respondent. Appeal dismissed; the Tribunal's decision setting aside the Chief Commissioner's land tax assessments for 2014-2016 is affirmed. McIntosh Bros is not liable for the assessed land tax for those...
Key principles
The dominant 'use' in s 10AA(3) of the Land Tax Management Act 1956 is a test about physical use of the subject land and can be established by aggregating multiple...
The commerciality test (s 10AA(2)(a)) and the purpose-of-profit test (s 10AA(2)(b)) are assessments of the primary-production 'use' at large and may take account of the business...
Where animals are agisted on the subject land, the legal character of the agistment arrangement (bailment, licence or lease) is a question of substance; the person who retains...
Notional or imputed costs (for example, notional labour or land-holding costs) need not be included in accounting profit calculations in the absence of statute or binding...
Issues before the court
Whether multiple independent users of the same land can have their primary production uses aggregated to satisfy the 'dominant use' requirement in s...
Plain English Summary
The Appeal Panel dismissed the Commissioner's appeal. It held that s 10AA's tests for exemption focus on the physical 'use' of the land and that multiple persons' primary-production activities on the same land can be aggregated to determine the dominant use. The commerciality and profit-purpose tests may consider the wider farming enterprise (including activity on other land) where the enterprise is integrated. The Tribunal's factual findings — including that an agistment was a licence making the agistee the user, and that notional costs need not be imputed in profit calculations — were open on the evidence and did not contain errors of law.
AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.
Deep Dive
1,716 words · generated 06/08/2026
What happened
The Chief Commissioner assessed McIntosh Bros Pty Ltd (in liq) for land tax totalling $2,984,056 for calendar years 2014–2016. The land (Denbigh) near Cobbity, historically used for grazing cattle, was owned by McIntosh Bros but used by multiple family members and a small number of agistees. The Tribunal (NCAT) set aside the Commissioner's assessments, finding the land's dominant use was primary production and that the use satisfied the commerciality and profit-purpose tests under s 10AA of the Land Tax Management Act 1956 (NSW). The Commissioner appealed to the Appeal Panel. The Appeal Panel dismissed the appeal on 30 June 2020 and affirmed the Tribunal's decision (Appeal Panel: Hennessy ADCJ, Deputy President M Harrowell). The net effect is that McIntosh Bros is not liable for the challenged land tax assessments for the years in question.
Whether the commerciality test (s 10AA(2)(a)) and the purpose-of-profit test (s 10AA(2)(b)) permit aggregation of separate users' activities and...
Who is the 'user' of the land under an agistment arrangement for the purposes of s 10AA?
Whether the Tribunal erred in treating the Molong sheep operation (off-site) as part of the same business enterprise as the Bangor cattle operation...
Cited legislation
6 cited instruments linked from this judgment.
Key factual findings by the Tribunal included that:
the land was used for grazing cattle on both the Denbigh and Bangor sides (see Tribunal summary [10]-[17]);
multiple persons conducted primary production uses on different parts of the land (Ian, Richard, Head Pastoral/ Jim Head, agistees like Brett Hayter);
the agistment between Ian and RM Hayter was characterised in substance as a licence such that Mr Hayter was the user of the land in respect of his cattle (Tribunal finding [167]);
the Tribunal found that, overall, the primary‑production uses outweighed non‑primary uses and that, for each year, s 10AA(3)(b) applied as the dominant use;
for the commerciality and profit-purpose tests the Tribunal considered both the uses on the subject land and the wider farming enterprise (including the Molong sheep operation for Richard) where the Tribunal found integrative business elements (banking, accounting, management) ([212], [222]).
The Appeal Panel’s core conclusion was that the Tribunal did not err in law in aggregating activities, evaluating commerciality and profit purpose by reference to the use at large, or in its factual characterisation of the agistment and integration of the wider farming enterprise.
Why the court decided this way
Statutory focus on 'use' rather than identity of user
The Panel started from the statutory text of s 10AA and the established interpretive approach that the statute is concerned with the 'use' to which land is put rather than the identity or attributes of the owner or particular user (see the Panel’s statement that "Section 10AA is concerned with 'use' at large, rather than use by any particular person"). This reading aligns with Metricon and earlier authorities and drives the enquiry to the physical activities conducted on the land.
Aggregation of multiple users’ primary-production activities
The Tribunal had aggregated the various primary production uses on the property when assessing the 'dominant use'. The Panel accepted this approach. It emphasised that the singular word 'use' in the statute can include plural 'uses' (Interpretation Act s 8(b)), and that there is no textual requirement in s 10AA to identify a single person carrying on the dominant use. The Tribunal’s adopted approach, to weigh all primary-production uses against non-primary-production uses, was treated as a permissible method of determining dominance ([148] quoted and discussed).
Commerciality and profit-purpose tests assessed at the enterprise level
The Panel relied on authorities (Thomason, Maraya, Vartuli) that permit consideration of the subject land's use together with other land where the primary-production enterprise operates across multiple parcels. The Panel accepted that the commerciality and profit-purpose inquiries are about whether "that use of the land" has significant commercial purpose/character and is engaged for profit; that inquiry can properly look at the enterprise as a whole if the enterprise spans more than the taxed parcel ([212], [222]). Thus the Tribunal's inclusion of the Molong sheep operation in assessing the commercial character of the Bangor cattle operation was held to be an open and lawful factual approach when integration elements exist.
Subjective intention is relevant but subordinated to objective assessment
The Panel accepted that subjective intention (purpose) of users is a relevant evidentiary matter, but the ultimate finding must be based on an objective evaluation of the total evidence, a theme drawn from Maraya and Metricon. That is, self-reported intention to make profit is evidence, but not conclusive; profitability data and other objective indicia must be weighed.
Characterisation of agistment governs who is the user
The Tribunal’s characterisation of the Hayter arrangement as a licence (agistee retained control of his cattle) meant Mr Hayter was the person using the land in respect of his cattle. The Panel found no error in principle in the Tribunal’s approach: the legal form of agistment is a matter of substance and fact and informs who is the relevant user for s 10AA.
Treatment of accounting profit and notional costs
The Tribunal declined to adopt an 'economic' approach that imputes notional labour or land-holding costs into profit calculations absent statutory or binding precedent. It found that accounting profit under ordinary accounting principles was the appropriate starting point, and notional costs are matters for evidentiary weight rather than automatic deductions ([240]-[243]).
Leave and scope of appeal
The Panel refused to grant leave on factual challenges that merely re-litigated credibility or weight issues, finding no cogent basis that the Tribunal’s findings were clearly mistaken or produced an unfair result.
Before and after state of the law
Before:
Authorities such as Metricon, Maraya, Thomason and Vartuli had already established key principles: focus on physical use; ability in some circumstances to consider wider enterprise activity; necessity to perform objective evaluation of commerciality and profit purpose; and that related-entity consolidation may require adjustment for inter-party transactions.
After:
This Appeal Panel expressly confirms that:
multiple independent users' primary production activities on the same land can be aggregated to determine the dominant use (subject to factual analysis);
commerciality and profit-purpose inquiries can assess the wider enterprise where integration exists, even where the specific off-site activities do not physically occur on the taxed land;
the identity of the user need not be the taxpayer/owner;
characterisation of agistment is a matter of substance and may determine which person is the user for s 10AA; and
courts and tribunals should be cautious about imputing notional costs absent legislative instruction.
Thus the decision reinforces permissive aggregation and enterprise-level inquiry, subject to fact‑specific limits.
Key passages with plain-English translation
Quote: "If the various primary production uses can be seen as a whole to be the main or chief use of the subject land outweighing the non-primary production uses, that will mean the dominant use of the land is primary production." ([148])
Plain English: If you look at all the farming activities together and they amount to the main use of the property, they can make the land 'primarily used for agriculture' even if more than one person is doing the farming.
Quote: "Section 10AA is concerned with 'use' at large, rather than use by any particular person."
Plain English: The test asks what the land is physically used for, not who the owner is or which legal entity is doing the work.
Quote: "If the sheep and the cattle operations are part of the same business, the cattle operation will be invested with the same commercial qualities as the operation at Molong." ([212])
Plain English: If two farms are really part of the same farm business (because they share management, money, risk etc.), the stronger commercial reputation of one can support the commerciality of the other.
Quote: "To adopt an economic approach requires, in my view, the authority of statute or binding precedent." ([242])
Plain English: You cannot invent a new rule that always deducts imaginary costs from farm profit numbers unless a law or higher court requires doing so.
What fact patterns trigger this precedent
This decision will be directly relevant where:
A parcel of land is used for primary production by multiple persons (family members, separate companies, agistees) and the question is whether the land’s dominant use is primary production.
There is an enterprise spanning multiple properties and the commerciality/profit-purpose of the taxed parcel depends on the performance or integration of the enterprise as a whole.
