[1902] UKPC 21
Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493[1957] HCA 15
Council of the City of Newcastle v Royal Newcastle Hospital (1959) 100 CLR 1[1959] UKPC 5
Federal Commissioner of Taxation v St Hubert's Island Pty Ltd (1978) 138 CLR 210[1978] HCA 10
Dwyer v Calco Timbers Pty Ltd (2008) 234 CLR 124[2008] HCA 13
Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378(2004) 132 LGERA 90
Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366[2016] ATC 20
Minister Administering the Crown Lands Act v NSW Aboriginal Land Council (2008) 237 CLR 285[2008] HCA 48
New South Wales v The Commonwealth [1923] HCA 34[1980] HCA 1
Rainn Pty Ltd v Commissioner of State Revenue [2016] VSCA 338
Ryde Municipal Council v Macquarie University (1978) 138 CLR 633[1978] HCA 58
Shell-Mex and BP Ltd v Clayton [1955] 1 WLR 982
Sandhurst Holdings (Australia) Ltd v Commissioner of State Revenue (2009) 25 VR 59[2009] VSCA 167
Saville v Commissioner of Land Tax [1980] 12 ATR 7
Singer v Berghouse (1994) 181 CLR 201[1994] HCA 40 at 212
Templeton v Australian Securities and Investments Commission [2015] FCAFC 137
Judgment (20 paragraphs)
[1]
016] VSCA 338
Ryde Municipal Council v Macquarie University (1978) 138 CLR 633; [1978] HCA 58
Shell-Mex and BP Ltd v Clayton [1955] 1 WLR 982
Sandhurst Holdings (Australia) Ltd v Commissioner of State Revenue (2009) 25 VR 59; [2009] VSCA 167
Saville v Commissioner of Land Tax [1980] 12 ATR 7
Singer v Berghouse (1994) 181 CLR 201; [1994] HCA 40 at 212
Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545
The Council of the Town of Gladstone v The Gladstone Harbour Board [1964] Qd R 505
Thomason v Chief Executive, Department of Lands [1995] QLAC 4; (1995) 15 QLCR 286
Category: Principal judgment
Parties: Chief Commissioner of State Revenue (Appellant)
Metricon Qld Pty Ltd (Respondent)
Representation: Counsel:
Mr C J Leggat SC, Mr I S Young (Appellant)
Mr M L Robertson QC, Ms E Bishop (Respondent)
[2]
Solicitors:
Crown Solicitor's Office (Appellant)
Bolster & Co (Respondent)
File Number(s): 2016/127945
Publication restriction: Nil
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity
Citation: [2016] NSWSC 332
Date of Decision: 31 March 2016
Before: White J
File Number(s): 2013/120263; 2013/212871
[3]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[4]
JUDGMENT
MACFARLAN JA: In my view, the appeal should be dismissed with costs for the reasons given by Barrett AJA.
WARD JA: I have had the advantage of reading in draft Barrett AJA's reasons with which I agree. For those reasons the appeal should be dismissed with costs.
BARRETT AJA: This is an appeal from a judgment of a judge of the Equity Division (White J) setting aside several land tax assessments raised by the appellant, Chief Commissioner of State Revenue ("Chief Commissioner"), against the respondent, Metricon Qld Pty Ltd ("Metricon"). [1]
The sole issue at trial was whether certain land at Terranora in the Tweed Valley owned by Metricon was, in respect of each of five tax years, [2] exempt from taxation by force of s 10AA(2) of the Land Tax Management Act 1956 (NSW). Under that section, land that is not "rural land" is exempt from taxation "if it is land used for primary production" and certain other conditions are met. [3] It was not disputed below or on appeal that the land in question satisfied all criteria for exemption, save the condition that it was, at the relevant time, "land used for primary production".
The only question for the primary judge was therefore whether the land was, for the purposes of s 10AA(2), "land used for primary production". Those words are given meaning by s 10AA(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."
It was common ground that the land was, at all material times, used for the maintenance of cattle for the purpose of selling them or their natural increase or bodily produce. That use was clearly within s 10AA(3)(b).
[5]
Facts
Land tax assessments were issued to Metricon in respect of the Terranora land for the 2009, 2010, 2011, 2012 and 2013 land tax years. Metricon acquired a substantial tract in that locality in 2008 and 2009 at a cost of some $60 million. The parcels to which the proceedings initially related are described as 37 Fraser Drive (also called 22 Fraser Drive), 14 Mahers Lane, 126 Mahers Lane, 140 Mahers Lane, 153 Mahers Lane, 412 Terranora Road, 490 Terranora Road and 512 Terranora Road. Shortly before the hearing before the primary judge, Metricon abandoned its challenge to the assessments in respect of 14 Mahers Lane, 412 Terranora Road and 490 Terranora Road. It also abandoned its challenge in respect of 126 Mahers Lane for the 2010 tax year.
From April 2009, cattle grazing operations were conducted on the lands by a partnership of Jeffrey and Merrin Gilliland and Tim and Anna Gilliland. The Gillilands had been farmers and graziers in the district for many years. They agisted cattle on the subject lands under an agreement with Metricon. Before April 2009, Jeffrey and Merrin Gilliland had agisted cattle on some of the land.
In October 2007, that is, a year or more before each parcel was acquired by Metricon, parts of the land were rezoned as zone 2(c) Urban Expansion. That new zoning allowed for residential development subject to development consent. Parts of the areas were zoned 7(d) Environmental Protection. The lands are close to existing residential developments.
It was common ground before the primary judge that the availability of the primary production exemption under s 10AA of the Land Tax Management Act was to be determined in respect of the five areas of land separately. [4]
Circumstances applying to distinct parts of the land were recorded as follows:
1. 22 Fraser Drive (also called 37 Fraser Drive) consists of a number of separate lots. Under the Tweed Local Environmental Plan, development approval for that land could not be granted unless a development control plan for the whole of the relevant area had been prepared. Also, Part 3A of the Environmental Planning and Assessment Act 1979 (NSW) applied, so that a project application had to be prepared and submitted to the Department of Planning. In November 2009 the Department notified Metricon that it had received the application for a proposed subdivision of land at the southern end of Fraser Drive into about 300 lots. The Department advised Metricon's consultant of the requirements for the environmental assessment of the project application. The requirements were extensive and involved the furnishing of subdivision plans, a landscape master plan, an agricultural buffers assessment, a cultural heritage assessment, an acoustic report, a soil contamination assessment, a conceptual stormwater assessment, an ecological assessment, a vegetation management and rehabilitation plan and many other items. The required documents were provided. Project approval was granted on 30 May 2014, that is, after the relevant land tax years. As at 27 March 2015, a construction certificate for phase 1 bulk earthworks had still not been issued.
2. On 28 June 2013, Metricon applied for a construction certificate for the construction of a temporary sales office and related signage on the 22 Fraser Drive land. This certificate was in due course granted. The construction of the office and sign occurred after the relevant land tax years.
3. The remaining lands in issue were acquired by Metricon for the purpose of future development, but no application for development approval had been lodged in respect of them at the conclusion of the latest of the land tax years under consideration.
4. In the relevant land tax years, Metricon paid consultancy fees of approximately $2.2 million.
5. The properties at 126, 140 and 153 Mahers Lane are contiguous. From 31 May 2010, 126 Mahers Lane was used by a tenant as a commercial rose farm. On the expiry of the lease, the property was included with the other lands used by the Gillilands for cattle grazing. There was a house on 126 Mahers Lane. Rental income of $575 per week was derived in each of the 2011, 2012 and 2013 land tax years.
6. 140 Mahers Lane consists of three separate lots comprising 11.5 hectares. There was a single house on part of the land. The house was leased to a family at a rent of $220 per week and was tenanted from March 2009. There were also stockyards on 140 Mahers Lane.
