|Date of judgement||31 March 2016|
|Proceeding number||2013/120263; 2013/212871|
|Court or Tribunal||Supreme Court of New South Wales|
TAXES AND DUTIES — land tax — section 10AA(3) of the Land Tax Management Act 1956 — whether the primary production use of the lands is the dominant use of the lands — whether comparison required by s 10AA(3) of a primary production use with other uses is confined to a comparison with other physical uses of the land — held that it is not - section 10AA(3) requires a comparison of the current uses of the land — whether the mere holding of land by a property developer for future residential development and claiming tax deductions for borrowing costs and loss of value is a current use of land — held that it is not – held that to the extent that land is physically used for the carrying out of preliminary activities necessary to obtain approval for the use of land for a particular purpose the land is currently being used for a purpose other than primary production — concession that such physical use does not prevent primary production use from being dominant – whether such preliminary activities mean that use for residential development had commenced – held that it did not - using land for a rental use in respect of the agistment of cattle on the lands is a current use of land — using land for a rental and residential use of the dwellings on the land is a current use of land – held primary production use dominant except for one parcel in one land tax year
The taxpayer, Metricon QLD Pty Ltd (“Metricon”), commenced proceedings in the Supreme Court of NSW seeking review of land tax assessments issued for the 2009 to 2013 tax years.
Metricon argued that it was entitled to an exemption from land tax as the dominant use of the subject land was for primary production, namely the maintenance of cattle, pursuant to s.10AA(3) of the Land Tax Management Act 1956 (“LTMA”). The Chief Commissioner argued that the dominant use of the subject land was commercial land development. In the alternative, the Chief Commissioner argued that the dominant use of certain lots of the subject land was for residential rental use.
Metricon acquired the subject land, located in Terranora, in 2008 and 2009 for approximately $60 million. Interest of approximately $19 million on the purchase price was incurred and capitalised during the relevant tax years.
Metricon sought to develop the subject land in stages, having made an application in November 2009 for the subdivision of the land at 22 Fraser Drive into approximately 300 lots. During the course of obtaining development approval Metricon engaged a number of consultants to prepare plans and reports, expending approximately $2.2 million in consultant fees in respect of the development of 22 Fraser Drive during the relevant land tax years.
Further, for both financial accounting and taxation purposes Metricon treated the subject land as trading stock and part of its "land bank" during the relevant tax years.
In respect of certain properties on the subject land, being 126, 140 and 153 Mahers Lane, the houses on those properties were rented to residential tenants.
During the relevant tax years Metricon allowed, pursuant to an agistment agreement, a partnership of local farmers, the Gillilands, graze cattle on the subject land. The Gillilands ran up to 300 head of cattle on the subject land and, for all relevant tax years, the cattle grazing partnership made a profit.
The critical issue in the proceedings was whether "use of land" was confined to physical activity on the land, or could encompass "intangible uses", such as a commercial use of the land.
The Chief Commissioner argued that intangible uses of land, such as the treatment of the land as trading stock and inventory in its land bank, money and resources expended on the preparation of reports and plans in order to obtain development approval, and the obtaining of rental income from the leasing of land to residential tenants, were relevant uses of the subject land for the purposes of s.10AA and that, separately or cumulatively, that use or uses was the dominant use of the land.
Metricon argued that “use of land” in s.10AA was confined to physical use of the land and that the use of the land for cattle grazing was therefore the dominant use of the land.
His Honour Justice White held that, while "use" in the LTMA was not necessarily confined to a physical use, and could include putting the land to advantage, it must be a current use and not acts taken, or benefits derived, in respect of a future intended use.
His Honour found that Metricon's holding of the subject land as part of its stock in trade or land bank was not a “current” use of the land.
Further, His Honour found that work done, and expenses incurred, by consultants as part of Metricon's commercial land development, being the residential subdivision, were only a use of the land insofar as the land was physically used in carrying out those activities to obtain the requisite development approvals. Otherwise the work was done and expenses were incurred in connection with an intended future use.
His Honour found that, in respect of 153 Mahers Lane, the dominant use of that land was as a residential rental property for the 2009 land tax year. His Honour was otherwise satisfied that the dominant use of the subject land for the relevant tax years was for primary production. His Honour set aside the assessments in this regard.
An appeal against the decision of Justice White has been lodged by the Chief Commissioner.