CDPV Pty Ltd v Commissioner of State Revenue [2017] VSCA 89

1 I have had the benefit of reading, in draft form, the judgment of McLeish JA. I agree, for the reasons his Honour gives, that leave to appeal should be granted but the appeals dismissed.

2 I too have had the benefit of reading, in draft form, the judgment of McLeish JA. For the reasons that he gives, I agree that leave to appeal should be granted but the appeals dismissed.

3 These appeals concern the application of provisions exempting landowners from the obligation to pay land tax in respect of land used primarily for primary production.

4 The respondent ('the Commissioner') issued four assessments of land tax, for the years 2009-12, in respect of a piece of land that the applicants owned. The applicants lodged objections, which the Commissioner disallowed. They appealed unsuccessfully to the Supreme Court. The applicants seek leave to appeal on the ground that the trial judge misconstrued the relevant statutory provisions and misapplied those provisions to the evidence.

5 For the reasons that follow, leave to appeal should be granted but the appeals must be dismissed.

6 The principal objection in respect of each assessment relies on s 66 of the Land Tax Act 2005 ('the Act'), which provides:

Exemption of primary production land in greater Melbourne but not in an urban zone

Land is exempt land if the Commissioner determines that the land comprises one parcel -

(a) that is wholly or partly in greater Melbourne; and

7 The proposed appeals concern s 66(c); no issue as to paras (a) and (b) arises. The critical expression 'primary production' is defined in s 64(1) to mean, relevantly, '(a) cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state)'. Again, no issue arises as to the remaining paras (b)-(e) of the definition.

8 As explained further below, the evidence showed that the land had been cultivated by the growing of crops at the relevant times (except for one year where it was allowed to lie fallow). The central issue on the applications for leave to appeal is whether the cultivation that took place was 'for the purpose of selling the produce of cultivation'.

9 The applicants and related persons acquired approximately 167 acres of land at 905-959 Taylors Road, Plumpton ('the land') in 1995. The land was covered in rocks at the time. The owners engaged a contractor to clear some of the rocks. In 1997, a dam was built on the land, although it did not fill due to adverse climatic conditions.

10 On 27 April 2004, the applicants became the registered proprietors of the land as tenants in common in various shares. The land was still covered in rocks. It was also infested with various weeds.

11 Land tax assessments were issued to the applicants for each of the years 2005-08. In 2009, the value of the land, and hence the land tax payable, had risen substantially. By facsimile to the Commissioner dated 23 February 2009, Christine Bogdanis, the fourth applicant, sought an exemption from land tax on the basis that '[t]he property has always been used for Primary Production purposes, including growing wheat, lettuces and have cattle on the property 100%'. The judge found that the state of affairs represented in the facsimile 'was simply not the case'.[1] However, in assessments issued for the years 2009-12, the Commissioner treated the land as exempt on the basis that it was used primarily for primary production.

12 In the meantime, by contract of sale dated 3 September 2009, the land was sold by the applicants to a property developer for $27.5 million. The contract price was payable over many years, depending on zoning changes allowing development. The contract remained on foot pending settlement during the relevant assessment years.

13 The contract of sale contained a special condition requiring the purchaser to pay to the applicants a 'spraying amount' of $10,000 annually to reimburse the applicants for keeping the land free of weeds. By a further special condition, the vendor warranted that it would 'continue its farming/primary production operation'. The purchaser also agreed to pay any increases in various rates and charges including land tax prior to development approval being granted.

14 Following an investigation,[2] on 11 November 2013 the Commissioner issued reassessments in respect of the land for the years 2009-12, denying the availability of the primary production exemption. On 9 January 2014, the applicants filed notices of objection to the reassessments. The sole ground of objection was that '[t]he subject land was used for the purposes of primary production in the relevant period pursuant to an oral crop share farming agreement'.

15 The objections were disallowed by the Commissioner on 16 October 2014 on the basis that the land was not 'used primarily for primary production'. The applicants then requested that their objections be treated as appeals to the Supreme Court.[3]

16 On those appeals, the applicants sought leave to rely also on s 68 of the Act. The Commissioner did not object and leave was duly given to add the ground.[4] Section 68 provides:

Exemption of land being prepared for use for primary production

(1) Land is exempt land for a land tax year if the Commissioner is satisfied that -

(a) the land is being prepared for use primarily for primary production; and

(b) the land will become exempt land under section 65, 66 or 67 within 12 months after the day on which the preparation referred to in paragraph (a) commenced.

(2) The Commissioner may extend the period referred to in subsection (1)(b) by a further period of 12 months.

17 The applicants relied on the evidence of Louis Koroneos, who was the sole director of one of the applicants and the father or father-in-law of four other applicants. They also led evidence from Robert Horan, a share farmer who it was alleged had been responsible for the cultivation on the land founding the primary production exemption. Finally, the applicants called evidence from Benjamin Kroker, senior land management officer with the City of Melton. It is convenient to outline the relevant evidence before summarising the findings of the trial judge.