7. There were two houses on 153 Mahers Lane. The property has a total fenced area of 9.15 hectares, not including a dam. One of the houses was let to a family. The net rents after deduction of expenses associated with the lettings were paid by Metricon to the vendors from whom Metricon bought the property. The rental income in respect of 153 Mahers Lane ranged from about $600 per week to $690 per week.
8. The tenanted houses on 126, 140 and 153 Mahers Lane and their curtilages were fenced off from the grazing area of the land. The areas occupied by houses and curtilage were 6.2 per cent in the case of 126 Mahers Lane, 2.4 per cent in the case of 140 Mahers Lane, and 8.3 per cent of the total area in the case of 153 Mahers Lane.
9. The primary production use of the lands was for the maintenance (including fattening) of cattle for sale.
[6]
The decision of the primary judge
The principal findings of the primary judge were as follows:
1. The relevant starting point is to recognise that the word "use" bears more than one ordinary meaning and therefore falls to be construed in the particular statutory context.
2. Under s 10AA, the ordinary and natural meaning of "use" includes but is not limited to physical use of the land. A use of land merely requires the doing of something with it for a purpose, such as putting it to advantage or turning it to account.
3. The bare holding of subject land, notwithstanding its being intended for future development, is not a present use.
4. The relevant inquiry under s 10AA is focused on a present use of land for primary production which is the dominant use.
5. The question under s 10AA(3) whether the primary production use is the "dominant use" requires comparison with other present or current, as distinct from future or intended, uses of the land.
6. The competing use against which the primary production use is weighed need not constitute an actual physical use of the land.
7. The competing use must, however, be a present use as distinct from an intended or future use.
8. A use of land requires the doing of something with the land, whether by physical use or putting it to advantage.
9. A land developer may use land that is stock in trade by engaging in certain activities on the land in preparation for its subdivision and sale, but preparatory activities engaged in away from the land do not amount to use of it.
10. Mere holding of land does not amount to present (as distinct from intended future) use of it, even if the land is treated as stock in trade and part of a land bank
Those findings led to several conclusions. First, Metricon's holding of the lands as part of its stock in trade or "land bank" was not a current use. Second, although preliminary work undertaken by consultants engaged by Metricon for the purposes of future residential development might, in one sense, be characterised as a "current land development use'", such activities were primarily concerned with an intended future use. Third, the expenditure incurred in the obtaining of approvals required for future residential development (in the order of some $2.2 million) likewise did not involve a use of the lands, intangible or otherwise. Fourth, the obtaining of income tax deductions by Metricon for outgoings in respect of the land did not constitute an intangible use of the land (the deductions were available whether the land was used or merely held). Fifth, the letting of the land to the Gillilands under the agistment agreements constituted a competing use but that use did not outweigh the nature, extent and intensity of the primary production use.
[7]
Issues in this Court
The Chief Commissioner's notice of appeal sets out fourteen grounds of appeal. Mr C J Leggatt SC, with whom Mr I S Young of counsel appeared for the Chief Commissioner, put his case on the footing that the grounds of appeal raise three issues.
The first and leading issue is whether "intangible use" (such as "land banking use" or "land development use" in the sense already mentioned), as distinct from "physical use" (such as cattle grazing or some other physical activity pursued on the ground) is relevant for the purposes of s 10AA and, if so, whether such an intangible use was, at relevant times, the "dominant use" of the land in question.
The second issue (which arises whichever conclusion may be reached on the first) is whether, in respect of three of the relevant parcels, a residential use predominated over the cattle grazing use.
Thirdly, there is a question whether, if "intangible use" is relevant to the statutory scheme, that use (in the form of "land banking use" or "land development" use), when aggregated with residential use, predominated over the cattle grazing use in respect of the land in question.
A notice of contention filed by Metricon advanced several propositions: that "use", for s 10AA purposes, means actual physical use; that the process of comparison directed by s 10AA(3) entails setting various actual physical uses against one another; and that that process does not allow cattle grazing currently engaged in by way of actual physical use to be set against a "use" of ownership and holding to meet future requirements of a property development business. Only uses of like physical quality can be the subject of meaningful comparison. Submissions in support of those contentions were made on Metricon's behalf by Mr M Robertson QC with whom Ms E Bishop appeared.
[8]
High Court decisions
Much attention was given in the course of submissions to three decisions of the High Court on the general issue of so-called "intangible use" of land: Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493; [1957] HCA 15 (the "Royal Newcastle Hospital case"), Ryde Municipal Council v Macquarie University (1978) 138 CLR 633; [1978] HCA 58 (the "Macquarie University case") and Minister Administering the Crown Lands Act v NSW Aboriginal Land Council (2008) 237 CLR 285; [2008] HCA 48 (referred to, for convenience, as the "Wagga Wagga land claim case"). [5]
The question in the Royal Newcastle Hospital case was whether particular land was, in terms of a rating statute, "used or occupied by the hospital … for the purposes thereof". The land was vacant and "in its virgin state comprising ridges and gullies heavily timbered with a good deal of underwood". It surrounded sanatorium buildings in which tuberculosis patients were housed and treated. The High Court decided by majority that holding of the bushland in its virgin state in order to ensure tranquil surroundings and abundant fresh air for tuberculosis patients was sufficient to warrant a conclusion that the land was "used or occupied by the hospital . . . for the purposes thereof".
The majority consisted of Williams, Webb and Taylor JJ. Substantive judgments were delivered by Williams J and Taylor J. Webb J expressed agreement with both of them. Fullagar and Kitto JJ dissented. Each delivered a substantive judgment.
The essence of the opinion expressed by Williams J was that the hospital "occupied" both the sanatorium buildings and the surrounding bushland and did so for the purposes of the hospital. Williams J found it unnecessary to decide whether the hospital "used" the bushland. That question was, however, squarely addressed by Taylor J and answered in the affirmative. Taylor J said (at 515):
"The word "used" is, of course, a word of wide import and its meaning in any particular case will depend to a great extent upon the context in which it is employed. The uses to which property of any description may be put are manifold and what will constitute 'use' will depend to a great extent upon the purpose for which it has been acquired or created. Land, it may be said, is no exception and [the relevant statutory provision] itself shows plainly enough that the 'use' of land will vary with the purpose for which it has been acquired and to which it has been devoted.. . . Each of the forms of user referred to in the section relate to use by the owner and some of them, no doubt, contemplate a use which is synonymous with actual physical occupation and enjoyment. Others contemplate a use in a less direct form. But where an exemption is prescribed by reference to use for a purpose or purposes it is sufficient, in my opinion, if it be shown that the land in question has been wholly devoted to that purpose even though, the fulfilment of the purpose does not require the immediate physical use of every part of the land. In my opinion where a hospital acquires or sets apart, for a project which may properly be described as a purpose of a public hospital, a tract of land which it considers is the minimum requirement for its contemplated project and thereupon proceeds to carry out that project it, thereby, uses the whole of the land. How its purposes shall be fulfilled is, within reason, for it to decide and, as I have already said, it is nothing to the point to say that it has employed in the project more land than may, upon the views of others, be thought to have been necessary, or that in fact, it has derived no benefit or advantage therefrom in the fulfilment of its purposes."
[9]
Other appellate decisions
Relevant aspects of s 10AA have been considered by this Court in two cases, namely, Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366; (2011) 85 ATR 775 and Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378; (2014) 96 ATR 875. Reference should also be made to the Court's decision in Blacktown City Council v Fitzpatrick Investments Pty Ltd [2001] NSWCA 259 and to two Queensland decisions.
