Codlea put forward an alternative argument in support of its claim that s 10AA(2) is satisfied. This alternative argument is that the relevant enterprise to be considered is not only Codlea's hives but also the beekeeping and honey production activities carried out by Mr Howes in his business trading as Tyagarah Apiaries. The argument is summarised in the Applicant's written submissions in reply, at CB701, as follows:
The Supreme Court found in Vartuli (Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678) at [36] and Maraya (Gzell J) (Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23) at [73] that the fact that primary production activities are carried out by a person who is not the landowner, and take place outside the subject land, does not mean they are not considered in determining whether the activities as a whole satisfy s 10AA(2).
Because of the nature of beekeeping, where hives are migrated from site to site, and the honey harvested from various hives is processed and packaged in a central facility, it is appropriate, in the alternative, to characterise the overall beekeeping operations on the land in question as being part of the Tyagarah Apiaries overall beekeeping enterprise. That enterprise clearly comes within Mr White's "commercial" beekeeping category, and also considered independently of Mr White's classifications would satisfy the requirements of s 10AA(2).
I do not accept the argument.
The beekeeping activities on the land are the activities that are conducted by Codlea. Those activities commenced in late 2011 when Codlea purchased hives from Mr Howes. Those hives belong to Codlea, although Mr Howes carries out some management activities in relation to them. But they are Codlea's hives. Codlea uses the hives (with Mr Howes providing hive management services) to produce honey, which it then sells to Mr Howes. The hives do not form part of Mr Howes' enterprise, and the beekeeping activities undertaken by Codlea are not part of the activities or enterprise of Mr Howes.
Mr Howes is a service provider to Codlea. He provides management services to Codlea in respect of the hives. Those management services are part of the enterprise that he conducts, under the trading name Tyagarah Apiaries. He also buys the honey from Codlea. But he is not conducting the beekeeping activities on Codlea's land; Codlea is. And Codlea's beekeeping activities are Codlea's enterprise; they form no part of the enterprise that is conducted by Mr Howes.
The enterprises of Codlea and Mr Howes are separate from, and independent of, each other. Each of them is a supplier to the other. But neither party's enterprise forms part of the enterprise of the other, and there is no reason to treat them as if they did.
[2]
DECISION
The land tax assessments are confirmed.
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 02 July 2015
Was the keeping of bees, for the purpose of selling their honey, the dominant use of the land?
The taxing date for a land tax year is 31 December of the previous year. In other words, the taxing date for the 2012 land tax year is 31 December 2011; for the 2013 land tax year it is 31 December 2012, and so on.
The question that needs to be answered, for each land tax year, is whether the dominant use of the land as at 31 December was for "the keeping of bees, for the purpose of selling their honey". It seems to be common ground, and I find, that at each relevant year on 31 December, at least one of the uses of the land was for the keeping of bees for the purpose of selling their honey (which, for convenience, I will refer to as the beekeeping use). The dispute turns on the question whether that was the dominant use of the land on those dates.
But the inquiry is not restricted to an examination of the use or uses of land on the taxing date and no other. Approaching the question on that basis could give rise to absurd outcomes, where the use of the land on one day of the year would outweigh all other uses of the land on every remaining day of the year. Rather, one must look at a reasonable period either side of the taxing date of 31 December. In Leda Manorstead v Chief Commissioner of State Revenue (2010) 79 NSWLR 724; [2010] NSWSC 867, Gzell J said at 726 [4]:
[The inquiry] extends to a consideration of its use during a reasonable period preceding and following the relevant date (Longford Investments Pty Ltd v Commissioner of Land Tax (NSW) (1978) 8 ATR 656 at 660-661). In my view, six months before and after the relevant date is a reasonable period for inquiry in this case. It allows for consideration of financial records pertaining to the uses to which the land was put.
The dominant use of land can only be determined once all the uses of the land have been identified. Then it is necessary to determine which of those uses is the dominant one. If there is only one relevant use then that will be the dominant one. If there is more than one then there needs to be a comparison between all the uses to work out which is dominant.
