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Chief Commissioner of State Revenue v Brown Cavallo Pty Ltd [2017] NSWCATAP 189

Date of judgement 19 September 2017 Proceeding No. AP 17/07117
Judge(s) M Harrowell, Principal Member
R Hamilton SC, Senior Member
Court or Tribunal NCAT Appeal Panel l
Legislation cited Administrative Decisions Review Act 1997

Civil and Administrative Tribunal Act 2013

Civil and Administrative Tribunal Rules 2014

Land Tax Management Act 1956

Taxation Administration Act 1996
Catchwords Revenue Law - Land Tax - primary production exemption - significant and substantial commercial purpose or character - purpose of profit on a continuous or repetitive basis - s10AA Land Tax Management Act 1956 - error of law - appeal on the merits
Cases cited Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9

Lombard Farms P/L v Chief Commissioner of State Revenue [2013] NSWADTAP 42

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

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

Minister for Immigration and Ethnic Affairs v Liang and Ors (1996) [1996] HCA 6;185 CLR 259

Prendergast v Western Murray Irrigators Ltd [2014] NSWCATAP 69

The Australian Gas Light Company v The Valuer-General 40 SR (NSW) 126

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

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

Background

The Tribunal’s first instance decision

This was an appeal by the Chief Commissioner of State Revenue against a decision of the Tribunal at first instance that land owned by Brown Cavallo Pty Ltd as Trustee of the Cavallo Family Trust (“Brown Cavallo”) was exempt from land tax under s.10AA of the LTM Act from 2012 to 2015 (“the Relevant Years”).

The subject land was located in Woolgoolga, NSW and was used by an associated entity together with two other parcels of land in Glenreagh, NSW, for the purposes of a cattle grazing business.

The questions considered by the Tribunal at first instance were:

  1. Whether the dominant use of the land was for the maintenance of animals for the purpose of selling them or their natural increase or bodily produce within s. 10AA(3)(b) of the LTM Act (“dominant use test”); and

  2. Whether the use of the subject land had significant and substantial commercial purpose and was engaged in for the purpose of profit within s. 10AA(2) of the LTM Act (“commerciality test”).

The Tribunal below held that the requirements of s. 10AA of the LTM Act were satisfied, and that the subject land was exempt from land tax.

Appeal Panel

On appeal, the Chief Commissioner conceded that the dominant use of the relevant land was for primary production, and that the business enterprise across all three parcels of land should be considered on a consolidated basis for the purpose of the commerciality test. The key issue in the appeal was whether the Tribunal erred in concluding that there was sufficient evidence to find that the requirements of the commerciality test were satisfied.

Chief Commissioner’s submissions

The Chief Commissioner made the following submissions in respect of the commerciality test:

  1. The Tribunal did not give proper or sufficient reasons for determining that the requirements of the commerciality test were satisfied.

  2. There was not sufficient evidence to prove on the balance of probabilities that the requirements of the commerciality test were satisfied.

  3. The test to be applied is “stringent”, in that the commercial purpose or character must be significant and substantial and the Tribunal at first instance did not make the necessary findings about these matters.

  4. The Tribunal considered three irrelevant matters, namely, a 2016 business plan that was not in place during the relevant tax years, past land tax assessments, and the loss of financial records when assessing whether the commerciality test was satisfied.

  5. Comparisons with other beef production enterprises in the region, and their relativity to the operation of Brown Cavallo, did not establish that the commercial purpose or character was significant and substantial.

  6. The Tribunal failed to explain why the findings in relation to man hours spent in the overall operation affected the commerciality of that operation.

  7. The evidence did not support a conclusion that the relevant enterprise had been carried on for the purpose of profit. Rather, an analysis of the financial evidence demonstrated that the operations were not profitable, a matter supported by the fact that the business owners needed “off-farm” jobs.

  8. The gross income of the operation was itself “too small to suggest the possibility of significant and substantial commerciality” (relying on the decision of White J in Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678).

Decision

In relation to those matters which raised questions of law, and for which leave to appeal was not required, the Appeal Panel refused all grounds of appeal, finding:

  1. The Tribunal identified the evidence that had been filed, the principles to be applied and made findings that the commerciality test was satisfied as a matter of fact, and that the Tribunal was not required to “minutely comb through all evidence”. Accordingly, the Appeal Panel found that it was clear that the Tribunal accepted evidence which the Tribunal found was unchallenged.

  2. The Tribunal did not err in admitting other evidence to establish a commercial purpose, where there was a legitimate reason for the non-production of primary business records, and found that an explanation for the non-production of primary business records was relevant in determining if other evidence should be accepted.

  3. The Chief Commissioner was correct to assert that prior satisfaction of the commerciality test (in previous land tax years) is irrelevant to whether it is presently met, however the Tribunal had not taken this into consideration. The Appeal Panel found that the Tribunal accepted the unchallenged evidence given by the owners that the business had not changed, and that no contrary evidence was provided by the Chief Commissioner.

  4. As a matter of law, evidence of comparable operations is relevant to the assessment of whether the commercial purpose test is satisfied, citing Vartuli v Chief Commissioner of State Revenue [2015] NSWCA 372.

  5. A business plan prepared in a relevant year as part of a continuing operation is relevant to determining whether the dominant use and commerciality tests are satisfied, whether or not it has been implemented, on the basis that it may be evidence that a particular use is dominant or that the use has a significant and substantial commercial purpose or character.

In considering whether to grant leave to appeal on the merits, the Appeal Panel considered whether “there is an injustice which is reasonably clear, in the sense of going beyond merely what is arguable” (Collins v Urban [2014] NSWCATAP 17).

Based on the evidence before the Tribunal at first instance, the Appeal Panel made the following findings in respect of Brown Cavallo’s cattle business:

  1. it is a serious, full-time business of long-standing, and while it has a scale which may be small in the Australia-wide picture, the scale is typical of beef producers in its region (the Northern Rivers area of NSW);

  2. notwithstanding the lack of profits in the Relevant Years, it has been conducted in a business-like manner with a purpose of generating a profit that will support the owners;

  3. it could be reasonably expected to generate a significant profit in the future when economic and environmental conditions improve as it has in previous years;

  4. the evidence provides explanations for Brown Cavallo’s loss making performance (i.e. drought, floods, low fertility, live cattle export ban, wild dogs etc);

  5. during the relevant loss making years the Brown Cavallo business seems to have provided a family home and vehicles, and possibly meat and vegetables;

  6. proceeds of stock sales may have been a temporary source of financial support, but off-farm income from part-time jobs held by the business owners enabled them to get by; and

  7. the availability of the accommodation and vehicle benefits did contribute to the maintenance of the business owners.

Accordingly, the Appeal Panel found that the relevant use had a significant and substantial purpose or character, and that the findings made by the Tribunal in respect of the commerciality test were open to it on the evidence. The Appeal Panel determined that there was no “clear and obvious error” (at [125]), and leave to appeal was refused.

Orders

  1. Leave to appeal is refused and the appeal is dismissed.

  2. Any application for costs must be filed and served within 7 days from the date of these orders.

Link to decision

Chief Commissioner of State Revenue v Brown Cavallo Pty Ltd [2017] NSWCATAP 189

Last updated: 5 October 2017