Houston v Chief Commissioner of State Revenue [2016] NSWCATAD 126

Date of judgement 22 June 2016 Proceeding No. 1510003
Judge(s) A Verick, Senior Member
Court or Tribunal NSW Civil and Administrative Tribunal
Legislation cited Land Tax Management Act 1956

Local Government Act 1919

Taxation Administration Act 1996
Catchwords STATE REVENUE – Land Tax – whether land exempt - as land used for primary production – whether the dominant use was use for the maintenance of cattle – whether land along with other lands used for significant and substantial commercial purpose or character and whether engaged in for the purpose of profit on a continuous or repetitive basis – s 10AA – Land Tax Management Act 1956
Cases cited Ashleigh Developments Pty Ltd v Taxpayers of State Revenue [2012] NSWADTAP 25

Leda Manorstead Pty Ltd v Taxpayers of State Revenue [2010] NSWSC 867

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

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

Maraya Holdings Pty Ltd v Taxpayers of State Revenue [2013] NSWCA 408

Vartuli v Taxpayers of State Revenue [2014] NSWSC 678

Vartuli v Taxpayers of State Revenue [2015] NSWCA 372

Background

The Taxpayers owned the Land which consisted of three lots zoned “light industrial and rural landscape”. The taxpayers were also the registered owners of other land in Canyonleigh (“Canyonleigh Land”), consisting of three lots, which are rural properties used for their cattle operations and which were granted the primary production land tax exemption.

As the Land was not zoned “rural”, the issues in the case were whether the tests applying to non-rural land in in ss. 10AA of the Land Tax Management Act 1956 (“LTMA”) were satisfied, namely that:

  1. the dominant use of the Land was for the grazing of cattle, for the purpose of selling the cattle, their natural increase or bodily produce (s.10AA(3));

  2. the use of the Land had a significant and substantial commercial purpose or character (s. 10AA(2)(a); and

  3. the use of the Land was engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit was actually made) (s. 10AA(2)(b)).

Submissions

In relation to the dominant use test, the Taxpayers relied on, among other things, the building of a dam and electric fencing on the Land for the cattle grazing and their assertions of having had cattle on the property. The Taxpayers did not produce “cattle moving records” to evidence the movement of cattle between the Land and their Canyonleigh Land as such records were not required to be kept if the owner of all the lands are the same persons.

The Taxpayers also provided an expert report by Mr Thomas of Landmark Moss Vale in relation to both the Land and the Canyonleigh Land. The report was based on an inspection undertaken on 27 April 2015 and concluded that the “combined properties do have merit for a cattle enterprise” and with some improvement has the ability in the future to “sustain 40-50 cows and calves or equivalent”. The Taxpayers submitted that they expected the cattle operations to become profitable in the next five years and, when taken into account with the Canyonleigh Land, the use of the Land passed the commerciality test.

The Respondent submitted that the dominant use of the Gibbons Road Land was not for primary production in each of the relevant tax years for a number of reasons, including:

  • the Taxpayers spent 8 to 16 hours per week at the Land, which is consistent with the use of enterprise land as a hobby farm or as a weekend recreation activity;

  • there was no evidence provided concerning appropriate levels of cattle stocking;

  • there was no direct evidence as to the financial performance of the cattle operation and from the evidence provided in the form of cash receipts and expenses in relation to the cattle operations on the Land, the operation has not made a profit; and

  • the business plan submitted by the Taxpayers was unclear and the Taxpayers’ expert did not support the assertion that the cattle operation would become profitable in the next 5 years.

The Respondent submitted that the material before the Tribunal was insufficient to discharge the onus of proving the both dominant purpose and the commerciality tests.

Decision

Senior Member Verick opined that the dominant use of the Gibbons Road Land was either “land used for cattle grazing” or “unused land” in the relevant years.

In order to establish its dominant use, the Taxpayers were required to produce evidence of the intensity of cattle grazing on the Land for the relevant years. The assertions provided by the Taxpayers were not enough. Additionally, there was no evidence as to whether the dam and electric fence were installed on the Land prior to or during the relevant period. The Taxpayers’ expert, Mr Thomas, confirmed he had no knowledge of the use of the Land for the relevant years, further failing to establish the dominant use of the land. Also, the time spent by the Taxpayers, between 8 to 16 hours, did not reflect an intensive amount of activity on the properties.

Due to the absence of evidence as to the actual use of the Land Senior Member Verick agreed with the Respondent’s submissions that the Taxpayers had failed to discharge the onus of proving that the dominant use of the Land was for primary production during the relevant years. He noted that “it would be prudent for owners seeking or wishing to seek the primary production exemption to maintain proper records and necessary documentary evidence which would assist them to establish the nature and intensity of the use or uses in respect of the relevant land”.

Senior Member Verick also considered the commerciality test, which required the Taxpayers to establish that the use of the Land, in conjunction with the Canyonleigh Land, “had a significant and substantial purpose or character and was engaged in for the purpose of profit on a continuous or repetitive basis”.

The Senior Member noted that the Taxpayers conceded that the operation did not make a profit in the relevant years, but that the Taxpayers were hopeful of it becoming profitable in 5 years’ time. However, he found that the figures extracted by the Respondent indicated that in each of the relevant land tax years the Taxpayers incurred large losses from their primary production activity. Based on those figures, he found that there was little prospect that the Taxpayers would make a profit in the foreseeable future.

Additionally, the Taxpayers’ expert report did not support the Taxpayers’ profit forecast but on the contrary indicated that major infrastructure and pasture improvements would have to be carried out, over several years and at a huge costs, before the Taxpayers’ cattle operation could be viable. Senior Member Verick held that until that occurred the Taxpayers’ cattle operation could only be seen as an activity that was without a significant and substantial commercial purpose or character and that the Taxpayers were not engaged in the cattle operation for the purpose of profit on a continuous or repetitive basis.

Orders

The assessments for land tax years 2010-14 were affirmed.

Link to decision

Houston v Chief Commissioner of State Revenue [2016] NSWCATAD 126

Last updated: 9 August 2016