There are agistment arrangements where characterising the arrangement as licence versus bailment influences who the 'user' is for statutory purposes.
The Commissioner seeks to deny exemption by relying on small non‑primary uses, or by arguing for imputation of notional costs that are not borne in accounts.
Triggering facts commonly include family‑based farming with distinct legal entities, agistment/licence arrangements, shared bank accounts or accounting structures, and periods of transition in herd numbers or managerial involvement.
How later courts have treated it
As this is the Appeal Panel's decision, subsequent courts and tribunals will treat it as persuasive tribunal-level authority on the practical application of s 10AA in NSW. Key aspects likely to be followed or cited:
Aggregation of multiple users’ primary-production activities on the same land is permissible when determining dominant use.
Commerciality/profit-purpose may validly consider the wider enterprise where integration is established.
Courts will continue to treat agistment characterisation as a question of substance.
Practitioners should watch for future appellate decisions that might refine boundaries (for example, when separate enterprises are too distinct to permit aggregation or when notional costs must be imputed).
Still-open questions
Several areas remain fact-sensitive and likely to attract future litigation:
The precise boundary between permissible aggregation and impermissible combination of unrelated enterprises: at what level of independence does aggregation become illegitimate?
The level and kind of evidential integration (bank accounts, management, movement of stock) required to treat off-site operations as part of the same enterprise for commerciality.
Whether a higher court will accept the tribunal’s approach to notional costs generally, or whether an appellate court will require a more nuanced economic approach in some circumstances.
Exactly how courts should adjust consolidated results when related parties conduct the activities (the decision echoes Vartuli’s need to eliminate inter-party transactions but does not generate a comprehensive method).
These questions will be resolved by future fact patterns and appellate analyses.
This is general legal information, not legal advice. I may make mistakes. Before you act on, rely on, or file anything based on this analysis, get a qualified Australian lawyer to check it.
Judgment (27 paragraphs)
[1]
Overview
The Commissioner for State Revenue assessed land near Cobbity in New South Wales as liable for land tax totalling $2,984,056.00 for the three calendar years of 2014, 2015 and 2016. The land is owned by McIntosh Bros Pty Ltd (In liq) (McIntosh Bros). Following an application for review of the Commissioner's decision, the Tribunal set aside those assessments: McIntosh Bros Pty Ltd (In Liq) v Chief Commissioner of State Revenue [2019] NSWCATAD 124 (Decision). The Commissioner has appealed to the Appeal Panel. We have decided that the Tribunal's decision should stand. McIntosh Bros is not liable to pay the tax.
[2]
Key legislative provisions
Liability for land tax is governed by s 10AA of the Land Tax Management Act 1956 (NSW). The land the subject of these proceedings is not zoned as 'rural land', so it is not automatically exempt from land tax: s 10AA(1). But the land is exempt "if it is land used for primary production" and it meets both a commerciality test and a purpose of profit test: s 10AA(2)(a) and (b) and (3). McIntosh Bros has the onus of proving its case in an application to the Tribunal for a review of the Commissioner's decision: Taxation Administration Act 1996 (NSW), s 100(3).
We set out s 10AA in full below:
10AA Exemption 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 land 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, non-urban or large lot residential under a planning instrument, or
(b) the land has another zoning under a planning instrument, and the zone is a type of rural zone under the standard instrument prescribed under section 33A (1) of the Environmental Planning and Assessment Act 1979, or
(c) the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land.
In effect, s 10AA(2) provides that the dominant use of the land must be for primary production. Those primary production uses are listed in s 10AA(3)(a)-(f). We refer to this definition as the "dominant use test." It is common ground in this case that the relevant use is s 10AA(3)(b), "the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce".
As well as the dominant use test, to be exempt from land tax, the primary production use of the land must also satisfy the commerciality test and the purpose of profit test. The commerciality test is that the use of the land must have "a significant and substantial commercial purpose or character." The purpose of profit test is that the use of the land must be "engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)".
[3]
Main issues
The main issues in this case concern the Tribunal's decisions:
1. to aggregate the use of the subject land by multiple users for the purpose of determining if the land is used for primary production; and
2. to aggregate the commercial activities of those users engaged in primary production both on and off the subject land.
[4]
The land
The property, known as "Denbigh" was originally granted in 1812 and was acquired by the McIntosh family in 1868. Successive generations have lived and farmed on the property. For many years, the land was a dairy farm owned by brothers Ron and Jim McIntosh. The land was transferred to the company, McIntosh Bros in 1931. That company, which is the respondent in these proceedings, has been in voluntary liquidation since 1987. At about the same time, the brothers informally divided the land into two parts - the Denbigh side controlled by Jim and his family and the Bangor side controlled by Ron and his family. Each side is roughly equal in size. The three descendants who are involved in living on and/or farming the property are Ron McIntosh, his son Richard and Jim's son, Ian.
In 2009, the land was divided into large "superlots". In 2014 two parcels of land from what is known as the "Heritage Curtilage" were sold to Ian McIntosh and to Richard's sister, Angela Head. That land is no longer owned by McIntosh Bros.
The NSW Department of Planning re-zoned the land as part of the development corridor associated with the proposed new Badgery's Creek airport. Apart from some sections, which are heritage protected, the land will ultimately be sold to developers.
[5]
The uses of the land and the dominant use test
For many decades, and in the years 2013 to 2016, the land was used for grazing cattle. The land had slightly different areas and uses for each year of assessment, but the Tribunal found that the appellant was exempt from land tax for each of the three calendar years under consideration.
The Tribunal summarised the uses of the land for the three relevant tax years at [10] to [17]:
10 As at 31 December 2013 the company's land was 451ha including the 'Heritage Curtilage'. The Heritage Curtilage land was used seamlessly with the company's other land. The land was zoned residential by the State government (not by the taxpayer as proponent) in 2007. The land was subdivided into large 'superlots' in 2009. Carved out from the residential zoning was an area of about 207 ha called the Heritage Curtilage surrounding the homesteads which were zoned environmental living.
11 In May 2014 the company sold the Heritage Curtilage land in two parcels (lots 2008 and 2009) to Ian, and to Richard's sister Angela Head, so it was no longer the company's land. However the Heritage Curtilage continued to be used seamlessly as it was prior to the sale.
12 Richard and Ian are two of the persons who use the company's land. The shares in the company are held 50-50 by family trusts for Richard and Ian's sides of the family. Richard's and Ian's fathers used the land for dairy farming until the late 1980s when they decided to go into beef farming.
13 Use of the land is informally divided by agreement under which Richard and Ron and Richard's nephew James (Jim) Head used the Bangor (east) side of the land for cattle, and Ian and agistees used the Denbigh (west) side of the property for cattle. There are no formal leases or licences. There were various non primary production users as well in the relevant years.
14 Ian conducted a cattle farming operation on the Denbigh side. At the same time Mr Brett Hayter a local dairy farmer agisted his heifer cattle on Ian's side prior to their introduction into the dairy herd or sale. There were two other minor agistees in later years.
15 Richard conducted a cattle farming operation on the Bangor side with help from his father Ron and other family including his nephew James (Jim) Head. Richard lived on his property at Molong NSW where he conducted a large sheep farm.
16 In 2014 Richard's nephew Jim began a cattle breeding and store cattle operation on the Bangor side through Head Pastoral Company (Head Pastoral).
17 Over the relevant years, small parts of the land were used for non-primary production purposes including a sewer pumping station and associated facilities; a one year storage lease; rental of two cottages; fencing; road works; planting; and surveys.
[6]
The Tribunal held that the dominant use of the land for each of the three years in question was primary production.
[7]
Commercial purpose and purpose of profit tests
The relevant users on the Denbigh side of the property were Brett Hayter, whose cattle were agisted on that side of the property and Ian McIntosh's own cattle operation. The Tribunal found at [205] and [206], that:
205 If Ian had only his own 30-47 cattle using his side that use may not have had a significant and substantial commercial purpose or character. This is due to the size of the herd relative to the size of his part of the land, the smaller amount of work that would be required and the low profitability.
206 Considering Mr Ian McIntosh's and Mr Brett Hayter's operations combined I find that they had a significant and substantial commercial purpose or character. While there is insufficient evidence to reach a conclusion regarding the other smaller agistment users, their use has been minor and do not detract from my conclusion that so far as Mr Ian McIntosh's side of the land is concerned that its use meets the commerciality test in s10AA(2) LTMA in all the relevant years.
On the Bangor side of the property, Head Pastoral's cattle operation met the commerciality test for the 2015 and 2016 calendar years, but not for 2014. Richard McIntosh had a cattle operation and what is referred to as the "Molong sheep operation" on the Bangor side. The Tribunal held at [223], that Richard's cattle operation can be regarded as part of his wider farming operation at Molong and that because they were both part of the same business, that use of the land met the commerciality test.
