Background
At first instance, the appellant sought a review of the decision of the respondent to assess the appellant for land tax in respect of two properties known as “Kelvinside” and “Woodlands” (together “the Land”) for the 2014-2019 tax years. Both Kelvinside and Woodlands are in the Hunter Valley.
The appellant maintains racehorses on four properties including the Land: Kelvinside, Woodlands, Crown Lodge and Osborn Park.
On Woodlands, the appellant maintains thoroughbred broodmares and their offspring, the substantial majority of the offspring (around 70%) being sold.
On Kelvinside, the appellant maintains a thoroughbred stud operation, in which stallions cover mares for substantial fees.
On Crown Lodge, located next to Warwick Farm Racecourse is where the appellant’s racehorses are trained. The appellant does not dispute that land tax is payable in respect of that property.
On Osborne Park, the appellant operates its primary training facility for horses that have commenced their racing careers; it is also used for spelling horses. The appellant does not dispute that land tax is payable in respect of that property.
The Statutory Framework
The relevant exemption from land tax which Godolphin claimed should apply to the Land is provided for in s.10AA LTMA. Issues arose in the proceedings and on appeal regarding the statutory construction of this provision, particularly s.10AA(3)(b), and the interaction between the concepts ‘use’ and ‘purpose.’
S.10AA(3)(b) provides that for the purpose of s.10AA, ‘land used for primary production’ means land the dominant use of which is for -
“(b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce.”
Primary decision
Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 430
The proceeding at first instance involved a determination of whether the activities taking place on the Land were used for the dominant purpose of selling racehorses and their bodily produce, so as to attract the PPE. On the respondent’s case there were two uses of the Land: maintenance of the appellant’s stallions who covered broodmares for a fee, which took place on a comparatively small part of one of the two properties in issue; and the maintenance on both properties of broodmares, yearlings, geldings and other racehorses which were trained and spelled between race campaigns.
The respondent argued that the breeding, training, education and spelling activities were for the purpose of racing (“breed to race”) and that this was the dominant purpose (and dominant use) of the Land.
Ward CJ (as she was then) found that the activities on the Land form an integrated operation in which the preparation of horses for racing is with the overall or dominant purpose or objective of increasing or maximising the revenue from the nomination/covering fees (i.e., the sale of bodily produce) and from the sale of the progeny produced by the broodmares.
Relevant to the Court’s conclusion was Her Honour’s acceptance that the racing prowess of the horses (and ultimately their progeny) was an important factor in the pricing of the stallions’ covering services. This indicated that the appellant’s overall operations on the Land was to be properly viewed, in context, as an integrated stud operation. The being the case, the Court held that the dominant use of each of the contested parcels of the Land for each of the land tax years was for the maintenance of animals for the purpose of selling their bodily produce or natural increase, and that the PPE applied; the Court ordered the assessments be revoked.
Court of Appeal
Chief Commissioner of State Revenue v Godolphin Australia Pty Ltd [2023] NSWCA 44
The Chief Commissioner appealed from that decision. There were two principal issues on appeal. The first concerned the construction of s 10AA(3)(b) LTMA and the interaction between the concepts of “use” and “purpose”. By a notice of contention Godolphin asserted that the requirement of dominance attached only to the use made of the land, in the sense of the physical activities undertaken, and did not also attach to the purpose of the use, such that the sale did not have to be the dominant purpose. The second issue was the application of the test in s 10AA(3)(b) to the facts of the case.
The Court of Appeal determined that the appeal should be upheld (Griffiths AJA dissenting). Kirk JA, Simpson AJA and Griffiths AJA (in dissent) delivered separate judgments.
Kirk JA identified that the key issue was whether the racing purpose of the activities on the Land was secondary to the sale purpose in the land tax years from 2014 to 2019, such that the dominant use of the Land could be characterised as for the sale purpose. In determining this, his Honour expressed the question as being one of statutory construction of s.10AA(3)(b) which required a determination as to whether this provision requires that the dominant use of land relate only to the activity of maintenance of animals or is it necessary that the use of land be characterised as for a dominant use for the identified purpose.
Further, considering the provisions in s.10AA(3), his Honour provided that it must be asked whether the dominant use of the land in question was for one of the categories of a ‘use-for purpose’ identified in the paragraphs in s.10AA(3).
His Honour determined that it was correct to construe s.10AA(3) as the Chief Commissioner had submitted, namely that to correctly apply the test was to determine whether or not the dominant use-for-the-purpose of the Land was for maintaining animals to sell them or their produce. His Honour subsequently rejected Godolphin’s submission that ‘use’ and ‘purpose’ should be considered separately. In reaching this conclusion, his Honour provided that as the word ‘dominant’ was before ‘use,’ but the phrase provides for a dominant use of something, for each of the six paragraphs in s.10AA(3), there must be a use and a purpose identified. As such, it was determined that the dominant use must be for one of the identified purposes.
Applying the test in s.10AA(3) to the facts of this case, his Honour recognised that the greater majority of actual activities on the Land were more directly related to the racing purpose as opposed to the sales purpose.