18 Mr Koroneos gave evidence that he had been a farmer since 1954 and that he and his brothers, along with their father, had bought their first farming property in 1958 in Keilor. For about 37 years that was the only farming property the family owned. It was used to grow cabbages, lettuces, cauliflowers, tomatoes and carrots. In 1961 the family began supplying vegetables to Coles supermarkets. By 1994 the family company, Keilor Fresh Pty Ltd, was the exclusive supplier of salad vegetables and baby spinach to Coles.

19 Mr Koroneos said that he found the subject land in 1995 and considered it ideal to enable the business to meet the growing market. At the time, the land was covered in stones and rocks in varying sizes 'ranging from the size of a small basketball to a small room'. As soon as the family took possession of the land, Mr Koroneos engaged a contractor to start clearing rocks from the front part of the land, comprising 60 acres, in order to ready the land for vegetable growing. Due to their size, the rocks were not removed but were instead stockpiled on the land to be cleared later. Between 1996 and 1997 Mr Koroneos arranged for a dam to be built on the land in order to irrigate the property so that the family could grow two crops each year: one in autumn and one in spring. Due to the period of drought between 1998 and 2007, the dam filled only once from runoff during the period from 1995 to 2015. In 2008, Mr Koroneos engaged the services of another contractor to remove large rocks from the rear part of the land.

20 Mr Koroneos said that at that time he approached Robert Horan, who was working on the farming property adjacent to the land. In his affidavit, Mr Koroneos said that he offered Mr Horan

the entire land to share farm in exchange for keeping it clear from weeds and clearing the remainder of the rocks. The deal we made was in terms contained in a statutory declaration he made on 10 March 2014 ... Horan was a commercial crop farmer by trade who used the land in the ordinary course of his business.

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 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 resow the land.

21 Mr Koroneos said that between 2008 and 2012, Mr Horan used part of the land primarily for growing wheat and barley and worked on the rest of the land to prepare it for further primary production. However, the crops that were harvested were only sufficient to re-sow the land.

22 Asked in cross-examination what was said when the arrangement was made, Mr Koroneos said:

Well he wanted extra land to - to work which is the two - the two - my neighbours land and - and ours you know. The two you know he can do - cultivate it you know and make some money I suppose. And I said all right you can have the land long as I get 25 per cent if it's you know - when you get.

Whose idea was the 25 per cent?---Ah?

Whose idea was the 25 per cent?---Well it was my idea.

And how did you put it to him?---Well I said when you plant it and after the expenses you can give me from the profit 25 per cent which is very simply on my - on my idea.

Okay. Did you talk to him about who would be paying the expenses and what they would be?---But that's I - I said after the expenses. If he got expenses you know, and put receipt you know, and he do all the job you know, and not enough income what I gunna get.

So you weren't going to be incurring any expenses at all, is that right?No.

He would pay for everything?---That's right, for the - for the - not the - not the - not the land - dots, mind the rights and all these things you know.

So he would use his own equipment?---That's correct.

23 Mr Koroneos was then asked about the manner in which profit was to be calculated:

And then the profits are split, he gets 75 per cent and you get 25 per cent?---Yeah.

Now in order to work out whether there's a profit you have to know what the expenses are don't you?---No, I didn't - well that was gentleman agreement you know, I didn't - you know I trust Robert and - and I trust like everyone.

You've told His Honour that that agreement included you getting 25 per cent?---Yes.

Of the income after expenses?---Exactly.

And what I'm saying to you is in order to know whether you get a share, you've got to know how much the income is and how much the expenses are?---Well, look, I am not cereal crop - cropper, you know, and I don't know what expenses. Sometimes they come more expensive in the farm, sometimes come less.

Did you expect - - -?---Then you have to know that. Because I am farmer all my life.

So you would be relying upon Mr Horan to tell you what the income and the expenses had been, wouldn't you?---That's correct 100 per cent.

So you would expect him to show you, or if not you, then maybe your daughter who could read them, the records of what the income had been and what the expenses were?---Yes, because if you don't rely and don't trust, that you can't work.

25 In relation to the question of the value of Mr Horan's time, Mr Koroneos gave the following further evidence:

But a large part of the expense had been Mr Horan's work. And then you get the money in from the sale of the barley. How do you know whether the money has resulted in there being an excess of income over expenses if you don't know how to calculate the value of Mr Horan's time?---No.

You can't do it, can you?---No.

And yet you didn't have an agreement with Mr Horan as to how you could calculate the value of his time?---I told you before. See, on the farming business, nobody knows what's going to be happening. You have to trust one - one - each other.

You didn't really have an agreement with Mr Horan at all that involved a 25 per cent profit share, did you?---All we had, gentlemen - gentlemen agreement. We didn't sign the - in writing or anything like that.

