|Date of judgement||30 January 2017|
|Proceeding number||2015/35829; 2015/123762|
|Court or Tribunal||Supreme Court of New South Wales|
TAXES AND DUTIES – Land Tax – Land Tax Management Act 1956 s 10AA(3) – Whether primary production use of land was the dominant use – Identification of relevant land – Significance of use of land by consultants – Whether use of land to produce feed for taxpayer’s cattle on other land a primary production use – Meaning of dominant use
The Taxpayer, Leppington Pastoral Co Pty Ltd (“LPC”), brought proceedings for the review of decisions of the Chief Commissioner of State Revenue to assess certain lands owned by the LPC as liable for land tax for the 2011-2014 land tax years (“Relevant Period”). LPC contended that the subject lands were exempt from land tax pursuant to s.10AA of the Land Tax Management Act 1956 (“the LTM Act”) as the lands were used for primary production, namely, for the maintenance of cattle for the purpose of selling them or their natural increase or their bodily produce.
The subject lands are part of lands owned by LPC at Oran Park that it calls “Farmland”. Farmland is part of a precinct that is a major residential development. The Chief Commissioner argued that the dominant use of Farmland during the Relevant Period was for residential development.
LPC conducted a dairy business on Farmland and other lands owned by LPC around Oran Park and Leppington. Farmland was used to graze heifer cows from the age of six months to two years before they became milking cows, and to produce fodder to feed cattle in LPC’s dairy business.
Farmland formed parts of the development area known as the Oran Park precinct. During the Relevant Period, LPC or its related development company Greenfields Development Corporation Pty Ltd (“GDC”) progressively released Farmland for development, with multiple subdivisions of the land. Therefore, at each relevant taxing date the definition of “Farmland” changed. During the course of the hearing, the parties agreed as to the following areas and land values comprising Farmland:
In 2008 LPC and GDC entered into a Call Option Deed under which LPC gave GDC an option to purchase the “Project Land” from LPC. The “Project Land” was land encompassing the whole of Farmland and Development Land. The deed provided that LPC would not itself play an active role in undertaking or executing the Project, or making any decisions or receiving any proceeds or profits from the Project. On 11 October 2010, GDC and LPC entered into a further agreement called a Development Rights Agreement (“the Agreement’).
The Agreement allowed for GDC to undertake the Project on the Project Land without first acquiring the Land under the Call Option Deed. Further, GDC was entitled to any income derived from the conduct of the Project, to develop the Project Land in any manner that it thought fit, to enter the land for any purpose. GDC held a beneficial and equitable interest in the Project Land and in gross proceeds from the Project.
In light of the commitments under the Call Option Deed and Agreement, His Honour first considered whether both the Development Land and Farmland was taken to be used by GDC for the purposes of s.10AA(3) of the LTM Act. His Honour found that, because the LTM Act and the Valuation of Land Act 1916 assess separate parcels of land, Farmland, although ultimately devoted to the development purpose, cannot be said to be used for that purpose for that reason alone in the Relevant Period: .
The main issue for determination was whether the dominant use of Farmland was for the maintenance of animals for the purpose of selling them or their natural increase or their bodily produce pursuant to s.10AA(3)(b) of the LTM Act. The Chief Commissioner did not dispute that the subject land was used for primary production, and that the primary production use had a significant and substantial commercial purpose or character and was engaged in for the purposes of profit on a continuous and repetitive basis.
His Honour held that for the purposes of s. 10AA(3) the question of dominant use is directed to how the subject land itself was used  and a consideration of the nature, extent and intensity of the various uses of the land, the extent of the land used for different purposes, and the time, labour and resources spent in using the land for each purpose: .
In considering the intensity and extent of the primary production activities, His Honour had regard to the evidence of Mr Michael Perich, a director of LPC, regarding the number of cattle on the subject land. His Honour accepted that the land was used for primary production, but held LPC did not establish how many cattle grazed on Farmland in the relevant tax years: . Mr Perich’s evidence was held to be unreliable as to the number of cattle maintained on Farmland as distinct from its other cattle operations:  and .