Kirk JA found that Godolphin established that a significant use of the two properties was animal maintenance for the purpose of selling animal produce and progeny, but it did not establish that that should be characterised as the dominant use. A more significant use of the land was animal maintenance for the purpose of racing.
Ultimately, his Honour provided that although the breeding and racing activities were linked, this did not mean that they should be labelled with one overall purpose. His Honour recognised that the racing related operations occupied the greater part of activities undertaken on the Land, and hence, the racing purpose was not merely incidental to the sales purpose as the primary judge found. Considering activities undertaken on the Land, the areas directed to those activities, the intensity of those activities and the resources directed to the relevant purposes, his Honour found that the racing purpose constituted the dominant use of the Land as opposed to a secondary and incidental purpose to a dominant purpose of breeding: his Honour’s view was that, contrary to the conclusion reached by the primary judge, the characterisation of the maintenance of the racehorses on the Land was not supported by the facts and the appeal should be allowed.
Simpson AJA considered the question of statutory construction, whether the use of the Land was for one or more of the prescribed purposes specified in s.10AA(3)(b). Her Honour stated at [132]: “With some misgivings, I bow to that authority and proceed on the basis that s.10AA(3)(b) is directed to a single concept, expressed by Kirk JA as “use-for-the-purpose”.”
Her Honour agreed with the orders proposed by Kirk JA. However, despite reaching the same conclusion, her Honour found that the land’s purpose for racing and the purpose for breeding, which Godolphin claimed were “complementary or mutually reinforcing,” were in fact evenly balanced and there was no ‘dominant purpose’ for use. As such, her Honour determined that Godolphin had failed to discharge its onus of proving that the dominant use of the Land was for the purpose of the maintenance of animals for the purpose of sale.
High Court
Notice of Appeal
The three grounds of appeal to the High Court were:
- The Court of Appeal erred in concluding that the requirement of dominance in s.10AA(3)(b) applies to both use and purpose.
- The Court of Appeal should have concluded that where the dominant use of the land involves the same physical activity for two or more complementary or overlapping purposes, one of which satisfies s 10AA(3)(b) and does not prevail over the other purpose, it is unnecessary to demonstrate separately that the exempt purpose is the dominant purpose.
- The Court of Appeal should have concluded that the appellant's use of the land for the maintenance of animals was for the purpose of selling animals, their progeny and bodily produce.
Godolphin accepted in oral argument that if it did not succeed on ground 1, it could not succeed on ground 2.
The appellant did not argue that the breeding activities were the dominant use of the Land, rather, to succeed on appeal, Godolphin argued that it was sufficient to rely upon Kirk JA's finding that a "significant" use of the Land was animal maintenance for the purpose of selling animal produce and progeny.
Decisions of the High Court
Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2024] HCA 20
On 5 June 2024, the High Court unanimously dismissed the appeal, Gageler CJ agreeing with the judgments of Gordon, Edelman and Steward JJ and Jagot J.
Gordon, Edelman and Steward JJ
The plurality considered the appellant’s arguments and rejected that the word "dominant" in s.10AA(3)(b) only qualifies the phrase "use of which is for ... the maintenance of animals" and no more, at [28]:
“For the reasons which follow, it should not be accepted that this word only qualifies the phrase "use of which is for ... the maintenance of animals" and no more. Instead, when the text of s 10AA(3) is read in its immediate statutory context and in light of broader statutory and extrinsic context, the word qualifies one composite phrase, namely (and relevantly) "use of which is for ... the maintenance of animals ... for the purpose of selling them ...". The "use-for-a-purpose" construction is thus correct.”
The plurality considered:
- The predecessor to s.10AA, s.10(1)(p), noting the change from “primarily” used, to “dominant” use when considering the earlier case law; the change in the exemption did not, however, alter the approach taken by the Supreme Court.
- The structure of the wording of S.10AA(3)(b).
- The immediate statutory context of s.10AA(3), the other exemptions in the subsection and the “patterns’ of how those exemptions are expressed.
- Other exemption provisions found in s.10 LTMA “land exempted from tax” and s.10A LTMA “land used for several purposes”.
- The extrinsic material and the purpose of the provision as expressed in the Second Reading Speech.
Against the appellant’s proposition that the word "dominant" in s 10AA(3)(b) only qualifies the phrase "use of which is for ... the maintenance of animals" and no more, the plurality stated at [29]:
“The "use-for-a-purpose" construction is supported by the presence of the word "for", which is the last word in the chapeau. As Kirk JA correctly observed, the provision requires that the dominant use be for something. That something is, relevantly here, all of para (b) of s 10AA(3). That paragraph uses a composite phrase that combines an identified use of the land as well as a specified purpose for that use.”
Jagot J
Jagot J held that Godolphin's construction should not be accepted: it did not accord with the text or context of the provision or the apparent legislative intention.
Her Honour gave careful consideration of the case law concerning “use for a purpose”, and concluded that this was a known concept at the time that s.10AA(3) was enacted.
