DATE OF HEARING 6, 7, 8, 9, 10 and 16 June 2016

CITATION Frontlink Pty Ltd v Commissioner of State

Revenue (Review and Regulation) [2016] VCAT 1339

1. Pursuant to s109 of the Taxation Administration Act 1997, the Commissioner have leave to expand its case to include the ground that the Thompsons road land was taxable land in 2010.

1. Pursuant to s109 of the Taxation Administration Act 1997, the taxpayer have leave to expand its case to include the ground that the Thompsons road land was exempt land in 2011 and 2012.

1. Relative to application Z757/2015, the Commissioner's 2010 assessment is varied to the extent that no part of the land at 875, 885 and 885A Thompsons road Lyndhurst is exempt from land tax.

1. Relative to application Z758/2015, the Commissioner's 2011 assessment is:
   • (i) further varied to the extent that no part of the land at 875, 885 and 885A Thompsons oad Lyndhurst is exempt from land tax; and
   • (ii) confirmed to the extent that land at 181 Grice's road Clyde North, 1275 Pound road, Clyde North and 490 Soldier's road, Clyde North is not exempt from land tax.

1. Relative to application Z759/2015, the Commissioner's 2012 assessment is varied to the extent that no part of the land at 875, 885, 885A Thompsons Road Lyndhurst is exempt from land tax.

1. Relative to application Z760/2015, the Commissioner's 2013 assessment is:
   • (i) varied to the extent that no part of the land at 875, 885, 885A Thompsons road, Lyndhurst is exempt from land tax; and
   • (ii) confirmed to the extent that the land at 90 Shepparton-Zeerust road, Shepparton North is not exempt from land tax.

1. Relative to application Z761/2015, the Commissioner's 2014 assessment is:
   • (i) varied to the extent that no part of the land at 875, 885, 885A Thompsons Road, Lyndhurst is exempt from land tax; and
   • (ii) varied to the extent that the land at 90 Shepparton-Zeerust road, Sheppparton North is exempt from land tax.

1. The taxpayer is a land developer and lessor of land. At relevant times, the taxpayer was engaged in the subdivision and sale of land which it owned at Lyndhurst and Clyde North.

1. The taxpayer sought exemptions from land tax during the 2010 and 2015 years on the basis that the Lyndhurst and Clyde North lands were used or were being prepared for use primarily for primary production. The taxpayer also owned rural land near Shepparton. It asserted that the Shepparton land was exempt in 2013 and 2014 when it was used primarily for primary production.

1. The Land Tax Act 2005 ("LTA") provides as follows.

(1) Subject to this Act, a taxpayer is to be assessed for land tax for a tax year on the total taxable value of all taxable land of which the taxpayer was owner at midnight on 31 December immediately preceding that tax year.

(2) . . .

Part 4-Exemptions and concessions, the LTA provides:

(a) Cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state); or

(b) The maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce;

(c) . . .

65 Exemption of primary production land outside greater

(1) Land outside greater Melbourne that is used primarily for primary production is exempt land.

(2) If a part of any land outside greater Melbourne is used primarily for primary production that part is exempt land even if an activity other than primary production is carried on any other part of the land.

1. Exemption of primary production land in greater Melbourne but not in an urban zone

Land is exempt land if the Commissioner determines that the land comprises one parcel -

(a) that is wholly or partly in greater Melbourne; and

(b) none of which is within an urban zone; and

(c) that is used primarily for primary production.

1. Exemption of land being prepared for use for primary production
   • (1) Land is exempt for a tax year if the Commissioner is satisfied that -
     • (a) the land is being prepared for use for use primarily for primary production; and
     • (b) the land will become exempt under section 65, 66 or 67 within 12 months after the day on which the preparation referred to in paragraph (a) commenced;
   • (2) The Commissioner may extend the period referred to in subsection (1)(b) by a further period of 12 months.

69 Application for exemption under section 66, 67 or 68

To obtain exemption from land tax under section 66, 67 or 68, the owner of the land must -

(a) apply to the Commissioner for an exemption under the section; and

(b) give the Commissioner any information the Commissioner requests for the purpose of enabling the Commissioner to determine whether the land is exempt under the section.

(1) For the purposes of section 66, a part of a parcel of land is to be regarded as a separate parcel of land if that part is occupied separately from or is obviously adapted to

being occupied separately from other land in the parcel.

(2) For the purposes of section 67, a part of a parcel of land is to be regarded as a separate parcel of land if-

• (a) that part is occupied separately from or is obviously adapted to being occupied separately from other land in the parcel; and
• (b) . . .

(1) Use of land primarily for primary production

1. Legislative tests for land tax primary production exemptions are not complicated. LTA s-s65(1) and condition (c) of s66 confers an exemption for primary production land if the taxpayer can show that each eligible parcel of land parcel "is used primarily for primary production." Paragraph (b) of the s64 definition of "primary production" describes the relevant activity for all land in present appeals except the Shepparton-Zeerust road land. Namely, that the taxpayer must show that the land is used for "the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce". For the Shepparton-Zeerust road land, the taxpayer contends that the meaning in paragraph (a) is applicable, which requires the taxpayer to show that the land is used for "cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state)".[1]

1. It was uncontentious at hearing that the primary production exemption inquiry is an objective examination of the actual land use. The parties agreed on two matters. First, a "broad commonsense approach" should be taken to what the land use was at relevant times. Secondly, the intention of the taxpayer was relevant to the inquiry but not determinative.[2] An example discussed at hearing of when intention might be important was where an owner intended to conduct a primary production activity on land which lay fallow at the time of the assessment.[3]

1. Mr Korman, counsel for the taxpayer, accepted that pursuant to s110 of the Taxation Administration Act 1997 ("the TAA") the taxpayer bore the burden of proving the taxpayer case.