In relation to the commerciality test (that the use of the land has a significant and substantial commercial purpose or character), the Commissioner submitted that if there is more than one user, the aggregate of users cannot have a 'purpose'. The subjective element of 'purpose' requires a single user.
The Tribunal did not accept that submission stating at [186], that, "It seems unduly restrictive." At [176], the Tribunal had addressed the meaning of the word "purpose" in the commerciality test and referred to the following passage from Thomason v Chief Executive, Department of Lands (1995) 15 QLCR 286 (Thomason) at 305:
The relevant "purpose" is the "object to be attained, thing intended" (Australian Concise Oxford Dictionary) or, in other words "the object for which anything . . is done . . . an intended or desired result; end or aim" (Macquarie Dictionary). In this context (and by contrast with "character") the word "purpose" seems to be subjective in nature or at least to have a subjective component.
[8]
Aggregation of users and commercial activities of individual users - grounds 1, 2 and 3
[9]
Parties' submissions
The Commissioner has the right to appeal on the first three grounds of appeal because they identify a question of law: Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act), s 80(2)(b).
The Commissioner submitted that the Tribunal had misconstrued the phrase "land used for primary production" in s 10AA(3). The Tribunal aggregated each primary production use on the Denbigh and Bangor sides of the land rather than asking whether any one of the several independent primary production uses was the dominant use of the land.
Grounds 2 and 3 relate to the commercial purpose test and the purpose of profit test. The Commissioner submitted that, in relation to the commerciality test (ground 2) and the purpose of profit test (ground 3), the "purpose" has a subjective element and must be held by the person carrying on the dominant use. A notional entity comprising several users cannot have a subjective purpose. Put another way, s 10AA(3) requires a dominant use by a single user and the dominant use cannot be determined by reference to an aggregated use constituted by users who are unrelated to each other. A user cannot engage in a purpose except in relation to its own use. In saying so, the Commissioner acknowledged that a single use may be carried on by two or more persons acting together, but that that is not the case here. As there was no single primary production use of the land that was "dominant" during any of the years in question, the exemption for land used for primary production does not apply. Similarly, aggregating for the purpose of determining the commerciality and purpose of profit tests under s 10AA(2) is inappropriate.
McIntosh Bros submitted that the grounds rely on a narrow interpretation of the word 'use" in s 10AA as being restricted to one use - that is, one type of activity and one user. It is a canon of statutory construction that "a reference to a word or expression in the singular form includes a reference to the word or expression in plural form": Interpretation Act 1987 (NSW), s 8(b). Accordingly, the word "use" in s 10AA should be read as "use and/or uses". McIntosh Bros also submitted that the Commissioner's interpretation of s 10AA adds the concept of independent or separate users and uses of the land, and that language is not found in the statute.
When it comes to applying the commerciality test or the purpose of profit test, it is the subjective (if necessary) and objective assessment of each "use" or "uses" of the land. McIntosh Bros submitted that there is no need to identify the purpose of a notional combined entity. The cases are clear that what is relevant is the physical use of the land. The "user" is not mentioned in the dominant use test. Consequently, the number and identity of the users is irrelevant.
[10]
Principles of statutory construction
The meaning of the dominant use test must be determined in the context of s 10AA and the Land Tax Management Act as a whole. There are no statutory objects in that legislation, nor is the long title helpful. The Court of Appeal recounted the legislative history of s 10AA in Chief Commissioner of State Revenue v Metricon Qld Pty Ltd [2017] NSWCA 11 (Metricon) concluding at [42], that the purpose of s 10AA was, in part, to make the land tax exemption provision compatible with provisions concerning exemption from local government rating. Allsop P made the following observations in Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWSC 366 (Leda) at [28] (cited with approval in Metricon):
What the provision is apt to achieve and what can be taken as its purpose from its text and context in the Act is the provision of an exemption for land used for primary production to the extent and in the manner referred to in sub-ss (2) and (3). There is no requirement to approach the matter in some beneficial fashion striving to expand the reach of the exemption or to narrow the taxing operation of the section according to strict language.
In summary, s 10AA should be interpreted neither beneficially nor narrowly.
[11]
Meaning in context
When determining the meaning of the dominant use test in s 10AA(3), it is helpful to incorporate the text of that provision into s 10AA(2): San v Rumble (No 2) [2007] NSWCA 259 at [51].
If we use the shorthand phrase "the maintenance of animals for the purpose of selling them or their produce" for the phrase in s 10AA(3)(b), s 10AA(2) would read as follows:
(2) Land that is not rural land is exempt from taxation if it is land the dominant use of which is for the maintenance of animals for the purpose of selling them or their produce 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).
To be exempt from taxation, land that is not rural land must fulfil the threshold criteria of being land the dominant use of which is for the maintenance of animals for the purpose of selling them or their produce. If that threshold criteria is met, two other requirements must be satisfied:
1. that use of the land must have a significant and substantial commercial purpose or character; (the commerciality test) and
2. that use of the land must be engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made) (the purpose of profit test).
We adopt the following legal propositions taken from Metricon. In that case, the land was used for the purpose of primary production. The issue was whether that use of the land was outweighed by a competing use described as "land banking" or 'land development' use. The Court (Barrett AJA, Macfarlan JA and Ward JA agreeing) held at [45] - [47] or cited with approval at [36] - [37], the following propositions:
1. the word "use" has a core meaning independent of statutory context - it requires "an examination of activities undertaken upon the land in question"; (at [45])
2. s 10AA is concerned with 'use' at large rather than 'use' by any particular person; (at [47])
3. use means "the 'use' to which the land is put by the person - whether or not the owner - who has the ability to 'use' it; (at [47]) and
4. "the identity and attributes of the owner" are irrelevant; (at [47]).
The dominant use test in 10AA(3) is a test that applies to the physical use of the land, that is the activities being undertaken on the land. Section 10AA does not refer to the owners or the users of the land. In Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 (Maraya), Gzell J held at [70], that the exemption in the similarly worded former provision (s 10(1)(p) of the Land Tax Management Act 1956) " . . was concerned with use and not the user. It was of no consequence that the use was made by a person who was not the taxpayer (Clarke v Commissioner of Land Tax (NSW) (1980) 11 ATR 794 at 802)."
[12]
Agreed propositions
We understand the parties to have agreed with the following factual findings:
1. parts of the land were used for a primary production use namely the maintenance of cattle for the purpose of selling those cattle, their calves or their milk;
2. that use was undertaken by several legal entities on various parts of the land; (e.g. Ian's cattle operation, Brett Hayter's cattle agistment operation; two other minor agistees' operations; Head Pastoral's cattle operation and Richard McIntosh's cattle operation).
[13]
More than one user?
The Tribunal quoted Thomason as reflecting the correct approach when applying the dominant use test. In that case, (quoted with approval by the Court in Metricon at [52]) the Queensland Land Appeal Court at 303 listed various relevant matters when determining the dominant use of the land:
In our view, the proper approach to be taken when ascertaining the dominant use of land is to consider such matters as the amount of land actually used for any purpose, the nature and extent and intensity of the various uses of the land, the extent to which land is used for activities which are incidental to common business or industry of a type specified in s 17(2), the extent to which land is used for purposes which are unrelated to each other, and the time and labour and resources spent in using the land for each purpose. When undertaking this exercise, one cannot ignore the conclusion that an objective observer would reach from viewing the land as a whole.
In Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678 (Vartuli), the land was owned by Bruno and Nancy Vartuli. At various times it was used by them and/or by two family companies controlled by them, to conduct a small cattle farming business. The family companies grazed cattle on the land under an agistment agreement. When considering the uses that constituted the primary production activities and determining the commercial purpose or character of those uses, White J (as he then was) combined the activities of the Vartulis with that of the two family companies. There, his Honour said at [36]:
It is not appropriate to isolate the land in question. The tests posed by s 10AA(2) are whether the use of the land was engaged in for the purpose of profit on a continuous or repetitive basis and had a significant and substantial commercial purpose or character. The focus in s 10AA(2) is on the profit-making purpose of the use of the land and therefore attention is directed to the purpose of the user or users and the profit or losses made from the use of the land, not the profits or losses made by the owner of the land. In deciding whether the use of the land was engaged in for the requisite profit-making purpose, and whether the use of the land had a significant and substantial commercial purpose or character, it is appropriate to consider the entirety of Sydrom's and Deemhire's primary production activities, whether conducted on the land or not. This is because the Edmondson Park land was only part of the land used as part of those companies' primary production activities. Those activities had the same purpose and character, irrespective of the particular parcels of land upon which the cattle grazed (Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23; (2013) 88 ATR 379 at [73]; Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 at 307). The profitability of those activities should be considered from the perspective of Mr and Mrs Vartuli, Sydrom and Deemhire, by consolidating their results, and excluding the internal agistment charges by which income from those activities was paid to Mr and Mrs Vartuli at those companies' expense.
