Dominant purpose
36Bisvic submitted that the horse business was the dominant use of the land for the following reasons:
(1)It was conducted on 96.5% of the land area to the exclusion of all other uses (even before taking into account the area occupied by Mr Meharg's cottage).
(2)The capital investment represented by the proportion of the value of the land attributable to that 96.5% outweighed the value of the remainder of the land.
(3)Mr Meharg spent far more time in the horse business than Bisvic did in receiving and processing rent from Hancocks.
(4)As at the taxing date, more expense was incurred in the running of the horse business than in any other activity on the land.
(5)The nature and intensity of the horse business outweighed the nature and intensity of the applicant's other uses, namely the lease to Hancock's, the licences to Meharg and Pastrovic, and the non-use of the abattoir buildings.
37The second of those reasons flows directly from the first, and will be considered together with it. All are considered below.
38In Leda Manorstead Pty Limited v Chief Commissioner of State Revenue [2010] NSWSC 867, Gzell J formulated the test for dominant use in the following way.
'69 Dominant in its ordinary meaning connotes ruling, prevailing, or most influential. The statute's reference to a dominant use presupposes that land may be used for more than one purpose and requires a determination of which use of the land is the main, chief or paramount use.
70 That is a question of fact and degree that may, in the end, be determined as an objective matter of impression having regard to the facts.
71 In Saville v Commissioner of Land Tax (1980) 12 ATR 7, Roden J was concerned with whether land was used primarily for the maintenance of animals thereon under a former provision in the Land Tax Management Act. The primary use test was not unlike the dominant use test in the present legislation. His Honour said at 10:
"I am of the view that, for any use of the land to justify the statement that the land is used primarily for that purpose, it is necessary not only that that use prevail over any competing use but also that it be sufficiently substantial to prevail over the proposition that the land is primarily to be regarded as unused land."
72 In Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79, Perrignon J was concerned with the definition of "rural land" as land that is wholly or mainly used for carrying on the businesses or industries of grazing amongst other uses in the Local Government Act 1919, s 118. At 84 his Honour said that what was called for where land was put to a number of uses, was the weighing of the evidence relating to various uses to which land was put, including, but not limited to, the nature and intensity of such uses, the physical areas over which they extended, and the time and labour spent in conducting them.
73 His Honour's decision was upheld on appeal (Hope v Bathurst City Council (1986) 7 NSWLR 669). A majority of the Court of Appeal held that the characterisation of rural land as land that is wholly or mainly used for carrying on the businesses or industries of grazing, amongst other uses, did not relate solely to the quantum of area of land used for relevant purposes but related to the end to be achieved by the use and included other criteria such as the nature and intensity of the use.'
39In Leda, the taxpayer submitted that cattle grazing was the dominant purpose because, inter alia, it was conducted over 83% of the land. The land had been acquired for development as a residential subdivision. The Court found that the dominant purpose was residential subdivision because, inter alia, earthworks conducted on the land for that purpose had consumed far more time and expense than maintenance of the herd, and the cost of the earthworks far exceeded the value of the herd.
40In Hope's case, the taxpayer submitted that 15.55 acres of land at Kelso near Bathurst should have been rated as 'rural land' because the main purpose was grazing, which was conducted by way of an agistment business over 82.38 % of the land area. The taxpayer was an engineer, who lived with his wife in a house on the property, and conducted his engineering business there. The grazing activity generated revenue, but had been run at a loss for many years. The real benefit to the taxpayer was the avoidance of liability to land tax. The Court was not satisfied that grazing was the main use, despite being conducted over the greater part of the land. In reaching that conclusion, it had regard to the relative profitability of the competing uses ('nature and intensity' of use), and the time and labour spent in conducting them.
41The fact that a qualifying use was conducted on the greater part of the total area of lands was not found to be determinative in McClelland v Goulburn City Council (1976) 35 LGRA 1. In that case, the Land and Valuation Court of NSW was not satisfied that grazing was the dominant use, even though it was conducted on nine out of ten acres of land, as there was no evidence of profit. The Court found that the dominant use was as a residence.
42These were all cases where, as here, and as in Ball v Chief Commissioner of State Revenue [2010] NSWADT 114, the qualifying use was conducted over most of the land to the exclusion of other uses. That is distinct from the situation in Bisvic no 1 and Jones v Commissioner of Land Tax (NSW) (1980) 11 ATR 98, in which it was not possible to identify with precision the proportion of the land used for the qualifying use as distinct from other uses, because the uses of each portion of the land were mixed.
43In this case, there is no issue that the vast majority of the land was used exclusively for the qualifying use of maintaining horses for sale. It follows that most of the value of the land can be viewed as being invested in the qualifying use, as is always the case where most of the land is devoted to a qualifying use. Though not determinative, those findings support an argument that it was the dominant use.
44Properly viewed, Mr Meharg's cottage formed part of the qualifying use, because the provision of accommodation by Bisvic to its manager was an integral part of its horse business. The cottage was provided in lieu of wages. It would not be appropriate to characterise this as a competing use.
45It is next appropriate to consider the nature and intensity of the qualifying use, by reference to financial return and the amount of time and effort spent on it, and to compare that with other uses of the land: Hope's case.