1. Judicial decisions over a lengthy period have explained what a taxpayer must show in order to satisfy LTA s66. The word "primarily" was elucidated by Lush J in Abbott v Commissioner of Land Tax [1979] VicRp 31; [1979] VR 297 ("Abbott") in the following passage at 302.[4]

In construing the word "primarily" in its application to a case where a parcel of land is divided into two parts, one of which is devoted to an exempt use and one not, it must be remembered that the question is whether the whole of the parcel is primarily used for the exempt purpose. In my opinion, it is not sufficient to inquire whether some difference can be discerned between the uses to justify classifying one as the main use or predominant use. The predominance must be of such a degree as to impart a character to the parcel as a whole.

1. Land is not used "primarily" for the conduct of a particular activity simply because use for that activity predominates over other uses. Preponderant use and primary use are not the same. All other uses are subordinate when land is primarily used for primary production.[5]

1. Justice Lush in Abbott acknowledged and approved the observations of Helsham CJ in Greenville v Commmissioner of Land Tax (NSW) ('Greenville") (1977) 7 ATR 278.[6] The taxpayer in Grenville was the proprietor of a former 160-acre golf course. Whilst considering alternative uses for the land, the taxpayer engaged in a "flurry of activity" sowing pumpkin seeds in the week before the 31 December date when taxable land was assessed. The area cropped was about one-and-a-half acres and the rest of the land was unused. Helsham CJ observed at 280:

To claim an exemption under the Act the owner must be able to point to an activity being conducted on the land that will give the land the character of being mainly used for that activity, or that will enable a person having to decide the matter to say that the land is, in substance and looked at as a whole, being used for an activity that gives rise to an exemption.

I do not think the question: what is the main use of the land, is to be answered by pointing to the only activity on the land. An activity going on on the land does not necessarily characterize the use of the land taken as a whole, so that one can say that the land is primarily used for that activity. [emphasis in original]

1. Caution should be exercised in applying the recent decision of the New South Wales Supreme Court in Metricon Qld Pty Ltd v Chief Commissioner of State Revenue (No 2) [2016] NSWSC 332 per White J ("Metricon"). Certainly there are factual similarities between the facts of the Metricon decision and several of the present appeals. Notably, primary production exemption claims for development land in Metricon were based on the cattle-grazing activities of third parties who were not owners of the land.[7]

1. The main difference between Metricon and the present appeals is in the applicable primary production exemption provisions. NSW legislation considered in that case grants an exemption from land tax if a primary production use is the "dominant" use of that land. The LTA uses the qualifier "primarily" to perform the same function. The two words are not the same.

1. Justice White spoke of the implications to be drawn from a "dominant" land use at [61]:

. . . s10AA(3) requires a comparison of the primary production use relied on and another use or uses to which the land might be out. (In Leda Manorstead Gzell J thought that if there was slight cattle-grazing use that the chief characteristic of the land was that it was unused, the dominant use test would not be satisfied (at [67]). This is in accordance with earlier decisions on earlier provisions of the Land Tax Management Act (e.g., Greenville Pty Ltd v Commissioner for Land Tax (1977) 7 ATR 278; Savile v Commissioner of Land Tax (1980) 12 ATR 7; Longford Investments Pty Ltd v Commissioner of land Tax (1978) 8 ATR 656 that concerned ss10(1)(p) and 3(1) of the Land Tax Management Act 1956 where the question was whether the land was used "primarily" for a primary production use. It is arguable that the dominant use test requires only that the primary production use be dominant over any other asserted use. It is unnecessary to decide that question in this case.

1. Noting legislative differences, the decision in Metricon bears on two important questions of relevance to these appeals.

1. First, must any use of land be a physical use comparable to the primary production activities set out in the land tax legislation?[8] White J in Metricon concluded that the answer was no. Land let out to a tenant, in her Honour's view, is put to an intangible leasing use additional to an occupier's primary production use. A leasing use should be weighed against a primary production use in order to assess which use is "dominant."[9]

1. With respect, this formulation is problematic. Justice White found that letting-out land to a tenant is a use of the land additional to the tenant's use of the land. On another view, persons leasing land deal with rights to occupy land and not the land itself. Leasing transactions are completed in solicitors' offices. Rights are exchanged. "Uses" of leased or licensed land deal with the land itself. In my view, licensors, like the taxpayer, restrict their rights to possession of rather than "use" land when they permit the occupation of licensees. Licensing is not a land use.

1. Relevantly to the present appeals, I will not consider grants of the various licenses to third parties as "uses" of relevant land which should be weighed against the licensees' conduct of primary production activities. The contrary position was only faintly argued by counsel for the Commissioner.

1. The second relevant question which Metricon considered was whether the mere holding of land was a "use" of the land. The Commissioner in Metricon argued that because the land owner was a land developer which had acquired the land for the purposes of its residential development, the land was "used" when it became part of the owner's trading stock.[10] Her Honour at [71] answered this question at the outset of her analysis. A "use", she said, for the purposes of the NSW Act, "must be a current use, not an intended future use." Metricon did not "use" land by acquiring it for the purposes of residential development. Counsel for the Commissioner in the case before me referred to this decision and made no claim based on the developer's "land banking" use.