Codlea says that at all relevant times there was only one use of the land, and that was the beekeeping use. The respondent, on the other hand, has identified a second use of the land, which he describes as the use of the land for residential subdivision and development. The respondent submits that this alternative use of the land is its dominant use.
If, contrary to its principal submission, Codlea should be found to be putting the land to more than one use, then it submits in any event that the dominant use of the land at the relevant times was the beekeeping use.
In Leda Manorstead, Gzell J said at [69]-[76]:
[69] Dominant in its ordinary meaning connotes ruling, prevailing, or most influential. The statute's reference to a dominant use presupposes that land may be used for more than one purpose and requires a determination of which use of the land is the main, chief or paramount use.
[70] That is a question of fact and degree that may, in the end, be determined as an objective matter of impression having regard to the facts.
[71] In Saville v Commissioner of Land Tax (1980) 12 ATR 7, Roden J was concerned with whether land was used primarily for the maintenance of animals thereon under a former provision in the Land Tax Management Act. The primary use test was not unlike the dominant use test in the present legislation. His Honour said at 10:
"I am of the view that, for any use of the land to justify the statement that the land is used primarily for that purpose, it is necessary not only that that use prevail over any competing use but also that it be sufficiently substantial to prevail over the proposition that the land is primarily to be regarded as unused land."
[72] In Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79, Perrignon J was concerned with the definition of "rural land" as land that is wholly or mainly used for carrying on the businesses or industries of grazing amongst other uses in the Local Government Act 1919, s 118. At 84 his Honour said that what was called for where land was put to a number of uses, was the weighing of the evidence relating to various uses to which land was put, including, but not limited to, the nature and intensity of such uses, the physical areas over which they extended, and the time and labour spent in conducting them.
[73] His Honour's decision was upheld on appeal (Hope v Bathurst Cit Council (1986) 7 NSWLR 669). A majority of the Court of Appeal held that the characterisation of rural land as land that is wholly or mainly used for carrying on the businesses or industries of grazing, amongst other uses, did not relate solely to the quantum of area of land used for relevant purposes but related to the end to be achieved by the use and included other criteria such as the nature and intensity of the use.
[74] In Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286 the Land Appeal Court of Queensland, presided over by Ambrose J, had to consider whether, at the relevant date of valuation, the subject land was "exclusively used … for purposes of farming".
[75] In terms similar to the Land Tax Management Act, s 10AA, "farming" was defined for this purpose in the Valuation of Land Act 1944 (Qld), s 17(2) to mean the business or industry of grazing, and other specified pursuits, or any other business or industry involved in the cultivation of soils, the gathering in of crops, or the rearing of livestock, if the business or industry represented the dominant use of the land and had a significant and substantial commercial purpose or character and was engaged in for the purpose of profit on a continuous or repetitive basis.
[76] The Court, helpfully, gave its approach to the determination of dominant use of land at 303:
"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 a common business or industry of a type specified in section 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."
Were there uses of the land other than the beekeeping use?
There is no doubt that some activities were physically carried out on the land during the relevant period. Mr Fraser confirmed, for example, that surveyors had been present on the land from time to time - to survey the land, no doubt - and that representatives of a company named Waste Solutions had been on site to carry out water sampling and to examine the direction of water flows. Australian Wetlands Consulting Pty Ltd replaced Waste Solutions at some stage and carried out on-site groundwater investigations.
Consulting engineers also attended the property: CB303 is an invoice to Codlea from CivilTech Consulting Engineers which includes a charge for "site inspection re groundwater comments".
Codlea has spent money on "slashing services", on environmental assessments, and on town planning and traffic reports. All of these expenditures have been treated as "development costs" in its financial records. Some of the things that the suppliers have provided to Codlea (such as the slashing services) will have required the supplier to attend the property to carry out the activity. Sometimes the work could be done off-site, either with or without the supplier actually spending time on the land.
