Delli-Carpini v Chief Commissioner of State Revenue [2015] NSWCATAD 12

Summary

This matter involved an application for review of the Chief Commissioner’s decision not to apply the primary production exemption from land tax (contained in section 10AA of the Land Tax Management Act 1956 (“LTMA”)), in respect of the property at 406 Pitt Town Dural Road, Maraylya (Lot 1 DP 235250) ("the Property") for the 2009 to 2013 land tax years.

The Tribunal affirmed the decision of the Chief Commissioner that the primary production exemption was not available to the Taxpayers in respect of the Property in the relevant tax years.

Background

The Property was zoned “rural” for the relevant land tax years, and so the key issue in the case was whether the dominant use of the Property was the maintenance of animals (Alpacas, chickens and horses) for the purpose of selling them or their natural increase or bodily produce within s. 10AA(3)(b) of the LTMA.

During the relevant years, the Taxpayers owned the Property and leased it to a tenant, who resided in a house on the Property. The Taxpayers claimed that the dominant use of the Property was primary production because the tenant:

1. has incurred significant expenses in improving the Property for primary production purposes;
2. has kept alpacas on the Property with the intention of establishing a breeding herd, selling surplus offspring and selling the fleece;
3. has maintained a horse stud on the Property; and
4. has bred poultry on the Property which he sells.

The Chief Commissioner submitted:

1. there are seven uses of the Property:
   1. residential – with the animals being kept by the tenant on the Property as pets;
   2. home-office – the tenant performs his TAFE work up to 4 hours a day at the Property during the week;
   3. horses – the horses are not maintained for the purpose of sale, but rather for the tenant to meet his teaching industry requirement;
   4. poultry – there is no evidence of a purpose of sale, but rather the purpose appears to be to preserve a rare species;
   5. construction of poultry sheds – this is not a primary production use;
   6. alpacas – this is not accepted as a primary production use, and there is no evidence of what took place with respect to the alpacas, and when any of those activities took place; and
   7. processing of alpaca fleece (eg washing and looming) – this is not primary production; and
2. the Taxpayers had failed to discharge their onus of establishing that there was a relevant primary production use of the Property (ie maintenance of animals for the purposes of sale), let alone that the dominant use was primary production.

Decision

The Tribunal:

1. noted that there was some evidence that the rent for the Property (initially $260 per week rising to $290 per week) was consistent with the value for rent of the residence without any additional rent for the remainder of the Property (at 88);
2. noted that an intention to maintain animals for the purpose of sale, of itself, is not sufficient to satisfy the statutory test for exemption (at 43);
3. rejected the Taxpayers’ proposition that rural land will be “used for primary production” in the sense required by s. 10AA(3) of the LTMA if the use is more than an indeterminate ‘de minimis’ use (at 47); and
4. agreed that the Tribunal should consider the use of the land for a reasonable time both before and after the relevant assessment period, but determined such consideration does not assist the Taxpayer (at 89).

Alpacas

The Tribunal was not satisfied that the Property was used, for any tax year during the relevant period, for the maintenance of alpacas for the purpose of selling the animals, their offspring or their bodily produce, sufficient to satisfy the statutory test.

In making this finding, Senior Member Isenberg:

1. noted that the tenant purchased 2 Alpacas in about 2007 with the intention of building a herd, and sold some alpaca fleece and fleece products, but there was no evidence of any successful breeding or sales of alpacas and the evidence of the sale of fleece and scarves was unsatisfactory (at 33 and 41);
2. considered that the process of shearing (ie the necessary separation of an animal from its produce) "may well be ... a primary production activity", however subsequent activities on the Property such as the storage of fleece and production of scarves from alpaca fleece did not involve the maintenance of alpacas (at 39);

Horses

The Tribunal was of the view there was not sufficient evidence that horses were maintained for the purpose of selling them or their natural increase. The evidence indicated there were at most 2 horses, one of which was a gelding, and there was a lack of any evidence of horse breeding activities or of sales (at 57).

Poultry

The Tribunal was not satisfied that poultry was maintained for the purpose of selling them or their natural increase or bodily produce. In this regard, Senior Member Isenberg referred to the evidence of the tenant that his primary use of the birds was to show them, and that his purpose in maintaining the poultry was as a hobby, "...to save the species and produce the best breed he could", and any sales of poultry were ancillary to the sale of the portable poultry sheds that the tenant constructed and sold (66).

Conclusion

Ultimately, the Tribunal accepted that parts of the Property were used during the relevant period to maintain horses, alpacas and poultry. However, having regard to the evidence the Tribunal was not satisfied that the dominant use of the Property for any year during the relevant period was for the maintenance of animals for the purpose of selling them or their natural increase or bodily produce. In reaching this finding, Senior Member Isenberg emphasised that no evidence of primary production income derived from the use of the Property was placed before the Tribunal (at 88).

Accordingly, the Tribunal confirmed the land tax assessments for the 2009 to 2013 land tax years (inclusive).

Link to decision

Delli-Carpini v Chief Commissioner of State Revenue [2015] NSWCATAD 12