|Date of judgement||23 November 2016|
|Court or Tribunal||Supreme Court of New South Wales|
TAXES AND DUTIES — land tax — Land Tax Management Act 1956 s 10AA — land owned by a company engaged in the business of property development — land used for the grazing and breeding of cattle — whether use of land for the grazing of cattle is the dominant use of land — use of land for residential development not commenced — use of land for the grazing of cattle the dominant use of land — whether the primary production use of land has a significant and substantial commercial purpose or character — financial return of cattle grazing small or negative — cattle grazing undertaken with only minimal time from the operator — cattle grazing operation small in size — no resources devoted to improving the pastures or stockyards of the land — grazing of cattle on the land does not have a significant and substantial commercial purpose or character
The proceedings concerned an application for review of the Chief Commissioner of State Revenue’s (“Chief Commissioner”) decision to assess the Taxpayer as liable for land tax for the 2011 to 2015 land tax years in relation to land owned by the Taxpayer located at Bellbird North (“the land”) near Cessnock NSW. The issue was whether the primary production exemption applied pursuant to section 10AA of the Land Tax Management Act 1956 (NSW) (“the LTMA”). The cattle operation was carried out by a Cessnock local, Alan Bailey.
Prior to 24 January 2011 the land was zoned rural and on that basis for the 2011 tax year, the sole issue was whether the dominant use of the land was for primary production. From 24 January 2011 the land was given non-rural zonings. Consequently, for the 2012 to 2015 land tax years the land use also had to meet the commerciality tests under sections 10AA(2)(a)&(b) of the LTMA.
After the land was acquired in 2007, the Taxpayer entered into an agistment agreement allowing Mr Bailey to graze cattle. The agreement provided that the agistment fee was $40 dollars per week plus GST, to be paid when requested, but no request for payment had been made, nor had any money been paid. The Chief Commissioner argued that this was not a commercial agreement.
During the relevant period the number of cattle on the property varied between 39 and 67 head of cattle. The area of the land is 80 hectares. There was no dispute that cattle were grazed on the land.
Mr Bailey also used his own property at Nulkaba, on which he maintained cattle, sheep, goats, horses, bees and chickens. He lived on that land with his family, as did his father, who occupied a separate dwelling. The cattle grazed on both Nulkaba and the land from time to time. Mr Bailey was also employed as a full-time garbage collector with Cessnock City Council.
Johnson Property Group (JPG), a company that was related to the taxpayer, is the lead developer for what is known as the Bellbird North development During the relevant land tax years, in excess of $2 million was expended for the purposes of applying for various development applications related to the development. This involved engaging consultants who carried out activities on the land, such as the digging of holes for purposes of geotechnical testing.
The expenses incurred in connection with the proposed commercial and residential subdivision of the land was small or minimal in 2011 to 2013, but increased during 2014 and 2015. The Court noted that some of the costs related to other land that JPG had options over, re part of the Bellbird North development.
The Court accepted that during the tax years, the Taxpayer and/or JPG obtained various development consents and constructions certificates, entered into agreements and obtained reports. However, the Court accepted the evidence of the general manager of JPG that no construction work had been conducted on the land by the Taxpayer or JPG, and that construction would not begin until about June to December 2017.
The Court accepted that “uses” of the land are not necessarily confined to physical uses However, the Court determined that the primary production use of the land in terms of time, labour and resources, exceeded the physical use of the land by JPG’s consultants when they conducted testing or inspections. The Court held that the residential development use of the land had not commenced.
Justice White cited Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue at first instance with approval, emphasising Justice Gzell’s consideration of whether the Taxpayer had demonstrated its “commitment” to the purpose of using the land for residential or commercial development.
The Court held that the dominant use of the land for the 2011 to 2015 tax years was for primary production.
For the 2012 to 2015 tax years, the primary production use of the land also had to meet the test in section s.10AA(2)(a) of the LTMA because the land was zoned non-rural from 24 January 2011. That is, the primary production use must have both a significant and substantial purposes or character.
The Court noted the following features of Mr Bailey’s cattle operation:
The Court was not satisfied that the primary production use had a substantial commercial purpose or character.
The court found it unnecessary to express an opinion on this question in the present case
The Court revoked the assessment for 2011 but confirmed the assessments for 2012 to 2015.