Australian Investment and Development Pty Ltd v Commissioner of State Revenue

Australian Investment and Development Pty Ltd v Commissioner of State Revenue - [2017] VCAT 1418 - VCAT 2017 case summary — Zoe

[45]

AID was incorporated by Mr Apswoude, its sole shareholder and director, in around June 1993.
Particularly between 1998 and 2002, its activities involved acquiring properties or interests in properties and reselling those properties or interests for profit.[34]
AID acquired the Relevant Property on 7 June 2004. It comprises Lot 1, a triangular piece of land abutting the Calder Freeway to the north of Davis Road and Lot 4, a square piece of land to the south of Davis Road. Lot 1 is approximately 100 hectares, and Lot 4 is approximately 70 hectares.[35] The Relevant Property is divided into 15 fenced paddocks, with paddocks 1 to 8 on Lot 1 and paddocks 9 to 15 on Lot 4.[36]
Mr Apswoude said that AID acquired the Relevant Property because he wanted to farm.[37] He had an interest in farming because his family had owned, and lost, a farm on the Mornington Peninsula, although this had occurred prior to his birth.[38]
At the time it was acquired, the Relevant Property was zoned rural.[39]
In his first witness statement, Mr Apswoude states that, at the time of purchase, his 'initial intention for the use of the farm was to plant crops and run livestock'.[40] In this regard, a document entitled 'Reconstructed Business Plan from 2004' (Acquisition Business Plan) was attached to his first witness statement.[41]
The Acquisition Business Plan is a 12 page document. It is undated. The document references Mr Apswoude and Mr Justin Taylor as contacts. Among other things, it assesses the economic viability of using the farm to grow barley, canola and wheat, and for the grazing of sheep and indicates that those activities could generate a profit of $148,050 per year. It also includes a reference to 'future implemented uses' being use for 'hothouse veg' which could produce a profit of $13.1 million over 3 years.
Mr Apswoude was extensively cross-examined on this document. Mr Apswoude explained that the plan was cobbled together and reconstructed because the original documents had been lost in a fire.[42] He conceded that it had been prepared by Mr Justin Taylor, who had not been involved in preparation of the original plan it purports to reconstruct, and was prepared in the context of investigations by the State Revenue Office.[43]
Under cross-examination, Mr Apswoude was unable adequately to explain the basis for the yields and prices adopted in assessing the economic viability of the different activities proposed to be carried out on the farm or how they reconciled to information earlier in the report.[44] Despite this, he did not accept the proposition put by Mr Morgan that the figures, and particularly those relating to the hothouse vegetables were 'pure fantasy'.[45] However, he did accept that the returns for future implemented uses were 'ambitious', and that the growing of hothouse vegetables was 'not really entirely practical but it was something that was feasible, but not practical'.[46]
In response to the proposition put by Mr Morgan that AID bought the land because it was on the edge of the urban growth boundary, and that the intention was to develop and sell the land, Mr Apswoude conceded that 'certainly I was hoping for the land to increase in value so I would - I would acknowledge that, certainly'.[47] However, he did not accept Mr Morgan's suggestions that any farming conducted was 'token farming that you thought you had to do in order to get the land tax [exemption]'[48] or that 'it was always your intention that when you could, as soon as you could, you would develop [the Relevant Property] by putting up residences and subdividing and selling them'.[49]
The Acquisition Business Plan cannot be accepted as a fulsome explanation of AID's intention in purchasing the Relevant Property given:
- it was not a contemporaneous document;
- it was prepared by a person who was not involved in the original acquisition;
- the projected gross profit from the proposed farming activities (adopting optimistic assumptions) of $148,050 per annum would barely cover the loan servicing costs of $135,000 per annum; and
- the evidence that the growing of 'hothouse veg', which might have allowed for repayment of the acquisition debt, was 'not really entirely practical'.
Consistent with the concessions made by Mr Apswoude under cross-examination, the objective evidence suggests that at least part of the intention was to develop and sell the Relevant Property in the future. Of course, based on the decision of the New South Wales Court of Appeal in Metricon, that intention is not to be regarded as a use.
Sometime before 2012, the land was brought into the 'green wedge'.[50] A precinct structure plan incorporating the property was approved in 2012, potentially allowing the land to be used for residential development, following which the value of the Relevant Property significantly increased as reflected in the higher land tax assessment raised for 2013.
The evidence suggests that there was some attempt by AID to subdivide a small portion of the Relevant Property with a view to selling that portion to pay down debt, and a later attempt to sell that lot or the entire farm.[51] However, as at the date of hearing, the Relevant Property had not been subdivided or sold.[52]
The Relevant Property was affected by severe drought from around 2006,[53] which Mr Apswoude characterised as a 'Millennium Drought'.[54] This affected the manner in which the Relevant Property could be used.
As a consequence, in May 2007, Mr Apswoude engaged Bill and Lisa Mollison to provide a report on the prospects for utilising the "permaculture" techniques developed by Mr Mollison to address the issues with the land.
Following a visit to the site, Bill and Lisa Mollison provided a letter to Mr Apswoude dated 18 June 2007 (Mollison Plan).[55] That letter stated that water analysis had indicated the presence of high salinity content in the bore water on the Relevant Property and that further testing of the soil was required as, if the soil also contained high concentrations of salt, 'this condition alone may make the whole site unsuitable for agriculture or development' (emphasis added). Mr and Mrs Mollison indicated that, in their opinion:

[48]

For most of the applicable years, one significant aspect of primary production on which AID seeks to rely is the preparation of the land for, and the propagation and growing, of a plant, the botanical name of which is cassinia arcuata (cassinia),[59] for the purpose of sale.
In his first witness statement, Mr Apswoude says that, in 2008, following the receipt of the Mollison Plan, he developed a business plan regarding the use of cassinia on the farm, which was 'formalized and consolidated in 2016' (Cassinia Business Plan).[60] A copy of the Cassinia Business Plan was attached to Mr Apswoude's first witness statement.[61]
The Cassinia Business Plan is a 9 page document. It is undated, apart from a reference to '08/2008' on the footer of each page. There is no indication of its author. It purports to '[assess] the commercialisation of Cassinia as an alternative, beneficial and viable utilisation of my Diggers Rest farm', and includes information on 'potential product demand and uses' and an 'income generation strategy' which suggests that the growing of cassinia could generate gross income of $172,000 annually.
Mr Apswoude was extensively cross-examined on this document. Under cross-examination, Mr Apswoude conceded that the Cassinia Business Plan was prepared in 2016 by a consultant named Grant Burns[62] and was not a reconstruction of an existing written document, but rather was a 'compendium of all of the cassinia work we had done up to date at 2016 when it was prepared'.[63] He did not, however, accept the proposition, put by Mr Morgan (based on the failure to refer to cassinia in the objection and associated correspondence with the State Revenue Office), that he had no plan to grow cassinia in 2008 or that it was a recent invention.[64]
The Commissioner submits that the Tribunal should find that Mr Apswoude 'intended to mislead the Commissioner by producing a document that he wanted the Commissioner to rely on, and that materially misrepresented its date'.[65]
For the purposes of these proceedings, it is not necessary to go so far. However, Mr Apswoude accepted that the document was prepared in 2016, and it has clearly been prepared with the benefit of hindsight. For example, the Cassinia Business Plan notes 'the only plant agricultural activity that has proven to be successful has been the propagation of 80ha of the plant Cassinia Arcuata', despite the evidence of Mr Coppolino that no cassinia had been propagated prior to December 2009.[66]
There is no objective material to support the contention that it represents a plan that Mr Apswoude had developed in 2008. The most likely explanation for the failure to refer to cassinia in the objection was that, even as late as August 2013 (by which time the cassinia forest had been well-established),[67] there was no plan to commercialise it. Effectively, the Cassinia Business Plan represents the kind of 'self-serving, non-contemporaneous statements made by taxpayers' that Croft J has indicated must 'be treated with caution'.[68] Accordingly, I give it little weight.
Rather, considering the objective evidence in its totality, I find that a rather different picture emerges regarding the development of cassinia on the Relevant Property.
It is clear that, by 2007, drought conditions had resulted in both the water and soil being so significantly affected by salinity that it required extensive remediation in order for the Relevant Property to be used, whether for farming or land development purposes. The Mollison Plan called for 'salt tolerant tree planting'. Mr Apswoude gave evidence that he and Mr Watkins experimented with the planting of various trees, eg. oak and nut trees, which were largely unsuccessful.[69] In the meantime, there was the spread of noxious weeds (particularly serrated tussock)[70] and some cassinia had self-sown on the property.[71] Further experimentation was conducted and this showed that cassinia could be successfully grown.[72] This was implemented on a larger scale in order to remediate the Relevant Property,[73] as well as to keep the weeds at bay.[74] I do not accept that, through the relevant time period (ie. from 2008 to 2012) AID had any plan to sell the cassinia as a commercial crop. To adopt the phrase used by Croft J in CDPV, the limited cassinia sales that are recognised in AID's financial statements for the financial year ended 30 June 2013[75] was at best a 'mere side benefit'.[76] Alternatively, adopting the words of McLeish JA in the CDPV Appeal, the 'overall impression left is that the prospect of sale of the crops was ... at best one possible outcome of cultivation, rather than its purpose'.[77] In either case, this is not sufficient to support a finding that the land was being used primarily for primary production purposes for the purposes of the LT Act.