But your agreement didn't involve a 25 per cent profit share, I am saying to you?---Well, we had it by, you know, by talking. When I sell them in the - in the vegetable in the market, we - we tell to my customer, you pay me $2 or $5, you know. That's what we agreed to.

Your agreement was that he could use your land to do what he liked, as long as he cleared it and kept it free of weeds?---I don't know what you mean.

That's what you wanted out of this agreement, isn't it? You wanted, you'd already worked out you couldn't farm the land?---That's correct.

26 Mr Koroneos was asked how the alleged agreement had come to an end. In that context he referred to the purchaser of the land becoming involved:

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.

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 the 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.

But you think it was about when you signed the contract with ID Land?---No.

Well the contract that you signed with ID Land ... The term is clause 16 ... This particular term is about spraying?---Yes.

And it was a term of the agreement that you would get paid $10,000 a year - - -?---That's correct, that's correct.

Mr Koroneos said that $10,000 was paid every year around September when weeds needed to be dealt with. The weeds were sprayed with chemicals and this arrangement was still in place.

27 In respect of the arrangement with Mr Horan, Mr Koroneos gave evidence that crops were grown in three out of the four years in question. However, he and Mr Horan had never calculated what amounts might be due to Mr Koroneos by way of the agreed 25 per cent. Mr Koroneos said, in effect, that this was because the crop was so small that he was not prepared to pursue the matter. Mr Koroneos accepted that he never found out what it was that Mr Horan grew. However, he maintained that he was in a sharefarming arrangement with Mr Horan and denied that the real agreement had been for Mr Horan to do whatever it took to keep the weeds down and secure an exemption from land tax.

28 In the statutory declaration to which Mr Koroneos referred in his evidence, Mr Horan stated that he had been share-farming on a neighbouring property in early 2008 when Mr Koroneos asked him if he was prepared to grow crops on the land on the basis that Mr Horan would provide the seed and retain the benefit of the harvest of the crops in return for clearing the land of rocks and keeping it free of weeds. After making this arrangement, he sowed crops of wheat or barley every year since 2008 except for the year 2011/12, during which the land lay fallow to allow weeds to be removed and further rock clearing to occur in order to facilitate future cropping. In each of the years except 2012/2013, there had not been enough grain harvested for any part of it to be sold, since it was required for use as seed to re-sow the land and other properties in the locality on which Mr Horan was working. In 2012/2013 (after the relevant time for the four years of assessment in question), 33 tonnes of barley was harvested, of which Mr Horan sold six tonnes to a neighbour as feed for his goats.

29 Mr Horan further stated that in 2011 Mr Garvey had introduced himself and said he was 'managing the land'. Mr Horan stated:

I pointed out to him that the share cropping had proved uneconomical over the previous three years and that it was not worth my while to continue to maintain the property and prepare it for cropping. Jeff asked me to provide him with a quotation for work to manage and keep the property free of weeds and rocks so that the paddock could return a profit. I then produced a quote to his company, ID Investments Pty Ltd which he accepted ...

This new arrangement was such that the crop [in 2012/2013] was retained by me in its entirety and the consideration paid by you [sic] was by way of a credit to ID Investments against the money owed to me for the works carried out on the [land] over the period of July 2011 to June 2012.

30 In a subsequent affidavit, Mr Horan stated that Mr Koroneos had offered to let him grow crops on the land on the basis that Mr Horan would provide the seed and labour at his own cost and then retain the profit from the sale of the harvested crops in return for clearing the property of rocks and keeping it free of weeds. Mr Horan said that he was also to give Mr Koroneos 25 per cent of the profit made by him after selling the crop. Mr Horan said that he had no previous relationship with Mr Koroneos or any of his family and was undertaking the work 'as a commercial venture with a view to harvesting and selling the crop and making a profit in return for my labour and material'. Mr Horan said that he never made enough income to cover the cost of his labour and material and there was therefore no sharing of profits with the owners of the land.

31 In cross-examination, Mr Horan said that Mr Koroneos would get 25 per cent of the profit 'if there was a profit after expenses'. He was asked how this was to work:

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 charged 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.

And he was stuck with it?---Well, he agreed to it. So - he didn't agree to what I might - I didn't tell him any of that. I just worked it out. Whatever my cost is, is my cost.

And you didn't tell him what charge you would make for the use of your equipment?---I really find this irrelevant.

Well, His Honour will determine what's relevant, Mr Horan. If you could just answer my questions. If someone says you don't have to then you can stop?---Oh, yeah.

So you didn't tell Mr Koroneos what you were going to charge him for the use of your equipment?---No.

Probably hadn't even worked it out yourself, had you?---Yeah. I had a rough idea what it was going to cost me.

You had a rough idea. What was that?---At that particular time? It would cost me, that I worked out over a period of time. I'd worked it out over a period of time.

And what did you work it out at?---What the costing was going to be?

Yes?---I reckon it was going to be around about the $75, $80 an acre.

Right?---That was what it was going to cost me.