But all of these things are activities, undertaken either on the land or elsewhere. The fact that activities have been undertaken, either with respect to the land or even on the land, does not mean that the land has been used by Codlea, whether for a narrow purpose such as the preparation of an environmental report or, as the respondent contends, for the broader purpose of residential subdivision and development. And it is the use, or uses, of the land, not activities as such, that have to be identified so that the dominant use enquiry can be undertaken.
There is no doubt that Codlea's desired outcome with respect to the land is that it will eventually be able to subdivide and develop it. It has wanted to do that from the very beginning. But the reality is that during the relevant period all it has been able to do is carry out some modest works directed towards that desired outcome. To characterise those works as amounting to a use of the land is, in my view, to overstate the position.
Mr Fraser's affidavit affirmed on 17 July 2014 makes it plain that any use other than beekeeping use is not permitted (emphasis added):
[20] As noted earlier in this affidavit, Codlea has been endeavouring over a very significant period of time to obtain approval to utilise the land for the residential purpose for which it has been zoned since 1983. Despite its best endeavours, and the expenditure of a significant amount of money over a period of 20 years, no development approval exists which enables the land to be used for anything other than the keeping of bees.
[21] On the 9th July 2013 the Department of Planning approved a Concept Plan in respect of the land under the former Part 3A of the Environmental Planning and Assessment Act 1979. The Concept Plan approval does not authorise any works activity or use on the land, but is an approval in principle. Further approvals are required before any use of the land can be undertaken. At the present time there is a project application being prepared for the Department of Planning. If granted, that approval would authorise the property to be used for residential subdivision, at least in part. Based on the advice presently available to me, it is unclear when, or if, an approval might be granted.
Did that use of the land have a significant and substantial commercial purpose or character, and was it engaged in for the purpose of profit on a continuous or repetitive basis?
These questions, in paragraphs (a) and (b) of s 10AA(2), were introduced into the LTM Act in 2005. Gzell J traced the background to their introduction in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 at [59]-[64]:
[59] Section 10AA of the Management Act was introduced by the State Revenue Legislation Further Amendment Bill 2005. The second reading speech contained the following (New South Wales, Parliamentary Debates (Hansard), Legislative Council, 29 November 2005, p 20060 (The Hon Michael Costa, Minister for Finance, Infrastructure)):
"Land currently qualifies for a land tax exemption if it is within a rural or non-urban zone and is used primarily for primary production; or if it is within an urban zone and is used in the course of carrying on a business of primary production.
The Local Government Act definition of 'farmland' contains a more precise business test. The bill amends the land tax provisions to be consistent with that definition."
[60] The reference was to the Local Government Act 1993, s 515 which provided:
"515 Categorisation as farmland
(1) Land is to be categorised as farmland if it is a parcel of rateable land valued as one assessment and its dominant use is for farming (that is, the business or industry of grazing, animal feedlots, dairying, pig-farming, poultry farming, viticulture, orcharding, bee-keeping, horticulture, vegetable growing, the growing of crops of any kind, forestry or aquaculture within the meaning of the Fisheries Management Act 1994, or any combination of those businesses or industries) which:
(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).
(2) Land is not to be categorised as farmland if it is rural residential land.
(3) The regulations may prescribe circumstances in which land is or is not to be characterised as farmland."
[61] Section 515 of the Local Government Act 1993 replaced a similarly worded s 118 of the Local Government Act 1919. In the second reading speech to the 1988 bill introducing amendments to s 118 it was stated that the purpose of the amendments was to: "weed out persons who have exploited the vagueness of the current rule rating provisions of the Act to obtain rate concessions when in fact they have not been genuine primary producers." (New South Wales, Parliamentary Debates (Hansard), Legislative Assembly, 10 November 1988, 3186).
[62] It was Walsh J who coined the phrase "significant commercial purpose or character" when speaking of a business in Thomas v Federal Commissioner of Taxation (1972) 3 ATR 165 at 171.