The Leda Manorstead case concerned grazing land on which certain earthworks had been undertaken with a view to future residential subdivision. Development approvals for subdivision had been granted but it was common ground that the owner did not intend to develop in accordance with those approvals. Its intention was to seek revised approvals. It was held at first instance that the land was used for two undertakings: commercial land development and cattle grazing; and that, having regard to a number of evaluative factors, the former predominated. That assessment was upheld on appeal. Allsop P (with whom Campbell and Whealy JJA agreed) said (at [24]) that s 10AA is not concerned with activity on the land which is understood or evaluated as preliminary to the undertaking of a future use. Allsop P continued:
"There must be a present use for which the land is being used. That does not deny, however, the proper evaluation of any given circumstances. The appropriate task is the one which the primary judge undertook. Upon evaluation of all the material he asked himself what the people who owned the land were actually using it for. Or, to put the matter another way, what was the purpose of what the owner was doing on the land so that the question as to what the land was being used for could be answered? Here, looking at all the activities together with the surrounding circumstances of Leda's evident purpose in carrying out those activities, it could be concluded (and was concluded by the primary judge, rightly, in my view) that the land was being used for commercial land development. The fact that the land was, at that time, at the stage of earthworks does not deny the present use of the land for commercial land development. It does not matter, in my view, that the residential housing estates likely to be built in due course had not yet been completed, had not yet been sold and had not yet taken their place in a completed residential development."
[10]
Legislative history
The Chief Commissioner placed before this Court an account of legislative developments culminating in the enactment of s 10AA in its current form. The progenitor provisions (s 9(2) and 9(3) of the Land Tax Management Act 1956 (NSW) in its original form) applied a special taxation regime to "land used for primary production" as defined by s 3, being "land used primarily for" certain forms of cultivation "thereof" and certain forms of activity "thereon". In 1970, a general exemption was introduced for "land used for primary production", with that expression defined in the same way as in the original 1956 legislation. In 1991, an exemption concerning "land used for primary production" was based on a definition of that expression referring to "land used primarily for" certain activities. The current s 10AA was introduced by the State Revenue Legislation Further Amendment Act 2005 (NSW). The purpose was, in part, to make the land tax exemption provision compatible with provisions concerning exemption from local government rating.
In this case, as in the Leda Manorstead case, the Court has before it extrinsic material in the form of the Explanatory Note to the Bill that became the State Revenue Legislation Further Amendment Act 2005 (NSW) and the speeches of the relevant Minister upon the second reading of that Bill in the Legislative Assembly. Allsop P dealt with the extrinsic materials as follows in the Leda Manorstead case (at [28]):
"Both parties provided the Court with extrinsic material relating to s 10AA and related provisions in the Local Government Act 1919 (NSW), in particular s 118. Much of the secondary material can be seen to be directed to the mischief or purpose of sub-s (2), rather than sub-s (3): see the Second Reading Speech to the State Revenue Legislation Amendment Bill 2005 and the definition of 'farmland' in the Local Government Act 1993 (NSW), s 515 and the similarly worded earlier provision of the Local Government Act 1919 (NSW), s 118. Looking at the terms of s 10AA in its place in the Act, the provision is not to be understood as a statutory encouragement for primary production as that phrase is used in the colloquial sense. The provision concerns land used for primary production as defined. 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. More particularly, there is nothing in the purpose of the legislation, drawn from its words and context or from the secondary material insofar as that addresses mischief to require used 'for' to be limited to use of land which is producing beneficial or commercial return, as argued by Leda."
[11]
The core meaning of "use"
Decided cases are replete with statements that "use" is a word of variable meaning and that the construction of one statutory provision concerning "use" of land may well be an unreliable guide to the correct construction of another such provision. [10] For that reason, approaches taken in cases about different statutory contexts in which the word "use" is employed with respect to land must be treated with caution. It must nevertheless be accepted that "use", in relation to land, has a core meaning independent of statutory context. In the recent Berrima Gaol land claim case (New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act [2016] HCA 50), French CJ, Kiefel, Bell and Keane JJ said (at [34]):
"True it is that the words 'used' and 'occupied' might be said to take much of their meaning from context. But that is not to say that they are devoid of a commonly understood meaning in ordinary parlance. They require an examination of activities undertaken upon the land in question and, in the case of 'occupied', factors such as continuous physical possession must be taken into account."
Examination of "activities undertaken upon the land in question" is thus central to identification of "use", according to the commonly understood meaning of the expression; and, as Allsop P pointed out in the Leda Manorstead case, the inquiry is not limited to activities producing beneficial or commercial return. Furthermore, past activity may be indicative of present use even if the activity is for the time being not continuing. This is because the absence of activity on the land at a given time may be part of a scheme of calculated and continuing utilisation that stems from past activity and remains in course of implementation without discernible activity at the time in question. [11]
[12]
The statutory text
With those introductory observations, I turn to the statutory text. The first thing to note is that s 10AA is concerned with "use" at large rather than "use" by any particular person. It differs, in that way, from a number of other exempting provisions of the Land Tax Management Act and from some of the provisions of other statutes relied on in submissions and referred to above. [12] A substantial majority of the 23 categories of exempt land referred to in s 10(1) of the Act refer to land "owned" by a named entity or an entity of a specified kind. In some of those cases, a particular kind of use or occupation is an additional condition of exemption. Only a few of the s 10(1) categories refer to land "used" for a particular purpose without regard or reference to its ownership. There is, in those few cases as well as in s 10AA, a manifested legislative intention that land 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 to the "use" to which the land is put by the person - whether or not the owner - who has the ability to "use" it. [13]
If the "dominant use" of relevant land is "for" one of the activities enumerated in paras (a) to (f) of s 10AA(3), the land will answer the description of land "used for primary production" and thereby satisfy that aspect of the conditions for statutory exemption under s 10AA as a whole. The expression "dominant use" has regard to quantification of uses within paras (a) to (f) as against uses that are not within those paragraphs. [14] Where the whole of the relevant land is obviously used, the inquiry required by s 10AA(3) is whether that land is used "for" any of the activities or purposes listed in paras (a) to (f) and, if so, whether it is also used "for" an activity or purpose not within those paragraphs. Where the evidence discloses that the land is used both "for" an activity within paras (a) to (f) and "for" an activity not within those paragraphs, it is necessary to weigh the respective uses against one another in order to ascertain which is the "dominant use". The words "the dominant use of which is for" make it clear that the extent (measured in some appropriately rational way) of activities or purposes within paras (a) to (f) "for" which the land is used is to be compared with the extent to which the land is used "for" other activities or purposes. [15]
[13]
Inactivity as "use"
In expressing that opinion, I do not intend to suggest that "use" in the s 10AA sense does not sometimes include inactivity. As explained in Rainn Pty Ltd v Commissioner of State Revenue [2016] VSCA 338 at [34], land which is, for the time being, left fallow as part of a crop rotation cycle is "used" for agriculture despite the current absence of activity on it. [20] The deliberate maintenance of a state of inactivity is, of itself, the implementation of a purpose "for" which the land is used, that is, the purpose of agriculture including by allowing time for soil regeneration. In the Royal Newcastle Hospital case what was, on one view, inactivity on the hospital's virgin bushland was, in the relevant sense, positive deployment of that land for the specific purpose of keeping it in a virgin state conducive to more advantageous operation of the hospital's sanatorium. [21] As noted in The Council of the Town of Gladstone v The Gladstone Harbour Board (above), the crucial factor in the Royal Newcastle Hospital case was that the owner "intentionally derived actual and present advantages by keeping the land in its virgin state".