[55]

For the 2009 land tax year, AID contends that the Relevant Property was being used for primary production purposes being 'the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce'.[87] AID contends this occurred through sheep agistment arrangements with third parties, being Mr and Mrs Cocking.[88]
AID further contends that the land was also being used for cultivation in terms of preparing the land for the growing of crops, including cassinia[89] and that any purpose of future development was not a current use of the land.[90]
The Commissioner says that there was ambiguous corroborating evidence of any agistment of the sheep.[91] Mr Apswoude's first witness statement included a calculation of agistment fees of $1,890 prepared by Mr and Mrs Cocking in respect of the agistment of up to 377 sheep for a period between 1 January to 15 May. However, while Mr Apswoude's first witness statement suggest this related to the 2009 land tax year (from 1 January to 31 December 2008), the financial statements of AID for the year ended 30 June 2009 (for the period 1 July 2008 to 30 June 2009) do not record any agistment income. However, in AID's accounts for the year ended 30 June 2010, an amount of $1,719 is included as agistment income.
In any event, the Commissioner suggests the failure to call Mr or Mrs Cocking as a witness to provide evidence that the sheep were held for sale is fatal to AID's claim.[92]
In relation to the contentions concerning preparation of the land for cultivation, the Commissioner contends that having regard to section 68 of the LT Act and observations made by Croft J in CDPV about preparatory activities,[93] efforts to prepare land for future cultivation can only be regarded as primary production for the purposes of section 66 of the LT Act, where such activity occurs in temporal proximity to actual cultivation.[94] That is, the definition of primary production does not extend to 'remediating land some years before any planting takes place'.[95]
At the hearing, Mr Apswoude gave evidence that he had inherited the arrangements with Mr and Mrs Cocking from the previous owners of the Relevant Property,[96] as a means of providing 'drought relief' to Mr and Mrs Cocking. I accept that evidence.
However, there are significant gaps in the evidence for the 2008 calendar year.
First, there is no evidence as to the quantity of sheep agisted. No income from agistment was recognised in AID's accounts for the 2008/2009 financial year and the income that was recognised in the 2009/2010 financial year seems to correlates (although not exactly) with the agistment fee calculations provided by Mr and Mrs Cocking for the period 1 January to 15 May, suggesting that the information as to the number of sheep relates to that later year.
Second, as the Commissioner contends, there was no real evidence that Mr and Mrs Cocking were maintaining the sheep for the purpose of selling them or their natural increase or bodily produce. The only references to the fate of the sheep were that, prior to coming to the agistment arrangement with the previous owners, Mr and Mrs Cocking were said to have been taking their bloodstock to get slaughtered, and were losing that bloodstock[97] and, sometime in 2009 or 2010, the remaining sheep were returned to Mr and Mrs Cocking.[98] The evidence regarding the slaughtering of sheep was hearsay and, in any event, preceded the relevant period for the 2009 land tax year (ie. mid to late 2008) by a number of years. The evidence of the return of the sheep to Mr and Mrs Cocking is ambiguous. While Mr Apswoude said 'some of them did go to the saleyards, some were sold',[99] there was a lack of detail as to numbers involved. Further, the context in which that was said suggests it was less of a deliberate strategy and more as necessary where it was not possible to take them back to the central Victorian property owned by Mr and Mrs Cocking or to re-agist them elsewhere. So, ultimately, I have no basis to infer whether the sheep were being held for sale of their wool, their meat or for other purposes.
As for the contention that the land was being prepared for the growing of crops, including cassinia, it is quite unclear what activity is being referred to in this regard. In any event, I have already found that the activities on the land involving cassinia were directed to the general remediation of the land and control of weeds, without any intention at the time of selling the cassinia. General remediation, which might at some unspecified time in the future allow the growing of crops, does not amount to a present use for primary production within the meaning of section 64 of the LT Act.
Having regard to these matters I am not satisfied, on the balance of probabilities, that the Relevant Property was being used primarily for primary production during the relevant period. Accordingly, the exemption pursuant to section 66 was not available for the 2009 land tax year and I confirm the 2009 land tax assessment (no. 55529871) issued by the Commissioner on 13 June 2013.

