Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2022] NSWSC 430
Background
The Plaintiff carried out its equine operations on various parcels of land, including two properties known as “Woodlands”, situated at Jerrys Plains and Doyles Creek, and “Kelvinside”, located at Aberdeen. Both properties were comprised of more than one Property ID (“PID”) which in some cases comprised of more than one lot. The Chief Commissioner agreed that the Primary Production Land (PPL) exemption applied to some PIDs before the commencement of litigation.
The Plaintiff’s activities on Woodlands used to maintain broodmares and their offspring, grazing of cattle, growing lucerne and maintaining a small number of horses for purposes ancillary to breeding and education for racing purposes.
The Plaintiff activities on Kelvinside included the covering of mares by its stallions, grazing of cattle, spelling racehorses owned by the Plaintiff between race campaigns, raising and educating yearlings (including the ‘breaking in’ of horses), also owned by the Plaintiff.
The Plaintiff also conducted equine operations at Crown Lodge, opposite Warwick Farm Racecourse, where the Plaintiff trained its racehorses. Osborne Park, to the north-west of Sydney, also contained training facilities, spelling facilities and quarantine facilities for international horse movements. The Plaintiff owns both of those facilities and the land.
The Plaintiff maintained a number of different categories of horses on the contested land including:
- Foals were born, weaned, trained, and commenced their education at Woodlands. In each of the land tax years, the overwhelming majority of foals are retained by Godolphin, with less than 10% sold as foals.
- Yearlings were raised and educated on Kelvinside, irrespective of their ultimate use for racing, sale or for other purposes. Within the year, the yearlings were periodically transferred to another of the Plaintiff’s properties. In each Land tax year, there was a much greater proportion of yearlings being engaged in racehorse training than were sold.
- Racing age horses (geldings, mares and stallions) – mares (between 2 years and 5-6 years) and stallions ((between 2 years and 6 years) were raced for a period of time a year, and for the remainder they were ‘spelled’, predominately at Kelvinside. Mares, after their racing career, either became part of the Plaintiff’s broodmares or were sold. Geldings, being the vast majority of male horses, were sold at the age of 3.
- Stallions -providing the covering services on the Kelvinside property. Some of the most sought-after stallions were shuttled to (and from) the Northern Hemisphere, with the Australian shuttle stallions spending approximately seven months abroad.
Thoroughbred racehorses may not be bred by artificial insemination. Both parties agreed that the stallion covering activities constituted the sale of the bodily produce of animals for the purposes of s 10AA(3)(b)).
The evidence presented by the Plaintiff showed that the racing operations generally incurred significant losses, as opposed to the highly profitable stallion covering operation.
The parties agreed that in relation to the grazing of cattle, if the equine activities did not fall within the PPL exemption, the cattle use of the land would not be sufficient to attract the exemption.
The Statutory Framework
The land for which the plaintiff claimed exemption from land tax was “rural land”, so the Plaintiff’s use of the land had to satisfy the dominant use test set out in s.10AA(3) of the Land Tax Management Act (LTMA) to satisfy the exemption from land tax for land used for primary production under s.10AA(1) of the LTMA.
Plaintiff's Submissions
The Plaintiff submitted that the “stallion-covering” operation together with the maintenance of horses on the land was one operation and formed one use, being the exempt use prescribed in s.10AA(3) of the Act.
The Plaintiff argued that:
- The purpose of the racing program was to increase the value to be attributed to the stallions’ semen, and the value of their sires, dams, progeny and others who share their bloodline and/or progeny, which would have the effect of increasing revenue from its sales operations.
- The market for selling thoroughbred horses, their progeny or their semen is heavily impacted by the racing career of the relevant horses (or horses related to them), and the success of the Plaintiff’s stallions in the racing program was crucial to driving up the value of their semen and/or progeny.
- That being so, the racing program was part of the integrated thoroughbred stud operation, in that the racecourse success of the stallions were instrumental to increasing the value of the goods to be sold (horses and semen).
- Each of the equine operations on the land, including the training and maintaining of the horses for racing, constituted overlapping purposes with the ultimate aim of selling the horses and the bodily produce of the stallions (including semen ‘sold’ by way of ‘covering’ mares).