It is the positive purpose of deriving present advantage by leaving the bushland untouched that distinguishes the Royal Newcastle Hospital case from the Wagga Wagga land claim case. In the latter case, the former police station site had fallen into disuse and there was simply no utilisation of the land, whether by physical activity or passive enjoyment of its features. The only postulated use centred on a decision to sell, coupled with steps taken towards sale. The High Court held that this did not constitute "use" for the purposes of the relevant statutory provision. The word "use" in that context was held to mean actual physical use or "used in fact" as distinct from purely notional, potential or contingent use. Neither the lack of physical use, whether indirect or direct, nor the decision to sell was seen as calculated to produce immediate and ongoing benefit from the land. On that footing, it could not be said that either amounted to a form of exploitation of the land comparable to the passive use manifested in the Royal Newcastle Hospital case.
Purpose is a concept necessarily at work in s 10AA(3). Each of the six activities in paras (a) to (f) has a purpose or objective of commercial gain. There is a distinction, however, between the purpose for which land is acquired, on the one hand, and the purpose for which it is currently being devoted to use, on the other. This point is particularly important when considering any competing use under s 10AA(3). The purpose of acquisition may or may not correspond with the purpose of current use. Land acquired specifically for the sowing of crops may be put to either that use or some other use, such as cattle grazing or residential subdivision development. The inquiry directed by s 10AA(3) is as to current tangible and physical deployment and its purpose, not the purpose of acquisition.
[14]
Conclusion on the meaning of "use" in context
In summary, I am of the opinion that the concept of "use" relevant to s 10AA as a whole (and s 10AA(3) in particular) - a concept in which the preposition "for" plays a central role - is one of physical deployment of Isaacs J's "concrete physical mass" [22] in pursuance of a particular purpose of obtaining present benefit or advantage from it, with deployment understood as including not only activity but also inactivity deliberately adopted as a means of obtaining such actual and present advantage from the land; and with purpose understood as objectively ascertained purpose. There is no requirement that immediate productive return be achieved, as long as some benefit or advantage accrues. In a s 10AA(3) case, each "use" considered in the search for "dominant use" must be of the character I have described. Otherwise, the necessary process of comparison cannot sensibly be undertaken. The contentions of Metricon in that respect should be accepted.
In saying this, I respectfully depart from the approach that commended itself to the primary judge and which his Honour confirmed in his later decisions on s 10AA in Bellbird Ridge Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1637 and Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9. His Honour there confirmed the view that the possible uses to be considered for the purpose of determining what is the dominant use of land are not necessarily confined to physical uses of the land. That view should not be accepted. ."
In the judgment now under appeal, his Honour considered it meaningful to proceed in the manner adopted by the Administrative Decisions Tribunal in the proceedings that culminated in the appeal to this Court in the Ferella case, that is, by seeking to compare an alleged primary production use by an owner who kept a single horse on the land with that owner's use of the house on the land "for rental purposes" or "use as an investment property earning income from the letting". [23] On the construction I consider to be correct, the use that the Tribunal should have compared, for s 10AA purposes, with any primary production use involving the horse was simply use (in the form of physical deployment) of the house as a residence. As has been noted, the section is not concerned with the identity of a person who uses the land. The fact of use and the nature of that use are alone relevant.
[15]
"Future use" and "land banking"
There is much to be said for the view expressed by Fullagar J in the Royal Newcastle Hospital case that "intangible use" is an expression without meaning. It is, at the least, apt to confuse and, if employed at all, is probably best confined to cases of the Royal Newcastle Hospital kind where immediate and present advantage is consciously and deliberately taken of land without physical activity on or affecting it. A better description of that situation is probably "passive use". [24]
In cases of what has become known as "land banking", courts have been called upon to determine the point at which land acquired with a view to its being made the subject of future commercial development is to be characterised as devoted to a current use. The issue is perhaps better framed by asking at which point in the development phase it can be said that the land is being used for the end purpose of subdivision and sale. The inquiry brings to the fore the critical distinction between a current use and an intended future use.
In the Leda Manorstead case, it was decided that the land was being used for two purposes, namely, commercial land development and cattle grazing. Although it was common ground that the land was acquired for the purpose of commercial land development, that factor of itself did not compel the conclusion that the land was being used for that purpose. It was the evidence of substantial earthworks carried out on the land and certain other activities (which outweighed the cattle grazing use) that produced the finding that the land was being used for commercial land development. Allsop P reiterated (at [11], [24], [42]) that it would be erroneous to portray the decision below as premised on a characterisation of the earthworks and other activities as merely preparatory to the future intended use of residential subdivision. In accepting the findings at first instance in that case, this Court made it clear (at [24], [40] that s 10AA is not directed to activities that are preliminary to the undertaking of some future use, including the bare holding of land). As Allsop P put it, "[t]here must be a present use for which the land is being used" which may be ascertained by reference to the purpose of the activity under evaluation.
If "land banking" is understood as merely accumulating and holding a stock of land with a view to its future development, such "land banking" cannot be regarded as being, of itself, use of the land. Inactivity in the form of mere holding, although accompanied by a present intention to subdivide and sell at some future point, is not the source of present benefit or advantage and therefore does not constitute a use for the purposes of s10AA(3). What is required is some physical activity that causes the land to be raised out of a state of non-use into one of actual deployment in pursuance of the purpose of deriving advantage through subdivision and sale. [25]
[16]
Decision on the principal issue
As the Chief Commissioner pointed out, the substantial expenditure of money and other resources by Merticon on planning residential development of the land did not occur in a vacuum. That expenditure was obviously and intimately connected with the land. It occurred in connection with the land. It would not have been incurred but for Metricon's ownership of the land and its intention to subdivide and sell in due course.
All this may be accepted. But it does not follow that, by incurring that expenditure and acquiring the services of planners and other consultants retained to formulate and progress a scheme of residential subdivision, Metricon in any way made "use" of the land. Given my conclusions as to the meaning of "use" in the particular statutory context, those activities of Metericon did not amount to such "use". There was no deployment of the land in pursuance of a purpose of obtaining present benefit and advantage from it. The land was not subjected to either activity or lack of activity deliberately adopted as a means of obtaining such actual and present advantage. A purpose of obtaining benefit and advantage from the land by subdivision and sale obviously existed and caused Metricon to employ the consultants and to incur the expenditure in the relevant tax years. But the actuating benefit and advantage were, at that point, projected or anticipated only; and pursuit of them at that point did not require or involve any deployment of the land as such. [26]
In my opinion, therefore, the primary judge was correct in his conclusion that there was not, in relation to any of the relevant tax years, a "use" of any of the relevant land. While Metricon had embarked upon a property development venture, it was a venture which, at the times relevant to land tax assessment, did not extend to "use" of the land. The steps that had been taken - albeit substantial steps in terms of money and time - were preparatory to the commencement of a use of the land by means of development by subdivision and sale. [27] The primary judge correctly decided that, at each time material to land tax assessment, any such use lay in the future. His Honour himself put the matter well when he said in the later case of Bellbird Ridge Pty Ltd v Chief Commissioner of State Revenue (above) at [25]:
"An intended future use does not become an actual existing use merely because substantial moneys and resources are applied in its planning and preparation."
[17]
The residential use issue
I turn now to the Chief Commissioner's secondary contention [28] that use for cattle grazing was overshadowed by or secondary to residential use so that residential use was, in terms of s 10AA(3), the "dominant use". That contention relates to the properties at 126 Mahers Lane, 140 Mahers Lane and 153 Mahers Lane. As has been noted, the percentages of the properties occupied by tenanted houses and their curtilages were 6.2 per cent, 2.4 per cent and 8.3 per cent respectively. The monthly rents generated were, at the relevant times, approximately $2,300, $880 and $2,500. The primary judge found that the levels of income and expense in connection with the rental use exceeded the income and expenses allocated to the different areas of land, on a pro rata basis, in respect of the primary production use.