[14]
Subjective test
The Commissioner submitted that the subjective nature of the commerciality and purpose for profit tests supports the first three grounds of appeal because, on its proper construction, s 10AA does not permit the aggregation of the use of the subject land by separate users who each have a different subjective purpose.
Both the threshold issue of whether the uses of the land meet the dominant use test and the purpose of profit test, require the primary production use of the land to have a particular purpose. For the dominant use test in s 10AA(3)(b), that purpose is " "the maintenance of animals . . . . for the purpose of selling them or their natural increase or bodily produce." For the purpose of profit test, the use of the land must be "engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)." The commerciality test requires that the use of the land must have "a significant and substantial commercial purpose or character". A commercial purpose is not required.
In Metricon at [36] and [37], when considering the question of dominant use, the Court quoted with approval the following observations of White J in Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378 (Ferella):
36 White J quoted with approval a statement by Helsham CJ in Eq in Greenville Pty Ltd v Commissioner of Land Tax NSW (1977) 7 ATR 278 at 280:
"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 ..."
37 His Honour also pointed out, however, that the content of the subjective intention of the person who claims to be using land for primary production is a relevant consideration in making an objective evaluation of the whole of the circumstances.
As to the purpose of profit test, a person who uses land for primary production may give evidence that his or her intention was to make a profit. As Gzell J stated in Maraya at [103], the court is not bound to accept such an assertion. The "purpose of profit" test does not require that a profit be made, but objective evidence of the level of profit recorded will be relevant. Gzell J expressed it this way at [107] of Maraya:
While the absence of a profit does not negate an engagement in a primary production use of land for the purpose of profit, a continuous pattern of a lack of profit may lead the court to question and, in appropriate cases, to reject evidence that the primary production use of the land was engaged in for the purpose of profit.
[15]
Conclusion
We conclude from these cases that when determining "purpose", whether it be in relation to the dominant use test, the commerciality test or the purpose of profit test, a user's subjective intention is relevant. However, the ultimate finding as to purpose must be based on an objective evaluation of all the circumstances.
Section 10AA is concerned with 'use' at large, rather than use by any particular person. The first step is to determine whether the dominant use test is satisfied. Although expressed in the singular, as stated above the word "use" in s 10AA includes the plural - "uses". Under s 10 AA(3), the physical use must be for the purpose of selling the relevant produce. In this case, the Tribunal found that the dominant use of the land was a primary production use. That "use" was carried out by various users. When a primary production "use" is carried out by various legal entities, initially the Tribunal must assess the use of the land by each legal entity, relevant considerations including any subjective intention each user may have.
Next, evidence of whether each user's purpose is to make a profit on a continuous or repetitive basis, is relevant to the purpose of profit test. The users stated intentions must be evaluated with any objective evidence to determine whether, in all the circumstances, the relevant purpose has been established. For the commerciality test, evidence of whether the user has a significant and substantial commercial purpose may be relevant (e.g. Maraya at [94]-[103] and Vartuli above). However, it is sufficient if the use of the land has a significant and substantial commercial character: Maraya appeal at [46].
If the land meets the dominant use test, the land as a whole is exempt if the use of the land by each individual user meets both the commerciality test and the purpose of profit test. Considering individual users and the subjective purpose in respect of each use of the land does not prevent an overall assessment of whether the use of the land as a whole meets these tests. Rather, it is part of the factual matrix to be considered in evaluating whether the circumstances for exemption exist
The Tribunal analysed the land in terms of the Denbigh side and the Bangor side.
In the case of the Denbigh side, the Tribunal found at [205] - [206], that Ian McIntosh's use of the land by grazing between 30 and 47 cattle "may not have had a significant and substantial commercial purpose or character." However, considering that operation, and Brett Hayter's operation, in combination, the Tribunal found that they meet the commerciality test. In doing so, at [197]-[199] the Tribunal found in respect of the smaller agistment users (Ms Curran and Mr Martin) that there was insufficient evidence to support a conclusion that their use of the land in itself had a significant and substantial commercial purpose or character. Despite that finding, the Tribunal was satisfied that "the use by these minor players does not materially detract from [the] conclusion" that the use of the land had a significant and substantial commercial purpose or character. This was a finding that Ms Curran and Mr Martin had a commercial purpose or character which was not, when considered individually, significant and substantial. However, when the land was considered as a whole, the aggregate primary production commercial purpose or character was significant and substantial.
[16]
Who was the user of the land under agistment?
One issue before the Tribunal was whether the agistment arrangement between Ian McIntosh and RM Hayter & Son was a bailment or a licence. It was necessary to answer that question to identify the user of that part of the land. The cattle were owned by RM Hayter & Son but they were grazing on land owned by McIntosh Bros Pty Ltd. The Tribunal decided that if the arrangement was a bailment, the user of the land would be Ian McIntosh. If it was a licence, the user would be RM Hayter & Son. At [167], the Tribunal held that ". . .the nature and substance of the agistment arrangement is such that Mr Brett Hayter is a licensee who retains control of his cattle and so can be seen as the person who uses the land by agistment . . ." (Emphasis added.)
Ground 5 was that the Tribunal had erred in making that finding. The Tribunal should have found that neither Ian McIntosh, nor RM Hayter & Son, was engaged in a primary production use of the land in respect of the agisted cattle. That was said to be the case because the Tribunal misunderstood the Commissioner's argument and the relevant law.
Ground 6 was that the Tribunal erred in not finding that Ian McIntosh was, for the purposes of s 10AA, the maintainer of the R & M Hayter & Son cattle while they were on the land. If these questions are not questions of law, the Commissioner needs the Appeal Panel's permission before they can go ahead: NCAT Act, s 80(2). We will determine that issue after looking more closely at the Tribunal's reasoning and the arguments.
[17]
Tribunal's reasoning
At [163] - [165], the Tribunal set out its understanding of the law on this issue:
163 There was debate between the parties about the issue of agistment. The word "agistment" is an expression which can cover a variety of legal relationships between a land owner or head tenant (agistor) and an animal owner (agistee). It may take the legal form of a bailment of the animals, or a licence to graze the land and enter to care for the animals, or a lease with exclusive possession (Big Top Hereford Pty Ltd v Thomas [2006] NSWSC 1159 per Brereton J at [36-37]. It depends on the substance of the arrangement (Streatfield v Winchcombe Carson Trustee Co (Canberra) Ltd [1981] NSWLR 519).
164 An agistment arrangement involving the agistor taking control of the animals and responsibility for their health and welfare, where the agistee has no right to enter the land would ordinarily have the result that it is the agistor as bailee who is using the land and not the agistee.
165 If the agistor does not take control of the animals so as to become responsible for them it is the agistee who is using the land.
The Tribunal quoted two authorities in support of the general proposition that the person in control of the animals, and who has responsibility for their health and welfare, is ordinarily the user of the land. In Big Top Hereford Pty Ltd v Thomas [2006] NSWSC 1159 Brereton J set out the various legal forms and agistment agreement may take:
36 An agreement for the agistment of livestock may take different legal forms. It may involve a bailment, if the owner of the stock has no right to enter the land on which the stock will be grazed and is not responsible for their care [Australian Breeders Co-op Society Ltd v Corporation of the City of Marion [(1992) 76 LGRA 175]; in that case the owner of the property on which the stock are agisted is the bailee and has possession of the cattle, and must take reasonable and proper care of the stock. Or it may involve a licence, by which the owner of the cattle has permission to graze his cattle on the licensor's land and to enter the land to care for them. In such a case, the owner of the stock retains possession of the cattle while they are on the licensor's land. Or it may involve a lease, if exclusive possession of the land is granted.
37 An important distinction between bailment and licence is whether the agistor (landowner) undertakes responsibility for care of the stock.
[18]
Consideration
The Tribunal set out its understanding of the Commissioner's submission at [162]:
The respondent argued that the nature of the agistment arrangements were such that Mr Brett Hayter was no longer in control of the cattle that he had agisted on Mr Ian McIntosh's land. Relying on the decision in Shanahan v Chief Commissioner of Land Tax (1996) 32 ATR 468 to the effect that a person who merely uses the land to agist another person's cattle is not using the land for primary production because that person is not using the land for the purpose of selling the animals, Ian's agistment business was argued not to be a primary production use.
The Commissioner submitted that its argument before the Tribunal was that, under s 10AA(3)(b), the use of the land had to be for the "maintenance" of animals. Ian McIntosh was the person maintaining RM Hayter & Son's cattle, but he did not do so for the purpose of selling them or their natural increase or bodily produce. RM Hayter & Son may have had that purpose but it did not "maintain" those cattle whenever they were on the Denbigh side. For those reasons, neither Ian McIntosh, nor RM Hayter & Son were engaged in a primary production use of the land where the agisted cattle were grazing. The Tribunal incorrectly construed s 10AA(3) as requiring that Mr Hayter needed to retain "control" of the agisted cattle for him to be engaged in a primary production use of the land.
