|Date of judgement||30 January 2013|
|Court or Tribunal||Supreme Court of NSW|
Land Tax - land used for primary production - whether use had a significant and substantial commercial purpose or character within s 10AA(2)(a) of the Land Tax Management Act 1956
Coombs v Bahama Palm Trading Pty Ltd  Aust Contract Reports 90-002
The Plaintiffs sought review of the assessments to land tax for 2006-2010 land tax years in relation to ten parcels of land, not all contiguous (“the Properties”), on the basis that the primary production exemption should apply.
Justice Gzell confirmed the Chief Commissioner’s assessments, holding that the Plaintiffs did not meet the commerciality test which requires that the primary production use of the land had a significant and substantial commercial purpose or character under s.10AA(2)(a) of the LTMA.
In relation to the profits test in s. 10AA(2)(b), Justice Gzell made some obiter dicta comments, including that this provision introduces a subjective element to the land use test. He stated that a continuous pattern of lack of profit, as occurred in this case, may lead the court to question and reject assertions and evidence that the primary production use of the land was engaged in for the purpose of profit.
The Plaintiffs have given notice of an intention to appeal to the Court of Appeal.
In these proceedings the primary production use of the Properties, a beef cattle operation, is conducted by Antonio Giusti on behalf of Maraya Holdings Pty Ltd (“Maraya”), on the Properties owned by the Plaintiffs and on additional properties owned by entities not related to the Plaintiffs.
The Properties are zoned non-rural and are small in area, being up to 6 hectares. The taxable value of the Properties was $26,558,700.00.
As dominant use of the land was conceded, the question before the Court was whether the cattle operation satisfied the commerciality test in s.10AA(2) of the Land Tax Management Act 1956 (“LTMA”).
The evidence of the Plaintiffs was that in the relevant land tax years the herd was up to 40 head of cattle; in 2011 and 2012 it was up to 55 head of cattle. The operation was to graze and fatten cattle for market.
The parties agreed to briefing joint experts : Bill Hoffman as beef cattle expert, and Mark Bryant as financial expert. The Plaintiffs did not accept the reports of either joint experts in their entirety. The parties engaged their own experts on drought issues.
Mr Hoffman opined that the cattle business was unlikely to produce a positive financial return over the foreseeable future, and that it cost more to produce a kilogram of beef than was received when it was sold. Mr Hoffman also expressed the view that the kilograms of beef produced per hectare was a valuable indicator of productivity. Maraya’s beef operation produced on average 42.6 kilograms of beef per hectare, while Mr Hoffman’s peer network of beef producers produced on average 228 kilograms of beef per hectare.
Mr Bryant identified two approaches to measuring financial return : the marginal benefit approach and the shared costs allocation approach. In his view, on neither bases did Maraya have a positive financial return in the six years in aggregate, and produced a large negative return in each tax year.
Justice Gzell considered that the mischief intended to be addressed by the introduction of s.10AA of the LTMA was relevant to the correct statutory construction given to s.10AA. His Honour had recourse to the Second Reading Speech introducing s.10AA; and to the Second Reading Speech introducing s.515 of the Local Government Act 1993, on which s.10AA is based.
Justice Gzell held that s.10AA was concerned with the use and not the user of the land. He held that where the primary production enterprise is conducted on the Properties and also on additional properties, the tests in s.10AA are satisfied if the purpose or character is evident from either the use of the Properties in isolation from the additional properties, or the use of the Properties viewed as part of an enterprise.
Justice Gzell also held:
Justice Gzell concluded that the Plaintiffs did not meet the test that the primary production use of the land had a significant and substantial commercial purpose or character under s.10AA(2)(a) of the LTMA having regard to the following factors in particular:
Justice Gzell also made some obiter dicta comments about the application of the profits test in s. 10AA(2)(b), indicating that:
Justice Gzell confirmed the Chief Commissioner’s assessments.