Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183

Summary

The applicants sought a review of the decision of the Chief Commissioner of State Revenue (”Chief Commissioner”) to disallow their objection to land tax assessments issued for the 2004 – 2009 land tax years pursuant to the Land Tax Management Act 1956 ("the LTMA") in respect of the applicants' properties at Sutherland Road, Londonderry ("the Londonderry property") and Hume Highway, Lansvale ("the Lansvale property"). At issue in these proceedings was whether the primary production exemption under s. 10(1)(p) of the LTMA (for the 2004 and 2005 land tax years) and under s. 10AA of the LTMA (for the 2006 to 2009 land tax years) should have applied in respect of the Londonderry property and the Lansvale property.

The Tribunal affirmed the decision of the Chief Commissioner that the primary production exemption was not available in respect of the Londonderry property and the Lansvale property in the relevant tax years.

Background

The two key issues in this case were:

1. whether the intended use of the Londonderry property was sufficient to constitute "use" of the property for primary production, in circumstances where it was intended to be, but was never actually used for primary production activities during the relevant land tax years; and
2. whether the activities conducted at the Lansvale property, of processing, sale and distribution of the bodily produce of animals that have been slaughtered off-site, constituted primary production.

The applicants submitted that the primary production exemption applied in all relevant tax years in respect of:

1. the Londonderry property on the basis that the applicants carried on an existing primary production business elsewhere and intended to use the land for primary production in the course of that business; and
2. the Lansvale property on the basis that the applicants carried on an existing primary production business elsewhere and used the land for primary production in the course of that business.

Decision

The Tribunal agreed with the Chief Commissioner’s submission that the question of whether the primary production exemption is available is resolved by reference to the use of the subject land, and not by reference to its ownership. This led the Tribunal to conclude that the primary production exemption cannot be available in respect of land that is not used at all or in respect of land that is not used for a prescribed primary production activity.

Londonderry property

In respect of the Londonderry property, the Tribunal found that the intended use of the subject land is not a "use" of the land for the purposes of the LTMA. The Tribunal made the following comments on this key issue:

• the Tribunal agreed with the Chief Commissioner that the case of Newcastle City Council v Royal Newcastle Hospital (1957) 96 CLR 493 was good authority for the proposition that physical activity is necessary for there to be a "use" of that land;
• the Court in Leda Manorstead v Chief Commissioner of State Revenue [2010] NSWSC 867 preferred cases which held that "use" arises from actual physical activity;
• the Tribunal agreed with the Chief Commissioner’s list of authorities supporting the proposition that intended use is not a "use" for the purposes of the LTMA; and
• expenditure undertaken by the applicants to obtain Council approval to conduct primary production activities on the Londonderry property does not constitute "use" of that property for the purposes of the LTMA.

Lansvale property

In respect of the Lansvale property, the Tribunal noted that a "primary production" activity included the "keeping in existence or continuance of live animals" (ie the "maintenance of animals"). The Tribunal found that the processing, sale and distribution of the body parts and products of slaughtered animals comprised "secondary production", which was to be distinguished from "primary production". In this regard, the Tribunal noted that primary production ends and secondary production begins when another process transforms a live plant or animal into a derivative product. Importantly, the Tribunal held that secondary production (such as slaughtering animals) "is the antithesis of 'maintenance', because it involves altering, not keeping in existence or continuance, the relevant thing".

The Tribunal also noted that the fact the Lansvale property was used in conjunction with other property owned by the applicants (on which there was primary production activity) does not have the effect of passing that same character to the property in question. The Tribunal agreed that the primary production exemption is available only where the subject land is used for a prescribed primary production activity. The Tribunal agreed that if the land is not used for a prescribed primary production activity, the exemption is not available just because the land is owned by a primary producer and/or the land plays some ancillary role in a primary production business.

Link to decision

Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183