Part F The relevant statutory provisions and case law.
35In respect of the relevant years, s.10AA of the Act provided (and still provides):
10AA Exemption for land used for primary production
(I) Land that is rural land is exempt from taxation if it is land used for primary production.
(2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the Iand:
(a) has a significant and substantial commercial purpose or character, and
(b) Is engaged.in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made)?
(3) For the purposes of this section, land used/or primary production means land the dominant use of which is for:
(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
(4) For the purposes of this section, land is rural land if:
(a) The land is zoned "rural", "rural residential" or "non-urban" under a planning instrument, or
(b) The land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land.
36The Property was not zoned "rural", "rural residential" or "non-urban". Section 10AA(2) of the Act therefore applies to the Property for the relevant years such that the Applicants must satisfy each of the following criteria or "limbs" (see Cornish Group Pty Limited & Anor v Chief Commissioner of State Revenue [2009] NSWADT 191 at [26], per Judicial Member A Verick):
(b)first limb: the dominant use of the Property must be primary production (s.1OAA (3));
(c)second limb: the applicants' primary production activities must have a significant and substantial commercial purpose or character (s.10AA (2) (a);
(d)third limb: the applicants primary production activities must be engaged in for the purpose of a profit on a continuous or repetitive basis (whether or not a profit is actually made) '(s.10AA (2) (b).
. If any of the limbs are not satisfied, the primary production exemption in s.10AA will not apply.
37In respect of the first limb:(the dominant use test) the Tribunal refers to
Leda v Chief Commissioner of State Revenue in the Court of Appeal ([2011] NSWCA (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), it is necessary to enquire whether the use (contended to be the dominant use) is for one or more of the purposes listed in (a)-(f) and is in fact the dominant use.
38(a) In Leda v Chief Commissioner of Statue Revenue at first instance ([2010] NSWSC 867 79 NSWLR 724) at [69]-[70], Gzell J said of the dominant use test in s.1OAA(3):
(a) 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:
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.
(b) His Honour then referred (at [72]) to Hope v Bathurst City Council (1986) 7 NSWLR 669 (a decision under the old s.118 of the Local Government Act) and noted that the Court of Appeal in that case held that the test "did not relate solely to the quantum of area used for relevant purpose~ but related to the end to be achieved by the use and included other criteria such as the nature and intensity of the use".
(c) At [76], Gzell J quoted with apparent approval the following passage from Thomason v Chief Executive, Department of Lands (1994-1995) 15 QCLR 286 (a decision under s.17(2) of the Valuation of Land Act 1944 (Qld»:
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 an 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.
39These factors must be considered from both a physical and economic perspective: Cornish Group v CCSR at [42], per Judicial Member A Verick (although see the cautionary note of Judicial Member R Perrignon in Ball v Chief Commissioner of State Revenue [2010] NSWADT 114 at [60) and [65) concerning the use of revenue).
40The approach of Gzell J in Leda v Chief Commissioner was approved on appeal by the Court of Appeal: see at [43), per Allsop P (with whom Campbell and Whealy JJA agreed). Relevantly, a use need not be a physical use but may be an intangible use. In Leda v Chief Commissioner in the Court of Appeal Allsop P (with whom Campbell and Whealy JJA agreed) said:
[24] I am unable to accept the bright line distinction made by Leda in Its submissions. The words of the section (other than identifying particular uses in paras (a) to (f) do not otherwise prescribe any particular use for which the land could be otherwise used. The particular uses identified in paras (a)-(f) are the uses for which the land must be dominantly used for the application of subs (3). As the appellant, Leda, submits, if there is another use for which the land is being' put, it must be compared with the relevant use in, here, para (b). In evaluating any given circumstances there is no warrant within the words of the section or the meaning of the word "use" or the phrase "used for" to require beneficial return or any other like concept. There will be some circumstances in which activity on the land will be understood or evaluated as preliminary to the undertaking of a future use. That is not what s 10M is directed to. 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 estate 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.