[63] And it was Mason J in Hope v Bathurst City Council (1980) 144 CLR 1 at 8-9 who said of s 118 of the Local Government Act 1919, which then defined rural land to include a parcel of land which exceeded 8,000 square metres in area and was wholly or mainly used for the time being by the occupier for carrying on the business or industry of grazing:
"I accept, then, that 'business' in the sub-section has the ordinary or popular meaning which it would be given in the expression 'carrying on the business of grazing'. It denotes grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis."
[64] In Hope it was held that an occupier of land who used over 80 percent of it for the agistment of other persons' cattle or horses was carrying on a business. It was to overcome this decision that the 1988 amendments to s 118 of the Local Government Act 1919 were made.
The purpose of profit on a continuous or repetitive basis
Mr Fraser said in his affidavit:
In 2011 Codlea became aware of the possibility of farming bees for profit. Examination of the matter indicated that the keeping of bees was permissible with consent under 2(a) Residential zoning, that capital costs were not large and that there would be an opportunity to obtain a modest profit.
The beekeeping operation did not make a profit in any of the relevant years but, as the language of s 10AA(2)(b) makes plain, that is not a disqualifying circumstance.
In Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25, the Appeal Panel of the Administrative Decisions Tribunal said at 45:
The next criterion, factor (b), takes the issues raised by factor (a) to a further level of exactitude. The activity must be engaged in for the purpose of profit 'on a continuous or repetitive basis (whether or not a profit is actually made)'. The reference to 'continuous' or 'repetitive' we see as connoting a business enterprise of a well structured, long term character, with administrative features (organisation, management, book keeping) which support the conclusion that it is set up with the aim of generating a profit year to year over a succession of years.
Mr Peter Hillig is a chartered accountant and an insolvency practitioner. He was engaged by the respondent to provide an expert report analysing, among other things, the profit or loss of Codlea's beekeeping activities from 24 November 2011 to 31 December 2013.
Mr Hillig prepared a profit/(loss) calculation for several discrete periods and summarised his conclusions at page 6 of his report as follows:
24 November 2011 to 31 December 2011 - $Nil;
24 November 2011 to 30 June 2012 - ($15,156);
1 January 2012 to 31 December 2012 - ($29,475);
1 July 2012 to 30 June 2013 - ($27,365);
1 January 2013 to 31 December 2013 - ($20,965).
He arrived at those figures by the standard methodology of deducting from the revenue earned in each period, the expenses incurred in producing that revenue. His calculations were performed on an accruals basis, with revenue and expenses brought to account in the period to which they relate, irrespective of whether cash had been received for sales, or whether actual payment had been made to suppliers.
At paragraph 21 of his report Mr Hillig provided a summary of Codlea's overhead expenditure but explained at paragraph 22 that he was unable to identify the incremental costs of those expenses in relation to the beekeeping activities. In cross-examination he explained that by incremental costs he meant those costs that relate to beekeeping that would not have been incurred if the beekeeping activities had not been carried on. Given that inability, he estimated the overhead costs, relating to beekeeping, at $500 per quarter, or $2,000 per annum.
It is important, when applying the comparisons referred to in Hope (No. 2) and in Thomason (both cited by Gzell J in Leda Manorstead: see [34] of these reasons), to note that the comparisons are between uses, not activities. An activity does not always amount to a use. And in Codlea's case, it is not accurate to describe the activities undertaken during the relevant period as amounting to a use of the land for residential development, even though that is the ultimate desired use of the land. It is, therefore, not to the point that Codlea's expenditure on surveying services and environmental assessments may exceed its expenditure on beekeeping, because surveying the land, undertaking environmental assessments and other activities do not amount to a use of the land, and they do not form part of a broader use of the land (identified by the respondent as the residential development use of the land).
The proper characterisation in Codlea's case is that residential development is a potential future use of the land, but it was not an actual current use of the land during the relevant period. The authorities confirm that what must be examined is actual current use: Caruana v Chief Commissioner of State Revenue [2011] NSWADT 183 at [29] and the cases cited there.
I find that during the relevant period there were no uses of the land other than the beekeeping use. That means that the dominant use of the land, in respect of each of the land tax years under consideration in this proceeding, was for the keeping of bees, for the purpose of selling their honey. The land accordingly answers the statutory definition of "land used for primary production".