1. Most primary production activities on the lands amounting to the uses for which the taxpayer contended were conducted by licensees. There was limited evidence as to the economics of the licensees' activities specific to each piece or parcel of land. On authority, the profitability or otherwise of the licensees' activities is not necessarily connected with the use that the licencees or anyone else make of the land.[11] An unsuccessful farmer uses the land for primary production no less than a successful one. Nor is it necessary that the taxpayer or anyone else should conduct a "business" of primary production in order to attract the exemption. Croft J in CDPV Pty Ltd v Commissioner of State Revenue [2016] VSC 322 held that neither the words of the definition of "primary production" in LTA s-s64(1), nor the exemption contained in s66(c) required that the primary production be carried on as a business.[12]

(3) Carrying out preparatory subdivision work

1. Work in preparation for future subdivision conducted on the land potentially constitutes an owner's use of the land to be weighed an occupier's use of the land for primary production.

1. In Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867; (2010) 79 NSWLR 724 ("Leda Manorstead") the taxpayer sought a primary production exemption for a "grazing" activity on land which was being redeveloped for residential subdivision. 84% of the land was committed to grazing. $12.4m was spent on earthworks. Gzell J denied the exemption on the basis that "the scale and intensity of the earthworks far outweighed those of the cattle raising operation."[13]

1. A large amount of money was spent on consultants' fees sometimes involving visits to the land to be developed in Metricon. Justice White concluded in that case at [114] that "except to the extent the construction work required them to visit the lands, their work did not involve a use of the lands." Quoting the Canadian case of Assessor of Area #10Burnaby/New Westminster v Intracorp Developments Ltd [2000] BCCA 121, her Honour added "the [owner's] commitment must go beyond pre-construction development steps and manifest itself in the actual building of the project."

(4) Time when must the land be used primarily for primary production

1. Under the heading "How is land tax assessed?", LTA s-s36(1) provides that a taxpayer is to be assessed on all taxable land "of which the taxpayer was the owner at midnight on 31 December immediately preceding the tax year." The Commissioner's assessment for a tax year is retrospective to this date.

1. Exemptive provisions in LTA ss 65, 66 and 67 are expressed in the present tense. The Commissioner must determine that land is exempt primary production land if the land "is" used "primarily for primary production" and certain other conditions are satisfied. Section 68 contains both present and future tenses by referring to land "being prepared for use primarily for primary production" which "will become exempt land" under an exemptive provision within a certain period.

1. The structure of the LTA is reflected in s-s36(1). The Commissioner must make determinations of primary production exemptions as at midnight preceding an annual assessment. The exemptive provisions refer to the activities defined in paragraphs (a) to (e) of the LTA definition of primary production in s-64(1): cultivation, maintenance of animals, keeping bees, commercial fishing and the propagation of plants. Persons engage in those activities over time. In most cases, the primary production activities begin before and continue beyond assessment periods.

1. Sheppard J in Longford Investments Pty Ltd v Commissioner of Land Tax (NSW) (1978) 8 ATR 656 at 660 ("Longford Investments") said that it is "too narrow" to inquire only at midnight on 31 December whether the taxpayer is engaging in any of the defined primary production activities. Instead, the Commissioner should base an assessment on "the primary use of the property during a period not overlong and not overshort within which the 31 December . . . occurs". At 661, his Honour looked to the position in the "latter months" of the year prior to assessment and the "earlier months" of the assessment year.

1. In Leda Manorstead at [4], Gzell J in the New South Wales Supreme Court was also concerned to identify the correct time for determining a primary production exemption under legislation which was relevantly identical to the Victorian legislation. "In my view," his Honour said, after citing Longford Investments,

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.

1. Both Longford Investments and Leda Manorstead dicta were cited approvingly in the Supreme Court of Victoria by Croft J in CDPV Pty Ltd v Commissioner of State Revenue [2016} VSC 322 at [14] ("CDPV"). I note that Gzell J's statement that the period in Leda Manorstead facilitated the taxpayer's provision of financial records which were not provided in the present case.

1. Neither the taxpayer nor the Commissioner made a specific submission concerning the relevant time for making the primary production inquiry which raised the question of how LTA s-s36(1) should be understood.

1. Accordingly, I will follow the approach of Sheppard J in in Longford Investments at 661 and examine whether primary production activities are being conducted during periods commencing some months before the end of the year preceding the tax year and ending some months into the tax year.

(5) Whose purposes must be the primary production purposes?

1. Possession of a "purpose" is relevant in several places under the LTA provisions relevant to these applications. Explicitly, the word "purpose" appears in paragraph (b) of the LTA s-s64(1) definition of "primary production". The "maintenance of animals or poultry" is required to be "for the purpose of selling them or their natural increase or bodily produce". Implicitly, the notion of "purpose" is imported into ss65, 66 and 68 where reference is made to land "used primarily for primary production."[14]

1. Who possesses the relevant purpose for the maintenance of animals or primary production user in these references? In terms, the LTA does not require that any of the activities referred to in the s-s64(1) definition of "primary production" be conducted by the owner of the land. Nor do any of ss65, 66 and 68 of the LTA require that the persons who "use" or "used" the land "primarily for primary production" should be the owners of that land. Land owners do not have to be primary producers themselves in order to attract the exemption. Land owners can introduce licensed cattle graziers onto their land and then claim that the graziers' purposes satisfy purposive criteria in the LTA's primary production exemptions.

1. Identity of the person purposes relevant for the above LTA exemptive provisions was discussed by Croft J in CDPV. At [56] his Honour with approval extracted counsel's submission to the effect that that the purposes of both the person conducting the activity and the land owner were relevant. I will accept the correctness of this submission for the purposes of these appeals.

1. The taxpayer acquired the land at 875, 885 and 885A Thompsons Road Lyndhurst on 11 July 2000. By determination dated 18 May 2012, the Commissioner partially allowed the taxpayer's 18 May 2012 objection to its 2010 land tax assessment which had asserted that the land was entirely used for primary production within the meaning of LTA s66.