After a consideration of cases before and after the introduction of s.10AA, Jagot J distilled the following propositions at [67]:
“Several propositions emerge from these cases which should be accepted as the foundation for the contemporary incarnation of the exemptions in the Act. First, close attention to the precise terms of the exempting provision is required. Second, the accepted orthodoxy in which the Act was enacted and has been amended is that use of land is for a purpose. Third, in the ordinary case, the question is one of identifying the physical acts conducted on the land by which the land is made to serve some purpose. Fourth, the question of the use of land for a purpose is one of objective fact to be determined in all relevant circumstances, but particularly the degree, extent and intensity of the physical activities on the land. Fifth, as an objective fact, determined in all relevant circumstances, the same land may be used for more than one purpose. Sixth, in determining the objective fact whether the same land is being used for more than one purpose it may be necessary to consider if the various physical activities conducted on the land, on the one hand, are wholly ancillary to or directly facilitative of a single purpose or, on the other hand, serve an additional, independent or collateral purpose. If the former, the correct characterisation will be that the land is being used for one purpose. If the latter, the correct characterisation will be that the land is being used for more than one purpose. Seventh, and finally, where the same land is being used for more than one purpose, the question whether the use of the land is "solely", "primarily and principally" or "dominantly" for the specified exempt matter requires a comparison between such uses (being for the specified statutory exemptions) and other uses (not being for the specified statutory exemptions) to ascertain whether the former is the main, chief or paramount use for purpose.”
Jagot J then considered other matters relevant to the construction of s.10AA: the prior form of the exemption, the Second Reading Speech and the object to be achieved by the requirement of “dominant use”. In that regard she considered that explanation in the Second Reading Speech at [72]:
“Insofar as the concept of "dominant use" is concerned, this explanation accords precisely with the seventh proposition above – that where the same land is used for more than one purpose the question whether the dominant use of the land is for the specified exempt matter in s 10AA(3)(a) to (f) requires a comparison between such uses (for the specified exempt matter in s 10AA(3)(a) to (f)) and other uses (not being for the specified exempt matter in s 10AA(3)(a) to (f)) to ascertain whether the former is the main, chief or paramount use.”
Jagot J thought it was relevant that s.10AA introduced different regimes for rural and non-rural land; she also noted that s.10A contemplated explicitly recognises that land may be used for more than one purpose.
In light of the above, Jagot J went on to consider the construction of s.10AA(3)(b). Succinctly, she states in relation to the appellant’s construction:
“This approach fails to recognise that each of s 10AA(3)(a) to (f) is a composite phrase which is incapable of sensible disaggregation. As the discussion above exposes, the formulation of the exemptions reflects the long history of the legislation.” [77]
Jagot J holds at [79] and [80]:
“Accordingly, the majority in the Court of Appeal did not err in their construction of s 10AA(3). Kirk JA was correct to say that: "The word 'dominant' comes before 'use'. But the phrase refers to dominant use for something. What then follows in each of the six paragraphs is identification of both a use and a purpose. The dominant use must be for one of the identified purposes. It is not appropriate to separate out the notions of use and purpose in the manner suggested by Godolphin ... Thus the question here is not simply whether the use of maintenance of animals – which both sides accept to be the dominant use of the properties – can then be characterised as for a purpose of sale. Rather, the question is whether that use of the properties can be characterised as having the character of a dominant use for the purpose of selling animals, progeny and produce.[79]
Simpson A-JA was also correct to reject Godolphin's approach to s 10AA(3) and to "proceed on the basis that s 10AA(3)(b) is directed to a single concept, expressed by Kirk JA as 'use-for-the-purpose'". [80]
Her Honour held that while the issue of construction was sufficient to determine the appeal, she made some further comments on characterisation:
“Godolphin’s view of its business operating on the basis that it bred horses to race and raced horses to breed where the breeding arm supply the stock for the racing stable, the stable then proves them on the track that creates the supply of high end bloodstock assets of stallions and breeding females" – does not mean that, for s.10AA(3), it was using the Land for one integrated purpose. The necessary focus is not Godolphin's conception of its business model, but rather the objective features of the physical activities being conducted on the two properties.” [82]
“It is the terms of the statutory exemptions which determine the relevant use for purpose, and it is the objective features of the physical activities on the land which determine the character of the actual use for purpose being conducted on the land.” [86]
“In the context of the statutory exemption, Godolphin's mode of operation could never be characterised as a single use for the purpose of the maintenance of animals for the purpose of selling them or their natural increase or bodily produce. On the facts, the breeding for racing purpose could never be described as "merely a means to the fulfilment" of or merely "incidental" or "wholly ancillary" to the exempt purpose. The maintenance of the horses for racing purposes was manifestly its own use for its own purpose and it could not be said that the exempt use for purpose was dominant compared to that use.” [86]
At [87] Jagot J refers to the judgments of Kirk JA and Simpson AJA and states:
“Both conclusions are within the reasonable evaluative range and neither conclusion involves error.”
Orders
Appeal dismissed with costs
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