Constable v Chief Commissioner of State Revenue [2018] NSWCATAD 94

Background

The Taxpayer sought a review of the Chief Commissioner’s land tax assessments for the 2012 to 2016 land tax years (“the Assessments”) on land that is co-owned by the Taxpayer at 54 Duesbury Road, Dalmeny (“the Land”). The Land, which is 64.57 hectares in area, is timbered and has been managed by the Taxpayer since 1980.

The key facts are:

1. In March 1995, the Taxpayer harvested trees from the Land in accordance with the local Council’s (Eurobodalla Shire Council) approval. Since that time no timber has been harvested from the land.
2. In October 2009, in response to the Taxpayer’s request, the then Department of Environment and Climate Change sent a private native forest Property Vegetation Plan (PNF PVP) to the Taxpayer for signing. The agreement was withdrawn in March 2017 because no response had been received from the Taxpayer.
3. From 1 July 2011 to 19 July 2012, 45% of the Land was zoned Rural under the Eurobodalla Rural Local Environment Plan 1987. The remaining 55% was zoned Urban Expansion 10. Forestry was permitted with development consent under both zones. However, the section of the Land that was zoned Rural also required a PNF PVP in order to harvest the trees.
4. On 20 July 2012, the zoning of the Land changed under the Eurobodalla Rural Local Environment Plan 2012. 67% of the Land was re-zoned “R2 Low Density Residential”, 3% was re-zoned “IN1 General Industrial” and the remaining 30% continued to be zoned “Rural”. The re-zoning of the Land had the material effect that forestry was no longer permitted on 70% of the Land.
5. From November 2013 to April 2015 the Taxpayer and his co-owners listed the Land for sale, describing the Land as suitable for the development of up to 1000 residential lots.

Statutory Framework

As the Land was not zoned wholly “rural”, the Tribunal was required to determine whether both the “dominant use test” and the “commerciality test” were satisfied under ss. 10AA(2) and (3) of the Land Tax Management Act 1956 (“LTMA”) during the 2012 to 2016 land tax years. In particular:

1. Whether the dominant use of the land was for cultivation (namely forestry), for the purpose of selling the product of the cultivation (namely trees) (s. 10AA(3)).
2. Whether the use of the Land had a significant and substantial commercial purpose or character (s. 10AA(2)(a)).
3. Whether the use of the Land was engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit was actually made) (s. 10AA(2)(b)).

The Tribunal was also required to have regard to whether the Taxpayer had existing use rights to conduct a forestry operation following the re-zoning of the Land in 2012, in accordance with ss. 4.65 and 4.66 of the Environmental Planning and Assessment Act 1979 (formerly ss. 106 and 107).

Submissions

The Taxpayer argued that the primary production use of the Land is the cultivation of native forest for the purpose of harvesting and selling the wood products from the forest. He submitted that his existing use rights were retained under ss. 4.65 and 4.66 of the Environmental Planning and Assessment Act and were unaffected by the re-zoning of the Land in 2012. The Taxpayer did not file any direct evidence, but rather, relied on material given to the Chief Commissioner with the objection and in submissions in the proceedings.

The Chief Commissioner contended that the Taxpayer failed to establish that cultivation activities were undertaken for the purpose of harvesting and selling the trees on the Land, submitting that:

1. the Taxpayer failed to put on any evidence about any program of tending in accordance with the practices of husbandry or evidence as to why cultivation did not occur or need to occur during the relevant tax years;
2. the Taxpayer failed to put on evidence of having retained existing use rights to cultivate the land in regards to the 70% of the Land that was re-zoned in 2012;
3. the Taxpayer’s plan to sell the land in 2013-2014 for low residential development purposes was inconsistent with the purported purpose of harvesting and selling the trees on the Land; and
4. the Taxpayer’s continuous pattern of a lack of profit was indicative that the primary production use of the Land was not engaged in for the purpose of profit.

As such, the Chief Commissioner submitted that the material before the Tribunal was insufficient to discharge the onus of proving both the dominant use and the commerciality tests.

The parties jointly retained a forestry expert, Mr Nick Cameron, who provided an expert report to the Tribunal.

Decision

The Tribunal accepted Mr Cameron’s evidence that as at September 2016, 89% of the Land, albeit relatively small in size, was forested and suitable to be commercially exploited through the harvesting of trees and selling the tree products therefrom, within the next 10 to 50 years. Further, the Tribunal accepted that there was evidence of recognised, though minimal, forestry activities on the Land, which included timber assessment, forest protection, roading and harvesting (from mid-1970’s, 1988 and 1996): [76] – [77]. The Tribunal also accepted that forestry is a long-term activity and that trees need not be sold and harvested every year: [68].

Having regard to all the evidence, the Tribunal was satisfied that the dominant use of the Land for the 2012 to 2016 land tax years was the cultivation of native forest for the purpose of harvesting and selling the wood products from the forest (at [82]). In particular, the Tribunal held that the same dominant use of the Land continued after the re-zoning of the Land in 2012 because the evidence established that the Taxpayer continued to manage the forest in the same manner as previously. The Tribunal was not persuaded that the Taxpayer abandoned existing use rights as a result of the re-zoning and the subsequent listing of the Land for sale: [80] – [82].

In relation to the commerciality test, the Tribunal held that the primary production use of the Land did not have a significant and substantial commercial purpose or character during the relevant land tax years as set out in s 10AA(2) of the LTMA (at [85]). The Tribunal found that the zoning changes and the Taxpayer’s listing of the Land for sale for low density residential development evidenced that the existing dominant use of the Land for forestry did not have a significant and substantial commercial purpose or character (at [87]). The Tribunal held that the commercial purpose or character of that (proposed) sale continues to be of greater significance and substance than the Taxpayer’s dominant use of the Land for primary production.

The Tribunal also considered the second limb of the commerciality test (s. 10AA(2)(b)) in the event it was wrong in relation to s. 10AA(2)(a). It was noted that Mr Cameron’s evidence provided little, if any, assistance to the Taxpayer in regard to the commerciality test (at [86] and [91]). Mr Cameron’s evidence estimated the net timber sales revenues to range between $36,250 and $156,600, depending on the intensity and area of harvesting, over a 30 year period (at [65]). SM Higgins also noted that the listing of the Land for sale was inconsistent with the primary production use being engaged in for the purpose of profit. Accordingly, the Tribunal held that the Taxpayer failed to demonstrate that the primary production use of the Land was engaged in for the purpose of profit during the relevant land tax years (at [92]).

As the Taxpayer failed to meet the commerciality test, the Tribunal held that he failed to establish the Land was exempt from land tax during the relevant tax years.

Order

The Assessment made on 2 March 2016 is confirmed.

Link to decision

Constable v Chief Commissioner of State Revenue [2018] NSWCATAD 94