Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 735

Date of judgement 21 May 2018 Proceeding No. 2017/00213403
Judge(s) Pembroke J
Court or Tribunal Supreme Court of New South Wales
Legislation cited Duties Act 1997
Catchwords TAXES AND DUTIES – landholder duty – whether land exempt from duty as land used for the purpose of primary production – land exempt per Section 163D of the Duties Act 1997
Cases cited Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27

Carr v State of Western Australia (2007) 232 CLR 138

Hope v Bathurst City Council (No 2) (1986) 7 NSWLR 669

Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2010) 79 NSWLR 724

Background

The primary issue in this proceeding is whether the Adams Bidco Pty Ltd (“the Taxpayer”) was liable to pay landholder duty under the Duties Act 1997 upon its acquisition of all of the issued capital in Ingham Enterprises Pty Ltd (Ingham) on 27 June 2013. At all relevant times, Ingham acted as the holding company for Inghams Enterprises Pty Ltd (Inghams), which operated a poultry production business in Australia and New Zealand. The Taxpayer contends that it was not liable to pay landholder duty because it was entitled to rely on the primary producer exemption in Section 163D of the Act.

Statutory Framework

In order for the concession under s. 163D(1) of the Act to apply, the Taxpayer would have to show that Ingham was a “primary producer” but was not “land rich.”

The Chief Commissioner accepted that Ingham was not “land rich”. Therefore, the primary issue for determination before the Court was whether Ingham was a “primary producer” within the meaning of s. 163D(2), which states:

“primary producer’ is a landholder whose landholdings in all places, whether within or outside Australia, wholly or predominantly comprise land used for primary production or land that would be considered to be land used for primary production if it were land in New South Wales.”

The expression “land used for primary production” is defined in the Act to mean land that is exempt from land tax under s. 10AA of the Land Tax Management Act 1956.

Submissions

The parties agreed that the first step was to identify the landholdings of Ingham that were and were not “primary production land”.

However, the parties disagreed on the second step. The Taxpayer submitted that to determine whether Ingham’s land “wholly or predominantly” comprised land used for primary production, it was necessary to compare the area of primary production land to non-primary production land. The Chief Commissioner submitted that one should compare the value of the two categories of land.

Decision

Pembroke J held that at the relevant date, Ingham was a “primary producer” within the meaning of s.163D(2), with the effect that the Taxpayer was entitled to rely on the primary producer exemption from landholder duty. The Court reasoned that the language of s.163D(2) does not compel a determination of Ingham’s primary producer status solely by reference to the area of its landholdings, or solely by reference to the value of those landholdings.His Honour stated at [26]:

“… The question is to be addressed pragmatically having regard to the ordinary and natural meaning of the words ‘land used for primary production’ where they appear in the operative part of subsection (2).”

His Honour noted that the definition of “primary producer” in s.163D(2) was “concerned with ‘use’ – the way in which the land is worked, utilised or employed”, rather than with concepts such as the area of the land or its value (at [4]).

Pembroke J then conducted a review of the operation and scope of Ingham’s business, making the following findings:

  1. the business was a “fully vertically integrated poultry production business”, conducted in both Australia and New Zealand (at [9]);

  2. the operations of the business involved feed mills, poultry production, breeder farms, hatcheries and a limited number of broiler farms; and

  3. the evidence suggested that by area, approximately 90% of Ingham’s land was used for primary production, whereas by value, approximately 35% of Ingham’s land was used for primary production.

Pembroke J considered the language and context of s 163D(2), concluding that there was no sound basis for accepting the Chief Commissioner’s contention based on ‘value’. In this regard His Honour pointed to the fact that where the Act requires an assessment of value, it is expressly stated. His Honour reasoned that the absence of such wording from the ‘wholly or predominantly’ test was a strong indication that Parliament did not intend for regard to be had to the value of land for the purposes of s 163D(2).

Pembroke J also indicated that the value approach had the potential to produce capricious and arbitrary results. In this regard His Honour gave the example of a taxpayer who might cease to be a primary producer merely because of a fluctuation in property prices, causing the value of their non-primary production land to exceed that of their primary production land. Further, His Honour noted that the value approach would result in the unintended consequence of requiring landholders to value their assets on a regular basis.

His Honour also noted that, whilst the particular facts in this case supported the conclusion that Ingham was a primary producer, “That is not to say, however, that in a different case on some other combination of land values and areas, the same result would necessarily apply” (at [27]).

Accordingly, the Taxpayer was found to be entitled to rely on the primary producer exemption, and the Defendant was ordered to pay the Taxpayer’s costs.

Link to decision

Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2018] NSWSC 735

Last updated: 19 June 2018