[57]

For the 2011 land tax year, AID contends that the Relevant Property was being used for primary production purposes being 'cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state)'. AID contends this results from the sowing and harvesting of wheat, barley and canola and the ongoing propagation of the cassinia plant.[103]
The Commissioner concedes there is some evidence that a neighbour, Mr Hamish Hurley, planted some canola, wheat and barley on the Relevant Property in 2010 pursuant to a share farming agreement with AID.[104]
However, the Commissioner notes that as a result of a failure to call Mr Hurley or tender a copy of the share farming agreement, there is little evidence of the intensity or duration of the crops, other than the income of $6,595 in the 2010/2011 financial year and the evidence of Mr Apswoude that the cropping activities were discontinued after that year because of the impact of rain[105] on the quality of the crops.[106]
The Commissioner submits that, in any event, the cropping which took place on about half of the Relevant Property was not such as to render the land used primarily for primary production.[107]
The Commissioner contends that, to the extent that cassinia was propagated, the purpose of propagation was to outcompete other weeds and possibly for remediation of the soil, rather than for the purposes of sale.[108]
For the reasons already given, I accept the Commissioner's contentions regarding the propagation of the cassinia.
In relation to the share farming arrangements with Mr Hurley, I am satisfied on the balance of probabilities that, despite the limited income generated for AID, these were substantial activities that qualify as primary production within the definition in section 64 of the LT Act.
On Mr Apswoude's evidence, these activities were conducted in paddocks 1, 2, 5, 8 and 11, representing around 100 hectares. There is evidence of the sale of those crops, although AID's share was a small amount (around $6,500). The real question is whether these activities were conducted with sufficient intensity to enable a conclusion that the land was being used primarily for primary production purposes at the relevant time, particularly in circumstances where they ceased shortly after the end of the relevant year.
The cases indicate that where land is used for multiple purposes, it is a matter of drawing an overall impression, rather than using a formula based on factors such as land area or income generation. Here, more than half of the land was being used for primary production purposes for the majority of the year. The remainder was largely being used for remediation and weed control, with a purpose of either future development or other primary production activities.
On balance, I find that the cropping activity was a 'sufficiently "chief" use as to give its character to the whole of the land'[109] and the Relevant Property should be considered to be used primarily for primary production purposes for the 2011 land tax year. Accordingly, the 2011 land tax assessment (no. 67708897) issued by the Commissioner on 13 June 2013 should be varied to excise the Relevant Property and reduce the amount payable by $17,270.69.

