Background
The Applicant sought a review of the Chief Commissioner’s decision to assess a property for land tax for the 2020 land tax year. The 6.07 hectare Property was purchased by the Applicant in August 2019. Most of the Property was flood prone with around 0.1 hectares suitable for residential use. There was a burned-out house on this area of the land. Around 0.8 ha was previously used as an orchard and as a market garden but was in a dis-used state. The Applicant stated there were approximately 380 to 400 Nashi pear trees on the land, but they were not maintained for the purpose of selling the fruit at the time of purchase.
From October to December 2019, the Applicant arranged for asbestos to be removed from the burned-out house area. The Applicant arranged for bushfire assessment, on-site waste management, and arborist reports to be prepared on the Property, leading to lodgement of a development application (“DA”) with Council for construction of a new residence in January 2020.
In October 2019, the Applicant leased the land for a period of 14 months (“First Lease”). The first two months of rent was waived by the Applicant. The tenant planned to use the land to grow vegetables and for other agricultural purposes. The Property was overgrown and the tenant under the First Lease was to fix and maintain the fence as well as repair the front gate. The tenant abandoned the First Lease in February 2020, and there was virtually no evidence to establish that work was performed by the tenant under the First Lease.
In March 2020, the Applicant entered a Second Lease for 3 years. The Second tenant also leased the Property for the purposes of growing produce. The lease documents noted that the land was in a run-down condition and that the orchard needed pruning and maintenance.
The tenant under the Second Lease tidied up the Property; pruned the orchard and engaged in pre-lodgement discussions with Council for a DA to convert part of the former market garden to a hydroponic farm.
Legislative Framework – LTMA
As the land is zoned RU 4 (primary production small lots) it is “rural land” for land tax purposes, so the Applicant is required to meet the dominant use test pursuant to ss. 10AA(3) and (4) of the LTMA, but is not required to meet the “substantial commercial purpose or character” and “purpose of profit” tests in s.10AA(2).
Submissions
The Applicant submitted as follows:
- The DA was lodged because the Council required “workers’ amenities” on the Property if the tenants were to conduct primary production activities on the Property.
- The Applicant was required to remove the asbestos from the Property before the tenant under the First Lease could conduct primary production activities.
- The tenant under the First Lease was unable to conduct substantial primary production activities prior to 31 December 2019 (the “Taxing Date” for the 2020 tax year) due to excessive flooding on the land.
- Around 98% of the land cannot support primary production activities due to its propensity to flood even in normal rainfall and therefore the decision on whether to grant the Applicant an exemption pursuant to s. 10AA should be made having regard only to the area of useable land.
- The Tribunal should give sufficient weight to the primary production activities conducted after March 2020, by the tenant under the Second Lease, as previous case law; in Longford Investments Pty Limited v Commissioner of Land Tax (NSW) (1978) 8 ATR 656 (“Longford”) the Court concluded that a period of 6 months before and after the Taxing Date is a reasonable period for enquiry regarding primary production activities.
The Chief Commissioner submitted as follows:
- While preparatory works can amount to cultivation for s.10AA(2) purposes, the Applicant’s evidence that any such cultivation activities were conducted prior to the Taxing Date by the tenant under the First Lease, was inconsistent and/or lacking.
- While it is appropriate to consider the period of 6 months before and after the taxing date in determining dominant use, it is necessary for primary production activities to be part of a “continuing use” of the Property for a period that includes the taxing date.
- In this case, neither the Applicant nor the tenant under the First Lease appear to have commenced any primary production activities on or before the taxing date. Therefore, the primary production activities after March 2020 are not relevant to the assessment of whether the primary production exemption pursuant to s. 10AA should be granted for the 2020 land tax year.
- It is appropriate for the Tribunal to consider all uses of the land including non-use, but the unusable land should not be excised from consideration of the dominant use test because the Property is taxed as a whole.
Consideration
The Tribunal noted that in Metricon[1] the Court of Appeal decided:
- In determining the dominant use of the land it is necessary to compare only physical uses of the land, or how the ‘concrete physical mass’ (ie the physical land from the surface to the centre of the Earth) is deployed, including not only activity but also inactivity where the inactivity is deliberately adopted as a means of obtaining actual and present advantage from the land e.g. where land is left fallow as part of a crop rotation cycle to allow it to regenerate.
- There is no requirement that immediate productive return be achieved as long as some benefit or advantage accrues or would be expected to do so.
- Mere intention to use land for primary production will not suffice.
The Tribunal also noted that:
- If part of primary production land remains ‘unused’ it is appropriate to consider whether the non-use prevails over the primary production use[2];
- There must be an actual active use of the land or deliberately adopted inactivity; if the property in question was (at) the relevant time substantially unused it cannot be said that it is primarily used for any purpose[3].
Decision
The Tribunal affirmed the Chief Commissioner’s decisions that the exemption for primary production land did not apply for the following reasons:
- The Applicant presented no evidence of activity by the tenant under the First Lease prior to and on 31 Dec;
- The Applicant claimed in oral evidence that he did some tidying up activities on the land prior to 31 December 2019, but this was inconsistent with exclusive possession being given to the tenant under the First Lease and to the statement under the Second Lease that the land was run down and that the orchard needed pruning;
- The Tribunal was not convinced that drought prevented the Applicant from conducting primary production activities on the land.
- The Applicant had not met his burden of proving that the dominant use of the land was for primary production in the period up to and including the Taxing Date (midnight on 31 December 2019) for the 2020 tax year.
Orders
The Chief Commissioner’s decision (to assess land tax) was affirmed
https://www.caselaw.nsw.gov.au/decision/177fae8a096d8db46521992b