1. The Commissioner's 2012 determination accepted that the taxpayer's tenant Sharon Waterson was using a 110-acre part of the Thompsons Road land primarily for primary production purposes on 31 December 2009.

1. Subsequently, in Frontlink Pty Ltd v Commissioner of State Revenue Z38/2014, Senior Member Robert Davis heard evidence from the examination in chief from and the cross-examination of Ms Waterson on the subject of whether any part of the Thompsons Road land was used by her for primary production purposes in 2009. The learned Senior Member dismissed Ms Waterson's evidence and concluded that she conducted no or no sufficient cattle grazing activity on the land at the end of 2008. Correspondingly, no 2009 primary production exemption based on Ms Waterson's use of the Thompsons Road land was allowed.

1. Ms Waterson was not called in support of application Z757/2015. Nor was any other evidence led by the taxpayer in respect of the Thompsons road land. Instead, the taxpayer sought to retain the partial primary production exemption allowed by the Commissioner. The taxpayer's (undated) statement of contentions makes no claim that the Thompsons Road land or any part of it was exempt in 2010.

1. The Commissioner submits that the Tribunal should determine that no exemption applies to the Thompsons road land in 2010. This is resisted by the taxpayer on two bases. First, the taxpayer asserted that the Tribunal had no power to vary an assessment in the absence of evidence that the assessment is wrong. In these circumstances, it was submitted, the Commissioner must raise an amended assessment. Secondly, the taxpayer asserted that to allow the Commissioner to contend for a result inconsistent with its own amended assessment was unfair.

1. The Tribunal's power to vary assessments is conferred by the Taxation Administration Act 1997:

1. Referral to Tribunal
   • (1) The Tribunal must review a matter referred to it and, subject to subsection (2), may confirm, reduce, increase or vary the assessment or decision.
   • (2) . . .

1. After the decision in Frontlink Pty Ltd v Commissioner of State Revenue Z38/2014, the Commissioner notified the taxpayer of its intention to argue that the Thompsons Road land was not exempt in 2010 or in subsequent years. Letters to the taxpayer dated 21 August 2015 and 13 November 2015 were exhibited in the proceeding. The respondent's contentions dated 16 May 2016 also gave notice to the taxpayer that the Commissioner would argue for no exemption at the hearing. In response to the Tribunal's question, counsel for the Commissioner said a new assessment had not been raised because the present application was already before the Tribunal when Mr Davis's Frontlink decision was handed down.

1. I think that it is appropriate that the Tribunal should confirm the original land 2010 tax assessment of the Thompsons Road land. No primary production exemption will be allowed in the absence of evidence that the Thompsons Road land was used primarily for primary production. The Tribunal has power under s111 of the Taxation Administration Act 1997 to reach this decision. There was no unfairness. The taxpayer was on notice that the Commissioner would contend that the land was not exempt and elected not to lead any evidence on the point.

2011 and 2012 assessments of the Thompsons road land

1. The parties accept that the Thompsons road land in the 2011 and 2012 years was wholly in greater Melbourne and not in an urban zone. The taxpayer contends that in those years it was entitled to an exemption for the Thompsons Road land pursuant to LTA s68 on the basis that it was:
   1. land that is being prepared for use primarily in primary production; and
   2. land which will become exempt under s66 of the LTA within 24 months after the day on which preparation commenced.

1. For the purposes of the appeal, the Commissioner conceded the taxpayer was entitled to favourable exercise of the discretion in s-s68(2). 24 months rather than 12 months should be substituted as the time between the commencement of preparation for use primarily in primary production and when the land became exempt.

1. Mr Kameel Mondous in his statement dated 16 April 2016 described himself as the assistant manager of the taxpayer. He asserted in relation to the Thompsons road land that:

Sharon Waterson had been running cattle on the land pursuant to an agreement which expired in May 2010. She remained on the front part of the property until September 2012. When Ms Waterson's agreement expired, I inspected the farm and found that the entire property was run down and needed a lot of work to bring it up to a farming standard . . . Between June 2010 and June 2012, Frontlink engaged in the works necessary to prepare the land for commercial cattle farming . . . The work was contracted to Glenn Willmott Agricultural Contracting. It was performed according to seasonal conditions over the two year period . . . By the second half of 2012, the land was in a suitable condition to run cattle.

1. In cross-examination, Kameel Mondous stated that in 2010 he entered an oral agreement with Glenn Wilmott of Glenn Wilmott Agricultural Contracting for performance of the remedial work. In answer to Mr Kotros's question, he could not remember how much Glenn Wilmot was paid, by whom or when.

1. I do not find the evidence of Kameel Mondous persuasive relative to the 2011 and 2012 assessments of the Thompsons road land. His answers to questions put to him in cross-examination statement barely added to his written statement. Many of his replies were tendentious and argumentative. I cannot rely on this testimony in order to resolve the appeal.

1. Glenn Willmott gave evidence for the taxpayer. In his statement dated 13 April 2016, Mr Willmott stated:

Around September 2012 I met with Kameel & Sam Mondous at 885 Thompsons Road Lyndhurst to discuss running my cattle on that land. . . . We agreed in principle that I would run cattle under an arrangement whereby I would perform necessary repair and upkeep work on the land and in return I would not need to pay any rent for the first year. On 29 October 2012 I arranged for 87 Angus cattle to be carted from my land at 680 Cardinia Road Cardinia to the Thompsons Road land . the cartage was done on two separate days . . . [annexing evidence of the cartage] . . . I keep a record of all cattle movements in my farm diary. I make entries in that diary on or about the time that each movement happens . . . In December 2012 I signed a licence agreement with Frontlink. A copy of that agreement is exhibited as Annexure "D". Although the agreement states that occupation commenced on 1 December 2012, that is incorrect. In fact, I had commenced works and I delivered my cattle to the land in October 2012.