41In Ashleigh Developments Ltd v Chief Commissioner of State Revenue [2012] NSWADTAP 25 the Appeals Panel said:
[35] In our view, the Tribunal's approach was not inconsistent with the above statements. The Tribunal was not obliged by the words of the statute to confine its attention to acts, facts, matters or circumstances that related only to the physical, tangible use of the land. It could look at use in a 'protean' way so as to have regard to the commercial purpose of the owner that use of the land on an interim basis for cattle grazing might serve. It could then move to making a finding as to which of the identified uses was dominant.
[36] We do not accept the taxpayer's submission that it is essential that there be some physical manifestation of the use that competes with primary production use. It is true that in Leda Manorstead significant earthworks had been undertaken on the subject land (593 hectares) while the farming activity continued. We do not read Allsop P's observations as confined in that way, nor those of Campbell JA.
42There were (as I have noted) three main uses of the Property: the rental use, the development use and the cattle use. The Chief Commissioner submits (correctly in the view of the Tribunal) that the Applicants have not established that the dominant or primary use of the Property is the primary production use or cattle use.
43Importantly, and although during the 2008 to 2011 financial years the primary production activities of the first Applicant and his wife occurred across two properties, it is only the activities undertaken on the Property which are relevant to the dominant use test: see Ashleigh Developments v Chief Commissioner [2011] NSWADT 250 at [12]-[13], per Judicial Member S Frost.
44The level of evidence concerning the nature and intensity of a primary production use on a property that is required to establish that is the dominant use dominant is significant. See, for example, the observations of Judicial Member S Frost in Saliba v Chief Commissioner of State Revenue [2012] NSWADT 119 at [29]-[32] about the evidence of the Salibas.
45In Maraya Holdings.Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 Gzell J said of the second limb:
[77] Section 10M (2) (a) is concerned with objective qualities of the use of the land. The words "significa9t" and "substantial" in s 10AA (2) (a) are to be construed in their context and by interpreting the phrase "significant and substantial commercial purpose or character" as a whole rather~: than by adding up linguistic elements of each of the words (Collector of Customs v AgfdGevaert Ltd [1996] HCA 36; (1996) 186 CLR 389 at 396-397 quoting R v Brown (1996) 543 at 561).
[82] By defining "significant" as the obverse of "trifling" the result will inevitably be an emphasis upon the lower end of the spectrum of meanings of "significant".
[83) In ordinary parlance, "significant" connotes importance, something of consequence, a key element, a vital or critical one.
[84) These meanings tend to place "significant" at the upper end of the spectrum of meanings the word has developed.
[85] In the context of s 10AA (2) (a) of the Management Act this is appropriate as the purpose of its commerciality test is to exclude a less important use of land from qualifying for exemption. '
[86) As the Administrative Decisions Appeals Panel said of the commerciality test in Ashleigh Developments Pty Ltd v Chief Car of State Revenue [2012) NSWADTAP 25;
This criterion eliminates hobby or token operations even though they may have passed' the de minimise threshold to which we have referred [above). The taxpayer then needs to show that the operation is run on a commercial basis with appropriate attention to the orthodoxies of income, expenditure and the aim of profitability; cognisant of the elements of unpredictability of any business operation, especially primary production. This is a higher standard than the one that applies to rural land.
[88] But in ordinary parlance the word "substantial" connotes size or bulk. It means an ample or considerable amount, quantity or size.
[89] the commerciality test in s 10AA (2) (a) of the Management Act required Maraya's use of the lands for"' primary production, either individually or in conjunction with the other lands, to have had a significant and substantial commercial purpose or character. That test required the commercial purpose or character of the use of the lands to have had a relatively high degree of importance. The combination of "significant" and "substantial" demands that conclusion.
[90] Not every business will satisfy the commerciality test. The test distinguishes activities amounting to a business that is carried on in a small way or as a sideline from those of a more serious and weighty kind. A business that satisfies the commerciality test will be an important one. It will usually also exhibit some of such characteristics as size, depth, bulk, weight, seriousness, quality, intensity and prominence.
[91] To determine whether Maraya's cattle operation had a significant and substantial commercial purpose or character, the court should consider the intensity of the operation, the size and qua1ityof the herd, the size and carrying capacity of the land and the resources (whether of time labour or expenditure) put into the development and maintenance of the cattle operation.'