The Chief Commissioner points out that the statement of the primary judge regarding respective levels of income and expense, while correct, does not refer to the magnitude of the difference. The pro rata rate of return in respect of the residential tenancy exceeded the primary production rate of return by a factor of 8 to 1.
The primary judge said (at [151]) that the respective rates of return were relevant to, but not determinative of, the assessment of which use was dominant. His Honour continued (at [152]-[153]):
"The comparison is not like with like. It involves of questions of degree on which minds can reasonably differ. It is not of much help to ask what would an observer of the lands would see. The observer would see cattle peacefully grazing and would see that most of the lands were dedicated to that purpose. But the observer would also see the houses occupied by families where the occupancy was not associated with the farming activity.
To return to the matters identified by the Land Appeal Court of Queensland in Thomason . . . , the areas of land used for primary production is very much greater than the amount of land used as residences. The cattle are not always grazing on the Mahers Lane properties, whereas the residences are presumably almost always occupied. The residences are used for day to day living. The cattle-grazing is designedly for animals requiring minimal levels of maintenance, but the quality of the pastures and the care and selection of the cattle combine to produce a cattle farm of exceptional quality. The time spent by the tenants in using the land is much greater than the time that the Gillilands are on the land and probably greater than the time which the cattle are on the land. More labour and resources are spent by the Gillilands in their use of the lands than are incurred by Metricon (or the vendors to Metricon) who use managing agents to collect rents and who engage contractors to carry out such repairs and maintenance as are the landlords' responsibility under the residential tenancies. I do not think that the figures for income and expense provide any clear guide to the relative levels of the extent and intensity of the different uses.
On balance I think the Gillilands' primary production use is greater in scale and intensity and is the dominant use."
[18]
Outcome
Although, as explained at [61]-[63] above, my opinion on the meaning of "use" in s 10AA differs to some extent from that expressed by the primary judge, I am satisfied that his Honour correctly viewed the "dominant use" of all relevant parcels of land at relevant times as a "use" within s 10AA(3)(b) and that the order setting aside the several land tax assessments was rightly made. I therefore propose the following orders:
1. Appeal dismissed.
2. That the appellant pay the respondent's costs of the appeal.
[19]
Endnotes
Metricon Qld Pty Ltd v Chief Commissioner of State Revenue (No 2) [2016] NSWSC 332; [2016] ATC 20.
Land tax is levied for a particular year commencing 1 January by reference to land owned at midnight on the 31 December immediately preceding that year: Land Tax Management Act 1956 (NSW), s 8.
The other conditions are that that use of the land (a) "has a significant and substantial commercial purpose or character" (s 10AA(2)(a) and (b) "is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)" (s 10AA(2)(b)).
The primary judge referred, in that connection, to Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378; (2014) 96 ATR 875 at [34]. As White J himself explained in that case and in Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9 at [10]-[16], land tax is levied according to the taxable value of land based on value determined and recorded pursuant to the Valuation of Land Act 1916 (NSW). Under that Act, the Valuer-General must ascertain each year the land value of each parcel of land in New South Wales other than land in certain categories. In general, land tax is assessed and the applicability of exemptions is determined according to parcels taken into account by the Valuer-General.
[20]
To these cases must now be added New South Wales Aboriginal Land Council v Minister Administering the Crown Lands Act [2016] HCA 50 (the "Berrima Gaol land claim case") in which judgment was delivered on 14 December 2016 after the hearing of this appeal.
In the recent Berrima Gaol land claim case referred to at footnote [5], it was pointed out (at [23]) that it was not necessary in the Wagga Wagga land claim case to decide whether there could be steps taken on land in preparation for its sale which are of a kind which could constitute use or occupation. None of the steps taken towards sale had been taken on the land itself. Apart from the surveyor's and agent's visits to the land, everything that was done towards sale took place away from the land. Neither these steps nor the decision to sell the land could therefore be said to constitute a use of the land.
White J referred to the second aspect of use, as found by the Administrative Decisions Tribunal, as use "for rental purposes" (at [37]) or "use of the land as an investment property earning income from the letting" (at [57]). Those descriptions looked at matters from the perspective of the owner. Section 10AA does not direct attention to use by any particular person. What was categorised as the owner's rental use or investment property use could equally have been viewed as the tenant's residential use. As White J put it in Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue (above) at [149], physical use of land by a tenant is "the other side of the same coin as the non-physical use of the land by the owner in leasing it".
By Gibbs J at 525 (Jeffriess J concurring).
NSW Hansard, Legislative Council, 29 November 2005, speech of the Hon Michael Costa, Minister for Finance, Minister for Infrastructure and Minister for the Hunter (commencing at 5.22pm).
In s 10AA as a whole and s 10AA(3) in particular, "use" is an abstract noun. There can, to my mind, be no doubt that the meaning of the noun corresponds with that of the transitive verb "to use".
Rainn Pty Ltd v Commissioner of State Revenue [2016] VSCA 338 at [34]-[36] citing Saville v Commissioner of Land Tax [1980] 12 ATR 7.
For example, in both the Royal Newcastle Hospital case and the Macquarie University case, the relevant statutory provision referred to land "used or occupied" by the particular institution "for [or solely for] the purposes thereof".
Parties
Applicant/Plaintiff:
Chief Commissioner of State Revenue
Respondent/Defendant:
Metricon Qld Pty Ltd
Legislation Cited (9)
Administrative Decisions Tribunal Act 1997(NSW)
State Revenue Legislation Further Amendment Act 2005(NSW)
The Chief Commissioner disputed characterisation of that primary production use as the "dominant use" of the land on the footing that it was outweighed by a competing use compendiously described as "land banking" or "land development" use. It was submitted that that form of "use" was manifested by steps taken by Metricon pursuant to a plan of development and realisation by subdivision and subsequent sale in the course of its business as a property developer. A secondary contention of the Chief Commissioner in relation to certain parcels was that the primary production use was outweighed by residential use. The primary judge found against the Commissioner on both aspects.
In summary, therefore, the primary judge saw no reason to read down s 10AA(3) to require that a competing use against which the primary production use is to be measured must be a physical use. However, he saw the section as concerned with a current use, not an intended future use. Hence, it did not follow that Metricon was using the land because it had acquired it for the purposes of residential development and the land formed part of its "land bank" or trading stock. It was only to the extent that preliminary survey and investigation work had actually been undertaken that the land might be said to have been subjected to a "land development use". But the scale of the uses other than primary production was such that the primary production use was, on his Honour's findings, the "dominant use". His Honour also rejected the proposition that, as to parcels on which tenanted houses were erected, residential use rather than primary production use was dominant.
Kitto J, in dissent, was of the opinion that the vacant land was not the subject of any "present and positive use or occupation by the hospital". It was, as a matter of objective fact, in a vacant and virgin state and therefore unoccupied and unused. Fullagar J said that he agreed "entirely" with the judgment of Kitto J and went on to consider the meaning of "use". He observed that the case had been "fought on a false issue" and "decided on a fallacy" which he then proceeded to explain (at 506):
"The root of the fallacy lies in the assumption that deriving an advantage from the ownership of land is the same thing as using the land. The fallacy is helped out by the coining of an expression - "intangible user" - which has no real meaning. Actually, while using the land will practically always mean deriving an advantage from it, an advantage may clearly be derived from the ownership of it without its being 'used' in any way. What has been done in this case is to begin with the proposition that he who uses land derives an advantage from it. (This proposition is probably true, but its converse is false.) Evidence is then adduced to show that an advantage is derived from the ownership of the particular land in question. The conclusion is then deduced that the land in question is being 'used'. It seems to me to be a clear example of a familiar fallacy".