The Commissioner's submissions to the Tribunal raised the issue of the nature of the agistment agreement and the degree of control over the agisted cattle exercised by Ian McIntosh and RM Hayter & Son: See Commissioner's submissions to the Tribunal at [5.12]; and Transcript Day 8 p 614 line 13. For example, the Commissioner's submissions to the Tribunal at 5.12 extracts a case, Glenworth Valley Pastoral v Chief Commissioner of State Revenue 106 ATR 160 at [24], where the Commissioner emphasised the following text:
Agistment is the process by which a person having control of the [animal] sends it to the property of another for the purpose of . . . being fed and cared for ... The ... [animal] is in the possession and under the control of the relevant landowner or occupier.
One of the Commissioner's contentions in the Tribunal was that McIntosh Bros had not established that the agistment arrangement was something other than the ordinary agistment arrangement, namely bailment, described in Glenworth: Commissioner's submissions to the Tribunal at [5.18]. The Tribunal addressed that argument and made findings at [167].
[19]
Was Molong Sheep Operation part of the use of the land?
Richard McIntosh lived on his property at Molong NSW where he conducted a large sheep farm (the Molong Sheep Operation). Richard and Ron McIntosh conducted a cattle breeding operation on the land via a family company called Kisel Pty Ltd. Ground 7 is that the Tribunal erred by concluding that the Molong Sheep Operation was part of a use of the land and was of the same character and purpose as the cattle breeding operation. As the land had never been physically used for the Molong Sheep Operation, that operation could not be part of "that use" for the purposes of commerciality test or the purpose of profit test in s 10AA. The Tribunal was said to have misunderstood the Commissioner's submission and misconstrued the law.
When applying the commerciality test, one issue identified by the Tribunal was whether Richard McIntosh's cattle operations on the Bangor side of the land and the Molong Sheep Operations can be regarded as part of the same business. McIntosh Bros submitted to the Tribunal that the Molong Sheep Operation can be taken into account because it is part of Richard McIntosh's Wider Farming Operation - that is, the totality of the primary production business in which Richard McIntosh was engaged.
The Tribunal found at [222] that even if Richard McIntosh's cattle operations did not meet the commerciality test:
". . . that operation can be regarded as part of his Wider Farming Operation at Molong through the relevant years because of the interconnecting integrative elements (management, financial, banking, insurance, accounting, and risk management) between the two operations. This is sufficient to enable Richard's sheep and cattle operations to be regarded as part of the one business whose use of both Bangor and Molong had a significant and substantial commercial purpose or character.
[20]
Did the Tribunal misconstrue the Commissioner's argument?
The Commissioner submitted that the Tribunal misconstrued their argument.
At [213], the Tribunal summarised the Commissioner's submission as being " . . . that the sheep operations and the cattle operations should be regarded as separate businesses and that the cattle operation did not meet the commerciality test." That reflects their oral submission (See Transcript, Day 8 609:29-34). We are satisfied that that was one of the arguments the Commissioner put to the Tribunal.
In the submissions to the Appeal Panel, the Commissioner said that his argument was not as the Tribunal had summarised but was that the Molong Sheep Operation was not a "use" of the land. The cattle operations were a use of the land but did not satisfy the commerciality test. We accept that the Commissioner made that argument to the Tribunal below. However, McIntosh Bros did not allege, nor did the Tribunal find, that the Molong Sheep Operation or the Wider Farming Operation was a physical "use" of the land. The Tribunal accepted that the Molong Sheep Operation was physically separate from the cattle operation.
McIntosh Bros contended that the Wider Farming Operation must be considered when assessing whether the primary production use carried out by Richard McIntosh on the land met the commerciality test. The Commissioner argued that the fact that the sheep from Molong did not come on to the land, at Cobbity, was relevant when considering whether the Wider Farming Operation could be considered the same primary production business. The Tribunal addressed that issue.
Nevertheless, when applying the commerciality test, the Tribunal held at [212], that, "If the sheep and the cattle operations are part of the same business, the cattle operation will be invested with the same commercial qualities as the operation at Molong." The Tribunal understood and rejected the Commissioner's submission that the cattle operations should be assessed without reference to the Molong Sheep Operation.
[21]
Did the Tribunal misconstrue the law?
The Commissioner submitted that "the commercial character of a business carried on by a user of land at a particular location does not determine whether it was a "use" of other land in a different location. In this case a single company business conducted distinct enterprises - the Molong Sheep Operation and Richard McIntosh's cattle operation. Richard McIntosh's entities conducted two distinct grazing activities at two different locations. There was no physical use of the land by the Molong Sheep Operation.
The Commissioner submitted that the Tribunal's conclusion at [222]-[223], cited above, are incorrect. The use of the land is the physical deployment of the land: Chief Commissioner of State Revenue v Metricon [2017] NSWCA 11 at [55] - [63]. None of the cases cited by the Tribunal, - Maraya, Vartuli or Thomason, is authority for the proposition that separate and distinct enterprises using separate and distinct lands may, because of the common proprietorship of those enterprises, be treated as one use of all lands by all enterprises.
The difficulty with this submission is that the Tribunal found, as a matter of fact, that the Molong Sheep Operation and Richard's cattle grazing operation were part of the same business - they were not found to be "separate and distinct enterprises". The commerciality test may still be met where a business is carried out on separate parcels of land.
The Tribunal's approach is consistent with the authorities it cited. In Thomason, the Queensland Land Court was applying a test similar to the commerciality test, except that s 17(1) of the Valuation of Land Act 1944 (Qld) defines "farming" as including "the business or industry of grazing, dairying . . ." (Emphasis added.)
The Court held at 307, that:
… The relevant business or industry must be the dominant use of "the land". It is implicit that the commercial purpose should be intended to be met, or the commercial character of the enterprise should be evident, from the use of the subject land, either on its own or in conjunction with other land (emphasis added).
…
The interpretation we have adopted would allow, for example, a person who owns two or more blocks of land and who uses them together to conduct the business of farming to take the benefit of s17(1). The interpretation would also allow a person to make the land available for use by another person as part of that other person's business of farming.
[22]
Grounds 8 and 9
Ground 8 was not specifically addressed in oral submissions.
This ground was that, in considering the commercial purpose test and profitability test, the Tribunal failed to consider that the farming operations on the land:
1. did not pay or contribute to, the rates payable in respect of the land, the subject of the assessment;
2. earnt miniscule or no accounting profits for the uses, even though the users did not otherwise obtain remuneration for their labour; and that
3. the accounting profits were overstated by the omission of management fees paid by its operator.
At [240] - [243], the Tribunal concluded:
240 The accounting experts agreed that notional costs were not required by the accounting standards. Mr Rossetto's view expressed in the JAER was that allowance should be made to properly consider the comparative profitability of a business.
241 The applicant argued that there was no statutory requirement that profit should be read as meaning economic profit. The applicant said the profit result was only one factor for consideration and should be calculated according to ordinary accounting principles, without taking account of expenses which had not, in fact, been incurred.
242 I agree with the applicant's approach to the calculation of profit. It accords with accepted and clear cut principles. To adopt an economic approach requires, in my view, the authority of statute or binding precedent. It was interesting to note the expert evidence showed that many beef producers in southern Australia in the period 2000-2018 would not be profitable if such notional costs were factored in (NM2 at 9).
243 The use of notional costs adds an unnecessary area for argument between the parties. For example, what is the appropriate notional charge for labour and land use in every individual circumstance? What allowance if any is to be made for the value of fringe benefits for the proprietor such as the use of accommodation, business vehicles, farm land for family and personal purposes. What allowance, if any, is to be made for labour which is reflected in the capital value of the land (for example: new fencing and dam building).
The Commissioner accepted that the matters in grounds (a)-(c) did not require a recalculation of profits. However, the Commissioner said that "uncommercial features" are relevant in assessing whether the relevant enterprise possessed the necessary commercial purpose as character or was engaged in for the purpose of profit.
[23]
Ground 9
Ground 9 was that McIntosh Bros did not discharge their onus of satisfying the Tribunal that the land met the conditions set out in s 10AA: Taxation Administration Act 1996 (NSW), s 100(3) and (4). In particular, McIntosh Bros failed to discharge its onus of proof in relation to the nature, extent and intensity of the non-primary production uses of the land. The Tribunal should have had regard to the amount of resources physically deployed, the money spent and the value derived from the non-primary production uses. The Tribunal failed to refer to the case of Leppington. Despite the fundamental omissions in the evidence, the Tribunal found McIntosh Bros had discharged its onus of proving that the primary production use of the land was the dominant use.
