Chief Commissioner of State Revenue v McIntosh Bros Pty Ltd (in liq) [2020] NSWCATAP 124

Background

The Chief Commissioner of State Revenue assessed land near Cobbity in New South Wales as liable for land tax for the three tax years of 2014, 2015 and 2016. The land is owned by McIntosh Bros Pty Ltd (In liq) (McIntosh Bros).  The Chief Commissioner determined that the land did not satisfy the criteria for exemption under s.10AA on the basis that its use by multiple users could not be aggregated so as to satisfy the dominant use test in s.10AA(3), nor did its use by those multiple users satisfy the commerciality tests in s.10AA(2).

Following an application for review of the Commissioner’s decision by McIntosh Bros, the Tribunal set aside the assessments.  The Commissioner appealed to the Appeal Panel, raising 5 key issues.

Issues and decision

Issue 1

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.  As s. 10AA(2)(b) requires the user to have a subjective “purpose of profit”, the several users of land cannot possess an aggregated single purpose.

Decision

The Appeal Panel determined that:

• when applying the dominant use test, s. 10AA(3) does not require the use or uses of the land to be part of the same joint activity, business or enterprise. The singular word “use” in this context includes the plural “uses”: [41].
• whether one or all six of the activities prescribed in s. 10AA(3)(a)-(f) are conducted on the land, that does not change the nature of the use, being for the purpose of primary production: [42].
• the dominant use test does not refer to the identity of the user or whether the user owns the land: [43].
• section 10AA(2) permits an evaluation of use made on the basis of aggregating all primary production uses on the subject land by different users: [48], [50].
• it follows that the primary production use of land may be carried out by more than one legal entity, not necessarily related or part of the same activity or enterprise: [48], [50].

The Appeal Panel did not accept the Chief Commissioner’s submission that the requirement for a “purpose” involving a subjective element in the purpose of profit test would produce incongruous results when applied to an aggregated use. Rather, it concluded that:

“[c]onsidering individual users and the subjective purpose in respect of each use of the land does not prevent an overall assessment of whether the use of the land as a whole meets these tests”: [57], [60].

Issue 2

At first instance the Tribunal had held that the “agistment” arrangement between one of the users of the Land, Ian McIntosh (“Ian”), and R M Hayter; Sons (“Hayter”) for the running of Hayter’s dairy cattle on Ian’s part of the Land constituted a primary production use of the Land by Hayter. This was on the basis that Hayter retained “control” of its cattle while placed on Ian’s land.

On appeal, the Chief Commissioner submitted that Ian was the person “maintaining” Hayter’s dairy cattle within the meaning of s. 10AA(3)(b) but he did not do so for the purpose of selling their bodily produce (ie, milk). Hayter may have had that purpose but it did not “maintain” the cattle while they were on Ian’s land. The Chief Commissioner submitted that neither Ian nor Hayter were engaged in a primary production use of the Land in respect of Hayter’s cattle, and therefore any agistment income received by Ian ought not be taken into account in evaluating commerciality.

Decision

The Appeal Panel determined that:

• it is not necessary that the “maintainer” of the animals be the same person who has the purpose of selling them or their natural increase or bodily produce. No issue arises in s. 10AA(3)(b) as to the identity of the “maintainer” of the animals: [82].
• in any event, Hayter was a licensee ([71]) and did maintain the animals while on Ian’s part of the Land: [87].
• it follows that agistment of land involving an owner of animals having a licence to bring them onto land owned by another whereby the animals’ owner retains control of the animals can amount to a primary production use of land.

Issue 3

The Chief Commissioner submitted, in relation to Richard McIntosh’s (“Richard’s”) sheep operation on other land at Molong, that there is no authority for the proposition that separate and distinct enterprises using separate and distinct lands may be treated as one use of all lands by all enterprises. The Chief Commissioner contended that the authorities relied upon by the Tribunal, Maraya[1] and Vartuli[2] involved a single use by a single enterprise conducted on discrete parcels. It was submitted that is not the present case.

Decision

The Appeal Panel disagreed with the Chief Commissioner’s interpretation of NSW Court of Appeal authorities, holding that it is consistent with those authorities that the commerciality of an enterprise may be evaluated by reference to use of the subject land in conjunction with use of other land by that enterprise: [99]-[102].

The Appeal Panel agreed with McIntosh Bros’ submission that there is nothing in the Vartuli decision to “suggest that the species of livestock is critical”: [104].

Further, the Appeal Panel noted that the Tribunal had found the Molong sheep operation and the cattle grazing operation on the Land were part of the same business, not separate and distinct enterprises: [98]. That factual finding could not be disturbed without leave being granted to the Chief Commissioner, and the Appeal Panel refused to give such leave: [106].

Issue 4

The Chief Commissioner submitted that the Tribunal, in evaluating the commerciality and purpose of profit tests in s.10AA(2), failed to consider the “uncommercial features” of the land use, such as the non-payment of land rates, the non-use of some of the land, the absence of remuneration for the labour of the users, miniscule profits, and the omission of management fees.

Decision

The Appeal Panel determined that there is no requirement to include in the calculation of profit, land holding costs or notional costs for labour that are not actually incurred: [112].

In relation to the question of whether such notional costs detract from a conclusion that the use of the land satisfies the commerciality test and the purpose of profit test, the Appeal Panel did not identify any error in the Tribunal’s decision.  At [120]-[122], the Appeal Panel relied on the following factors in support of its conclusion:

• In the present case, it seems clear that those using the land had a purpose of profit, and that the derivation of profit from those activities was significant and substantial.
• It is not the case that those using the Land had other sources of income or engaged in other activities that might detract from the significance or substance of the primary production enterprises.
• The fact that individuals who worked in each relevant primary production enterprise took their financial returns by way of profits rather than as employees makes no difference.
• This is not a case where ‘very small amounts of profits’ when considered in the context of notional labour costs mean that the cattle operations ‘do not constitute a serious primary production use’ (unlike Maraya).
• There is no reason to attribute notional land use costs (such as land rates) to those carrying on the primary production use in circumstances where those users were separate from and unrelated (in a commercial sense) to the owner/ratepayer of the land.

Issue 5

The Chief Commissioner submitted there was evidence of other physical activities on the Land during the land tax years, eg, sewer pumping station, electricity works, physical works procured by A V Jennings, and that McIntosh Bros had failed to adduce evidence about the timing, extent, duration and costs of these, such that it could not prove that grazing cattle was the dominant use of the Land.

The chief Commissioner submitted that the Tribunal failed to apply the legal principles by the Supreme Court in Leppington[3] which held that once non-primary production uses are identified, the taxpayer is required to prove the nature and intensity of the competing uses of the land, the time and labour spent in conducting the different uses, the money spent or assets deployed in each use and the value derived or to be derived from it.

Decision

The Appeal Panel agreed with McIntosh Bros’ submission that this was an attempt to re-litigate the matter on its facts and that in its opinion, the Tribunal had properly understood the taxpayer had the onus of proof: [133].

The Appeal Panel decided that this ground of appeal does not identify a question of law: [134].

Orders

The Chief Commissioner’s appeal was dismissed.

https://www.caselaw.nsw.gov.au/decision/172fdf8ac1eed646e92198fb

Footnotes

1. ^ Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23; Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408
2. ^ Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678; Vartuli v Chief Commissioner of State Revenue [2015] NSWCA 372
3. ^ Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9