Caruana v Chief Commissioner of State Revenue

Part B: legislation and preliminary comment 11During the First Tax Years has the Land Tax Management Act 1956 ("the Act") relevantly provided: "3Definitions In this Act, unless the context or subject-matter otherwise indicates or requires: ... "land used for primary production" means land used primarily for: (a)the cultivation thereof for the purpose of selling the produce of such cultivation, (b)the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, (b1)the purpose of commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) and the commercial farming of fish, molluscs, crustaceans or other aquatic animals, (c)the keeping of bees thereon for the purpose of selling their honey, (d)a commercial plant nursery, but not including a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or (e)the propagation for sale of mushrooms, orchids or flowers,..." ... 10Land exempted from tax (1)Except where otherwise expressly provided in this Act the following lands shall ... be exempted from taxation under this Act: ... (p)with respect to taxation leviable or payable in respect of the year commencing on 1 January 1991 or any succeeding year, land that: (i)is land used for primary production in the course of the carrying on of a business of primary production, or (ii)is land used for primary production (whether or not in the course of carrying on a business of primary production) if the land is within a "rural" or "non-urban" zone under a planning instrument or (in the case of land not within a zone under a planning instrument) is land that the Chief Commissioner is satisfied is rural land,..." 12During the Subsequent Tax Years the Act relevantly provided "10AAExemption for land used for primary production (1)Land that is rural land is exempt from taxation if it is land used for primary production. (2)Land that is not rural lan d is exempt from taxation if it is land used for primary production and that use of the land: (a)has a significant and substantial commercial purpose or character, and (b)is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made). (3)For the purposes of this section, "land used for primary production" means land the dominant use of which is for: (a)cultivation, for the purpose of selling the produce of the cultivation, or (b)the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, or (c)commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals, or (d)the keeping of bees, for the purpose of selling their honey, or (e)a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or (f)the propagation for sale of mushrooms, orchids or flowers. (4)For the purposes of this section, land is "rural land" if: (a)the land is zoned "rural", "rural residential" or "non-urban" under a planning instrument, or (b)the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land." 13It is convenient at this point to note that I agree with the Respondent's contention that, as a matter of statutory construction (and this is so in respect of section 10(1)(p) of the Act in respect of the First Tax Years and section 10AA of the Act in respect of the Subsequent Tax Years) that the question of whether or not the exemption is available is resolved by reference to its use for a prescribed primary production activity and not by reference to its ownership. It follows of course that because the PPL exemption is attracted where relevant by its use, it cannot be available in respect of land which is either not used at all or land which is not used in respect of a prescribed primary production activity. Moreover the fact that it is used in conjunction with other property owned by the Applicants and on which there is primary production activity does not have the effect of passing that same character to the property in question. 14It is also relevant in this context to note that I agree with the Respondent's contention that "its use" or "use" relates to the use of the land in question and so that was the manner in which other land is used is not relevant. I refer in this context to Melbourne Hunt Club v Federal Commissioner of Land Tax [1930] VLR 365. That case concerned the operation of a Victorian land tax exemption for land used primarily and principally for the purposes of a prescribed activity (athletic sports or exercises). The taxpayer carried on the prescribed activity and owned land whose use was ancillary to that activity but did actually involve the prescribed activity. The taxpayer sought an exemption from land tax for the land on the basis that this ancillary use was a use for the prescribed activity. In dismissing the taxpayer's appeal, the Court held at 370: "...before you can bring a case within the [exemption], there must be an actual use of the land for the [prescribed activity], and that must be the primary and principal use of it." 15The final written submissions by the parties are comprehensive and I have to some considerable extent drawn on them and, in particular, because I agree with much of its content, RS.