1. In cross-examination, Mr Willmott added the detail that he also spoke with Kameel Mondous as early as 2010. Mr Willmott could not explain why this detail was omitted from his statement. Nor could Mr Willmott explain a number of inconsistent and apparently uncommercial documents annexed to his statement. Separate invoices described the same transaction as occurring on different days. A purported "diary note" recorded trivial movements of a small number of Mr Willmott's cattle to and from the Thompsons Road land over a 3-year period. The diary was improbable. Mr Willmott eventually said, contrary to his written statement, that the notes had been made by his mother rather than himself.

1. Mr Wilmott agreed that the PIC number referred to in his statement identified livestock stored at his Cardinia property and not at Thompsons Road.[15] Mr Willmott was then shown some 2011 and 2012 street address photographs of entrances to the Thomsons Road land and he was unable to identify the locations where he alleged that the grazing and remedial work was done.

1. I found Mr Willmott to be an unpersuasive witness. His written statement was unlikely in the above noted respects. Annexures to the statement which purported to be contemporary corroboration of its claims made bore the hallmarks of documents constructed after the event. I cannot rely on this testimony in order to find the taxpayer entitled to the exemption claimed.

1. For the purposes of LTA s68's the first condition in s-s(1)(a), I am not satisfied that the Thompsons Road land was being prepared for use primarily in primary production either during the 31 December 2010 to 31 December 2011 period. Nor am I satisfied that the land was being so prepared between 1 June 2010 and 31 December 2011.

1. LTA s68 is expressed in the present tense. For present purposes, s-s68(1)(b), contemplates that the Thompsons Road land must become exempt primary production land within 24 months of preparatory work commencing. Kameel Mondous in oral evidence did not resile from his earlier written statement to the effect that the preparatory work began in June 2010 and ceased in June 2012.

1. It follows from Mr Mondous's evidence that for the land to be exempt in June 2012 the land have been used for primary production on 31 December 2011, or within a reasonable time or period of 6 months before or after that time.[16] The evidence does not support this contention.

1. Mr Willmot's (revised) evidence was that he commenced to use the land for cattle grazing in October 2012. There was no evidence of primary production use of the Thomsons road land before this time from Mr Willmott or any other witness.

1. Within the meaning of LTA s68's the second condition in s-s(1)(b), I am equally not satisfied that the Thomsons Road land became exempt under s66 of the LTA within 24 months after the day on which preparation commenced.

2013 and 2014 assessments of the Thompsons Road land

1. The taxpayer claims a 100% exemption pursuant to LTA s66 for the Thompsons Road land in the 2013 and 2014 years. A cattle grazing use is contended for, being an instance of "the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce" within s-s64(1)(b) of the LTA's definition of "primary production".

1. The Thompsons Road land was acquired by the taxpayer from Mr Neil Pope in 2000 and has an area of approximately 150 acres.

1. In Frontlink v Commissioner of State Revenue [2014] VCAT 1213 the Tribunal made the following finding in respect of the Thompsons Road land use.

1. The use to which the land was put as at 31 December 2008 was as follows:

1. for rental purposes and residential purposes by Mr Pope. That is he was both living on the land with his partner in the farm house and had two tenants paying him rent for the two cottages on the property; 2. for the agistment of horses owned by Mr Pope;

1. for the agistment by Mr Pope for reward of horses owned by others;

1. for the maintenance of horses owned by Ms Waterson and her daughter; 2. for the agistment by Ms Waterson for reward of horses owned by others; 3. for a farrier business conducted by Mr Pope; 4. for the grazing of 7 cattle owned by Ms Waterson.

1. In his statement dated 14 April 2016, Kameel Mondous stated that Ms Waterson:

had been running cattle on the land pursuant to an agreement which expired in May 2010. She remained on the front part of the property until September 2012.

1. Kameel Mondous did not mention Mr Pope and his occupation of three houses on the Thomsons Road land. At hearing the taxpayer accepted that the area occupied or let by Mr Pope at relevant times comprised about 10 acres and that Mr Pope was not engaged in primary production. I do not find Mr Pope's use of the land to be inconsistent with the primary production exemption sought by the taxpayer.

1. Glenn Willmott gave evidence in his 13 April statement that in December 2012 he signed an annexed licence agreement with the taxpayer enabling him to run cattle on the land from 1 December 2012 to 1 December 2014. Mr Willmott added:

Although the agreement stares that occupation commenced on 1 December 2012, that is incorrect. In fact, I had commenced works and I delivered my cattle to the land in October 2012.

1. Invoices annexed to Mr Willmott's statement indicated that 87 of his cattle were delivered to the land in October 2012. The statement continued:

During 2013, I did not sell any of the cattle. I was raising them for their calves. In 2014 I took 24 calves born and raised on the land since I had taken occupation in late 2012. My usual practice was to cart the calves back to my Cardinia Road property where I had feedlot facilities and, a few weeks later, send them off to market from there. . . . The balance of the cattle that were on the land were sold in July 2015. . . .

1. Mr Willmott's grazing of 87 cattle on the land during the period was the basis of the taxpayer's claim for a full primary production exemption from land tax in respect of the 2013 and 2014 years. Mr Kotros for the Commissioner said that the intensity of this grazing activity on the 150-acre Thompsons road land was a little over one-half a cow per acre. I regard this as a non-determinative fact. Valid primary production activities can be carried on uneconomically. Sometimes land is inhospitable. The intensity of a primary production use bears on the weight of the taxpayer's evidence more generally.

1. Photographs depicting the Thomsons Road land at various dates relevant to the 2013 and 2014 assessments were shown to the Tribunal. There was little evidence of any cattle grazing or other primary production activity.

