Background
On 1 August 2014, a 2-year License Agreement was made between Mr and Mrs Mir, Mir Bros Trading Pty Ltd, and Mir Bros Industries Pty Ltd (the owners), and Don Noble and Grant Liversage trading as Avahar Pastoral (“Avahar”) for the agistment of Avahar’s stock on Land which consisted of 3 contiguous parcels totalling 144 hectares. Avahar occupied the land beyond the 2-year term. A new Licence agreement was made by the same parties on 1 February 2017 which included a monthly licence fee of $1,682.56 plus GST, subject to a 3.5% annual increase. From 2 December 2019, the same land was licensed to Loop Organics Pastoral Pty Ltd (“Loop”) to sow crops and to graze and depasture the Loop’s stock on the lands. The Licence fee was $21,500 plus GST per annum.
The Applicants sought the Tribunal’s review of the decision of the Chief Commissioner of State Revenue that the Applicants’ land was not entitled to the exemption for land used for primary production for the Relevant Land Tax Years (2017-2020) under s.10AA of the Land Tax Administration Act 1956 (“the Act”). The Applicants claimed the land was used for the grazing, breeding and fattening of cattle for sale.
During the Relevant Land Tax Years the Land was zoned R2 Low Density Residential under the Campbelltown Local Environment Plan and, therefore, was not rural land. An exemption was therefore only available if the use of the land satisfied the Dominant Use Test pursuant to s. 10AA(3) of the Land Tax Management Act 1956 (“the Act”), and the Commerciality Tests pursuant to s. 10AA(2)(a) and (b) of the Act.
The Statutory Framework
Section 10AA of the Act provides for an exemption for land used for primary production purposes. Land that is rural only needs to meet the Dominant Use Test pursuant to s. 10AA(3). If land is not rural, in order to be eligible for the exemption, the taxpayer needs to satisfy both the Dominant Use Test and the Commerciality Test, the latter pursuant to s. 10AA(2).
Under s. 10AA(2), the primary production use of the land needs to have a significant and substantial commercial purpose or character, and must be engaged in for the purpose of profit on a continuous or repetitive basis (“the Commerciality Tests”).
Submissions
The Applicants
The Applicants asserted that the dominant use of the Land was for primary production purposes; that those activities had a significant and substantial commercial purpose or character and were engaged in for the purpose of profit.
The Applicants argued that for the 2017 to 2019 tax years Avahar grazed cattle on the Land “constantly”. The Tribunal accepted evidence from Mr Mir confirming this, and from Mr Noble in a letter dated 13 August 2020 which indicated around 160 head of cattle were maintained on the Land until drought forced the sale and relocation of some cattle during 2016. The letter stated that 92 head of cattle remained on the Land at the end of 2016, but the number fell to about 58 cattle in 2018 due to severe drought conditions. By the end of 2019 there were approximately 54 cattle on the Land.
Ms Rawlinson on behalf of Loop gave evidence that Loop was registered on 12 July 2019 for the purpose of conducting a business “involving the purchase, growing and sale of beef cattle and crop production for silage and hay...”. Loop’s agistment operations on the Land commenced with the placement of cattle in June 2020. Ms Rawlinson also gave evidence that the Applicants’ Land was only one of the locations where business was conducted by Loop which was described in Loop’s business plan. She also described the number of cattle on the Land, the movement of that cattle, the resources used in the operations and the planned sale of cattle, although no cattle were sold before the end of 2020 because the calves raised on the land were not ready for sale by the end of the tax year.
Chief Commissioner
The Chief Commissioner argued that the evidence provided by the Applicants in respect of Avahar’s use of the land did not support a finding that the dominant use of the relevant land was for primary production activities; the Applicants did not establish the periods of time that Avahar’s cattle grazed on the Land; the numbers of cattle which grazed on the Land; or the time and labour used in respect of the agistment operations.
In relation to the commercial nature of the Avahar’s agistment activities, the Chief Commissioner argued there was little to no evidence in relation to the labour used for the operations, the hours spent in the operation, the equipment or machinery used, business plans, cattle management practices, pasture improvement or location of paddocks. Nor was any evidence presented about how the Land was integrated with the use of any other land during periods of drought.
In respect of Loop’s agistment operations, the Chief Commissioner submitted that because cattle were not placed on the land until June 2020, it was arguable that the dominant use test could not be met for the 2020 land tax year.
The Chief Commissioner argued that the evidence submitted by Ms Rawlinson on behalf of Loop was insufficient to prove the land was used for primary production in respect of the 2020 land tax year.
Decision
Dominant Use Test
- While the information about cattle numbers and primary production activity provided by the Applicants for the 2017 to 2019 years was not reliable, the Tribunal accepted the general description of the use of the Land for agistment as described in Mr Noble’s letter and confirmed by Mr Mir.
- The Tribunal accepted that the description of activity by the Applicants lacked specificity, but was ultimately satisfied that the dominant use of the land for the 2017 to 2019 tax years was for primary production, accepting Mr Mir’s evidence of a cattle yard on the land, photographs which showed the land was well suited to the primary production activity and no evidence that the land was used for another purpose.
- For the 2020 land tax year, although Loop’s cattle were not on the land as of the taxing date 31 December 2019, the Tribunal agreed that the relevant use of land is not restricted to the taxing date. Loop had indicated its intention, by entering into the License Agreement in mid-2019, and preparing the Land for its primary production use from early in 2020 by undertaking some weed clearing and stump removal to increase the carrying capacity of the land. The Tribunal noted that in Metricon the Court of Appeal had agreed inactivity ‘deliberately adopted as a means of obtaining such actual and present advantage from the land’ can be regarded as physical deployment of land. The activities of Loop were incidental to the use of the land for primary production, and the Dominant Use test was satisfied.
Commerciality Test
- The Tribunal determined that the commerciality tests were not satisfied for the 2017-2019 land tax years because:
- the financial results of Avahar’s operations “contributed, at best, in only a trifling way, to their income; and
- There was insufficient information about the integration of the primary production use of the Land with a claim that other Land was used for cattle operations, and a lack of information and documents to demonstrate a commercial character in Avahar’s cattle operations.
- Based on Loop’s business plan, updated in June 2021, the Tribunal accepted that Loop’s use of the Land, when viewed in conjunction with the activities conducted by Loop on the relevant land and various other properties it uses:
- had a significant and substantial commercial purpose, and
- was engaged in for the purpose of profit on a continuous or repetitive basis in relation to the 2020 land tax year.
Orders
- Land tax assessments for the land tax years 2017, 2018 and 2019 confirmed.
- Land tax assessment for the land tax year 2020 revoked.
https://www.caselaw.nsw.gov.au/decision/17e9e39be4e9184aa881498d
