Craig v Chief Commissioner of State Revenue [2019] NSWCATOD 8

Background

These proceedings concerned the review of the Chief Commissioner’s decision to assess land owned by the applicants, Mr John Craig and Ms Jeanette Shuttle, at Goulburn, New South Wales (“the Land”) as being liable to land tax for the 2013 – 2017 land tax years.

The key facts are:

1. The Land is 59 hectares in size and is used, and has been used for more than 63 years, as a small cattle farm.
2. The average carrying capacity of the Land is 35 head of cattle, and the number of cattle on the Land, during the relevant years, ranged between 51 and 62.
3. During the relevant years, the Land had a taxable value of $2.9 million.
4. Up until 2011, the Land was zoned ‘rural’, but was re-zoned that year to ‘low density residential’.

The Statutory Framework

The key issue in dispute in this matter was whether the Land was eligible for the ‘primary production’ exemption from land tax under s. 10AA of the Land Tax Management Act 1956 (“LTM Act”). This issue involved a consideration of whether the applicants’ use of the land satisfied the following two requirements in order for that exemption to apply:

1. that the Land was “land used for primary production” within the meaning of s. 10AA(3)(b) of the LTM Act, meaning that it was “land the dominant use of which is for the maintenance of animals … for the purpose of selling them or their natural increase or bodily produce”; and
2. that the use of the Land satisfied the ‘commerciality test’ in s. 10AA(2) of the LTM Act, which provided:

   2. “Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land:
      1. has a significant and substantial commercial purpose or character, and
      2. is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made).”

Submissions and evidence

The applicants contended that the Land was used for ‘primary production’, and that this use satisfied the ‘commerciality test’ during the relevant years.

The applicants submitted that their cattle operation had a significant and substantial character or purpose because it was being conducted efficiently and utilising labour effectively. Further, the applicants submitted that profits were not determinative of the statutory test in s 10AA(2)(a) of the LTM Act. In relation to s. 10AA(2)(b) of the LTM Act, the applicants relied on the fact the business had been operating for 63 years on a continuous and repetitive basis, and so demonstrated permanence, and although the land size and the cattle operation was small, it was run to maximum capacity and put to its best use as a cattle operation to maximise profits.

The Chief Commissioner did not concede that the Land was used for ‘primary production’ as defined in s. 10AA(3)(b) of the LTM Act, and submitted that, based on the following factors, the applicants’ cattle operation did not have a significant and substantial commercial purpose or character:

1. the relatively small number of cattle;
2. the meagre amount of activity that was undertaken in conducting the applicants’ cattle grazing activities (e.g. the lack of pasture improvement);
3. the losses and profits were insignificant when compared to the value of the Land (which was more than its taxable value of $2.9 million), and any such profits did not make any real, as distinct from trifling, contribution to the income of the applicants; and
4. the average rate of return on the Land was well below that achieved by cattle farmers in New South Wales with a similar land value.

Further, the Chief Commissioner submitted that as the applicants derived no net income from the Land, it was difficult to accept that they held their Land for the purpose of profit on a continuous or repetitive basis.

Decision

The Tribunal found:

1. the applicants had discharged their onus and proven that the dominant use of the Land during the relevant land tax years was for the maintenance of animals (i.e. cattle), for the purpose of selling them or their natural increase (within the meaning of s. 10AA(3) of the LTM Act); and
2. the applicants had not proven that this dominant use of the Land met the ‘commerciality test’ (i.e. they had not proven that the use had a significant and substantial commercial purpose or character for the purpose of profit).

Dominant use – s. 10AA(3)(b) of the LTM Act

The Tribunal was satisfied that the only use of the Land was for the purpose of the applicants’ cattle business, meaning that the dominant use of the Land was for the maintenance of cattle within s. 10AA(3)(b) of the LTM Act.  In this regard, Senior Member Higgins found that the fact Mr Craig “enjoyed going to the Land where his parents are buried” was “not a use of the Land in any relevant sense” (at [58]).

Commerciality test - s. 10AA(2) of the LTM Act

The Tribunal was not satisfied that the applicants’ primary production use of the Land had a significant and substantial commercial purpose or character.  In reaching this finding, Senior Member Higgins referred to the observations of Gzell J in Maraya Holdings v Chief Commissioner of State Revenue [2013] NSWSC 23 to conclude that “the operation when objectively assessed cannot be described as an operation that is of ‘the more serious and weighty’ kind” (at [81]). Senior Member Higgins identified the following key factors as distinguishing the applicants’ operation from one that has a significant and substantial commercial purpose or character:

1. the small size of the herd;
2. the total carrying capacity of the Land;
3. the limited resources/investment; and
4. the low profit.

Importantly, Senior Member Higgins made this finding notwithstanding that she was satisfied that the applicants’ business was a genuine business that has been run efficiently and effectively for a number of years.  Further, Senior Member Higgins indicated that the fact the Land was categorised as ‘farm land’ for rating purposes was of no relevance to determining whether the applicants’ use of the Land had a significant and substantial commercial purpose or character under s 10AA(2)(a) of the LTM Act.

Accordingly, the Tribunal found that the ‘primary production’ exemption was not available in respect of the Land.

Orders

The decisions under review were affirmed.

Link to decision

Craig v Chief Commissioner of State Revenue [2019] NSWCATOD 8