The judgment of Taylor J, on which reliance is placed, reflected the opinion of that judge himself and of Webb J (who, however, also shared the opinion of Williams J based wholly on occupation, as distinct from use). The explanation offered by Fullagar J (on which reliance is also placed) was not approved by any other member of the court, but may underlie the opinion of Kitto J. In those circumstances, it cannot be said that either Taylor J or Fullagar J spoke authoritatively as to the meaning of "use".
That said, however, the Judicial Committee of the Privy Council, in the subsequent appeal (Council of the City of Newcastle v Royal Newcastle Hospital (1959) 100 CLR 1; [1959] UKPC 5), decided the matter wholly on the issue of use, as distinct from occupation, and favoured the approach taken by Taylor J, saying (at 4):
"An owner can use land by keeping it in its virgin state for his own special purposes. An owner of a powder magazine or a rifle range uses the land he has acquired nearby for the purpose of ensuring safety even though he never sets foot on it."
In the Macquarie University case, the question was whether, for the purposes of a rating statute, part of the Macquarie University campus that was the site of shops, a bank and a travel agency leased to other persons who thereby provided facilities to the university's staff and students was "used or occupied by the University . . . solely for the purposes thereof". The decision was, in essence, that the university "used" the particular part of the campus by subjecting it to leases to persons who provided facilities required for undergraduates. The provision of such facilities was part of the university's functions as prescribed by its governing statute. By granting the leases, it indirectly provided the facilities. The judgments referred to cases that had proceeded on the footing that a landowner may "use" land by leasing it for the sake of the rental return. That concept of "use" was, however, inapplicable or insufficient where the question was whether the leased sites were "used or occupied by the University . . . solely for the purposes thereof". Leasing merely in order to obtain rent would obviously not have been use "for the purposes of" the university. The case is, however, significant for its recognition of that species of "use" of land.
The question in the Wagga Wagga land claim case was whether, in terms of the Aboriginal Land Rights Act 1983 (NSW), certain land was "lawfully used" at the point at which an Aboriginal land claim was made in relation to it. The High Court rejected an argument that steps taken towards the sale of the land meant that it was being "lawfully used". The relevant concept was seen as one of physical use. The plurality endorsed the observation of Fullagar J in his dissenting judgment in the Royal Newcastle Hospital case that it is wrong to assume that deriving an advantage from the ownership of land is the same thing as using the land. Hayne, Heydon, Crennan and Kiefel JJ made a number of important statements about the meaning of "use". They said (at [74]) that sale of land amounts to exploitation of the land as an asset of the owner; and that there are uses of land which can be described as exploitation of it. But it does not follow that exploitation, by sale, amounts to use. Nor does it follow that the preliminary steps that must be taken to effect a sale, whether considered separately or together, will amount to use, even if they could be described as steps directed to exploiting the land by selling it. To hold otherwise would be to embrace the fallacy exposed by Fullagar J in the Royal Newcastle Hospital case, by equating deriving an advantage from the ownership of land with using the land (even though by using land an advantage is derived from it). The plurality continued:
"In particular, taking steps towards selling the land may be directed to the owner deriving the advantages of disposing of an asset and receiving the proceeds of sale. But identifying that the owner seeks to derive these advantages does not show that the land is being used. Rather, what are the acts, facts, matters and circumstances which are said to show that the land is being used?
The conclusion was that, subject to the possible qualification required by reference to some transitory visits to the land, nothing was being done on the land when the claim was made, and nothing had been done on the land for a considerable time before the claim was made. There was "no physical use of the land during that time". The members of the court reserved the possibility that there may be steps taken on land in preparation for its sale that could constitute use or occupation of the land but "neither the decision to realise this land, nor the steps taken within the administration of government to achieve that end, which were all steps that occurred away from the land, constituted use of the land". [6]
Campbell JA, in short concurring reasons, said (at [48] - [50]):
"The enquiry that is called for by s 10AA(3) is:
(1) Is the land used for any of the purposes listed in s 10AA(3)(a)-(f)?
(2) Is the land used for any purpose that is not listed in s 10AA(3)(a)-(f), and if so what is it?
(3) If the land is used for one or more of the purposes listed in s 10AA(3)(a)-(f), and is also used for a purpose that is not listed in s 10AA(3)(a)-(f), is the use for one or more of the purposes listed in (a)-(f) the dominant use of the land?
In asking whether the land is used for any purpose that is not listed in s 10AA(3)(a)-(f), the enquiry is not constrained by reference to any of the purposes that are listed in s 10AA(3)(a)-(f). It is just a question of what the land is used for.
Where legislation is cast in the form of imposing a tax or conferring an exemption if land is used for the purpose of X, it can be relevant to enquire whether the land is presently being used for the purpose of X, or whether the activities being conducted on it are merely preparatory to its being used for the purpose of X. However that is not the sort of enquiry that is called for by step 2 of the analysis I have set out above. Land can be used, now, for purpose Y, even if its use now for purpose Y is also preparatory to its eventual use for purpose X."
The Ferella case was an appeal to this Court under s 119 of the Administrative Decisions Tribunal Act 1997 (NSW). That section permitted appeal only on a question of law, with the result that the appellant taxpayers had to establish error of law in the decision of the appeal panel of the Administrative Decisions Tribunal. This Court held that the questions raised by the taxpayers amounted to challenges to evaluative fact-finding which on no view could amount to a question of law. Observations about the scope and operation of s 10AA were therefore not central to the Court's decision.
That said, observations on s 10AA of White J, who delivered the principal judgment (in which Leeming JA and I concurred), are instructive. The situation was one in which the owner of land used part of it to maintain a horse supposedly for breeding purposes and leased the remainder (which was the site of a house) to residential tenants. The task set by s 10AA was to weigh the respective uses against one another to determine which was dominant. [7]
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 ..."
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.
Blacktown City Council v Fitzpatrick Investments Pty Ltd was not a land tax case. The question was whether expenses of purchasing replacement land were, in terms of a provision concerning compensation for compulsory acquisition of land, financial costs "relating to the actual use of the land, as a direct and natural consequence of the acquisition". The compulsorily acquired land formed part of what was called the respondent's "land bank", being land acquired and held for the purpose, when the time was ripe, of being subdivided and sold. The Court appeared to take the view that holding of the land for subdivision was a "use" of the land in fact. The reasoning in cases such as Royal Newcastle Hospital was seen as leading to a conclusion (at [24]) "that 'the use' to which the respondent put the land for its purposes, prior to the acquisition, was use for the purpose of residential subdivision".
The first of the Queensland cases is Thomason v Chief Executive, Department of Lands [1995] QLAC 4; (1995) 15 QLCR 286, a decision of the Land Appeal Court of Queensland. As the primary judge noted, this case has been influential in the interpretation of s 10AA, having been referred to with approval by this Court in both Leda Manorstead and Ferella. The question in Thomason was whether certain land was "exclusively used ... for purposes of farming" and therefore subject to a special valuation regime. The expression "farming" was defined in a way that required that activity to represent the "dominant use" of the land. The Land Appeal Court made the following general observations about the meaning of "use":
"The land must be 'used', that is, it must be applied to, employed for some purpose, put into service, turned to account (see Macquarie Dictionary). The word 'use' has been held to be 'a word of wide signification' (British Motor Syndicate Ltd v. Taylor & Son [1900] 1 Ch 577 at 583 per Stirling J) and 'a word of wide import' (Shell-Mex & BP Ltd v. Clayton [1955] 3 All ER 102 at 106 per Court of Appeal) the meaning of which in any particular case depends to a great extent on the context in which it is employed (Ryde Municipal Council v. Macquarie University (1978) 139 CLR 633 at 637 per Gibbs ACJ, 651 per Stephen J, 658 per Aickin J). For land to be 'used' it must be actually used, not be contemplated or intended to be used nor be suitable for use (London & South Western Ry Co v Blackmore (1870) LR 4 HL 610 at 617 per Lord Hatherley LC.). That does not mean that there must be activity on all the land. An owner can use land by keeping land in its unimproved state where retaining it in that state is relevant to a particular purpose (Newcastle City Council v. Royal Newcastle Hospital [1959] AC 248 at 255, 1 All ER 734 at 735, 100 CLR 1 at 4, Privy Council).