The errors were said to be misconstruing the onus of proof in s 100(3) of the Taxation Administration Act, finding, without probative evidence that McIntosh Bros had discharged its onus of proof regarding the "dominant" use of the land and misconstrued s 100(3)( b) including the terms 'dominant", 'use" and "for".
The Commissioner made the following submissions to the Tribunal below at [79] of the Commissioner's submissions dated 29 May 2019:
Relevantly, the evidence also indicates there were other physical activities that occurred on the land during the tax years, some of which are listed non-exhaustively above. Crucially, because the Applicant has failed to adduce evidence about (among other things) the timing, extent, duration and/or cost of these (and possibly other) physical activities, the applicant cannot prove that grazing cattle was the dominant use of the land in any tax year. The Tribunal may confirm the Assessments on this basis alone.
According to the Commissioner, it was a straightforward matter for McIntosh Bros to provide evidence of those matters and put it forward frankly. If the Commissioner is suggesting that McIntosh Bros has not been completely frank in relation to the evidence, it has not provided any detail to support that assertion.
The Commissioner submitted that the Tribunal erred in failing to refer to or apply the legal principles in Leppington. That submission does not identify a question of law.
McIntosh Bros submitted that this ground of appeal is an attempt to re-litigate the matter on its facts. We agree. The Tribunal understood that McIntosh Bros had the onus of proof: Decision at [137] - [139]:
137. The Respondent submitted that the Applicant had failed to meet its s100(3) TAA onus of proof on the dominant use issue because of deficiencies of evidence concerning the non-primary production use of the land in the relevant years.
138. The Applicant's case was, in the main, very fully established by extensive evidence. In submissions it pointed out that a number of complaints by the Chief Commissioner related to insubstantial issues or uses which occurred outside the relevant years.
139. Where there has been an insufficiency of evidence on a particular matter I have noted it in this decision but so far as the insufficiency relates to non-primary production uses, in my view this relates to relatively minor matters which do not affect the overall outcome. The Applicant has adequately established the extent and impact of these uses which allow me to proceed to the next substantive issue- the 'dominant use' test. Accordingly, I find that the Applicant has carried its burden of proof unless stated otherwise.. appeal on a question
[24]
Leave required
The Commissioner requires leave in respect of the grounds and submissions that criticise or challenge the Tribunal's factual findings: NCAT Act, s 80(2). In Collins v Urban [2014] NSWCATAP 17 at [84], the Tribunal set out the circumstances in which it may be appropriate to give leave to appeal on a question other than a question of law. Taking into account our findings on the grounds of appeal which identify a question of law, the remaining reasons the Commissioner put forward as justifying the granting of leave, were: that the legal issues are novel; that the amount in dispute is significant; and that certain findings of fact were wrong.
The Commissioner did not identify any factual issue justifying the granting of leave. The amount in dispute, while significant, does not, by itself, justify the granting of leave. To the extent that the grounds of appeal challenge the evidentiary basis for the Tribunal's factual findings, we are not persuaded that the challenged findings of fact were either "clearly mistaken" or that the Tribunal has gone about the fact-finding process in such a way that it was likely to produce an unfair result: Collins v Urban at [84].
[25]
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
[26]
Amendments
01 October 2021 - Representation amended.
[27]
T Lynch SC (Appellant)
M Richmond SC (Respondent)
R Mansted (Respondent)
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: 01 October 2021
Appeal dismissed; the Tribunal's decision setting aside the Chief Commissioner's land tax assessments for 2014-2016 is affirmed. McIntosh Bros is not liable for the assessed land tax for those years.
The Tribunal found that each user was using parts of the land for a primary production use. The Tribunal held that the various primary production uses can be aggregated or consolidated and weighed against the non-primary production uses. At [148], the Tribunal summarised its approach:
If the various primary production uses can be seen as a whole to be the main or chief use of the subject land outweighing the non-primary production uses, that will mean the dominant use of the land is primary production. As a practical exercise it may be seen as an aggregation or consolidation of the primary production use but there seems to be no reason in principle why all the primary production uses should not be weighed against all the non-primary production uses to determine which is dominant. Consolidation of activities and results was applied in Vartuli v CCSR [2014] NSWSC 678 at [36] (Vartuli afi).
The Tribunal went on to conclude, at [186]:
I am unable to see why multiple users cannot have the same or a materially similar purpose. In any event, the character of the use by multiple users is not usually affected by subjective elements. (Emphasis added.)
We understand the Tribunal's reference to the "character" of the use, to be a reference to the fact that the commerciality test requires that the use of the land has a "significant and substantial commercial purpose or character" (emphasis added).
The purpose of profit test is that the use of the land must be "engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)". The Tribunal referred at [229] to the view, expressed by Gzell J in Maraya at [101], that the purpose of profit test ". . . introduces a subjective element into the land use."
The Tribunal concluded at [227] - [243], that, apart from the operations of two minor agistees on the Denbigh side of the property, each of the uses satisfied the purpose of profit test.
The commerciality test and the purpose of profit test relate to the business activities arising from the use of the subject land.
That conclusion was not disturbed on appeal in Vartuli v Chief Commissioner of State Revenue [2015] NSWSCA 372 (Vartuli appeal) at [33].
At [148], the Tribunal saw this case as supporting the decision to aggregate or consolidate various uses when applying the commerciality and purpose of profit tests.
The Commissioner sought to distinguish Vartuli because, although the users of the land were different legal entities, they were related and were undertaking a joint activity - to produce and sell cattle. The Commissioner contrasted that situation with the facts in this case, where there were several independent users conducting distinct operations. For the reasons we give below, we do not accept that submission.
First, in relation to the dominant use test, there is no requirement in s 10AA(3) for the use or uses of the land to be part of the same joint activity, business or enterprise. As submitted by McIntosh Bros, the singular word "use" includes the plural "uses": Interpretation Act, s 8(b).
Second, s 10AA(3) is concerned with use for the purpose of primary production. The primary production use may be one of six activities prescribed in s 10AA(3)(a)-(f)). Whether one or all six are conducted on the subject land does not change the nature of the use, being for the purpose of primary production. "The expression 'dominant use' has regard to quantification of uses within paras (a)-(f) as against uses that are not within those paragraphs": Metricon at [48]. Similarly, whether the use or uses are carried on in different paddocks on the subject land, the use or uses remain one of primary production within the meaning of the section.
Third, the dominant use test does not refer to the identity of the user or whether the user owns the land. It is clear from the authorities that the exemption does not require the taxpayer to be the one using the land for primary production. "(L)and is to be exempt from land tax (to the advantage of its owner) regardless of the identity and attributes of the owner and by reference solely (emphasis added) to the 'use' to which the land is put by the person - whether or not the owner - who has the ability to 'use" it": Metricon at [47].
Fourth, s 10AA(1) provides that "If land is used for more than one purpose and each of those purposes is an exempt purpose, the land is exempt from taxation". The same purpose of primary production conducted by six different people or entities (whether related or not) can be combined to determine the dominant use of the land.
Finally, while we appreciate that the construction of statutory provisions from other jurisdictions must be treated with caution, the Queensland Land Court case of Major v Chief Executive, Department of Natural Resources (1991) 21 QLCR 163 (Major) supports this interpretation. That case concerned the valuation of a parcel of land used for grazing cattle owned by three separate landowners. The valuation depended on whether the land is used for "farming". Under s 17(2) of the Valuation of Land Act 1944 (Qld), the word "farming" means "the business or industry of grazing. . . . if the business or industry represents the dominant use of the land." Applying that definition, the Court held at 169 that the "activities undertaken by each of the users of the subject land qualify as 'grazing' . . . . The land is used for no other purpose than grazing."
In relation to the commerciality test and a purpose of profit test, there is no reference to a particular user. Further, no reference is made to the particular activity in s 10AA(3)(a)-(e) that might constitute primary production as being the reference point when considering whether the business activity satisfies the commerciality test and the purpose of profit test. Rather, each test is to be considered in respect of the "land used for primary production", the reference being the whole of the land that is otherwise liable to be assessed for land tax.
Section 10AA(2) then requires a determination of whether the primary production use (that may be a combination of various defined activities) has the relevant purposes or character. Again, as a matter of statutory construction, the word "purpose" includes the plural and when considered in this way, permits separate users to be evaluated in considering the use of the land as a whole.
An evaluation of use can be made on the basis of aggregating all primary production use on the subject land by different users. That is what White J did in Vartuli at first instance where those carrying on the activities were "related". White J accepted that business activities of separate individuals or entities may be consolidated. The significance of those individuals and entities being related was that it was necessary to remove inter party transactions which might otherwise inflate the profits or overstate the significant and substantial purpose or character of the activities being conducted. In doing so, the Court accepted that the purposes or character needed to be considered in the context of the business activities being conducted on the subject land and on other land operated by the particular enterprises.
