon
Court or Tribunal NSW Civil and Administrative Tribunal
Legislation cited Civil and Administrative Tribunal Act 2013

Land Tax Management Act 1956

Taxation Administration Act 1996
Catchwords Land tax; exemption for primary production; use of land for maintaining horses for sale; whether dominant purpose; whether significant and substantial commercial purpose of character; whether for purpose of profit on a continuous or repetitive basis
Cases cited B & L Linings Pty limited v Chief Commissioner of State Revenue (2008) 74 NSWLR 481

Ball v Chief Commissioner of State Revenue [2010] NSWADT 114

Bisvic Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 293

Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25

FCT v Dalcro [1990] 168 CLR 614

Hope v Bathurst City Council (1986) 7 NSWLR 669

Jones v Commissioner of Land Tax (NSW) (1980) 11 ATR 98

Leda Manorstead Pty Limited v Chief Commissioner of State Revenue [2010] NSWSC 867

McClelland v Goulburn City Council (1976) 35 LGRA 1

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

Maraya Holdings Pty Limited v Chief Commissioner of State Revenue [2013] NSWCA 408

Thomason v Chief Executive, Department of Lands [1994-95] 15 QLCR 286

Summary

The Taxpayer, Bisvic Pty Limited, sought review of the Chief Commissioner’s land tax assessment requiring the Taxpayer to pay land tax in respect of non-rural land at Yalla, South of Wollongong (“the Land”) in respect of the 2012 land tax year.

The Tribunal found that the Taxpayer’s primary production activity of maintaining horses for sale was conducted as a business for the purpose of profit on a continuous and repetitive basis even though there was little prospect of the business ever making a profit.  However the Tribunal found that the primary production business was not conducted for a significant and substantial purpose or character, and was not the dominant use of the land, even though the horse business was conducted on 96.5% of the land area.  The Tribunal confirmed the Chief Commissioner’s assessment.

Background

The Land comprised of 70 acres and was bought in 2004 for about $2.3 million. Upon assessment for land tax by the Chief Commissioner, the taxpayer applied for exemption from land tax pursuant to s 10AA of the Land Tax Management Act 1956 (“the Act”), on the basis that the land was used for primary production.

The taxpayer claimed that on the taxing date (31 December 2011), it was using the land for the dominant purpose of maintaining horses for sale, it was doing so for the purpose of profit on a continuous or repetitive basis, and the horse business had a significant and substantial commercial purpose or character. It was common ground that the land was not rural land, and therefore had to satisfy both the dominant use and commerciality tests to qualify as exempt primary production land.

Evidence

In earlier proceedings of Bisvic Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 293 the Tribunal found that for the 2008, 2009 and 2010 land tax years, the land was not exempt primary production land.  The Taxpayer had rented out a house (for $8.580 per year) and ten paddocks (for $7,800 per year) to Mr Meharg, who charged owners of horses (agistees) for the maintenance of their horses.  In addition, up to 600 square metres of land was leased to a pallet business for about $21,000 per year.  Bisvic also received $3,600 per year for the parking of two trucks on the property.

Mr Bisley, a solicitor and director of the taxpayer company gave evidence that up until November 2011 the above description of the use of the land was accurate. However, the taxpayer was mindful of the approaching taxing date and wished to restructure the use of the land in order to more closely comply with the requirements of the primary production exemption.

As a result the taxpayer ceased leasing land to Mr Meharg including the rent of the cottage and the land used to agist horses.  The Taxpayer decided to run a business of maintaining horses for the purpose of sale, and as at 31 December 2011, had acquired 15 horses from agistees, under arrangements that allowed the agistees to repurchase their horses. Mr Meharg remained living on the land rent-free as an unpaid manager of the horse business. 

Mr Bisley admitted in his affidavit that the horse business had not turned a profit to date. The Tribunal was satisfied that Mr Bisley was a ‘witness of truth’, and did not doubt that the taxpayer engaged in the horse business for the purpose of profit on a continuous or repetitive basis.

The Chief Commissioner relied on a report by a chartered accountant and liquidator, Mr Hillig. The Tribunal agreed with this expert’s evidence that the business has returned increasing losses ever since its inception, has never turned a profit, and had no likelihood of doing so. 

Primary Decision

The Tribunal first considered whether the maintenance of horses for sale by the taxpayer had a ‘significant and substantial commercial purpose or character’ pursuant to s 10AA(2)(a) of the Act. The Tribunal referred to the decision of Gzell J in Maraya Holdings Pty Limited v Chief Commissioner of State Revenue [2013] NSWSC 23 where it was stated:

“That test required the commercial purpose or character of the use of the lands to have had a relatively high degree of importance. The combination of "significant" and "substantial" demands that conclusion…The test distinguishes activities amounting to a business that is carried on in a small way or as a sideline from those of a more serious and weighty kind. A business that satisfies the commerciality test will be an important one. It will usually also exhibit some of such characteristics as size, depth, bulk, weight, seriousness, quality, intensity and prominence."[1]

The Tribunal concluded that the taxpayer carried on the horse business not so much as a vehicle for profit, but as a token business designed to attract an exemption from land tax. The taxpayer did not have a business plan pointing to a method of achieving profitability, or even halting the loss that had been incurred during the start-up period. The Tribunal determined that other purposes included reducing holding costs and accommodating Mr Meharg’s lifestyle.  For these reasons it was concluded that the taxpayer’s horse business did not have a significant and substantial commercial purpose or character.

Senior Member Perrignon went on to consider the issue of dominant purpose. The taxpayer relied on the fact that 96.5% of the land was being used for the horse business to the exclusion of other uses, more expenses were incurred running the horse business than any other business, and the nature and intensity of the horse business outweighed the other uses of the land.

The Tribunal found that these circumstances were the same as those exhibited in Leda Manorstead Pty Limited v Chief Commissioner of State Revenue [2010] NSWSC 867, Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79 and McClelland v Goulburn City Council (1976) 35 LGRA 1. In this case, there was no issue that the vast majority of the land was used exclusively for maintaining horses for sale.

However, the Tribunal went on to consider the nature and intensity of this use, by reference to the financial returns and the amount of time and effort spent on it, in comparison to the other uses of the land.

The Tribunal found that, from a financial point of view, the dominant use of the land was the rent received from the pallet business as it resulted in a continuous and predictable profit. In addition to this financial dominance, the Tribunal had regard to the end to be achieved by operating the horse business. The Tribunal concluded (at 57 and 58) that:

“When viewed objectively the horse business was not so much a vehicle for profit, but a token business

In those circumstances, having regard to the clear financial dominance of the use of part of the land for rental to (the pallet business), the mere fact the business was conducted over the majority of the land does not prove that it constituted the dominant use of the land”

Decision

The decision under review is affirmed.

Link to decision

Bisvic Pty Limited v Chief Commissioner of State Revenue (No2) [2014] NSWCATAD 166

Footnotes

  1. ^ Maraya Holdings Pty Limited v Chief Commissioner of State Revenue [2013] NSWSC 23, [89]-[90].
Last updated: 18 May 2016