The decision of the Court went principally to the question of "dominant use" and the process of comparison that must be undertaken. Regard was had only to modes of physical deployment - an aspect of the decision on which Metricon relies. As the primary judge noted, however, the issue of physical use versus "intangible use" was not before the court and the decision did not touch upon it.
The second Queensland case is the decision of the Full Court of the Supreme Court of Queensland in The Council of the Town of Gladstone v The Gladstone Harbour Board [1964] Qd R 505. One of the issues there was whether, for the purposes of a rating statute, certain land vested in a harbour authority was "used for public purposes". At the relevant time, the land was not in fact physically used for any purpose but was held against the need for future expansion or development of the harbour works. The decision of the Privy Council in the Royal Newcastle Hospital case formed the basis of a submission that such holding constituted present "use". The submission was not accepted. The Privy Council's decision was seen [8] as turning on a finding that the hospital "intentionally derived actual and present advantages by keeping the land in its virgin state", whereas the harbour authority derived only the advantage of the availability of the land for future use, if required. The decision was that the land was not "used for public purposes" or at all.
The Chief Commissioner drew attention to the following passage in the Minister's speech in reply on the second reading of the Bill: [9]
"Land tax for rural lands for genuine farm purposes is important [sic]. We are closing the loophole that has emerged. A developer buys a parcel of rural land from a genuine farmer and organises rezoning to allow subdivision for residential, commercial or industrial use. Under the current legislation all he or she has to do to retain the land tax exemption that applied previously to the land is to ensure that it is fenced, run some farm animals, periodically sell some of them and buy some replacements. The land is then subdivided in stages. Fences are moved back so that the remaining area of subdivided land can continue to be used for primary production. This process continues until all of the land is subdivided and sold.
The only parcels of land on which land tax is ever paid by the subdivider are the subdivided blocks created during the year that have not been sold on 31 December. The amendments will require that the dominant use of the land is primary production. This will allow the portion of the revenue generated from the land from sale of subdivided lots compared to the revenue generated from the sale of animals to be taken into account. The primary production use of the land will have to have significant and substantial commercial purposes, which must be engaged in for the purpose of a profit or on a continuous and repetitive basis. Running a few head of cattle or sheep to attract a land tax exemption rather than to make profits will no longer suffice."
It is significant that each of the six activities listed in paras (a) to (f) involves deliberate physical acts in relation to the land. There cannot be fortuitous or accidental cultivation, maintenance of animals, commercial fishing, keeping of bees or propagation of orchids for sale. Nevertheless and as observed by the primary judge, the authorities support the abstract notion that land may be "used" without immediate physical activity. I shall return to that matter.
Assume the owner of the fee simple leases a parcel of land to another who devotes it entirely and exclusively to agriculture by raising crops. Three possible characterisations are available. First, it may be said that there are two uses of the land, with the lessee using it "for" agriculture and the lessor using it "for" leasing. The second possible view is that there is one use only, with the lessee using the land "for" agriculture and the lessor also using it "for" the agricultural purpose that the lessee's activities entail. [16] The third possibility is again that there is one use only, with the lessee using the land "for" agriculture and the lessor not using it at all. [17]
If the first characterisation is accepted and the lessor is regarded as using the land merely by subjecting it to the lease, a need arises to compare that use with the lessee's agricultural use and to determine which is the "dominant use". There is, to my mind, no sensible way in which that comparison can be made. The Queensland Land Appeal Court said in Thomason (at 300):
"It is not easy to state precisely how to determine the dominant use of land in every case. One approach could be to ascertain the use to which most of the land is put. Another could be to ascertain from time to time which use of the land produces the main source of revenue or gross profit, irrespective of the proportion of the land used to generate the income."
The court later formulated a test as follows (at 303):
"In our view, the proper approach to be taken when ascertaining the dominant use of land is to consider such matters of 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 a common business or industry of a type specified in s 17(2), the extent to which land is used for purpose 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."
If, in the hypothetical case under discussion, regard were had to physical manifestation or activity alone, the objective observer would conclude that the lessee's agricultural use was the only discernible use. If the inquiry were to focus on the way in which the right of ownership, as distinct from possession, was turned to account, the lessor's use by leasing would be the only discernible use.
The difficulty confronting any attempt to compare those two uses comes from their intrinsically different qualities. It is by no means clear that any meaningful method of comparative quantification is available. [18] If matters of income generation are considered, the lessee's income derived from the agricultural activity may well exceed that which the lessor receives in rent - indeed, that would be the commercial expectation. But it does not follow as a matter of logic that one form of use is quantitatively greater in some way than the other. The difficulty is perhaps better exemplified when regard is had to the nature, intensity and extent of the rights devoted to each particular use. When considered in that way, the competing uses are equal because the rights deployed are the full rights of the lessor and the lessee respectively. On that basis, neither use is dominant. If that were the correct approach, s 10AA would never apply to leased land fully utilised by the lessee.
These considerations point strongly towards notions of "use" and "dominant use" that pay attention to "land" in the sense indicated by Isaacs J's reference in New South Wales v The Commonwealth [1923] HCA 34; (1923) 33 CLR 1 (at 33) to "the concrete physical mass, commencing at the surface of the earth and extending downwards to the centre of the earth, which is called 'land'". It is, in my opinion, this physical concept of land that is relevant to the interpretation of s 10AA(3). [19]
On that basis, the hypothetical case under discussion would be resolved by holding that there is, for s 10AA purposes, only one use, being the agricultural use by way of physical deployment undertaken by the tenant; and that it is not necessary to address any question of comparison with any use by the lessor (or any question of relative quantification).
Little is likely to turn on subjective purpose or intention. The question is not what an owner, lessee or other person able to do so decides is to happen in relation to the land. The task is, rather, to determine whether, as an objective matter, the things that that person causes to happen - no doubt in pursuance of the person's purpose or intention - constitute "use" and, if so, whether (and to what extent) that "use" is a use described in paras (a) to (f) of s 10AA(3). Relevant purposes and intentions are principally those already executed, although the complexion of things already done may be coloured by whatever the relevant purpose or intention envisages for the future.
Despite the considerable emphasis placed on it in the Chief Commissioner's submissions, the decision of this Court in Blacktown City Council v Fitzpatrick Investments Pty Ltd (above) provides no useful guidance for present purposes. The conclusion there that land held with a view to future subdivision and sale had an "actual use" was reached in a quite different statutory context that did not require identification of that "for" which the land was used. In addition (and as the primary judge noted at [98]), the facts on which the decision was based appear only sparsely from the judgments and it was assumed by Cowdroy J in Kirela Pty Ltd v Minister Administering Environmental Planning and Assessment Act 1979 (No 2) [2004] NSWLEC 68; (2004) 132 LGERA 90 that the finding of "actual use" was based on more than the bare facts of acquisition and holding with a view to future subdivision and sale. That assumption is understandable. Unless there were facts additional to those bare facts, the clear acceptance by all members of the Court of the proposition that potential future use does not amount to "actual use" (Stein JA at [5], Brownie AJA at [26]-[27], Ipp AJA concurring) would be set at nought and the decision would lack a rational foundation.