Part C: Other relevant case law 16The Applicants rely on the decisions of the appeal panel of this Tribunal in Reysson Pty Limited v Chief Commissioner of State Revenue [2009] NSWADTAP 17 and of the High Court in Southern Estates Pty Limited v Federal Commissioner of Taxation [1967] 117 CLR 481. Moreover the Applicants contend that the removal in 1988 of the word "thereon" from the "maintenance of animals" exemption is in their favour. (It may be noted that the word "thereon" was thereafter removed from the "keeping of bees" exemption. In this context: (a)The Tribunal does not agree that Reysson is authority for the proposition that the PPL exemption applies to land on which no live animals are kept. The Appeal Panel in that case held that the exemption applied because bees were kept on the relevant land and even though honey was produced elsewhere. (b) Southern Estates was decided in relation to a significantly different statutory provision, Barwick CJ said at (7): - "...the activity of bringing land to a state where primary production may begin is not itself primary production, it will be regarded as such for the purposes of s. 75 when it is carried out by a taxpayer already a primary producer. - Other members of the High Court emphasized the need for actual activities on the land. (c) The removal of the word "thereon" from the "beekeeping" exemption and previously from the "maintenance of animals" exemption does not have the effect that in consequence the legislation must be interpreted in the manner for which the Applicants contend and so as to have the effect that primary production on the land is not required. This minor alteration was not referred to in the explanatory materials which must mean that it was not thought worthy of mention, (d)It follows that the PPL exemption is not available simply because of the fact that land is owned by a primary producer or because it is used for a purpose which is in some way connected with primary production activity elsewhere. (e)The mere fact that the Applicants owned Londonderry does not have the effect that the exemption is available; so too in the case of Lansdale the mere fact that it was owned by the Applicants and used for a purpose referable to the processing of carcasses of animals which had been slaughtered elsewhere and brought as carcasses to Lansdale cannot have the effect that the exemption applies. 17I agree in summary that the relevant "land" the subject of the PPL exemption is land which is used for a prescribed primary production activity, not simply land that is owned by a primary producer and/or which plays some ancillary role in a primary producer's wider business. 18In respect of Londonderry the Applicants cannot succeed unless intended use is a relevant use of the land and this is so in respect of all of the Tax Years. 19In respect of Lansdale the Applicants cannot succeed unless the processing of animal carcasses was a use of land and being relevantly the "maintenance of animals for the purpose of sale". If not the PPL exemption did not apply to the land in any Tax Year, regardless of the fact that the Applicants may have owned other land which was leased to Hondesse and then used for the maintenance of animals. The PPL exemption presumably applied to the other land owned by the Applicants (assuming all requirements were met); all of this is of no relevance to the question of whether the PPL exemption was available for Lansdale. 20It is therefore necessary in respect of Londonderry to have regard to the meaning of "use" and in the case of Lansdale to the meaning of "maintenance of animals"

Part D: "use" 21The Act did not in any Tax Year define the word "use" or "used". 22In Newcastle City Council v Royal Newcastle Hospital (1957) 96 CLR 493, the Court held at 508: "The use of land involves no more than the physical acts by which land is made to serve some purpose". The Applicants have criticised the reference by the Respondent to the quote (above) from the judgment of Kitto J on the basis that he was in the minority. Leaving aside the fact that his views in this particular context are not remarkable the relevant land in the Newcastle City Council case was an adjunct to land which was physically used for a hospital. Logically, if no such physical activity occurred on the land, no part of the land could be said to be used for a hospital. Thus, physical activity on land is the touchstone of the "use" of that land. The contentions of the Applicant to the effect that this case is authority for the proposition that physical use is not necessary are therefore not correct., 23In Greenville Pty Limited v Commissioner of Land Tax (NSW) (1977) 7 ATR 278, the Court held at 280: "To claim an exemption under the Act the owner must be able to point to an activity being conducted on the land that will give the land the character of being mainly used for that activity, or that will enable a person having to decide the matter to say that the land is, in substance and as looked at as a whole, being used for an activity that give rise to an exemption". The Applicants take issue with the Respondent's reliance on Greenville and submit that it concerned a different aspect ("cultivation") of the PPL exemption. The Tribunal agrees with the Respondent's contention that all categories of the PPL exemption must be construed consistently. Moreover the ratio in Greenville that "use" requires that an activity be conducted on the land must be construed generally and consistently in respect of the PPL exemption and therefore applies equally to the "maintenance of animals" exemption. 