And yet you didn't discuss that with Mr Koroneos at all?---No. I didn't think it was necessary.

By way of explanation, Mr Horan said that the arrangement was a 'gentlemen's agreement' and that each man 'understood how farming worked'. It was not necessary to reduce the agreement to writing or to specify how profit was to be calculated.

32 Mr Horan said that the reason why there had not been successful crops on the land was 'kangaroos and dry weather'. He was asked whether it was always his expectation that at least a significant part of the product of the land would just finish up becoming an input into his other farming activities. In response, Mr Horan said that his 'main aim was to gain more land to build numbers on production' so as to make unproductive land 'cost effective to me to manage against other land'. He said that the arrangement meant that he could control the land's problems against other land's problems 'so that they don't cost me money'. He said it 'comes down to land management'.

33 Mr Horan said that Mr Koroneos had said that he would spray for weeds in the areas that were not cropped. Mr Horan explained that it was in his interests to crop the property because it would eliminate weeds going into the neighbouring property. Mr Horan was then asked about his motivation for doing work on the land under the arrangement with Mr Garvey:

I'm asking you about what's motivating you to do the work?---It's because the return the land can bring.

The return from a crop?---From the land that it can produce. If someone - I don't know. It could take up to two years, three years, five years until we get that return back. Some people I know do it. Just, I know, an example, a fellow paid a person to clear a paddock. Pay him to clear the paddock and buy another block of land.

But, again - - -?---Irrelevant to the case, of course. But - - -

I'm not asking you to focus on what Mr Garvey's motivation is. I'm asking you about your motivation?---The motivation for me was to keep the land clear and production so that it wouldn't impinge on my other productions in that area.

Except that, what you've told Mr Garvey, on your own evidence ?In other words, I was running at a loss to keep - I was running the place at a loss so that it maintained - it made my profit on other paddocks viable because otherwise if the neighbour doesn't do his share of the weed management, the neighbour gets it.

34 Mr Horan said that he changed from being a share farmer to a contractor after Mr Garvey became involved in mid-2011. He would issue Mr Garvey's company with invoices and anything earned from a crop would be set off against the amount owed. Mr Horan denied that the true arrangement with Mr Koroneos was that there was no profit-share agreement but that he was required to remove rocks and weeds from the land in return for having the run of the land to do with as he wished.

35 Finally, Mr Kroker gave evidence regarding the council's monitoring of weed management and his inspections of the land. His evidence indicated that crops had been grown on the land during the period in question. He observed that cultivation by the growing of crops (as distinct from merely turning the soil) was an effective way of managing weeds. However, other ways of suppressing weeds were 'more economical'. In his view, it 'wouldn't stack up financially' to remove rocks, prepare the ground and grow a crop in order to remove weeds, rather than using other methods such as spraying. On the other hand, he accepted that some people might take that approach to suppressing weeds none the less.

36 The judge identified a range of inconsistencies in the evidence relied on by the applicants. Although the notices of objection stated that further documentary evidence would be provided, such documents as were provided did not evidence 'in any unequivocal way' the alleged oral crop share farming agreement.[5] They were said to evidence that wheat (and only wheat) was grown on the land. But that was contrary to the evidence of Mr Horan. He had given evidence that barley was also grown.[6] Invoices for fertilisers and weed control did not support the applicants' case, given that Mr Horan gave evidence that he bore the costs of those expenses.[7] The judge held that the documentary evidence must have related to land other than the subject land, and that the evidence thus put before the Commissioner was 'entirely misleading'.[8] The applicants had also misled the Commissioner as to whether primary production was taking place on the land in earlier years.[9] As such, the evidence adduced by the applicants had to be viewed with 'great caution'.[10]

37 The judge observed that the evidence of Mr Koroneos did not support his affidavit, which indicated that little weight ought to be placed on that affidavit.[11] The evidence showed that 'Mr Koroneos had little, if any, interest in what Mr Horan was doing on the land'.[12] His evidence in crossexamination did not provide any basis upon which it could be concluded that the terms of the purported oral crop share farming agreement were settled between the parties. His evidence as to what happened to the arrangement when Mr Garvey later became involved in weed management on the land was contradicted by that of Mr Horan.[13]

38 Mr Horan's evidence was also found to be unsatisfactory. It was not consistent with that of Mr Koroneos in relation to the alleged crop share farming agreement.[14] The judge held:

the proper conclusion is, in my view, that Mr Koroneos did not have any real idea what Mr Horan was doing on the land and that there was nothing in the nature of concluded terms in any share farming agreement - if indeed any agreement of this nature was actually contemplated by the alleged parties at any relevant time.[15]

39 The judge noted that Mr Horan had said in cross-examination that keeping the land clear of weeds assisted him as the land wouldn't adversely affect other nearby land that he farmed.[16] This showed that his purpose in cultivating the land was to avoid the weeds affecting nearby land, with a possible 'side benefit' of selling seed or using it for re-sowing on the land or other land that he farmed.[17]