His Honour did not accept as a useful indicator of the scale or intensity of the farming operation the difference between what it would cost the farmer to buy feed for the cattle and the cost of producing pasture or crops to feed the cattle: . However the cost of LPC producing feed for cattle was an indication of the scale of the cattle business on Farmland: .
His Honour also held that the production of silage to produce feed for other cattle in LPC’s business was a primary production use of the land within the meaning of s 10AA(3) of the LTM Act: . This was because the production of the feed was used for the maintenance of animals even though they were not located on Farmland. However, LPC was not able to establish how much additional feed was produced on Farmland for the benefit of its other cattle operations: .
His Honour adhered to the view he expressed in Metricon QLD Pty Ltd v Chief Commissioner of State Revenue (No. 2)  NSWSC 332 that the physical use of land by consultants for the purpose of obtaining future approvals or consents for development, or for the purpose of satisfying conditions of approval are a relevant competing use of the land for the purposes of s.10AA(2):  and . His Honour found that, unlike in Metricon, in this case the intensity and scale of that use did weigh against the primary production use.
His Honour determined that the carrying out of the earthworks which was done in connection with LPC’s existing residential or commercial development was a relevant competing use to be assessed in deciding whether the primary production use was dominant: .
The physical uses of the land undertaken by the consultants included the installation of groundwater wells, excavation of test pits, excavation of strip trenches, fieldwork, site visits, survey work, stripping of topsoil and water sampling. This was all found to be a significant use of Farmland in connection with current and future residential or commercial development on the subject land.
His Honour accepted that the granting of rights by LPC to GDC under the Agreement and Call Option Deed was a non-physical use of the land: . His Honour noted that the Chief Commissioner had reserved his rights in respect of the relevance of the intangible use of land, noting the appeal to the Court of Appeal in the Metricon proceedings in relation to the issue of whether intangible use of land could be a competing use.
His Honour determined that s.10AA(3) of the LTM Act requires “weighing the nature and intensity of the competing uses, the physical areas over which they are conducted, the time and labour spent in conducting the different uses, the money spent or assets deployed in each use and the value derived or to be derived from it”: . The onus is on the taxpayer to show that the primary production use was the dominant use of the land.
His Honour concluded that expenditure is a relevant but not determinative criterion in assessing whether the primary production use is dominant. In respect of the 2011 land tax year, His Honour concluded that expenditure on earthworks and on consultants’ activities on Farmland substantially exceeded LPC’s expenditure on cattle grazing and raising of pastures and crops for the 2011 land tax year.
His Honour inferred that the value of the earthworks on Farmland was more valuable to GDC than the value of the primary production on Farmland was to LPC, although noting that it is impossible to be definite about this because of the imprecision of the evidence adduced by LPC: .
In regards to the 2012 land tax year, His Honour noted that the scale of the earthworks undertaken on Farmland was much less than the scale of the earthworks in the 2011 land tax year. The only substantial competing use in the 2012 land tax year was the use of the land by consultants for the purpose of carrying out tests in connection with existing and proposed residential development. His Honour concluded that as this work was episodic and carried out over a small area of Farmland, and considering the small amount of time and labour involved, the cost of the different uses, and assets deployed in them, the primary production use was the dominant use of Farmland for the 2012 land tax year, and therefore the 2012 assessment should be revoked: .
In regards to the 2013 land tax year, His Honour held that neither the primary production use, nor the earthworks use, nor the use of land by consultants engaged by GDC was materially different from the 2012 land tax year. As such, His Honour determined that the primary production use was the dominant use of Farmland for the 2013 land tax year, and the 2013 assessment should also be revoked: .
In respect of the 2014 land tax year, His Honour accepted that extensive and substantial earthworks were carried out on Farmland: . During this time, GDC was under the mistaken belief that the land where these works were being undertaken was not Farmland. LPC did not provide evidence as to the extent or cost of those earthworks, but LPC estimated them at $957,000. Similarly, the use of Farmland by consultants was substantially greater than in the previous two years. Accordingly, His Honour determined that the primary production use was not the dominant use of Farmland for the 2014 land tax year, and the assessment for that year should be confirmed: .
The Land Tax Assessment Notices for the 2011 and 2014 tax years were confirmed.
The Land Tax Assessment Notices for the 2012 and 2013 tax years were revoked.