24In Australian Football League v Commissioner of State Revenue [2004] VCAT 1882, the Tribunal held at [34]: "Where [a] provision refers to land which is "used for [a prescribed activity]" it is referring to the physical use being made of the land at the relevant time." 25In Leda Manorstead v Chief Commissioner [2010] NSWSC 867, the Court at [60] preferred cases which held that "use" arises from actual physical activity on land, held at [67] that vacant land (i.e. where no physical activity takes place) is "unused land" and found at [109] that the competing uses were the actual activities conducted on the land (i.e. earthworks and cattle grazing). 26The Tribunal does not accept (in relation to Leda Manorstead) that "used for" has an element of futurity and therefore encompasses an intended use of land. The relevant land was being physically used for earthworks at the relevant time in the course of the current and future development of the land. Nor does the fact that the Applicants spent considerable sums in pursuit of the necessary consents and which, if granted would have enabled them to use Londonderry in primary production amount of itself to such use. 27The Applicants' reliance on Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 is in my view mistaken because the University's indirect use of the relevant land by leasing it out was an adjunct of the physical use of the land by the tenant. 28The Applicants object to the Respondent's reliance on Commissioner of Land Tax v Christie (1973) NSWLR 526 and Sonter v Commissioner of Land Tax (1976) 7 ATR 30. Both Christie and Sonter are longstanding and unchallenged authorities. In particular, Sonter considers the PPL exemption, the substance of which, for the reasons set out above, remains unchanged following the 1988 removal of the word "thereon". The objection in question is not correct. 29The Applicants contend that intended use of land is a "use" for the purposes of the PPL exemption; the authorities do not support that contention. In this regard: (a)In Parramatta City Council v Brickworks Ltd [1972] 128 CLR 1 at [18], the High Court (Gibbs J) held: "I would agree that the word "use"... means a present use; it does not include a contemplated or intended use." (b)In Greenville , the Court held at 280 that the "use" of land: "Is an inquiry into actual land use, it is not to be tested by the intention of the owner." (c)In Seville v Commissioner of Land Tax (NSW) (1980) 81 ATC 4,373, the Court held at 4,376-4,377 and 4,379: "What is of direct concern for present purposes is the actual use to which the land was put [at the taxing date for the relevant years]. Basically, what is to be determined is the actual use of the land, and this of course may be quite different to from any intention that the owners may have as to its later or ultimate use, or indeed any wish that the owners might have as to its use at that particular time." (d)In St Pier v Chief Commissioner of State Revenue [2002] NSWADT 112, the Tribunal held at [36]: "... the Applicant had undertaken all possible steps to commence the factual use of the land ... for primary production ...[but] had been frustrated by actions and circumstances beyond his control ... the Applicant clearly intended to use the land in a manner which may have had the effect of exempting the land as land used for primary production. The Applicant's intention was frustrated. As a matter of well established law the land was not used at the relevant dates for primary production." (e)In Reysson Pty Limited v Chief Commissioner of State Revenue [2009] NSWADTAP 17 at [25] and Cornish Group Pty Limited v Chief Commissioner of State Revenue [2009] NSWADT 191 at [45], the Appeal Panel and Tribunal held, respectively, that the holding of land for an intended future use was not a "use" of land for the purposes of the Act, but rather, the actual use of the land was decisive. (f) The Applicants reliance on Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 is misplaced because the University's indirect use of the relevant land by leasing it out was an adjunct of the physical use of the land by the tenant. 30It follows that in respect of Londonderry, use arises from physical activity on the land itself and not on other land and intended use is not a use for the purposes of the Act. As set out previously expenditure in pursuit of the necessary consents does not constitute "use" for this purpose.