40 The judge also noted the evidence of Mr Kroker to the effect that cultivation of land is an accepted means of weed control.[18]

41 Ultimately, the trial judge concluded that the applicants had not discharged their burden of proving that s 66 applied so as to exempt the land from liability to land tax.[19] He found that the evidence was unsatisfactory and had to be approached 'with a high degree of caution'.[20] He held that the inability of the applicants' witnesses to give evidence as to the critical terms of the share farming agreement meant that the assertion of that arrangement had to be rejected.[21] The evidence was vague, self-serving and inconsistent.[22] It showed that, at best, the cultivation of the land for the purpose of selling the produce of the cultivation was a 'side benefit' rather than the primary purpose.[23] The judge concluded:

Viewing all this evidence together, I am of the view that it cannot be said that the Land was used primarily for cultivation for the purpose of selling the produce of cultivation. At best, that was something in the nature of a side benefit. Rather, it was most advantageous for the Appellants to allow Mr Horan to use the Land for whatever cultivation purpose he chose, as long as the effect was to control weeds and otherwise generally maintain the Land. Mr Horan's purpose, insofar as it might be relevant to the operation of these provisions of the Act, was also primarily to control weeds and to avoid the 'bad neighbour' problem, and if, as a side benefit, he obtained some seed for re-sowing on the Land or for sowing on other properties he was farming or made some money from the sale of seed from time to time, then he was content. Mr Horan's purpose was not to use the Land primarily for cultivation for the purpose of selling the produce of cultivation.[24]

42 The judge also concluded that the applicants 'were seeking to do the minimum thought necessary on the Land to maintain an exemption from land tax pending its development'.[25]

43 The s 68 claim failed also, as the evidence did not support there having been any relevant preparatory work. The applicants pointed to the construction of the dam,[26] but that had occurred many years earlier and could not properly be regarded as preparatory work.[27]

44 The applicants rely on six proposed grounds of appeal. At the hearing, these were distilled into the following propositions:

(1) The judge erred in looking to the subjective intentions of Mr Koroneos and Mr Horan, rather than identifying the purpose of the use of the land on an objective basis. Properly applied, the statutory test was satisfied on all the evidence.

(2) Alternatively, it would suffice if it could be shown that the land had been ventured in a broader commercial farming operation for the purpose of the sale of the produce of cultivation as part of that operation.

45 In the course of submissions, counsel for the applicants also made specific complaint about the reliance placed by the judge on the fact that inconsistent statements had been made on behalf of the applicants as to the use of the land, and challenged the judge's finding that the applicants were seeking to do the minimum thought necessary to maintain the land tax exemption.

46 Counsel for the applicants contended that the purpose to which reference is made in the definition of 'primary production' is the purpose of the use in question, namely the cultivation of the land. That, it was submitted, is an objective purpose which is to be determined by reference to what was actually done on the land, rather than according to the subjective intentions or motivations of those responsible. The judge had therefore erred in taking account of the subjective intentions of Mr Koroneos and Mr Horan. The objective evidence, including that of Mr Kroker, demonstrated that the purpose of cultivation of the land was not to control weeds, but to grow a crop for sale. The fact that there had been no such sale was not decisive, as the evidence showed that environmental factors had conspired to make the crops unsuccessful. Nor did it matter that the details of the profit sharing arrangement had not been worked out in detail in advance. The arrangement was an informal one between farmers who trusted each other to do the right thing when the time came to account for and divide the proceeds of sale.

47 To the extent that it was permissible to look to subjective intentions, the applicants submitted that only the purpose of Mr Horan could be relevant, as he undertook the cultivation. Mr Horan was a professional share farmer. He undertook significant work including rock clearing which was not explicable as being intended to control weeds. Rather, he was preparing the land for cultivation while Mr Koroneos sprayed for weeds along the boundaries of the land. It made no rational sense for Mr Horan to have cultivated the land in those circumstances in order to stop weeds from spreading onto other lands he farmed. Instead, the proper inference was that his actions were undertaken for the purpose of raising crops for sale.

48 As to the alternative submission, the applicants contended that Mr Horan plainly intended that the cultivation of the land would enhance his ability to farm the neighbouring land more productively. The land represented only part of the area which Mr Horan farmed as part of his share farming enterprise. Even if the purpose of the cultivation of the land was to stop the spread of weeds, the reason for doing so was to benefit other land farmed as part of that commercial enterprise. That sufficed to constitute 'cultivation for the purpose of selling the produce of cultivation' within the meaning of the definition of 'primary production'.

49 The applicants relied on the decision of the New South Wales Court of Appeal in Chief Commissioner of State Revenue (NSW) v Metricon Qld Pty Ltd,[28] which was decided after the decision of the trial judge in the present matter. The case was said to decide that recourse could not be had to subjective intentions when ascertaining purpose under the New South Wales equivalent of the primary production exemption in the Act. The Victorian decision in Abbott v Commissioner of Land Tax[29] was said to reflect the same position.