1. Statements and oral evidence of Mr Kameel Mondous and Mr Willmott which bear on occurrences in the 2012 year have been reviewed above in relation to 2011 and 2012 land tax assessments of the Thompsons road land. I find this evidence of limited value for the reasons given.

1. The latest reference that Mr Kameel Mondous makes to the Thompsons road land in his statement is after mention of the 2011-2012 remediation work. "In the second half of 2012, the land was suitable to run cattle", he said. The statement is followed by reference to an exhibited "Melbourne Water drainage scheme for the Thompsons road area" which describes the Thompsons road land and its surrounds as "wetlands". The document exhibited is an undated diagram apparently extracted from a larger document and accompanied by (an unexplained) copy of 15 March 2016 email sent from "Reed Consulting" to "Sam Mondous" which describes the scheme as "current". I do not believe that the exhibit assists the taxpayer's case.

1. The principal evidence led by the taxpayer in support of a 2013-2014 primary produced exemption for the Thompsons road land was in the statement and testimony of Mr Glenn Wilmott. Mr Willmott states that, with his mother, he runs cattle on several properties in Victoria. Mr Willmot states that he bought his cattle onto the land in October 2012, prior to execution of the Share Farming Agreement between Mr Willmott and the taxpayer exhibited to his statement. He said that he and his mother have a particular PIC number "for all our cattle irrespective of the property on which they are located."

1. I have above noted the Share Farming Agreement exhibited to Mr Wilmott's statement. Notwithstanding the recitals of the Agreement referring to the taxpayer as owner, the agreement is not executed by the taxpayer, but by Mr Wilmott and "Owner N Mondous". I have already noted Mr Willmott's reservation about the Agreement's effective date. A primary production use must be a "real use, not a token or colourable use" contrived to achieve a tax advantage.[17]

1. In cross-examination Mr Willmott agreed that the taxpayer prepared the statement for him to sign. Mr Willmott agreed that the PIC number referred to identified his main property at Cardinia road as the location of cattle which he alleges were transported to the Thompsons road land. Mr Willmott estimated that during the 2013-2014 period he went to the Thompsons Road land "about once a month". None of the cattle that he said that he brought onto the land were sold until he left the land in 2015.

1. Evidence of Mr Willmott's cattle grazing on the Thompsons road land is too insubstantial for the Tribunal to conclude that the Thompsons road land was used primarily for primary production in the 2013 and 2014 years. It cannot be safely concluded that the whole parcel of Thompsons road land was used for an exempt grazing purpose. Nor can it be safely concluded that the whole Thompsons road land parcel had the "character" of cattle grazing land.[18]

1. Apart from what Mr Willmott's statement, almost all other evidence points away from the primary production use alleged. Glenn Willmott's was infrequently present on the land. There was inconsistent evidence in the invoices annexed to Glenn Wilmott's statement about when the alleged 87 cattle were brought onto the land. The PIC number Mr Willmott used indicated that all cattle belonging to Mr Willmott and his mother were stored elsewhere.

2011 assessments of Grice's road, Pound road and the Soldier's road lands

1. The taxpayer acquired the Grice's road and Pound road lands in 2001. The Soldier's road land was acquired by the taxpayer in 2003. Each land is located in Clyde North and ownership is recorded on a separate title. The taxpayer alleged that the Grice's road and Pound road lands are contiguous, in the sense of their touching or adjoining one another. Together, the three lands have an area measurement of approximately 394 acres. The Soldier's Road land is about 100 acres in area and separated from the two other properties by land not owned by the taxpayer.

1. In or about 2007 the taxpayer entered an (undated) "Project Delivery" agreement with Australand Industrial No 156 Pty Ltd which recited that the taxpayer as owner of the Grice's road and Pound road lands wished to develop and sell the lands with the assistance of funding from Australand. This project was to be known as the "Berwick Waters Development". On 14 September 2007 the taxpayer had mortgaged the Soldier's road land to Australand Industrial No 156 Pty Ltd.

1. The taxpayer asserts pursuant to LTA s66 that in the 2011 year the three lands formed one parcel of land used primarily for primary production. Alternatively, the taxpayer asserts that the Grice's Road and Pound Road lands formed one parcel and the Soldier's Road land formed another parcel, both of which in 2011 were used primarily for primary production within the meaning of LTA s66.

1. In the 2010 and 2009 years the Commissioner granted primary producer exemptions for the Grice's Road and Pound Road lands on account of the activities of Derek Feldman, who died on 13 October 2010. After Mr Feldman died, the taxpayer asserts, "25 of his [viz, Mr Feldman's] cattle continued grazing on the Clyde North Land, until they were sold by Frontlink."

1. Mr Mondous's attention was drawn to the terms of the formerly redacted Project Delivery Agreement terms. These included: (1) a $5m loan from Australand to Frontlink subject to re-zoning conditions; (2) his and Kameel Mondous's membership of a management committee for the Berwick Water development. I will not pursue pre-sale agreement links between the Mondouses and Australand. Counsel for the Commissioner did not establish connections between these links and activities conducted on the land. Preparatory dealings must actually affect the land in order to constitute a use of land.[19]

1. Mr Sam Mondous in his statement asserts that after Derek Feldman's cattle was sold in January 2011 the taxpayer took possession of the Grice's road and Pound road lands and entered into a "Share farming agreement" with Geoff Murray. The agreement is exhibited to Mr Mondous's statement.