46According to Mr Bisley, Hancocks paid around $18,500 exclusive of GST for the rent of their portion of the land. This is far greater than the net return from the horse business which, as indicated, has realised only increasing losses each calendar year, and was making a loss as at the taxing date. That weighs against a finding that the dominant purpose was the horse business.
47The evidence establishes that, by the taxing date, Bisvic had spent $7,800 to acquire horses and $140 in farrier's fees. There is no evidence that it spent money on other activity on the land, including Mr Pastrovic's rental or the rental to Hancocks, except the administrative cost, if any, of receiving and processing rent cheques from the latter. However, a meaningful comparison would have to include not only the amounts spent by Bisvic on qualifying and other uses, but also by others in the competing uses of the land. There is no evidence as to what expenditure was made by Hancocks in the conduct of its pallet business. Its 2013 tax return indicates very substantial revenue and expenses in relation to the totality of its businesses, but does not indicate what part of those figures relates to its pallet business. That makes it impossible to compare in a meaningful way the relative expenditures associated with the qualifying and non-qualifying uses of the land. This weighs neither for nor against a finding of dominant purpose.
48Though Mr Bisley did not describe the hours per day spent by Mr Meharg in the horse business, he did say that it was Mr Meharg's only occupation. In Bisvic no 1, the Administrative Decisions Tribunal found that Mr Meharg spent about four hours per day in the conduct of his horse business. In the absence of evidence that anything has changed except ownership of the business, it is likely that he continues to spend about that time looking after the horse business for Bisvic. There is no evidence that Bisvic expends time or effort on any other activity with regard to the land, except the minimal activity of receiving and processing cheques from Hancocks.
49However, a meaningful comparison between time and effort spent on the qualifying use as distinct from other uses would require a comparison with the time and effort spent by Hancocks on the land. As there is no evidence as to the extent of that time or effort, a meaningful comparison is not possible, and this factor likewise weighs neither for nor against a finding of dominant purpose.
50I rate the residential uses of the land by Mr Meharg and Mr Pastrovic highly. However, as the former formed part of the qualifying use and the latter did not as at the taxing date, this factor is evenly balanced, and weighs neither for nor against a finding of dominant purpose.
51In the result, the dominant purpose as at the taxing date is to be ascertained by weighing two competing considerations: most of the land was then used exclusively for the qualifying use, but all of the revenue and profit was being derived from the rental to Hancocks.
52Caution must be exercised in giving too much weight to the relative incomes derived from competing uses:
"To apply a test related to relative incomes could, in the majority of cases, distract the enquirer from the primary question of determining the dominant use of land. On some limited occasions income may be helpful in conjunction with all other criteria in assisting to determine the question, but care must be taken not to allow income generated by a use to become the primary determinant.": Thomason v Chief Executive, Department of lands [1994-95] 15 QLCR 286 (per Ambrose J at 303).
53The function of the Tribunal is to determine what was "the main, chief or paramount use ... as an objective matter of impression having regard to the facts" (Leda at paragraphs 69-70). To that end, it is appropriate to consider among other things "the end to be achieved by the use" (Leda at paragraph 73, applying Hope v Bathurst City Council (1986) 7 NSWLR 669).
54The end to be achieved by the rental to Hancocks was to achieve revenue for the trust in a way that resulted in a reliable and readily quantifiable source of income on a continuous basis. The ends to be achieved by the horse business were more complex. As stated, they included the attraction of the primary production exemption, thus reducing the trustee's costs of holding the land and enabling it more readily to continue to afford to Mr Meharg the opportunity to engage in his preferred lifestyle, and to provide Mr Pastrovic with rent-free accommodation. They also included the hope of making an unspecified profit from the horse business at an uncertain time.
55From a financial point of view, there can be no real comparison between the nature and intensity of the use for rental purposes to Hancocks and the qualifying use. The former resulted in a continuous and predictable profit. The latter resulted only in a loss, without any real prospect of profitability, despite Mr Bisley's hopes. When looked at only from that point of view, the rental use was the dominant use.
56One cannot, however, ignore the fact that the horse business was conducted on the vast majority of the land, to the exclusion of all other uses. That factor is to be weighed against the financial dominance of the non-qualifying use, having regard among other things to the end to be achieved by the qualifying use.
57Mr Bisley hoped and desired that the horse business should return a profit. The weight to be accorded to this particular end, however, is reduced by the fact that, in the absence of any written business pan, there is no convincing evidence that the likely amount of profit, or the time in which that profit was likely to be generated, was ever ascertained by Bisvic, or even considered by it. That, among things, distinguishes these facts from those in Ball. The more weighty purpose appears to have been the attraction of the land tax exemption, so that the trustee might reduce its holding costs, and more readily accommodate Mr Meharg's lifestyle and Mr Pastrovic's residence, as it had done to date. When viewed objectively, the horse business was not so much a vehicle for profit, but a token business designed to attract an exemption from land tax.
58In those circumstances, and having regard to the clear financial dominance of the use of part of the land for rental to Hancocks, the mere fact that the horse business was conducted over the majority of the land does not prove that it constituted the dominant use of the land.
59For the reasons given above, I am satisfied that as 30 December 2011 Bisvic engaged in its horse business for the purpose of profit on a continuous or repeated basis. I am not satisfied, however, that the business then had a significant and substantial commercial purpose or character, or that it was the dominant use of the land.
60The decision under review is confirmed.