Part E: Londonderry in particular 31I include with approval the following provisions of RS: "47The evidence shows that the Applicants approached Penrith City Council several times about using Londonderry for an abattoir, a poultry farm, cattle grazing and holding. However, none of these uses ever eventuated and the land remained vacant, unimproved and covered in native bushland during the Tax Years. 48 Based on this evidence and the above principles, as no physical activity or changes occurred on Londonderry during the Tax Years, except to the limited extent that persons entered the land in connection with possible future uses, the land was primarily "unused". Further, any activity that did occur on the land did not comprise actual physical use for primary production. 49Further, any intended use for primary production was not a "use" of the land for the purposes of the Act. The decision in Educang Limited v Brisbane City Council [2002] QSC 374 does not assist the Applicants' case, because that case involved land that had been the subject of substantial physical activities and changes which gave it the required character of being "used for" the relevant purpose. Here, no such physical activities or changes occurred on the land during the Tax Years, such that the land retained its character of vacant and unimproved land in all Tax Years. 50 Also, the fact that primary production activities may have occurred on other land was irrelevant, because they did not occur on the actual land itself. 51In summary, the PPL exemption did not apply to Londonderry in any Tax Year because it was not, of itself, "used" for primary production, but was primarily "unused" land. Further, based on the above principles, the PPL exemption did not apply to Londonderry merely because it was owned by a primary producer and intended to be used for primary production. 32It follows that the Applicants cannot succeed in respect of any of the Tax Years in relation to Londonderry.

Part F: Lansdale in particular 33Lansdale was used for the physical activities of processing, sales and distribution of animal products during the Tax Years; however live animals were not maintained on the land for the purpose of sale during the Tax Years. 34The front of the land was used by the public for parking, the front part of the building was used for selling meat and groceries and the back part of the building was used for processing of the body parts of slaughtered animals. In addition, plant, machinery, a prime mover and trailer were stored on the property. The land was therefore used for selling produce and for deriving rental under the lease and sublease of the premises.

Part G: Primary production general principles 35During the Tax Years, the Act did not define the term "primary production" but prescribed various activities on land which comprised "primary production". 36In the succeeding clauses of the Part G the meanings attributed to words or phrases in should be construed as references to their meanings as contained in the Macquarie Online Dictionary. 37The ordinary meaning of "primary" is, relevantly, "of or relating to the production of naturally occurring foods as meat, grains, fish, etc., or of naturally occurring things as wool, cotton, etc" and "production" is, relevantly, "the act of producing; creation". The meaning of "produce" is, relevantly, " to bring into existence; give rise to" and "create" is "to bring into being; cause to exist; produce". 38Primary production relevantly involves "animals", being "any living organism characterised by the capacity for voluntary motion, sensation, and the ingestion of food such as plants and other animals, and which has a non-cellulose cell wall". Importantly, the ordinary meaning of "animals" refers only to living things, not dead things or parts of dead things. 39Accordingly the ordinary meaning of "primary production" is the act of bringing into existence live animals (and live plants) or products comprising or derived from live animals (or live plants); "primary production" is to be contrasted with "secondary production", which means "of or relating to the processing of primary products", with "processing" meaning, relevantly, "to convert (an agricultural commodity) into marketable form by some special process".

Part H: Primary production under the Act 40The ordinary meaning of "primary production" accords with the prescribed types of "primary production" activities under the Act, because those activities involve the use of land in order to bring into existence live animals and plants or products comprising or derived from live animals or plants for the purpose of sale. 41One such prescribed activity is the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce. During the Tax Years, the Act did not define "maintenance", but its ordinary meaning is, relevantly, "the act of keeping in existence or continuance". The ordinary meaning of "animals" (i.e. living things) is as set out above; a "bird" is a particular type of living thing. 42Accordingly "maintenance" for the purposes of the Act comprises the keeping in existence or continuance of live animals. Thus, the activity of "maintenance" includes the provision of food, water and shelter to keep the animals alive. Further, to comprise "primary production" under the Act, such "maintenance" must occur on the land where the animals live for the purpose of selling the live animals themselves or the natural increase or bodily produce of the live animals. 43The Respondent poses (correctly in my view) by way of example the maintenance of chickens to lay eggs, hatch new chicks or attain a certain age, weight or size would comprise "primary production" under the Act. This is because the act of maintaining the chickens facilitates the bringing into existence of new "products" which comprise or derive from the living animals. Further, the activity of "maintenance" is the first (and hence "primary") step in the productive process. 