[58]

For the 2012 land tax year, AID contends that the Relevant Property was being used for primary production purposes being 'cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state)' and 'the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce'. AID contends this results from the sowing and harvesting of wheat, barley and canola, the growing of cassinia and cattle agistment for a neighbour, Pat Esse. [110]
The Commissoner's contentions in relation to the cassinia and cropping activities has already been set out in relation to the 2011 land tax year.
The Commissioner contends that there is no corroborating evidence of any cattle agistment in 2011 and no evidence of payment for agistment until 2013.[111]
The Commissioner further submits that photos produced by Ms Hardacre and purportedly taken in 2011 were in fact shown to have been taken in 2013 and, in any event, show no more than 11 cattle and do not support the agistment activities having the necessary level of intensity.[112]
In any event, the Commissioner submits the failure to call Mr Esse as a witness to provide evidence that the cattle were held for sale is fatal to AID's claim.[113]
I have already set out my findings in relation to the growing of cassinia. For the reasons given, I do not accept that the growing of cassinia in the relevant period for the 2012 land tax year amounts to primary production as defined.
In relation to the 2012 land tax year, the evidence suggest that any remaining crops of wheat and barley had been removed and sold by April 2011. While there are references in Mr Apswoude's first witness statement to the harvesting of canola in November 2011,[114] this is inconsistent with the absence of any farming income recognised in AID's financial statements for the year ended 30 June 2012.[115] I do not consider the evidence sufficient to characterise the Relevant Property as a whole as being used for primary production purposes for the 2012 land tax year.
The objective evidence does not support the assertion by Mr Apswoude that large parts of the land were being used for the agistment of cattle that were being held for sale. No agreement with Pat Esse has been produced and he has given no evidence. There was no income from agistment during the relevant year, and the explanation for its absence (eg. that equipment was provided in lieu) is unconvincing given my expectation that there would need to be some recognition of such income for either or both accounting and tax purposes. Many of the photos which had been provided by AID to the Commissioner in support of the agistment activities in 2011 were accepted by Mr Apswoude to have been taken in 2013 and, in any event, only show a small number of cattle. Pat Esse was not called to give evidence regarding the number of cattle or that the cattle were being held for sale, and while Mr Apswoude suggested that there were over 200 cattle on the Relevant Property from May 2011 to late 2014,[116] that is not corroborated by any other record and he did not (and likely could not) give evidence as to the purpose for which Pat Esse was holding the cattle. Indeed, when Mr Grace asked him 'do you know what happened with their cattle?', Mr Apswoude responded by talking about circumstances in which they came to be on the Relevant Property rather than their eventual fate.[117]
In all those circumstances, while there may have been some primary production activities carried on in the relevant period for the 2012 land tax year, I am not satisfied that the Relevant Property was being used primarily for primary production in that year. Accordingly, the exemption pursuant to section 66 was not available for the 2012 land tax year and I confirm the 2012 land tax assessment (no. 72282377) issued by the Commissioner on 13 June 2013.

[60]

For the 2013 land tax year, AID contends that the Relevant Property was being used for primary production purposes being 'cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state)' and 'the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce'. AID contends this results from the propagation and cultivation of cassinia and cattle agistment with Pat Esse.[118]
AID further contends that the growing of cassinia for sale, in its raw state or as a processed product (eg. brush fencing), was the only business or business undertaking of AID at the time, with a view to one day making a profit from that business undertaking, and that its sole shareholder Mr Apswoude was engaged substantially full time in that business.[119]
In relation to AID's business, the Commissioner submits that the characterisation of that business, as 'land development of subdivision', in contemporaneous tax returns submitted by AID should be accepted.[120]
The Commissioner also submits that, as no primary production was carried on on the property at the relevant time, it is not possible for its principal business and main undertaking to be primary production of the type carried on on the property.[121]
Lastly, in relation to the question of whether Mr Apswoude (as the sole owner of the shares in AID) was normally engaged in a substantially full time capacity in the business of primary production, the Commissioner argues that, as the Relevant Property was not used primarily for primary production, it follows that this precludes finding that Mr Apswoude was engaged full time in such a business. Further, the Commissioner says that even if some of the activities were primary production, there was insufficient evidence about how Mr Apswoude spent his time to enable a conclusion that he was engaged in those in a substantially full-time capacity.[122]
The evidence, particularly that of Mr Coppolino, does support the contentions that, by 2012, there was a significant amount of cassinia which had been propagated in Lot 1 of the Relevant Property (paddocks 1 and 2, and to an extent in paddock 5).[123] If all or most of this cassinia was being cultivated for sale, then it might support a finding that there were primary production activities being carried on on the land, and that those primary production activities represented the principal business and main undertaking of AID at the time. However, the evidence that all or most of the cassinia was being cultivated for sale is vague and unconvincing.
At paragraph 139 of his first witness statement dated 28 October 2016, Mr Apswoude suggests that:

[62]

Apart from observing that this paragraph appears under a heading 'activity on the farm' in respect of the period from 1 January 2012 to 31 December 2012, there is no evidence provided as to the timing of construction of that nursery.
More concerning, the so-called draft business plan included as Exhibit DA-53 to Mr Apswoude's first witness statement is undated, but indicates that it is a business plan 'reconstructed following fire on 6 May 2007'. It refers to a plan 'to utilise vacant land located at Lot 4 and Lot 1 Davis Road, Diggers Rest, Victoria as a plant nursery incorporating the Permaculture philosophy'. Having regard to my previous findings regarding the propagation of cassinia at the Relevant Property, I do not accept that sometime prior to May 2007, AID had already had a plan to build a nursery to sell that cassinia some 5 years later.
Further, if this had indeed been its business plan and, in 2012, steps were being taken to implement it as AID's main undertaking, then I would have expected to see some updated financial analysis of the likely revenue to be generated, associated costs and how this would assist in covering the significant interest on the debt associated with the purchase of the Relevant Property (being some $816,415 for the year ended 30 June 2013).
Mr Apswoude gave evidence in chief that there are some 850,000 to a million cassinia trees on the Relevant Property, which 'correlates to about 90 - I'd better get this right - 90,000 metres of native brush fencing'.[124] Under cross-examination Mr Coppolino, who was called by AID to give evidence as to the commercial uses for cassinia, was unable to indicate how much cassinia is sold in Victoria each year, how much a mature cassinia plant sells for or how much it costs to produce.[125]
If Mr Apswoude's evidence is accepted, there would be enough cassinia on his property alone to build a fence all the way from Melbourne to Kyneton. In light of Mr Coppolino's evidence, there is simply no credible evidence before the Tribunal to suggest there is a market for this quantity of cassinia, even if there wasn't competition from other producers of brush fencing.[126] This almost inevitably leads to an inference that the cassinia has not been cultivated for the purpose of sale.
While cassinia sales of $18,182 were recorded in AID's accounts for the year ended 30 June 2013,[127] there was no evidence of how much cassinia was sold or in what condition or for what purpose. Further, it is unclear whether those sales occurred in the latter half of the 2012 calendar year or the first half of the 2013 calendar year.
In those circumstances, I am not satisfied on the balance of probabilities that the principal business or main undertaking of AID at 31 December 2012 can be said to have been cultivating cassinia for sale. Again, I find that the purpose of cultivating the cassina was to remediate the soil for future use and to keep weeds at bay, with any sales being merely a side benefit or a possible outcome from the cultivation of cassinia for that other purpose.
I note there was also an amount of agistment income of $3,024 recognised in AID's financial statements for the year ended 30 June 2013 which is said to relate to the agistment of Pat Esse's cattle. There is a vague suggestion by Mr Apswoude that 'were a lot of cattle agisted in (sic) 2013 financial year' and that 'we traded livestock agistment for use of machinery'.[128] This evidence falls short on details of the number of cattle, whether or not the cattle (or their natural increase or bodily produce) were being held for sale, and as to any income generated from the barter trading of agistment for machinery.
Further, as indicated in Shanahan v Chief Commissioner of Land Tax,[129] in the context of the NSW exemption for land used for primary production in the course of carrying on a business of primary production:

At a glance

Court

Decision date

Source

Judgment (157 paragraphs)

Australian Investment and Development Pty Ltd v Commissioner of State Revenue (Review and Regulation) [2017] VCAT 1418 (6 September 2017)

Parties

Legislation Cited (3)