Appellants v Respondent

Appellants v Respondent - [2016] VSC 322 - VSC 2016 case summary — Zoe

[45]

I should, very briefly address myself to the other question argued by counsel. As I have already remarked, Camden Vale Pty Ltd did not enjoy any income in the accounting year ended 30 June 1975. On behalf of the taxpayers it was submitted that one takes nine-tenths of nil and that requirement has been satisfied. It was submitted that, approaching the Act in the way that I have been content to adopt, it would be an unusual and surprising result that the exemption should arise only when, in truth, there was income from the property. I agree with that. I agree with that for a number of reasons. Firstly, in my view, what the sub-section is designed to do is to ensure that, not only is the land used primarily for one of the designated purposes, but that the income which is derived from the land is also derived from primary production. One example will suffice: It would not have been intended that there should be a large pastoral property on which the major source of income should be the letting of the homestead at an exorbitant rental. The property would still be primarily used for the grazing of cattle and sheep. The letting of the homestead might only be an incidental activity for a short period of the year. The legislative purpose, however, is to ensure that the exemption enures for the benefit of those whose primary source of income from the land is primary production and who use the land for the purpose of primary production.

The other reason I have for coming to this conclusion is that it would quite surprisingly and unfairly discriminate against those whose use of the land is solely for primary production but who, because of the slow maturing of the crop, do not derive income from a considerable number of years. The growing of trees, flowers of a long maturing kind such as proteas, macadamia nuts and other types of produce readily come to mind. I cannot detect anything in the purpose of the Act to disqualify land so used from the exemption provisions merely by reason of the fact that no income is derived in the relevant year.

[94]

"Horan was to cultivate the land for the purpose of selling the product of cultivation and in return he was to carry out further clearance and maintenance works on the land to improve its suitability to cultivate for further primary produce. The agreement was that the appellants as the owners of the land would receive 25 per cent of the proceeds of sale of any excess grain harvested. Grain in excess of what is needed to re-sow the land". That's what you said when you made an affidavit in this case. Now first of all you wouldn't have put it quite like that, I think would you. That's rather hifalutin language that you wouldn't have used isn't it?---I don't know, that's - I can't understand what - - -

You wouldn't have said something like, "Horan was to cultivate the land for the purpose of selling the product of cultivation"?---That's correct.

What would you say?---What do you mean, cultivation?

Was he going to farm it?---He was going to sow wheat or barley you know.

In this paragraph you say that the agreement was that you, the family?

---Yeah.

"Would get 25 per cent of the proceeds of the sale of any excess grain harvested, that is in excess of what's needed to re-sow the land"?---And expenses.

Let me just deal with that in parts. Some of the grain that's harvested you'll use to sow next year's crop, is that what you had in mind?---I don't know. I'm not cereal you know in Europe I remember I was young boy you know. Some they used to get seed from somewhere else you know, they buy new one, just changing it you know. But I don't know in Australia, I'm not cereal (indistinct).

You didn't know when you reached the agreement with Mr Horan whether each year he would buy seed and plant a new crop or whether he'd use last year's - - -?---Well I - I had the agreement to sow up there and I mean plant it, you know put them in and like it and what is after expenses so I can get 25 per cent. I didn't ask he get same seed to plant it or to buy it.

What I'm suggesting to you at the moment Mr Koroneos is that what you've said in your affidavit is a little bit different from that?---What is it?

I'm trying to take this in stages. At the moment I'm trying to establish the part of it where you say in your affidavit that what we were talking about was the proceeds of sale of any excess grain harvested, grain in excess of what is needed to re-sow the land. Now just that part about resowing the land. What I was exploring with you is that there really is two ways you can sow a crop where you're repeat sowing the same crop. You can buy your new seed from outside and plant it or you can keep some of the seeds from last years' crop and use them?---That's on Horan's - you know on Horan's you know it's better than me on cereal crops.

HIS HONOUR: But isn't what Mr Williams putting to you correct? You've got to get the seed from somewhere. You either buy it in or keep some from last year?---Well I didn't ask him about that, what he was going to keep for the seed, what are you going to get some for next year, so he can re-sow you know. Then after what is left you know.

MR WILLIAMS: So you didn't know whether he was going to re-sow with last years' seed or buy new seed?---No.

If that's right then how could you have had an agreement with him that was based on the only proceeds that you were entitled to a share of being what was in excess of what was used to re-sow?---Well (indistinct) the agreement with Horan to their farm, then when he come to harvest it, you know to get the crop, after his expenses you know we get 25 per cent, our family to get it. That's very simple. I don't know to put other way round.

