Chandrala v Chief Commissioner of State Revenue

NCAT Administrative and Equal Opportunity|2020-12-03

REASON FOR DECISION

This matter involves a claim for exemption from land tax for the 2020 land tax year for rural land situated in Vineyard NSW.
The applicant claims that the land was used for primary production, being cultivation of that land for the purpose of selling the produce of cultivation. The cultivation claimed was that of an orchard and/or a market garden.
The applicant purchased the land in August 2019 in a liquidation sale. It was in run down condition. The land area is 6.07 ha. It is zoned RU 2 (primary production small lots). The land is flood prone. About 0.1 of a hectare is suitable for residential use. There was a burned-out house on this area of land. About 0.8 ha was previously used as an orchard and as a market garden. The applicant's evidence was that there are were approximately 380 to 400 Nashi pear trees on the property which had been allowed to decline.
In October 2019 the applicant entered into the First Lease for a 14 month period for the purpose of growing vegetables and other agricultural purposes. The tenant was required to maintain the fences and repair the front gate.
In the period October to December 2019 asbestos was removed on the from the "house block", and the following reports were prepared: bushfire assessment, on-site waste management, and arborist. In January 2020 the applicant lodged a development application with the Council for construction of a new residence on the land.
Although the First Lease was entered to into in October 2019, rent for the first 2 months was waived, but 2 months rent was paid which presumably satisfied the tenant's obligations for December 2019 and January 2020. There is virtually no evidence to establish that work was performed by the tenant under the First Lease. The tenant apparently abandoned the lease in February 2020.
In March 2020 the applicant entered into a Second Lease of 3 years for growing produce and the lease documents (Sch 4) noted that the land was in run down condition and that the orchard needed pruning and maintenance.

Legislation

Land tax is charged on non-exempt land owned on 31 December immediately preceding the year for which the land tax is levied (sec 8 Land Tax Management Act 1956 (LTMA). This means that we must examine the position as at 31 December 2019.
However, it is too narrow to simply look at the use of the land on 31 December. It is appropriate to look at the use of the land before and after this relevant date and in Leda Manorstead v Chief Commissioner of State Revenue [2010) NSWSC 867 (Leda Manorstead), a period of 6 months before and after that date was considered a reasonable period for enquiry in a primary production use case. See also Longford Investments Pty Ltd v Commissioner of Land Tax (NSW) (1978) 8 ATR 656 at 660 (Longford Investments).
Sec 10 AA LTMA provides that a land used for primary production is exempt from land tax. In relevant part it provides: "10 AA Exemption for land used for primary production Land that is rural land is exempt from taxation if it is land used for primary production. … (3) For the purposes of this section, land used for primary production means land the dominant use of which is for - cultivation, for the purpose of selling the produce of the cultivation, or … (4) For the purposes of this section, land is rural land if - the land is zoned rural, rural residential, nonurban or large lot residential under a planning instrument, or …" This land qualifies as rural land.
In Chief Commissioner of State Revenue v Metricon Qld Pty Ltd [2017] NSWCA 11 (Metricon) the Court of Appeal held that in deciding what is the dominant use of the subject land it is necessary to compare only physical uses of the land, or how the 'concrete physical mass' is deployed, including not only activity but also inactivity (where inactivity is deliberately adopted as a means of obtaining actual and present advantage from the land e.g. leaving land fallow to regenerate). There is no requirement that immediate productive return be achieved as long as some benefit or advantage accrues or would be expected to do so (see Metricon [55] - [61])
if part of primary production land remains 'unused' it is appropriate to consider whether the non-use prevails over the primary production use (Longford Investments at 661), but there must be an actual active use of the land or deliberately adopted inactivity if the property in question was the relevant time substantially unused it cannot be said that it is primarily used for any purpose (Saville v Commissioner of Land Tax 81 ATC 4373 at 4379 (Saville)). Mere intention to use land for primary production will not suffice.
As the Court of Appeal said in Metricon at [59] & [60]: "…The enquiry directed by sec 10 AA (3) is as to current tangible and physical deployment and its purpose, not the purpose of acquisition. [60] Little is likely to turn on subjective purpose or intention… The task is, rather, to determine whether, as an objective matter, 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 the paragraphs of sec 10AA]".
Long lead time activities such as the planting of orchards or timber can qualify. Preparatory works can amount to cultivation if it involves labour and appropriate business diligence in relation to the land to produce a crop for sale. The land should be tended according to usual practices of land management in relation to crops. This could include ploughing , sowing, pruning, mowing, fertilising, spraying and improving the watering system.

Consideration

The applicant's evidence in relation to the period prior to 31 December 2019 is sparse.
Section 100 (3) Taxation Administration Act 1996 imposes the burden of proving his case on the applicant.
The activities of a person (a tenant, licensee or agistee) other than the owner on the land can be taken into account for the purposes of the test relating to the use of land for the purpose of primary production. The test in sec 10AA LTMA depends on 'use' of the land, not ownership.
There is no evidence of activity by the tenant under the First Lease in the period prior to 31 December 2019. Indeed there seems to be little activity by the tenant under the First Lease at all, and it seems that the First Lease was abandoned in February 2020 with nothing of substance having been done by the tenant.
The applicant, in his oral evidence stated that he did conduct some tidying up activities (e.g. weed removal) on the land prior to 31 December 2019. This seems inconsistent with exclusive possession being given to the first tenant, and with a statement in the Second Lease document that the land was run down and that the orchard needed pruning (Sch 4). He was unable to provide anything to corroborate his oral evidence. I treat the oral evidence with caution. (Warriewood Valley Pty Ltd v Federal Commissioner of Taxation (1993) 26 ATR 270 at 282 (Warriewood). The applicant referred to the drought conditions applicable prior to 31 December 2019 but I am not satisfied that this prevented primary production activity. He also performed a number of activities relating to the obtaining of development approval for his new residence on the land.
With no evidence of primary production activities by the tenant under the First Lease and possibly very minor cultivation by the applicant, I do not consider that the applicant has met the burden of proof that the dominant use of the land was for primary production in the period up to and on 31 December 2019. I need to be reasonably comfortably satisfied by the applicant on the balance of probabilities that cultivation activities were taking place in the period up to and including 31 December, and I am not so satisfied (there is no submission that the land was left fallow as part of a program of cultivation). I find that the subject land was not used for cultivation at 31 December 2019.
The applicant placed considerable reliance on the activities of the tenant under the Second Lease which commenced on 25 March 2020. These activities appear much more likely to satisfy the definition of cultivation, but I make no definitive finding.
It is not possible for the owner of land to claim that the land was used for primary production as at 31 December (the test date) if the only established primary production activities or uses of the land referred to occurred after that date.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 05 March 2021

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