- The purpose of sale and the purpose of racing are two aspects of a single composite purpose; the sale of horses or semen is a central part of that composite purpose;
- it is not a situation where competing purposes need to be weighed up; the purpose of sale is central to the dominant use (in the sense of the activities on the land); accordingly, as a matter of ordinary English and as a matter of common sense, the dominant use of the land is the maintenance of horses for the purpose of selling them or their bodily produce (horses and semen).
Chief Commissioner’s Submissions
The Defendant’s position was that the yearlings and horses of racing age were maintained for the dominant purpose of racing, and that when mares were retired they were kept for breeding or were sold. Any sales achieved were ancillary or incidental to the racing purpose.
The Chief Commissioner submitted that:
- each PID that comprised each of the properties must be considered separately, by reference to evidence adduced in relation to its use and the purpose for which that use is being undertaken;
- the maintenance of broodmares, yearlings, geldings and other racehorses on the land was for the dominant purpose of racing rather that for the purpose of sale as required by s 10AA(3)(b) LTMA;
- any sale of the horses or their bodily produce (the sale of semen by the servicing of mares) was merely ancillary or incidental to the dominant use of the land for horseracing purposes;
- section 10AA(3)(b) required the dominant purpose of the actual use of the land to be sufficiently proximate to the sale of the animals, and/or the sale of their natural increase and/or the sale of their bodily produce;
- the Plaintiff’s racing operations were not sufficiently proximate to those purposes;
- the use of the land for the sale of horses or their bodily produce was merely ancillary or incidental to the use of the land for horseracing purposes, which was the dominant use of the land;
Decision
The Court considered that the central issue for determination was whether there are two separate activities (such that it is necessary to determine which is the dominant use on each parcel of land), or whether there was an integrated or composite activity involving both breeding and racing, such that the dominant use of all PIDs (whether for breeding, training or spelling) is for the purpose of the ultimate sale of the stallion’s semen and the brood mares’ progeny.[256]
Accepting that much of the contested land was devoted to the activities of breeding, training and preparation of the horses for racing, Ward CJ concluded that, when viewed overall and in context, this use was in fact part of an integrated thoroughbred operation, the dominant purpose of which was to maximise the revenue of the sale of bodily produce (by way of ‘covering’ fees) and from the sale of the progeny produced by the broodmares. [258]
Rather than there being two distinct purposes for the activities on the contested land (training of horses for racecourse success on the one hand, and the sales of the stallions’ bodily produce and progeny on the other) the Court accepted that these purposes were part of the overall objective of increasing the value of the Plaintiff’s stud operations: [270].
The Court considered that the sales of the bodily produce could be said to be sufficiently proximate to the maintenance of the animals on the land (at [270]), if sufficient proximity was required for the purposes of s 10AA(3)(b) of the LTMA.
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’ semen: at [272]. This indicated that the Plaintiff’s overall operations on the two properties was to be viewed, in context, as an integrated stud operation. Moreover, Her Honour also considered it relevant that the Plaintiff’s racing operations would be uneconomic for the Plaintiff if they were hypothetically to be confined for the purposes of racing only (and not ultimately the sale of bodily produce and/or progeny). [272].
In the Court’s view, it followed that the maintenance of the animals on the contested land was for the dominant use of selling their bodily produce, natural increases or bodily produce, as required under s 10AA(3)(b) LTMA: at [272]. This meant that PPE applied to both Woodlands and Kelvinside. [273]
On the basis of the Court finding that the activities formed one use of the contested land, and there was one purpose, the Court did not need to consider the issue of overlapping purposes. However, the Court stated that if there were two distinct purposes for the activities on the land, then the relevant question would be whether use for any one such purpose was the dominant use; [270].
Orders
- That the land tax assessments be revoked;
- That the matter be referred to the Chief Commissioner to assess for land tax, on the basis that the taxable values of the Land are excluded from this assessment;
- That the Chief Commissioner pay the Plaintiff’s Costs.
https://www.caselaw.nsw.gov.au/decision/1801740a1b3d80b79c21edc9