The Chief Commissioner challenges this evaluative decision. The submission is that insufficient weight was given to the extent by which the pro rata rate of return from the residential leases exceeded that from the agistment agreements. It is submitted that an arm's length rent is a market assessment of the worth of the land as residential land vis a vis the land's rate of return as a farm and that a very significant discrepancy is shown when that approach is applied.
Metricon submits that the income and expenses referable to the two uses are not determinative and that no error is shown in the approach the primary judge took.
The evaluative task undertaken by the primary judge in this part of the case was one that could have been approached in a number of ways. As his Honour noted, it involved "questions of degree on which minds can reasonably differ". The judge was not required to exercise a discretion in the strict sense: Dwyer v Calco Timbers Pty Ltd (2008) 234 CLR 124; [2008] HCA 13. Rather, he was called upon to make an assessment against the statutory criterion defined by the word "dominant". That assessment was of the kind required when determining whether remuneration awarded to an officeholder is "reasonable" or provision made for someone in a deceased's will is "adequate". Reasonable minds might differ on the question. There are several possible methods of quantification and, except in glaringly obvious cases, no one conclusion will be correct to the exclusion of others. That being so, "clear error in the primary judge's approach or findings must be established" and it is "not enough that an appeal court may have a preference for a different view to that taken by the primary judge": Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545 at [23]. Appellate restraint is necessary for the reason stated by Kirby P in Golosky v Golosky (unreported, NSWCA, 5 October 1993) and endorsed by Mason CJ and Deane and McHugh JJ in Singer v Berghouse (1994) 181 CLR 201; [1994] HCA 40 at 212:
"Unless appellate courts show restraint in disturbing the evaluative determinations of primary decision-makers they will inevitably invite appeals to a different evaluation which, objectively speaking, may be no better than the first. Second opinions in such cases would be bought at the cost of diminishing the finality of litigation in a troublesome area . . ."
The primary judge recognised that the return from the residential leases exceeded that from the agistment agreements, viewed on a pro rata basis. It is true that he did not refer to the extent of the difference but he cannot but have been aware of it. That difference and its magnitude represented only one of the factors to be considered. [29] The conclusion the primary judge reached as to the extent of each of the relevant uses was a conclusion rationally and reasonably reached which was open on the evidence. Appellate intervention is therefore not warranted and the question referred to at [18] above should be answered in favour of Metricon.
In light of the circumstance that any "land development" use lay in the future at each time relevant to land tax assessment, the question referred to at [19] above should also be answered in favour of Metricon.
Section 10(1)(q) exempts "land used solely as a police station". It follows that if a private citizen owning particular land leases that land to a police authority under a lease specifying use as a police station as the sole permitted use, the owner will enjoy the benefit of exemption from land tax while the lessee uses the land in accordance with the permitted use provision of the lease but not if the lessee leaves the land unused or, in breach of the lease provision, uses it for some other purpose.
As the primary judge noted at [61], there is a question whether the ascertaining of "dominant use" requires comparison, in a quantitative way, between uses within paras (a) to (f) and non-use. Cases on earlier provisions containing the words "used primarily" (including Saville v Commissioner of Land Tax (1980) 12 ATR 7 and Greenville Pty Ltd v Commissioner of Land Tax NSW (1977) 7 ATR 278) adopted that approach but it is no means certain that the same reasoning is appropriate when addressing the question of "dominant use".
I am assuming here, without deciding, that the question noted at footnote [14] should be answered in such a way that any part of relevant land that is not used at all should be left out of account in determining the "dominant use" of the land.
As with the shops, bank and travel agency in the Macquarie University case.
This characterisation is indicated by the decision of the Privy Council in Commissioners of Taxation v Trustees of St Mark's Glebe [1902] AC 416; [1902] UKPC 21. The question there was whether houses owned by church trustees and let to residential tenants were used for the purposes of the church. The fact that the trustees applied the rents for church purposes was insufficient to cause that question to be answered in the affirmative. The Privy Council held (at 421) that the houses were "strictly speaking, not used by the trustees at all".
The position is, of course, different if, say, an agricultural use and a residential use undertaken by an owner in possession are the competing uses. In a case of that kind, factors such as area, intensity, rental value, time and labour expended and capital invested can often be employed in a meaningful search for the use that is "dominant".
It was noted in the course of submissions that, by force of s 21 of the Interpretation Act 1987 (NSW), a reference in an Act to "land" includes (not means) "messuages, tenements and hereditaments, corporeal and incorporeal, of any tenure or description, and whatever may be the estate or interest therein". Resort to those concepts in the present context does not assist interpretation
This example was also given by Helsham CJ in Eq in Greenville Pty Ltd v Commissioner of Land Tax (above).
Hence the Privy Council's references to the maintenance of a safety buffer around a powder magazine or rifle range: see [27] above.
See [55] above.
See footnote [7] above.
That description was adopted by Stephen J in Pioneer Concrete (Qld) Pty Ltd v Brisbane City Council (1980) 145 CLR 485; [1980] HCA 1 when discussing the Royal Newcastle Hospital case.
Reference was made in the Leda Manorstead case (and by the primary judge) to the decisions of the Court of Appeal of British Columbia in Bosa Development Corp v British Columbia (Assessor of Area #12 Coquitlam) (1996) 30 BCLR (3d) 263 and Assessor of Area # 10-Burnaby/New Westminster v Intracorp Developments Ltd 2000 BCCA 121; (2000) 137 BCAC 63 where it was held that land in the course of development was not used for residential purposes until it had been "committed" to the development project and that "the commitment must go beyond pre-construction development steps and manifest itself in the actual building of the project". Reference was also made to Sandhurst Holdings (Australia) Ltd v Commissioner of State Revenue (2009) 25 VR 59; [2009] VSCA 167, where the question was whether land on which the construction of golf courses and other sporting facilities had commenced attracted an exemption applicable to land "used for out-door sporting recreation or cultural purposes or similar out-door activities". The Court of Appeal held that the exemption was not available because the purposes described, namely recreation or cultural purposes or similar outdoor activities, were still in the future.
The Chief Commissioner sought to draw a parallel with cases concerning trading stock. Reference was made in submissions to Federal Commissioner of Taxation v St Hubert's Island Pty Ltd (1978) 138 CLR 210; [1978] HCA 10 and to a statement of Aickin J that raw materials in the course of transformation into finished products are trading stock and, in particular, a statement of Mason J that, if land is capable of being trading stock, "it must follow that land may form part of the trading stock of a business before it has been converted into the condition in which it is intended to be sold. Just as raw materials and partly manufactured goods form part of the trading stock of a manufacturer, so also virgin land which has been acquired by a land developer for the purpose of improvement, subdivision and sale in the form of allotments will form part of his trading stock". That, to my mind, says nothing about whether the land with which this case is concerned was, in the sense relevant to s 10AA of the Land Tax Assessment Act, "used" for some purpose of land banking or property development. The decision in Shell-Mex and BP Ltd v Clayton [1955] 1 WLR 982 is likewise of no assistance.
This conclusion is not inconsistent with remedying of the "mischief" identified in the Minister's speech quoted at [44] above. The concern there expressed was that subdivided lots not yet sold would qualify for the primary production exemption just because livestock were depastured on them at the time relevant to land tax assessment. On the construction that I consider correct (particularly in the light of the Leda Manorstead case), a larger area of land would properly be regarded as subject to a land development use at some point before subdivided lots capable of independent sale had come into existence.
Noted at [18] above.
Although the primary judge viewed the use of the houses as a rental use or investment property use and, on the approach I consider correct, it was simply a residential use, the extent to which the use generated financial returns for the lessor was a matter properly taken into account in the evaluative exercise made necessary by s 10AA(3).
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Decision last updated: 10 February 2017