On the other hand, in Major at [169] the Court also accepted that if one user "has a significant and substantial commercial purpose or character, then the industry of grazing considered as a whole has that required character or purpose".
In our view, individual users on the same land can be separately evaluated and their commercial purposes aggregated. It follows from our reading of s 10AA in context, and the decisions we have cited, that the primary production use of the land may be carried out by more than one legal entity, and those legal entities need not be related, or part of the same activity or enterprise. The need for any subjective consideration of purpose does not affect our conclusion.
That conclusion was not disturbed by the Court of Appeal in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSCA 408 (Maraya appeal).
In Vartuli at [36] (set out above), White J similarly considered the subjective evidence concerning the business activities of the Vartulis and the related companies in the context of the commerciality test. His Honour there found the commercial purpose or character was not significant and substantial. He did so by applying an objective test, including comparing comparable farming activities and weighing the subjective evidence of the Vartulis as to their purpose.
In respect of the Bangor side, the Tribunal considered two users, the Head Pastoral Company (Angela's son Jim Head) and Richard McIntosh (who also conducted primary production being a sheep operation at Molong). Due to "intergenerational change" in 2014, Head Pastoral commenced cattle trading on the land and Richard McIntosh and his related entities (Kisel Pty Ltd and Richard's Family Trust) wound down existing cattle breeding and trading operations. There was an overlap of activities carried out by Richard McIntosh and Head Pastoral.
In respect of Head Pastoral, the Tribunal found at [208]-[210] that as at 31 December 2014, there was insufficient evidence to establish that this operation (which had 30 cattle of which none were sold) met the commerciality test. However, Jim Head subsequently working full-time, the increase of cattle numbers to 259 (as at 30 June 2016) and the use of the land at its full carrying capacity meant the test was subsequently satisfied by Mr Head and Head Pastoral after 2014.
For the period 2014, the Tribunal also had regard to the evidence of Richard McIntosh concerning cattle operations carried on by Kisel and his family trust. The Tribunal determined at [211]-[223] that the operations at Bangor by Richard and his related entities during the period 2014 and subsequently, was part of the sheep operation at Molong. The cattle operation at Bangor when considered as a separate operation might not meet the commerciality test until the cattle numbers were built up in 2016 to 259 by Head Pastoral. Even so, the use by Richard, in combination with the other primary production activities carried out at Molong, meant that the use of the land had a significant and substantial commercial purpose or character at all relevant times.
In reaching this conclusion, the Tribunal found that there was a "Wider Farming Operation" at Molong. While there was no movement of cattle to the Molong property (that being a sheep operation) there was one primary production business to which the Bangor cattle operation provided working capital and reduced financial risk for this enterprise because the separate activities were conducted on properties with different climatic conditions. The Tribunal also noted that the business enterprise had one bank account and a single set of accounts.
As said in Thomason at 305 (above) "purpose" is the "object to be obtained or thing intended". Under the commerciality test, the object to be obtained is using the land for a commercial primary production purpose. Alternatively, the primary production use must have a commercial character. The former has a subjective element, the second does not. Both are concerned with the primary production enterprise which might be conducted on the subject land and other lands: Thomason at [307]; Maraya at [73].
The appropriateness of considering the Wider Farming Operation is considered in Ground 7 below. However, once it is accepted that s 10AA:
1. is concerned with the use at large of the subject land and that the use is for primary production;
2. that the significance and substance of a commercial purpose can be determined by reference to a business activity carried on by the subject land and elsewhere; and
3. that the section is not concerned with the identity of the user;
in our view, the primary production uses for commercial purposes of multiple users can be aggregated for the purpose of determining if the exemption applies.
Even if one or more separate "uses" of the land by a user does not meet the commerciality test or the purpose of profit test, that does not mean that those tests are not met for the use of the land as a whole. It cannot have been the intention of the legislature to deny a land owner an exemption from land tax in circumstances where relatively minor uses of the land do not, on their own, meet the commerciality or purpose of profit tests. The land must be assessed as a whole. That is what the Tribunal did in this case, and we find no error in that approach. It follows that the Tribunal did not make the errors the Commissioner articulated in grounds 1, 2 or 3.
The Tribunal also relied on Streatfield v Winchcombe Carson Trustee Co (Canberra) Ltd [1981] NSWLR 519 for the proposition that the way in which an agreement is characterised will depend on the substance of the arrangement. In that case, the Supreme Court held that an agreement for the agistment of cattle is capable of being a lease under the Agricultural Holdings Act 1941 (NSW), but only if it provides that the owner of the cattle has exclusive possession of the land on which the cattle are agisted. At 527, the Court referred to Sinclair v Judge [1930] QSR 200. In that case, the arrangement was held to be a licence. The reasoning was that the stockowner had the right to depasture sheep on the property, but the occupant of the property remained in residence and the whole agreement was, as a matter of substance, an agreement in the nature of a licence to enter on the land, subject to certain conditions.
The Tribunal also engaged with the Commissioner's submission that neither Ian McIntosh, nor RM Hayter Pty Ltd was the "maintainer" of the agisted cattle. During the hearing, the Tribunal Member asked the Commissioner's representative the following question: "Was he [Mr Hayter] contributing to their [his cattle's] maintenance?" Following that question, there was some discussion about that issue. The Tribunal understood that s 10AA(3)(b) requires that the land be used for the maintenance of animals. The Tribunal quoted that test at [141] and [142] of the decision. Even if the Tribunal failed to address the Commissioner's submission about the identity of the "maintainer", that submission was, in our view, misconceived. As the Federal Court held in Applicant WAEE v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 75 ALD 630 at [46], "It is plainly not necessary for [a tribunal] to refer to every piece of evidence and every contention made by an applicant in its written reasons. It may be that some evidence is irrelevant to the criteria and some contentions misconceived."
A question that s 10AA(3)(b) requires to be answered is whether a use of the land is for "the maintenance of animals . . . for the purpose of selling them . . ." Contrary to the Commissioner's submission, no separate question arises as to the identity of the "maintainer" of the animal. In Major at 166, (the land valuation case referred to above) the Court held that:
In our view, the lack of any contractual arrangement between the appellant and Mr Powell is not significant. Because it is the use of land and not the identity of the user which is significant (see Thomason v Chief Executive, Department of Lands (1995) 15 QLCR 386), it is the use of the subject land by Mr Powell and not the source of his right to use it which is so important.
Accordingly, we find that. at the relevant date of valuation, the subject land was used for the grazing of cattle and that the owner of some of the cattle was Mr Powell. His grazing enterprise, on the subject land and other land, constituted a business or industry which has a significant and substantial commercial purpose or character.
The Commissioner quoted two cases as authority for the proposition that "the use of land by a person with a right to use it, to run thereon animals owned by others, may be the maintainer of those animals, but is not doing so for the purpose of selling them, their natural increase or bodily produce, and is not engaged in a primary production use of the land." : Jones v Commissioner of Land Tax (NSW) 11 ATR 98 (Jones) and Shanahan v Chief Commissioner of Land Tax (1996) 32 ATR 468 (Shanahan)
In Jones, the taxpayer bred and agisted horses on a small property. Applying similarly worded legislation, Woodward J held at 100 - 101, that the agistment of horses on the land did not come within the definition of "land used for primary production." We understand the Court to have reached that conclusion on the basis that the agistment of horses was not a use of the land for the maintenance of animals for the purpose of "selling them or their natural increase or bodily produce": Land Tax Management Act, s 3. Woodward J impliedly accepted that the land was used for the maintenance of horses, but not that they were maintained for the purpose of selling them. No issue arose as to the identity of the "maintainer" of the horses, the issue being whether there was a purpose of selling the horses.
Similarly, in Shanahan one issue was whether the land was exempt from taxation because it was used in the course of carrying on the business of primary production: Land Tax Management Act, s 10(1)(p)(i). The cattle which were grazing on the land had been brought in from other properties and the Commissioner argued that the "business" was an agistment business, not a business falling within s 10(1)(p)(i). Newman J held at 471, that " . . .if a property owner uses his land solely for the purpose of allowing another person's animals to come on to the property to graze, ultimately being removed by their owners for the purpose of sale by them, such land would not fall within the exemption created by s 10(1)(p). But if, as in this case, the taxpayer had a proprietary interest in the animals and it was his purpose in bringing them on to the land to sell them himself, then the use of the land would fall within the exemption." Again, no issue arose as to the identity of the "maintainer" of the animals, the taxpayer owning the cattle and bringing them on to the land for the purpose of selling them.
It follows that we are not persuaded that the Tribunal misunderstood or disregarded the Commissioner's submissions. Nor did the Tribunal mis-state or misunderstand the legal principles to be applied.