1. Item 1 of the "Schedule" to the Share farming agreement between the taxpayer and Mr Murray provides: "Date of the Agreement 01/02/2011". Endorsed at the foot of each page of the agreement and its schedule is the handwritten logo "26-11-11 G Murray". The handwriting is very similar to that Geoff Murray's (undated) signature on the second last page. In consequence, a doubt emerged as to whether Mr Murray's cattle grazing activity commenced within a few months of 31 December 2010, as the exemption required, or towards the end of 2011.

1. The statement of Geoff Murray was similar in form to the statement of Glenn Willmott. Both documents were presumably prepared by the taxpayer's advisers. Mr Murray was not called as a witness and was not cross-examined. No explanation for this was given for this omission. I was therefore unable as a consequence to form a considered view about Mr Murrray's evidence and will treat his statement as of limited weight.

1. In relevant cross-examination, Mr Sam Mondous was evasive and at one point hostile. Mr Mondous was driven to accept that the Grice's road and Pound road lands were not really adjoining, but separated by a roadway and about 200-400 meters of land owned by a Christian College. Photographs of the lands were shown to Mr Sam Mondous and he was asked why he had not disclosed the existence of several houses and a disused swimming pool once occupied by Mr Feldman.

1. Details from an affidavit filed in the taxpayer's Supreme Court proceeding against Mr Feldman's successor were put to Mr Mondous. The terms of Ms Bunting's occupation of the Pound road property were brought to his attention - whereupon Mr Mondous admitted that Ms Bunting was an undisclosed tenant who resided in two bungalows and possessed a right to agist horses over 50 acres of the land.

1. Mr Sam Mondous was also asked about the "Project Delivery Agreement", part of which in redacted form was exhibited to Mr Kameel Mondous's statement. Mr Kotros for the Commissioner compared the redacted Project Delivery Agreement with the unredacted form of that agreement which the taxpayer was induced to disclose at hearing on the previous day. Mr Mondous could not explain the point of the concealing parts of the document first disclosed.

1. Mr Sam Mondous stated in reply to Mr Kotros's question that he could not explain why the Share Farming Agreement entered by the taxpayer with Geoff Murray was dated in longhand by Mr Murray on 26 November 2011. The time of commencement of primary production activity on the Grice's road and Pound road lands remained in doubt.

1. I am not satisfied by the applicant's evidence that the primary production activity of grazing cattle was conducted on the Grice's road and Pound road lands during the relevant time. The Tribunal has weighed testimonial evidence led on behalf of the applicant against the inconsistent objective data which exists and unexplained indications that non-exemptive residential and agistment activities were conducted on the land in 2011.

1. The taxpayer maintains that in 2011 it conducted the primary production activity of grazing on the Soldier's road portion of the land. Mr Sam Mondous explained that the taxpayer used "a broker" to put the taxpayer's own cattle on the land, though he could not supply documentary evidence which showed that this was done.

1. In 2011, Mr Mondous continued, the taxpayer's affairs were controlled by his daughter Natalie Mondous. This explained why she was the named signatory of documents executed on behalf of the taxpayer. Mr Mondous was unable to say whether Natalie Mondous had any expertise or experience in primary production activities. No business records of the taxpayer's Soldier's road primary production activities were produced. Nor was it explained why Natalie Mondous was not called as a witness in the proceeding.

1. Mr Mondous exhibited two sheaves of Alex Scott & Co invoices to his statement, purporting to evidence the sale of: (1) Feldman cattle on 18 January 2011; and (2) other cattle on 3 May 2011. The invoices were addressed to "N Mondous T/as Frontlink Pty Ltd 18 Leemack Cresent Berwick Vic 3806".

1. In fact the invoices proved little. The fate of the Feldman cattle is irrelevant and the invoices make no reference to the Soldier's road land. Mr Mondous did not explain why cattle was sold so soon after the Soldier's road grazing had begun and whether the cattle was replaced.

1. There is also evidence (including photographs) of a competing use in respect of the Grice's road land. In or about 2011 Melbourne Water excavated a water-supply trench several meters wide inside the allotment along the entire Grice's road boundary.

1. I do not accept that the taxpayer has made any more than a minimal use of the Soldier's road for the primary production activity of grazing cattle. Mr Mondous indicated (without corroboration) that the cattle taken to and from the Soldier's land in 2011 were moved by a "broker". The only other grazing activity was alleged by Geoff Murray, whose statement I do not accept in the absence of corroboration or cross-examination.

1. Hence it cannot be said that the Soldier's road land had the character of land used for primary production as a consequence of what the taxpayer did. For the purposes of this finding, I note that the taxpayer's cattle grazing activities were apparently controlled by a person who had no demonstrated skill or experience in doing what she did.

2013 and 2014 assessments of the Shepparton-Zeerust road land

1. The Shepparton-Zeerust road land is outside greater Melbourne and was acquired by the taxpayer in September 2012. Given the land's location, it was agreed between the parties that the taxpayer's exemption claim depended on whether the land was "used primarily for primary production" within the meaning of LTA s-s65(1).

1. Specifically, the taxpayer asserted that the activity referred to in paragraph (a) of the s-s64(1) definition of "primary production" was conducted on the land in 2013 and 2014. The species of primary production relied upon was "cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state)".

1. LTA s-s65(2) extends the primary production exemption in s-s65(1) to parts of land used primarily for primary production, even though a non-exempt activity is conducted on other parts of the land.

1. The taxpayer argued that the exemption follows from the use to which Dr Vasey of 905 Goulburn Highway Congupna put the land in the 2013 and 2014 years. Dr Vasey cultivated oats for feeding to lambs which he brought in from another property at Mansfield. The lambs were fattened prior to sale.

1. Dr Vasey completed a statement in a form similar to the statements of other persons using the taxpayer's land, where he states that he is a veterinary surgeon who, together with his wife Elizabeth, owns and operates the Goulburn Valley Equine Hospital.