The other thing is that there's a difference isn't there between getting 25 per cent of the total - - -?---Not of total, no, on the profit.

Yes, 25 per cent of the total profit - - -?---I mean after expenses.

- - - versus a 25 per cent share of the proceeds of sale of whatever wheat is left over after re-sowing?---That's correct.

There's a difference between those two concepts isn't there?---Not really.

Did you really know what the arrangement was for Mr Horan at all?---H'mm.

Did you really know what the arrangement was for Mr Horan at all?

---Gentlemen you know, we had to agree you know so he can sow the paddock. Then after what - you know after when you come to harvest it you know, so - and he get for his expenses, you know after the expenses if there's any leftover we will share 25 per cent to me, 75 for Horan.

Is this agreement still going?---Well, no.

When did it stop?---We had the company go under (indistinct). They said we better do it with Horan, because they not satisfied what I was doing.

So when the company that bought it, you're talking about ID Land, is that the company you mean?---That's correct, yes.

That's Mr Jeffrey Garvey isn't it? When he bought it he said he wasn't satisfied did he, with what you were doing?---That's correct, more or less.

So he made some other arrangement?---I don't know.

When did that arrangement start and when did your arrangement stop?

---Well why don't you ask - I don't know, I don't know I said.

Well hang on a second Mr Koroneos. You're telling me about an agreement you say you've got with Mr Horan where you get a share of proceeds?---Yes, that's correct.

So when did that agreement come to an end so that you're no longer entitled to a share of proceeds?---I don't know. I don't remember.

[97]

Can you explain to me what you said to him about how it would work at the time?---That's what I said. You - we'd get 25 per cent of the profit if there was a profit after expenses.

And how would that be worked out?---Pardon.

How would that be worked out?---Well obviously if he was inspecting the place, he'd see how much a crop would grow.

And one of the largest inputs, I suggest to you in your farming enterprise was your own time. Would you agree?---My time and machines, yeah.

And you owned those machines?---Yeah.

So it would be fair, wouldn't it, in calculating a profit to allow some proportion of the costs of owning and operating those machines?---Yeah.

Because obviously you weren't just using them on this property?---Yeah.

You were using them next door and you were using them at the other places. So there had to be some apportionment, didn't there?---Yeah.

How were you going to - - -?---Oh well, it's - it's based on acreage, cost per acre.

So you had in the back of your mind, did you, that there would be some cost per acre that would be allowed for all of that?---Yeah.

How is that worked out?---By what I - what I estimated work I could get. If my estimates aren't correct, I could be out hundreds of dollars. But I - if I'm working it out, if you employ me to come and do your place, and I have to work out a quote. Is that what - - -

Sure?---To say I'm going to charge you $200 an acre to do this farm and that's it, and you go, "Thank you very much."

Sure, and whatever I agree to pay, I've got to pay?---That's right.

But you didn't have an agreement like that with Mr Koroneos, did you?---I said if I give the profit after what expenses, we'll get 25 per cent.

Yes, and what I'm trying to get at, Mr Horan, is how you work out what those expenses are?---How do I - how did - how did I work it out.

Yes?---It was an unknown factor for me because I didn't know how much in the first year it was going to cost.

So it was an unknown factor for you and an unknown factor for him?

---Virtually.

So again - - -?---I had a rough idea how much it was going to cost me.

All right. At the end of the first year, then, having said nothing more than that, how are you going to sit down with him and work out whether or not you'd made a profit?---How was I going to work it out?

Yes?---If I made a profit I'd tell him.

But, how would you know if you'd made a profit?---By the yield of the paddock.

Right. But, what would the expenses be?---Well, I have costing and figures of how much things cost, if - - -

Do you? How much was your time going to be charge at?---Well, if I wanted to charge $5 I'd charge $5. If I wanted to charge $100 I'd charge $100.

Yes. So it was entirely up to you - - -?---If I wanted to charge $2 I'd charge $2.

If you charge $1,000 you'd charge $1,000?---Yeah.

A minute?---Well, whatever you determine.

So it was entirely in your hands. You didn't discuss it with Mr Koroneos at all. You would charge whatever you thought was a fair thing for your time?

---And whatever I thought, yeah.

[100]

MR WILLIAMS: I mean you could conduct farming activities without having a contract. People trust each other. I wouldn't be standing up here on behalf of the commissioner and saying that unless it, you know, satisfies the full requirements of a legal contract it doesn't assist the court in determining what the purpose was. It could but if actually there really isn't an understanding at all, the proposition that there's an oral share farming agreement is actually dressing up as something else. What in fact was no more than a convenient arrangement whereby Mr Koroneos had reached the point, as he told Your Honour, that he couldn't make a go of farming this land.

