Background
The taxpayer sought a review of the Chief Commissioner’s decision not to apply the land tax exemption for land used for primary production to a parcel of land near Kurrajong for the 2011-2015 land tax years. Of the 33.95 hectares of land which make up the subject property, 8 hectares are utilised as fenced paddocks for the upkeep of up to 75 alpacas, 20 goats and a small number of chickens. A further 24 hectares is bushland, except for some fire trails and a large bank of solar panels erected in December 2009.
The remaining 1.95 hectares is utilised by a farm stay business with a manager’s cottage, with nine accommodation cabins and 2 converted train carriages available as accommodation. There is also a tennis court, BBQ area and indoor pool for use by customers of the farm stay business, which is carried on under the name of Madison’s Mountain Retreat.
The land was relevantly zoned rural during the relevant tax years so the Taxpayer had to meet the dominant use test in s.10AA(1)&(3) of the Land Tax Management Act 1956.
Taxpayer’s submissions
The Taxpayer asserted that the dominant use of the land was the maintenance and breeding of alpacas and goats for the purpose of selling them or their natural increase. In relation to the alpacas, the Taxpayer asserted that the maintenance of the alpacas was for sale of their bodily produce, their fleece.
Chief Commissioner’s submissions
The Chief Commissioner’s primary argument was that there was no primary production use of the land because the maintenance of the alpacas and goats was an incidental feature or part of the farm stay use of the land. The Chief Commissioner contended that even if primary production was a use of the land, it was not the dominant use.
Issues
The issues for consideration by the Tribunal were as follows:
- Whether the land was used during the relevant years for any purpose of primary production; and
- If so, whether that use was the dominant use of the land.
Both parties called expert evidence about the value of the alpaca herd and the maintenance required by the alpacas, breeding of them and the sale of alpaca fleece.
There was a significant dispute about the facts between the evidence of the Taxpayer’s witnesses and the Chief Commissioner’s witness, who had been the accommodation manager of the farm stay business for a period of time.
Decision
Primary production use
The Tribunal found that there was a primary production use of the land, being the maintenance of livestock for the purpose of sale, even though the maintenance of the alpacas and goats was also incidental to the farm stay use of the land. The finding of primary production use was based on the evidence that there were sales of animals and their produce, although small in scale.
The Tribunal was not satisfied, however, that the manner in which these activities, intensity and value of these activities was enough to indicate that this was the dominant use.
Dominant use
The Tribunal considered a number of factors when determining dominant use, including:
- the livestock usage took place constantly, but took up less than 20% of the manager’s time, with the remainder of the time accounted for by the farm stay activities;
- the value of the herd, which had a significant value and which had been built up over time, (the Tribunal determined that the investment in the herd is to be looked at in the longer term);
- the areas of land put to the various uses;
- the revenue from the sale of livestock of less than $8,000 per year was vastly outweighed by the average income of $193,000 per year from accommodation sales;
- the type of activities involved in servicing the guests of the farm stay was intensive in nature and extent.
The Tribunal decided that the dominant use of the subject land was not primary production for the 2011-2015 land tax years.
Costs
The Tribunal denied the Taxpayer’s application for all of its costs which was pressed regardless of the outcome of the case. The Tribunal noted that the Taxpayer had declined to appoint a solicitor but chose to brief counsel directly, and that some of the issues arouse out of the Taxpayer’s lack of understanding of the process which may not have occurred had a solicitor been engaged.
The Chief Commissioner sought a limited costs order for costs thrown away in relation to having to prepare a supplementary report. The supplementary report came about in circumstances where the Taxpayer initially objected to the Commissioner’s expert attending the land to view the herd. The Taxpayer then served its own expert report based on a physical inspection, which led to the Chief Commissioner making a further application for an inspection and an order for leave to serve a supplementary report. The Tribunal noted that there would have been costs thrown away in the circumstances.
Given the nature, size and complexity of the case, the Tribunal did not find special circumstances to award costs to either party.
Link to decision
Redmadi Pty Ltd ATF Madisons Mountain Retreat Trust v Chief Commissioner of State Revenue [2017] NSWCATAD 231