50 The issue for decision by the trial judge was whether, in each of the years in question, the land was used primarily for cultivation for the purpose of selling the produce of cultivation. The onus was on the applicants to establish that fact.[30] The relevant time for asking the question was at midnight on 31 December 2008, 2009, 2010 and 2011,[31] taking account of events and circumstances 'during a period not overlong and not over short' either side of that point in time.[32]

51 A question of characterisation arises, namely whether the cultivation in question was the predominant use of the land so as to impart to the whole of the land the necessary character.[33] In the present case, it is no longer in issue that the predominant use of the land at the relevant times was for cultivation. No question arose, therefore, as to whether or not the land was used 'primarily' for cultivation. Instead, the issue is what was the purpose of that cultivation. That issue holds the key to deciding whether the land was used primarily for cultivation 'for the purpose of selling the produce of cultivation'.

52 The converse position applied in Metricon, the case upon which the applicants' argument regarding purpose depended. It was common ground in that litigation that the relevant land had been used for the maintenance of cattle for the purpose of selling them or their natural increase or bodily produce (reflecting the language of para (b) of the definition of 'primary production' in s 64(1) of the Land Tax Management Act 1956 (NSW)).[34] The issue was whether that use was, in the language of the New South Wales statute, the 'dominant use' of the land or whether the dominant use was 'land banking' or land development.[35]

53 In the course of his reasons, Barrett AJA (with whom Macfarlan and Ward JJA agreed), quoted with approval the following statement of Helsham CJ in Eq in Greenville Pty Ltd v Commissioner of Land Tax (NSW):

whether land is being used for primary production within the meaning of the definition must be decided by an objective test - the inquiry is an inquiry into actual land use; it is not to be tested by the intention of the owner ...[36]

54 However, as Barrett AJA pointed out, Helsham CJ in Eq went on to say that the subjective intention of the person who claims to have been using land for primary production remains a relevant consideration when making an objective evaluation of the whole of the circumstances.[37]

55 The applicants placed particular reliance on the following passage from the reasons of Barrett AJA:

Little is likely to turn on subjective purpose or intention. The question is not what an owner, lessee or other person able to do so decides is to happen in relation to the land. The task is, rather, to determine whether, as an objective matter, the things that that person causes to happen - no doubt in pursuance of the person's purpose or intention - constitute 'use' and, if so, whether (and to what extent) that 'use' is a use described in paras (a) to (f) of s 10AA(3). Relevant purposes and intentions are principally those already executed, although the complexion of things already done may be coloured by whatever the relevant purpose or intention envisages for the future.[38]

It was submitted that this passage eschews reliance on subjective purpose or intention in the application of the definition of 'primary production'.

56 That submission must be rejected. In the first place, as senior counsel for the Commissioner pointed out, Metricon is not authority as to the meaning of the word 'purpose' in the definition of 'primary production'. That matter was not in dispute. The case was concerned with the identification of the dominant 'use'. The above passage reveals as much. Secondly, the passage itself acknowledges in the final sentence that purpose or intention may bear on the characterisation of things already done. In other words, subjective purpose or intention may be relevant to an objective assessment of the whole of the evidence. Thirdly, as already observed, Barrett AJA had earlier confirmed the possible relevance of the subjective intention of the person who claims to have been using the land.

57 Metricon therefore does not stand for the proposition that subjective intention is irrelevant to the determination of 'purpose' in the definition of 'primary production'. It does, however, afford guidance as to the person whose 'use' of the land will be determinative in the case where the alleged primary production use is that of a tenant rather than an owner. Barrett AJA held that it was only the agricultural use of the tenant that fell for consideration in that situation, and that it was not necessary to weigh that use against any use of the owner (such as investment or leasing) in order to identify which of the two was the 'dominant' use.

58 Senior counsel for the Commissioner accepted that this reasoning indicated that, in the present case, it was the use to which Mr Horan put the land that was decisive. Although no lease was suggested, at the minimum there must have been a licence permitting him to cultivate the land. It was not necessary to consider any different use to which the applicants put the land. However, that did not render the purpose of the applicants irrelevant. The objection that had been made alleged a share farming enterprise and the purposes of both parties to the alleged arrangement were relevant to determining whether it existed and what were its terms.

59 There is no foundation in the text of the statute or the authorities for the applicants' contention that 'purpose' is to be determined without reference to the subjective intentions of the person whose use of the land is in issue. In their written submissions, the applicants contended that, once there is objective evidence that land is cultivated, that fact is sufficient objectively to establish the requisite purpose. But that submission entirely overlooks the specific statutory requirement of purpose. Cultivation may be undertaken for different purposes, including to grow crops for sale, to grow crops in order to obtain seed for re-sowing, to produce other agricultural inputs such as feed for animals or, as Mr Kroker's evidence accepted, to prevent weeds from growing. The legislation provides for an exemption only where the purpose of the cultivation is 'selling the produce of cultivation'. There is therefore a quite distinct inquiry to be made as to the purpose of the cultivation. The applicants' submission elides the requirements into a single question, namely whether cultivation took place.

