Background
The Chief Commissioner sought leave to appeal from a decision of the Appeal Panel of the Civil and Administrative Tribunal which held that the Respondent (“McIntosh Bros”) was entitled to an exemption from land tax for primary production under s. 10AA of the Land Tax Management Act 1956 (the “LTMA”). The land tax assessments in dispute were in relation to the property known as ‘Denbigh’ near Cobbity, New South Wales (the “Land”), for the three land tax years 2014-2016.
A summary of the Appeal Panel decision is published here: Chief Commissioner of State Revenue v McIntosh Bros Pty Ltd (in liq)
The statutory framework
The relevant provisions of the LTMA are as follows:
“10AA Exemption for Land used for Primary Production
- Land that is rural land is exempt from taxation if it is land used for primary production.
- Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land:
- has a significant and substantial commercial purpose or character, and
- is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made).
- For the purposes of this section, "land used for primary production" means land the dominant use of which is for:
- the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, or…”
Court of Appeal’s decision
a. Grounds 1 & 2 – aggregation of uses by multiple users
Grounds 1 and 2 concerned the application of s. 10AA(2) and (3) and whether the “dominant use” of land may be an aggregation of primary production uses undertaken independently by users who are independent of each other. The Chief Commissioner submitted that several independent primary production “uses” of land by several unrelated users cannot be aggregated so as to amount to the “dominant use” of land as required by s. 10AA(3) LTMA, unless the primary production is undertaken by a “single user” or “single cohesive group” of users for a “purpose of profit”.
Decision re dominant use:
Their Honours applied the decisions in:
- Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366,
- Chief Commissioner of State Revenue v Metricon Qld Pty Ltd [2017] NSWCA 11; and
- Young v Chief Commissioner of State Revenue [2020] NSWSC 330.
Their Honours considered the circumstance where land is used for primary production activities by independent users and whether it is permissible to aggregate those uses for the purposes of determining whether the “dominant use” of the land is for primary production (s. 10AA(3)).
Their Honours observed that s. 10AA(3) lists a number of activities in paragraphs (a) to (f) that constitute primary production activities. On its proper construction, s. 10AA(3) requires all activities that fall within those paragraphs to be considered in determining whether the dominant use of the land is for primary production: [12]-[20].
Decision re commerciality and profits tests:
Their Honours referred to the decisions in:
- Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23,
- Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 89; and
- Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678.
On the question of whether an aggregation of independent uses can satisfy the commerciality or purpose of profit tests in s. 10AA(2), each requires the identification of a subjective purpose of the relevant user or users. The Court noted that:
- in s. 10AA(2)(a) it is the “purpose or character” of the activity or activities constituting the use of the land that is relevant; and
- in s. 10AA(2)(b) the question is whether the relevant activity “is engaged in for the purpose of profit on a continuous or repetitive basis.”
The Court held (at [22]) that neither of the limbs of s. 10AA(2) requires that a single subjective purpose be identified; where the dominant use of the land consists of more than one independent primary production use within paragraphs (a) to (f), the “use of the land” which must satisfy the commerciality and profit purpose tests is assessed as a whole, taking into account those independent uses.
b. Ground 3 – commerciality tests where use is part of a broader primary production enterprise
Ground 3 concerned the satisfaction of the commerciality and profit purpose tests in s. 10AA(2)(a) and (b) in circumstances where the relevant use of the subject land was undertaken as part of a broader primary production enterprise, but not so as to involve livestock moving between the subject land and other land of the enterprise, or fodder produced by that land being used elsewhere.
In this regard the Chief Commissioner ultimately accepted that the characterisation of the relevant use was to be undertaken having regard to any “wider use conducted on other lands” and that it was then a “question of fact and degree” as to whether in that context the use of the land had a significant and substantial commercial purpose or character.
Their Honours referred to:
- Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678, and
- Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9.
Their Honours considered whether the Tribunal had erred in finding that Richard McIntosh’s cattle operation on the Land had a significant commercial purpose by considering its role as part of his broader farming business conducted on other parcels of land (chiefly consisting of a sheep operation on land 4 hours away by road).
The Court, in determining whether a primary production use of land satisfies the commerciality test, decided it is permissible to consider that use within the context of any wider business activity of which it forms part. Further, the Court held (at [32]) that the activities conducted on the separate parcels may be the same type of primary production or they may involve diversified farming or grazing activities. Their Honours considered that the Tribunal and the Appeal Panel had addressed the relevant question, with the Tribunal concluding that the cattle operation was part of the wider farming operation because of the “interconnecting integrative elements” between the two operations, resulting in the cattle breeding activity on the McIntosh Land having a significant and substantial commercial purpose or character.
In the Court’s view, the proposed ground of appeal did not identify a question of law and leave to appeal on this ground was refused.
c. Grounds 4, 5 and 6 – whether agisted cattle were maintained for the purpose of selling
Grounds 4, 5 and 6 related to Mr Hayter’s agistment of cattle on the Denbigh side and whether that use was for the maintenance of animals for the purpose of selling them or their produce within s. 10AA(3)(b).
It was contended by the Chief Commissioner that the maintenance must be undertaken by the person using the land to maintain the cattle for the purpose of sale.
The Court applied case law construing s. 10AA(3)(b) which supported a finding that the identity of the “maintainer” of the livestock is not relevant. The focus is on the use of the land, and s. 10AA(3)(b) is satisfied if the land is being used to maintain livestock for the purpose of sale: [34] and [37], regardless of who maintains the livestock.
Further, the Court noted that the Tribunal’s finding that the agistee Brett Hayter maintained the cattle on the McIntosh land made irrelevant the Chief Commissioner’s submission to the Appeal Panel that the Tribunal had misconstrued the meaning of “maintenance.” Consequently, the Court held that this ground of appeal did not arise.
d. Ground 7 – commerciality and profit tests
Ground 7 was directed to the satisfaction of the commerciality and purpose of profit tests.
The Chief Commissioner submitted that the Tribunal did not take into account that the various users of the subject land made little or no accounting profits, bore little or no costs for those uses, and received no or meagre income for the labour involved.
The Court of Appeal found that the Tribunal and the Appeal Panel did have regard to the above factors. The Appeal Panel had noted that, in calculating profit there was “no requirement to include … land holding costs or a notional cost for labour that are not actually incurred” and observed (at AP Reasons [120]) that it “seems clear that the derivation of profit from [the use of the land] was significant and substantial, even though it may have fluctuated from year to year…”.
Accordingly the Court of Appeal found that the premise of this ground was not made out. Therefore, this ground raised no question of law and leave to appeal was refused: [43]-[48].
Orders
The Court ordered that:
- Leave to appeal was granted on proposed grounds 1 and 2 but the appeal was dismissed.
- Leave to appeal was refused on proposed grounds 3, 4, 5, 6 and 7.
Link to decision
https://www.caselaw.nsw.gov.au/decision/17be65f3c888e890b0632932