44Primary production ends and secondary production (i.e. the processing of the primary product) begins when another process transforms a live plant or animal into a derivative product. For example, the processing of an orange to make orange juice, or the slaughtering of a chicken for its meat, is "secondary production" and the further processing of the product derived (e.g. the processing of orange juice into concentrate or the portioning or filleting of chicken meat) is another step in the productive process. 45Thus, "primary production" involves the bringing into existence of a new product (i.e. the first step) comprising or derived from a plant or animal while it is alive and "secondary production" involves the processing of that primary product into further new products (i.e. the second step). Thus, secondary production is the antithesis of "maintenance", because it involves altering, not keeping in existence or continuance, the relevant thing. 46The purpose of the PPL exemption is to relieve land used for primary production from land tax, not to exempt land merely because it is owned by a primary producer. I agree with the contention by the Respondent that taken to its logical conclusion the Applicants' submissions would suggest that a butcher shop, delicatessen, supermarket or restaurant that sold meat products would be exempt under the PPL exemption if the land on which the business operated was owned by a primary producer. Such a result would be absurd. 47During the Tax Years, the Applicants ran a vertically integrated animal processing business which commenced with the breeding and hatching of chickens at the Applicants' property in Queensland and the breeding and raising of goats and cattle at the Applicants' properties at Blayney and Garland in New South Wales (Step 1). After hatching, the chickens (but not the goats and cattle) were transported to and contract-grown by a farmer in New South Wales (Step 2). Both Steps 1 and 2 comprised "primary production" in the ordinary sense, but none of those activities took place on Lansdale. These steps are therefore irrelevant to the use of Lansdale during the Tax Years and do not characterise its use as one for primary production. 48The Applicants' evidence is that the bulk of the above animals were then sent for slaughtering (Step 3). This step comprised "secondary production" in the ordinary sense. Relevantly, Step 3 did not occur at Lansdale, it did not comprise "primary production" in any sense, it was irrelevant to the use of Lansdale during the Tax Years and did not characterise its use as one for primary production. 49Following Step 3, the Applicants' evidence is that the bodily remains of the animals were sent for further processing at the Applicants' processing plant at Lansdale into portions, cuts, fillets and sausages (Step 4). The processed products were then stored under refrigeration at Lansdale to maintain hygiene and quality control. The processed products were then sold on-site or distributed off-site (Step 5). 50It is clear that Steps 4 and 5 did not involve "primary production" under the Act (relevantly, the "maintenance of animals (including birds)"), but rather, involved "secondary (or further) production" because: a)such activities did not comprise "maintenance", i.e. the keeping in existence or continuance of a thing, but rather, involved the altering of the thing (relevantly, chicken carcasses) through processing (Step 4) and the sale and distribution of the processed product (Step 5); and b)no live animals were present on the land, but rather, only their body parts (which are not "animals") were brought onto and off the land. 51In Illawarra Meat Co Pty Limited v Commissioner of Land Tax (NSW) (1979) 9 ATR 734, the taxpayers argued (successfully) that land used for the equivalent of Steps 1 and 2 was exempt as used for the "maintenance of animals for the purpose of selling their bodily produce" but did not argue, nor did the Court hold (correctly, with respect) that different land used for the equivalent of Steps 4 and 5 was also exempt on this basis. 52In addition to the activities comprising Steps 4 and 5, the Applicants' evidence is that the front of Lansdale was used by the public for parking and other parts of the property were used to store plant, machinery, a prime mover and a trailer. None of these activities comprised "primary production" under the Act. Further, the fact that the prime mover and trailer may have been used in connection with the Applicants' primary production activities on other land does not alter this conclusion. 53In summary, during the Tax Years, Lansdale was used for the processing, sale and distribution of the body parts and products of slaughtered animals and the storage of plant and equipment. None of these uses comprised "primary production" under the Act. Further, based on the above principles, the PPL exemption did not apply to Lansdale merely because it was used in connection with the Applicants' vertically integrated business.

Part I: Conclusion 54In respect of the Londonderry the PPL exemption was not available to the Applicants because their intention to use Londonderry was not sufficient. An intention is just that, an intention and an intention can be altered. The fact that subjectively the Applicants intended to use Londonderry for the purpose of primary production and spent considerable sums in pursuit of the necessary consents is not relevant. 55In respect of Lansdale the activities conducted thereon did not constitute primary production. 56Accordingly the decision under review must be affirmed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 August 2011