60 The Court was not taken to authorities considering the meaning of the word 'purpose' in paragraph (a) of the definition of 'primary production'; the matter appears not to have received specific attention. The present case is unusual in that the purpose of cultivation is not as self-evident as might normally be the case. However, the authorities make it clear that the question whether land is 'used' primarily for primary production is to be determined by 'looking at all the activities together with the surrounding circumstances of [the taxpayer's] evident purpose in carrying out those activities'.[39] By parity of reasoning with cases concerned with the carrying on of a business, the test is 'subjective and objective: it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them'.[40] Similarly, the question of 'purpose' in para (a) of the definition of 'primary production', which looks to the purpose of the use itself, directs attention both to the activities constituting the use and to the purpose of the person or persons engaging in that use. The two inquiries are therefore closely related. Each remains objective in the sense that all surrounding circumstances must be taken into account. But, contrary to the applicants' submission, those circumstances may include the subjective intention of the person or persons engaging in the use of the land.

61 Proof of the required purpose will depend on the facts in any given case. The inquiry is about the purpose of the use of the land (here, its cultivation). The activities constituting the use will be critical to the task of identifying that purpose, because inferences may be drawn from those activities as to the purpose for which they were undertaken. Other actions of those who engage in those activities will also be important, including, for example, what they ultimately do with the produce of the cultivation. Evidence of arrangements and transactions relevant to the use of the land may also bear on the purpose of that use. There is no reason, consistently with the approach identified in Metricon, why evidence of the subjective intentions of the person or persons engaging in the use of the land should not also be taken into account. Without of course being determinative, such persons are after all well placed to explain the purpose for which the land was used (or, relevantly, cultivated). Such evidence is not determinative because it must be evaluated along with the other evidence as part of the objective evaluation of the purpose of the use to which the land was put.

62 In the present case, the judge was not satisfied that the applicants had established the requisite purpose. The inherent likelihood that a person who grows a crop will sell it if possible does not necessarily suffice to establish that the primary use of the land was growing a crop for that purpose. The prospect of sale may be merely incidental to a different purpose, so that the land is properly characterised as being used primarily for cultivation for that other purpose. Here the applicants sought to establish that sale was the purpose of the cultivation by reliance on a share farming agreement. The judge was entitled not to accept the evidence of Mr Koroneos and Mr Horan regarding the alleged share farming arrangement, given their inability to explain the basis upon which the profits would be determined. He was also entitled to treat the applicants' claims with caution as a result of the inconsistencies in their evidence and the false claims that had been made in pursuit of the exemption in previous years.

63 Although it could be contended that it was not essential to the alleged share farming agreement that the division of profits be agreed upon in advance of any profits arising and this issue could have been deferred until the time arose, it was not the applicants' case that the parties had agreed upon that course. They instead sought to establish that a specific profit share had been decided upon. As the judge held, their evidence was inconsistent and unsatisfactory as to how that arrangement was expected to work in practice.

64 Moreover, and in any event, it was well open to the judge to find that Mr Horan's purpose in cultivating the land was to ensure that weeds from the land did not invade the neighbouring land that he was farming, and that if he derived any crops, or seed, from his efforts, that would be a side benefit. Mr Horan himself described his motivation in terms consistent with those findings. Acceptance of that evidence, together with rejection of the evidence as to the share farming arrangement, sufficed to conclude that the applicants had not established that the purpose of the cultivation was to sell the produce.

65 It might be that, properly understood, the evidence Mr Horan gave that his motivation was to control the spread of weeds, upon which the judge relied in part, related only to the period after Mr Garvey became involved and was not indicative of his motivation under the arrangement with Mr Koroneos. Mr Horan was arguably merely articulating his reason for dealing with the land at Mr Garvey's expense after attempts to grow successful crops had failed. But even if that is accepted, the fact that Mr Horan described his motivation in those terms, even though the first saleable crop from the land was harvested in the year immediately after he started working for Mr Garvey, is striking. And on any view, the evidence went directly to the purpose of the cultivation in 2011, the year of the final challenged assessment.

66 Moreover, the remainder of the evidence suggests that this was Mr Horan's position at all relevant times. Mr Horan saw his function as 'land management' and the evidence that he and Mr Koroneos seriously contemplated that there would be profits arising from selling produce grown on the land is sparse and unconvincing. The evidence revealed so little attention to the prospect of deriving any profit that the judge was right to conclude that it had not been shown that the purpose of cultivating the land was to sell the produce. It is also significant that Mr Horan in his statutory declaration made no reference to a profit sharing arrangement at all, but stated that he and Mr Koroneos discussed Mr Horan alone retaining the benefit of the harvested crops. Further, the evidence strongly suggested that Mr Koroneos's purpose in permitting Mr Horan to farm the land was to manage the land so as to control the weeds. In practice, the crops that were grown during the years of assessment were not sold but were used by Mr Horan, without payment to the applicants, as agricultural inputs on other farms. The overall impression left is that the prospect of sale of the crops was, for both men, at best one possible outcome of the cultivation, rather than its purpose. As such, the primary use of the land was not cultivation for the requisite purpose.