1. On 1 December 2012, Dr Vasey's statement continues, he "leased" the Shepparton-Zeerust land from the taxpayer through a local real estate agency. An undated "Licence Agreement" was exhibited to his statement which contained a longhand entry of Dec 01 2012 to Jan 31 2016" beside the words "Occupation date".

1. Dr Elizabeth Vasey, Dr Vasey's wife, completed another statement in the usual form for people dealing with the taxpayer. "Since 1 December 2012", she said, her husband leased the land on which oats were grown for raising sheep.

1. Dr Vasey stated that the whole 140 acres of the land was sown with oats which were not sold but fed to the lambs which he and his wife raised in a commercial operation. He added:

We then use the grain to feed sheep in the winter and dry summer months. After harvesting, sheep may be grazed on the stubble, to consume any grain which has fallen on the ground.

1. In cross-examination Dr Vasey said that he was unable to say when the agreement was signed and was only sure that the agreement was effective from 1 December 2012. He said that when he entered the property it was a "total mess" which "after Christmas" was cleaned up with the assistance of other workers. Oats were then sown for the first time in March-April 2013". Lambs then grazed on those oats in spring 2013. In re-examination Dr Vasey confirmed that oats are a "winter crop".

1. The taxpayer application for a primary production exemption the Shepparton-Zeerust land in the 2013 year is refused. For much of that year and no part of the preceding year, the land was not shown to have the "character" of land used for primary production. Relevant cultivation did not begin until several months after 31 December 2012.[20] Additionally, there is the uncertainty of when the "Licence Agreement" with Dr Vasey was actually signed. His oral evidence was not definite. Evidence of Dr Elizabeth Vasey on the point was unpersuasive, being in a standard form and untested by cross-examination.

1. I believe that the taxpayer is entitled to a primary production exemption for the Shepparton-Zeerust land in the 2014. I accept the evidence of Dr Vasey about his entry into the Licence Agreement, his growing oats on the land and how he fed those oats to his lambs as part of a commercial lamb-breeding operation. There is no timing issue about when the crop was sown arising in relation to the 2014 exemption.

[1] The summary excludes LTA s68, considered further below.

[2] There are a number authorities for these propositions. See CDPV Pty Ltd v Commissioner of State Revenue [2016] VSC 322 at [21], citing Safety Beach Estate Pty Ltd v Commissioner of Land Tax (NSW) (1979) 9 ATR 451 per Rath J at 455; and Greenville v Commissioner of Land Tax (NSW) (1977) 7 ATR 278 per Helsham CJ at 280.

[3] See Saville v Commissioner of Land Tax (1980) 12 ATR 7 at 11 per Roden J, describing three possibilities when the assessment date falls within a "hiatus period":

(a) "land allowed to lie fallow" after or before cultivation is part of normal cultivation;

(b) a "chance occurrence" where there is no activity is consistent with primary production where the owner intends to resume activities; and

(c) a "cessation of activity" even if claimed to be a hiatus period means that an intention to recommence activities relates only to future use.

[4] Interpreting almost identical words in the Land Tax Act 1958. The decision was affirmed by the Full Court on appeal: [1985] VicRp 15; [1985] VR 164, Young CJ, Crockett and King JJ.

[5] Gzell J in Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867; (2010) 79 NSWLR 724 at [67] said in relation to the "dominant use" test in New South Wales:

[L]ikewise if [the land] was vacant with no earthworks having been carried out and cattle grazing was confined to a small herd in a small area of the land such that the chief characteristic of it was unused land, [the taxpayer] would again fail the dominant use test.

[6] Helsham CJ in Greenville considered the words "land used primarily for" primary production in a version of the Land Tax Management Act 1956 (NSW) which was relevantly indistinguishable from the LTA.

[7] There were also factual differences. In Metricon, White J observed: "The quality of the pasture on the Metricon lands is high and is ideal for fattening cattle prior to sale" at [142] and "[T]he use of the Metricon lands was a necessary element in the running of what is said to be the best farm in the Tweed Valley" at [145]. Compare the statement of Glenn Wilmott dated 13 April 2016 at [10] concerning the state of the Thompsons road land when he went there in 2012.

[8] Each of the five primary production activities listed in LTA s64 (a)-(e) constitutes a physical use: cultivation, animal maintenance, bee keeping, commercial fishing and plant propagation.

[9] See [2016] NSWSC 332 at [42]- [70], following Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378 at [37]- [38] per White J, Barrett and Leeming JJA agreeing.

[10] See [2016] NSWSC 332 at [71]- [98],

[11] See Abbott v Commissioner of Land Tax [1979] VicRp 31; [1979] VR 297 at 301 per Lush J quoting Sonter v Commissioner of Land Tax (NSW) (1976) 7 ATR 30 at 34 per Rath J; Greenville Pty Ltd v Commissioner of Land Tax (NSW) (1977) 7 ATR 278 at 280 per Helsham CJ.

[12] I believe that his Honour's reasoning extends to LTA ss65 and 68.

[13] At 238. The decision was confirmed [2011] NSWCA 366.

[14] LTA s68 uses a different tense and refers to "use primarily for primary production".

[15] "PIC" numbers refer to the "Property Identification Code" system for the identifying the location of livestock established by the Livestock Diseases Control Act 1994.

[16] Following Leda Manorstead and Metricon, discussed above at paragraphs [19]-[21].

[17] Greenville Pty Ltd v Commissioner of Land Tax (NSW) (1977) 7 ATR 278 at 281 per Helsham CJ.

[18] See authorities discussed above at [7]-[9].

[19] See discussion of Metricon at paragraph [17] above.

[20] See authorities discussed above at [22]-[29].