46In Maraya, Gzell J concluded:
[92] 40, or even 55, cattle grazing on the subject lands with or without the other lands do not constitute a serious or intense primary production use when the grazing areas of the lands are taken into account.
47Gzell J's reasoning and conclusion was upheld on appeal: Maraya Holdings Pty Ltd v Chief Commissioner 'of State Revenue [2013] NSWCA In that case Emmett J (with whom Meagher and Leeming JJA agreed) said:
[56] It is unrealistic to suggest that an assessment can be made as to whether use of land has a significant and substantial commercial purpose, or a significant and substantial commercial character, in the abstract. Whether a particular use has a commercial purpose or a commercial character can only be assessed by reference to the way in which land is generally used. It was not suggested that the Subject Lands could be used only for cattle operations. Indeed, they were zoned for industrial or residential use and could only lawfully be used for cattle grazing by reason of existing use rights. The Taxpayers' reliance on Mr Glover's evidence appears to be underpinned by an assumption that cattle grazing was the only use to which the subject Lands could be put. A relevant consideration in determining whether use of land has a commercial purpose or a commercial character must be the way in which land is generally used...
Emmett J ultimately concluded:
[66) The Subject Lands extend to more than 27 hectares. The total value of the Subject Land is in excess of $26 million. The Subject Lands are zoned industrial and their appearance is anything but rural. There has been Substantial industrial development on adjacent lands. Maraya's cattle operations, taking into account land holding expenses, could never be expected to generate a profit or surplus. The cattle operations have not, on any commercial approach, generated a profit or surplus since they began. It is impossible to conclude that that use of the Subject Lands could in, any way be said to have a commercial purpose or a commercial character, much less a significant and substantial commercial purpose or significant and substantial commercial character.
Leeming JA (with whom Meagher JA also agreed):
[84) In order to assess the additional qualification of substantiality, a comparison needs to be made. Whether something has a substantial commercial purpose or character is at least in part a relative judgment. Speaking of s 450 of the Trade Practices Act, Bowen CJ said in Tillmanns at 339 that "No doubt in the context in which it appeals the word imports a notion of relativity", and the same is true of "substantial" when it appears in s 10AA (2). A commercial truffle grower may have very little land, and harvest only a few kilograms of product. and yet the use may be substantial, seen against his or her competitors. The word "substantial" has in the present context no inherent or absolute meaning standing alone....
48In La Vie Developments Pty Limited v Shellharbour City Council [2010] NSWLEC 1277. Moore SC summarised some of the authorities which looked at cattle grazing activities for the purpose of s.515 (1) (a) of the Local Government Act 1993 (the provision on which s.10AA (2) is based (Maraya at [59]). The Senior Commissioner stated at [8]-[11]:
I have been taken to a variety of decisions by members of the Court in the past that have provided a little assistance but certainly do not provide anything that binds me with respect to the extent to which activities on rural properties or rural activities on other properties could be regarded as satisfying the question of significant and substantial commercial purpose or character.
The first of those is the decision of Cripps CJ in Page v Council of the Shire of Parkes (1991) NSWLEC 4 where at, about thirty-five or forty percent of the way through the decision given by his Honour, he said, as is correctly the case here, each matter must be dealt with on its facts and circumstances. He concluded that, in that instance, the grazing of four cows and .the cultivation of fifteen acres of crops could not reasonably be said to have a use of a significant and substantial commercial purpose or character.
Second, in an unreported decision of (then) Assessor, (now former) Bly C, given on 16 October 1992 ,in Cousins v Council of the City of Lake Macquarie (unreported - Matter No: 30252 of 19921, in the final substantial paragraph, my former colleague said:
"I have not been persuaded that a forty-hectare farm with fifty head of cattle - with a fifty head herd of herd cattle generating up to $5,800 per annum profit in about three to four years' time represents a significant and substantial commercial purpose".
49Moore SC concluded in respect of the case at hand (at [15]):
Turning my mind, as I do, to the facts and circumstances of the present case, assisted but not bound by the comments of Cripps J and Bly C, I find that the raising of a maximum of thirteen calves per annum for sale from this land, even if it be appropriate to hold that that be the dominant use of the land, a gross profit of $6,500 per annum cannot conceivably satisfy the test; of being a significant and Substantial commercial purpose or character.