67 The applicants took issue with the judge's finding that they had sought to do the minimum necessary on the land so as to attract the primary production exemption. But that finding did not form part of the reasoning leading to the judge's conclusion as to the purpose of the cultivation. It was instead expressed as a corollary of that conclusion, in the final substantive paragraph of the judge's reasons in a section headed 'Summary and conclusions'. In light of the history of the applicants' dealings with the Commissioner and the findings the judge had already made, the observation was open to be made, and nothing turns on it.

68 In the circumstances, no error has been shown in the judge's conclusion that the applicants failed to discharge the onus of establishing the exemption in any of the years in question.

69 The applicants' alternative argument may be disposed of shortly. By that argument, they sought to rely on the evidence that Mr Horan farmed other lands for commercial purposes and that he used the subject land as part of that wider venture, thereby satisfying the requirement that the land be cultivated 'for the purpose of selling the produce of cultivation'. However, the word 'cultivation', in the phrase 'the produce of cultivation', relates back to the prior use of the same word.[41] The 'produce of cultivation' is the produce of the cultivation of the subject land, not the produce of cultivation elsewhere. The more liberal construction for which the applicants contend strains the text and achieves no apparent statutory purpose. It also sits uneasily with the confined provision made elsewhere in the Act regarding adjoining land: the primary production exemption only envisages looking beyond a given piece of land where the whole of the land in question comprises one 'parcel',[42] which is defined to mean land that is owned by the same person and contiguous or separated by a road, railway or similar area.[43] The applicants' construction pays no regard to this provision.

70 Finally, the applicants' failure to discharge the onus as to the exemption under s 66 also has the consequence that they cannot show that the land was in any of the years in question 'being prepared for use primarily for primary production' within the meaning of s 68(1)(a) of the Act. It would be necessary to show under that provision that the land was being prepared for use primarily for cultivation for the purpose of selling the produce of cultivation. The judge's findings on the evidence, which should be upheld for the reasons given, preclude any such conclusion.

71 Leave to appeal should be granted, but the appeals must be dismissed.

CDPV PTY LTD (AS TRUSTEE FOR THE KPF SUPERANNUATION FUND

LJMSL PTY LTD (AS TRUSTEE FOR THE KORONEOS SUPERANNUATION FUND)

[1] CDPV Pty Ltd v Commissioner of State Revenue [2016] VSC 322 [39] ('Reasons').

[2] See generally Taxation Administration Act 1997 pt 9 div 2.

[3] See ibid s 106.

[7] Ibid [49]; see generally at [48]-[49] for further inconsistencies.

[9] Ibid [46]. See [11] above.

[25] Ibid [71]. The judge held that the extent of any pre-settlement activities being conducted on the land by the developer at relevant times was unclear. Nothing turns on this issue for present purposes.

[26] See [6] above.

[28] [2017] NSWCA 11 ('Metricon').

[29] [1985] VicRp 15; [1985] VR 164, 168 (Crockett J).

[30] Taxation Administration Act 1997 ss 110, 127.

[31] Section 36(1) of the Act.

[32] Longford Investments Pty Ltd v Commissioner of Land Tax (NSW) (1978) 8 ATR 656, 660 (Sheppard J).

[33] Abbott [1985] VicRp 15; [1985] VR 164, 164-5 (Young CJ), 165-6 (Crockett J), 169-70 (King J); Council of the City of Newcastle v Royal Newcastle Hospital [1957] HCA 15; (1957) 96 CLR 493, 515 (Taylor J).

[34] [2017] NSWCA 11 [6] (Barrett AJA; Macfarlan and Ward JJA agreeing).

[36] (1977) 7 ATR 278, 280, quoted in Metricon [2017] NSWCA 11 [36].

[37] Metricon [2017] NSWCA 11 [37].

[39] Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (NSW) [2010] NSWSC 867; (2011) 85 ATR 775, 784 [24] (Allsop P; Campbell and Whealy JJA agreeing), quoted in Reasons [22].

[40] Martin v Federal Commissioner of Taxation [1953] HCA 100; (1953) 90 CLR 470, 474 (Webb J); reversed on other grounds: at 477.

[41] Similarly, the slightly different reference in the former New South Wales legislation to 'the produce of such cultivation' meant 'the produce of the cultivated land': Safety Beach Estate Pty Ltd v Commissioner of Land Tax (NSW) (1979) 9 ATR 451, 455 (Rath J).

[42] Section 66.

[43] Section 3(1).