In any event, in this case the Tribunal accepted that the owner of the cattle, Brett Hayter, did maintain the animals on the land. The Tribunal found Mr Hayter "visited the land regularly to inspect the animals and work with them and to provide veterinary care". As such, these factual findings make irrelevant the submission that the person controlling the cattle was doing so under a bailment arrangement and not for the purpose of selling the produce. We see no error in this conclusion, as a matter of fact or of law.
That approach was adopted by the NSW Supreme Court in Maraya. In discussing Thomason, Gzell J said:
72 There is no reason to doubt that the same considerations apply to s 10AA of the Management Act.
73 It follows that where, as here, a primary production enterprise is (emphasis added) conducted on the subject lands and other lands, the tests in s 10AA(2) of the Management Act are satisfied if the requisite purpose or character is evident from either the use of the subject lands viewed in isolation from any other land or, the use of the subject lands viewed as part of the enterprise (emphasis added) (Thomason at 307). I do not understand that the Chief Commissioner submits to the contrary.
The reference to "enterprise" is a reference to the business being undertaken both on the subject land and elsewhere.
That approach was endorsed by White J in Vartuli at [36] set out above
The Commissioner sought to distinguish Vartuli on the basis that the different parcels of land in that case were all used for the grazing of cattle. We agree with McIntosh Bros' submission, that there is nothing in that case to suggest that the species of livestock is critical.
The Tribunal did not refer to the decision of Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9 (Leppington), but it supports the Tribunal's conclusion on this issue. In that case, White J held that when applying the dominant use test, only the subject land can be considered. However, when applying the commerciality test and the purpose of profit test, the use of other land can be considered. At [48]-[49] his Honour said:
48. . . for the purpose of determining whether primary production use of land has a significant and substantial commercial purpose or character, the inquiry is not confined to the use of the land the subject of taxation. If the land the subject of taxation is only part of the lands used for primary production, the use of the other land can be considered in order to decide whether the primary production use has a significant and substantial commercial purpose or character and is engaged in for the purpose of profit.
49 Although that is the position with respect to s 10AA(2), it was not disputed that for the purposes of s 10AA(3) the question of what is the dominant use of land is directed to how the land the subject of taxation is used. in other words, the question of dominant use under s 10AA(3) is directed to the use of the subject land, notwithstanding that under s 10AA(2) the character and purpose of the use is to be considered having regard to all of the land on which that use is carried on.
The Tribunal understood the legal principles enunciated in these cases and applied them to the facts that it found. McIntosh Bros submitted that the Commissioner's argument appears to be that the Molong Sheep Operation and Richard's cattle grazing operation, cannot be considered sufficiently integrated when the animals are moved between the two parcels of land. That is ultimately a question of fact for which the Tribunal's leave would be required. For the reasons we give below, we do not grant that leave.
The Commissioner relied on the statement of Emmett JA in Maraya appeal at [60]. There, His Honour said:
At no stage did Maraya's cattle operations generate profits according to any normal use of that term. The greatest "profit" generated by the cattle operation was $1,213 in the 2008 year. That so-called profit excluded all holding costs in relation to the Subject Lands, including council rates exceeding $30,000 per annum. The Subject Lands have a value in excess of $26 million. They consist of more than 27 hectares. In no sense can it be said that the cattle operations had any commercial purpose or character. There was no error on the part of the primary judge in taking into account the lack of profitability of the use of the Subject Lands in determining whether that use had a commercial character or commercial purpose.
In our view there is no requirement to include in the calculation of profit, land holding costs or a notional cost for labour that are not actually incurred.
In the Vartuli appeal at [183] - [188], Leeming JA (Meagher JA agreeing) did not criticise the approach of Gzell J in Maraya in excluding the notional cost of labour in the calculation of profit. Rather, as his Honour said at [184] "where labour costs are omitted from the primary production results because no actual expense is incurred, this may serve to highlight that cattle operations that produce very small amounts of profit, do not constitute a serious primary production use". Here His Honour was referring to the particular cattle operations said to have the requisite commercial purpose or character.
Both the Maraya and Vartuli proceedings involved users who were related entities. They owned the land and were liable for and did in fact pay the rates on the subject land and it was necessary to consider the overall commercial return from those cattle operations.
In the present case there were separate entities carrying on similar primary production enterprises. In respect of rates, the contention of the appellant's expert, Mr Rossetto was that a notional agistment charge and notional charge for labour costs should be brought to account in connection with the operations of Richard McIntosh: Decision at [106].
If accounted for and the operation at Molong was excluded, Mr Rossetto said this gave rise to a loss: Decision at [109]. Similarly, Mr Schuster (the appellant's agricultural expert) said notional labour and land access costs should be taken into account: Decision at [123]. Although he also took the view that Richard's cattle operation "was not a side line" and generally notional costs are not accounted for in determining profit and loss for accounting purposes: Decision [129].
The Tribunal rejected this approach. When considering the meaning of profit (which at [237] the Tribunal accepted "had implications for both limbs" in s 10AA(2)) the Tribunal noted at [240]-[242] the accounting experts agreed "notional costs were not required by the accounting standards" and that "an economic approach" is not dictated by "statute or binding precedent". Further, such an approach would lead to further disputation concerning the "appropriate notional charge for labour and land use" and other matters. The appellant submitted that the approach of the Tribunal meant that the loss- making operations on the land were "propped up by the Respondent paying all rates", that the "non-arm's length arrangement immediately stamped the operation as 'uncommercial'" and that "farmers with free use of land are subsidised and a subsidised farming operation that consistently loses money is not a business at all".
The use of expressions such as "subsidised" and "propped up" tends to divert attention from the actual operations and the matters to be considered. There is no evidence that the enterprises were related. Rather, the different entities derived separate financial benefits from the discrete primary production enterprises and the way their affairs were organised. As stated above, the commerciality test and purpose of profit tests involve an evaluation of the primary production enterprises being conducted on the land and elsewhere. They do not involve evaluating the benefit to the taxpayer in being exempt from land tax, a matter that might offset the costs of any rates incurred by the taxpayer and might otherwise justify (in a commercial sense) allowing a third party access and use of the land to carry on a primary production activity.
The authorities that we have referred to do not dictate an approach requiring calculation of profit by including notional costs which have not actually been incurred. Rather, the use to which notional costs are to be put is the evaluation of all the circumstances of the person using the land to determine if the commerciality test and purpose of profit test are satisfied. That is, if costs are not actually incurred and paid, it is necessary to determine if the notional costs detract from a conclusion that the use of the land has:
1. a significant and substantial commercial purpose or character; and
2. a purpose of profit (whether or not profit is made).
In the present case, it seems clear that those using the land had a purpose of profit. It also seems clear that the derivation of profit from those activities was significant and substantial, even though it may have fluctuated from year to year, whether by seasonal conditions or the change in users. Further, it is not the case that those using the land had other sources of income or engaged in other activities that might detract from the significance or substance of the primary production enterprises.
The fact individuals who worked in each relevant primary production enterprise took their financial returns by way of profits (being the beneficiaries of those enterprises) rather than as employees, again makes no difference. Unlike the circumstances considered in Maraya, this is not a case where "very small amounts of profits" when considered in the context of notional labour costs mean that the cattle operations "do not constitute a serious primary production use". As to accounting for notional land use costs (such as rates), in the present case there is no reason to attribute this expense to those carrying on the primary production use in circumstances where those users were separate from and unrelated (in a commercial sense) to the owner/ratepayer of the land.
For these reasons, no error is established in connection with the failure to allocate a notional charge for land use or labour costs/ remuneration.
As to the issue of the management fees, it is noted that the Joint Accounting Experts Report (Schedules 3 and 4) deleted this item of expense, apparently on the basis that in so far as it was an expense of Kisel, in the case of Richard McIntosh it was income. Therefore, the overall financial effect from the use of the land was neutral: See Joint Accounting Expert Report Appeal Book Volume 9 Tab 28 p 11 Item 13 c.
While this subject matter was raised by the Commissioner in his submissions at first instance ( Appeal Book Vol Tab 6(c) 1 pp 240-1, submissions paras 12.1-12.7), McIntosh noted in its reply submissions at first instance (Appeal Book Vol 1 Tab 3(c) p 142-3 para 66) that this matter was not put to Richard McIntosh, the businesses were transitioning and overall the income and expense "all stayed within Kisel/ the Family Trust" (that is the net accounting position was neutral). Presumably this is why the joint accounting experts agreed to remove the item from both the income and expense side when working out the consolidated position.
It seems to us that the fact there was an agreed position on the correct accounting treatment of the management fees found in the joint experts report is enough to dispose of this point.
However, there is a further reason why this challenge should be rejected. The failure to include the management fees would only have had an impact if:
1. the financial returns from the use of the subject land was considered in isolation from the primary production enterprises considered as a whole;. and
2. the management fee was considered from an expense point of view and not included as income from primary production.
It follows this ground of appeal fails.
In our view, this ground of appeal does not identify a question of law.