And he had a neighbour or a person operating on the neighbouring land, Mr Horan, who was happy to do some activity on the land which would have the benefit for Mr Koroneos' purposes of weed suppression and a bit of rock clearing. And that's Mr Koroneos' purpose because he knows if he stops farming he's going to have to do those things. Even if he doesn't farm at all he's still going to have to suppress weeds and over time he's probably going to have to clear rocks, because clearing rocks makes weed suppression easier.

That's why he paid Mr Hercules $38,000-half to do it, as is described in the Hercules' invoices as to what the reason was. So over time either that task falls to Mr Koroneos and his family, in circumstances where they're not farming at all, they've just got to do that to keep the land up, or conveniently let Horan do what he likes on the land which is entirely consistent with showing no interest in what it is that Horan's growing, whether it's turning a profit or not and whether you're entitled to a profit share.

HIS HONOUR: Yes. But suppose Mr Horan had come on to the land on some vague arrangement, let's put it like that, which the owner of the land was not particularly interested in for all sorts of reasons, and run a very successful farming into cultivation enterprise, that would still trigger 66 wouldn't it or would it?

MR WILLIAMS: We would say that it doesn't because the question is what's the purpose of that activity going on the land?

HIS HONOUR: By whoever's doing it?

MR WILLIAMS: But what's the activity and who's directing it? If it's looked at from the perspective of the owners certainly the purpose is weed control and rock management.

HIS HONOUR: Yes, yes, I understand you're putting that. Yes, yes.

MR WILLIAMS: Even if it's looked at from Horan's purpose however, and one accepts Your Honour's proposition, it would still only be one of the several purposes. So Horan might have a commercial purpose but it doesn't mean that that's the only purpose and that's therefore the only use.

HIS HONOUR: Yes.

MR WILLIAMS: Because you can't ignore the owner's use simply because Horan's the one conducting the activities or the owner's intention rather for the use. But even looked at from Mr Horan's perspective, and even if Your Honour was to reject what I've just said and say that the entire focus is on what Mr Horan's purpose is because he's the one conducting this activity.

HIS HONOUR: Yes, yes.

MR WILLIAMS: Even on his evidence Your Honour would not be inclined to find, I respectfully submit, that the principle purpose was to sell the produce of the land. Mr Horan referred at least a couple of points in his evidence to what I might call a bad neighbour problem, which is well known in farming.

[102]

57 On the evidence, it is not, in my view, established that the principal purpose, was to sell the produce of the Land. In this respect, Mr Horan referred in his evidence to what might be described as the "bad neighbour" problem, which is well known in farming. In this respect, he made mention of a farmer who has well cared for the property farmed and on which weeds have been eradicated, but describes the whole of his property as being susceptible to weed infestation because of his neighbours' lack of weed eradication or control. Mr Horan made mention of this because he was conducting other farming operations on nearby land and in terms of keeping this land clear of weeds, he was concerned not to be impinged upon as a result of "bad neighbours". In this respect, I observe his evidence in answer to the question, "I'm not asking you to focus on what Mr Garvey's motivation is, I'm asking you about your motivation", as to which he answered, "The motivation for me was to keep the land [ie the Land] clear in production so that it wouldn't impinge on any other productions in that area".[76] He also said, in answer to earlier questioning with respect to weed management and weed spraying, that "Well because of the [weed] management - it's in my interests to - in my interests to do that because it eliminates weeds going to the next property".[77] Thus, Mr Horan's first and only answer with respect to his motivation was so that the Land did not impinge on his other farming activities as a result of weed infestation. This is, of course, not the purpose relevant to the provisions of s 66(c) or the definition of "primary production" contained in the Act. At best, in my view, land cultivation for the purpose of selling the seed - selling the produce having regard to wheat and barley crops - may have been a side benefit, but could not, on the evidence, be described as the primary purpose. Moreover, the fact that some seed might be produced on the Land for sowing on other properties farmed by Mr Horan is probably not, in the factual context of this proceeding, something that could be described as cultivation for the purpose of selling the produce. Even if one took a broad view of the words in parenthesis in paragraph (a) of the definition of "primary production" - "whether in a natural, processed or converted state" - this activity could not be regarded as the primary purpose but, at best, a mere side benefit. Moreover, any claimed sale of produce from the Land was so minimal as to be consistent with the "side benefit" subsidiary purpose analysis to which I have referred.[78]

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Judgment (187 paragraphs)

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Cases Cited (19)