His Honour also noted at [66] that the amendment introduced a more stringent test for the availability of the exemption when the land in question is not rural land.
On appeal, in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408, Emmett JA, with whom Meagher and Leeming JJA agreed, said at [64]-[65]:
[64] The primary judge observed that s 10AA(2) introduced "a more stringent test" for the availability of the exemption. The Taxpayers complain that the criteria to be found in s 10AA are not more stringent than the earlier language, which simply provided an exemption for land "used for primary production". However, in circumstances where the language of s 10AA(2) appears to be derived from observations made by the High Court, it is significant that the Parliament chose to add the word "substantial" to the phrase used in Thomas. It was not erroneous to suggest that the substitution of s 10AA for the phrase "land used for primary production" involved a more stringent test.
[65] The Taxpayers also contended that the language of s 10AA was not intended to alter the effect of its predecessor. They say that the terms of s 10AA(2) are satisfied if it can be concluded that business as a primary producer is clearly being carried on on taxable land. Such a contention ignores the clear intention of the parliament in changing the language in question in order to avoid the vagueness of the original provision, which was being exploited by persons who were not genuine primary producers. Further, the primary judge was not asked to consider the contention now advanced by the Taxpayers. His Honour was not asked to make any findings as to whether Maraya was carrying on a business of primary production. The ground is not raised in the notice of appeal. The contention must be rejected as having no substance.
Mr Fraser thought those estimates were excessive. He provided his own summary at CB59 and explained in paragraph 5 of his second affidavit (CB57) that these costs ranged between $626 and $1,441 per annum, or $1,100 per annum on average.
Apart from that $900 per annum difference in overheads, Mr Fraser disagreed with Mr Hillig's calculations in one other major respect. That was in the area of council rates. Mr Hillig had included council rates in his calculations in their entirety, on the assumption that "the dominant physical use of the Land is for the purpose of beekeeping" (CB610, paragraph 24). Mr Fraser, on the other hand, said in his second affidavit (CB57, paragraph 6):
[U]nlike Mr Hillig I do not count the Council rates in their entirety in the expenses of the beekeeping operations. This is because Codlea has long paid these Council rates, and is required to pay the Council rates regardless of whether beekeeping operations are carried on on the land.
Mr Fraser in fact excluded the council rates in their entirety, and on that basis came up with a projected profit of around $16,000 per annum, which he considered "a significant sum".
I think Mr Hillig's approach to the treatment of council rates is correct, and Mr Fraser's is wrong. Codlea cannot on the one hand claim that its only relevant use of the land is for beekeeping, and yet on the other hand claim that the expenditure (which has to be paid no matter what) does not relate to any extent to that very activity. Council rates are a necessary incident of land ownership. It is hard to imagine a circumstance where they should not be taken into account, either in whole or in part, in the calculation of profit.
Mr Hillig also thought that the review of the arrangement between Codlea and Mr Howes, which led to a reduction in the management fee from $8,000 to $5,000 per quarter, was in recognition of the uncommercial nature of the original arrangement.
Mr Hillig also noted that one of the consequences of the reduction in the management fee was that Mr Fraser would undertake some of the activities previously undertaken by Mr Howes. Mr Fraser said in his first affidavit (CB11, paragraph 16) that he had made lids for the hives and performed general repairs on the hives. For practical purposes, in the absence of any allocation of expenditure to those activities, they are now being provided to Codlea free of charge. That is not a commercial arrangement.
Mr Hillig concluded at CB614, paragraphs 41-42:
Unless Codlea can do one (or all) of the following, there is no prospect of the bee keeping operations generating a profit:
Increase the price per kilo paid for its honey;
Increase the yield from the hives;
Further reduce the Apiarist's fees; and/or
Negotiate with Council for a reduction in Council rates to a level sufficient to enable the bee keeping operations to generate a profit.
If the bee keeping operations cannot generate a profit, then they are not sustainable (without resorting to capital raising or external funding).