Leda Manorstead v Chief Commissioner [2010] NSWSC 867 | Case summary

2007/257920 LEDA MANORSTEAD PTY LTD v CHIEF COMMISSIONER OF STATE REVENUE JUDGMENT 1 The plaintiff, Leda Manorstead Pty Ltd, was the owner of some 593 hectares of land at Cobaki Lakes in the Tweed Shire of New South Wales on 31 December 2005. 2 Under the Land Tax Management Act 1956, s 8 land tax is charged on land as owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied. This case is concerned with the 2006 land tax year that commenced on 1 January 2006. 3 As at midnight on 31 December 2005, there were somewhere between 268 and 279 cattle depasturing at Cobaki. 4 But inquiry is not limited to the use to which land is put on the relevant date. It 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. 5 Leda was a member of the Leda group of companies, which were involved in large-scale property development. It intended that Cobaki would be developed as a residential subdivision. 6 By 30 June 2005, Leda had expended $12.4 million on earthworks at Cobaki for the purpose of residential subdivision but with an incidental benefit to the cattle grazing because as earthworks were completed the area was top-dressed and grassed and made available for cattle grazing. 7 The defendant, the Chief Commissioner of State Revenue, assessed Leda to land tax with respect to the 2006 land tax year and disallowed Leda's objection that Cobaki was exempt under the Land Tax Management Act, s 10AA which was in the following terms: " Section 10AA exemption for land used for primary production (1) Land that is rural land is exempt from taxation if it is land used for primary production. (2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land: (a) has a significant and substantial commercial purpose or character, and (b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made). (3) For the purposes of this section, "land used for primary production" means land the dominant use of which is for: (a) cultivation, for the purpose of selling the produce of the cultivation, or (b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, or (c) commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals, or (d) the keeping of bees, for the purpose of selling their honey, or (e) a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or (f) the propagation for sale of mushrooms, orchids or flowers. (4) For the purposes of this section, land is "rural land" if: (a) the land is zoned "rural", "rural residential" 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 that the land is rural land." 8 Leda claims that Cobaki falls within the Land Tax Management Act, s 10AA(2) and s 10AA(3)(b). 9 The statute requires a determination whether for the 2006 land tax year the dominant use of Cobaki was for cattle grazing. If it was not, that is the end of the matter. Leda's review must fail. 10 If, on the other hand, cattle grazing was the dominant use the question arises whether it had a significant and substantial commercial purpose or character and, if so, whether the cattle raising was engaged in for the purpose of profit. No development use 11 Leda submitted that there was only one relevant use of Cobaki - the cattle operation. It submitted that the earthworks did not constitute a "use for" property development. It was submitted that there is a distinction between the concept of a "use for" a prescribed purpose and a "use as", for example, a police station in the Land Tax Management Act, s 10(1)(q) or use as the principal place of residence in Sch 1A. Since the Land Tax Management Act, s 10AA(3)(b) speaks of the dominant "use for" the maintenance of animals, it was submitted that that which is dominant is to be determined by reference to uses that constitute a "use for" a particular purpose. 12 In the Land Tax Management Act, s 10AA(3), the legislation speaks of the dominant "use for" a series of purposes. It was submitted that not every use of land constitutes a "use for" a purpose. Warringah Shire Council v Raffles [1979] 2 NSWLR 299 was cited. 13 In that case a registered medical practitioner who practised at Bankstown, Liverpool, Richmond, Camperdown and North Sydney lived in the Warringah Shire on land zoned non-urban. He owned a helicopter and had a helipad on the land. Waddell J drew a distinction between the nature of a "purpose" and the nature of a "use". There the use was ancillary to the purpose for which the land was used as a dwelling house. There was no reason to treat the use of a helicopter for private transport as being different in principle from the use of the motor vehicle. 14 I fail to see how this case assists Leda's submission that the earthworks on Cobaki did not constitute a "use for" residential development. 15 More cogent support for Leda's submission is found in Sandhurst Holdings (Australia) Ltd v Commissioner of State Revenue (Vic) [2009] VSCA 167; 2009 ATC 20-118. There the question was whether land upon which two golf courses and an associated wet land lake system and walking and cycling paths and open spaces were being constructed, was exempt from land tax under the Land Tax Act 1958 (Vic), s 9(1)(g) as land vested in any body, corporate or unincorporate, that existed for the purpose of providing or promoting sporting, recreation, or similar facilities or objectives, that applied its profits in promoting its objectives and prohibited the payment of any dividends to members and which was used for outdoor sporting recreation. 16 It was held that since the land was not used for playing golf at the relevant time the exemption did not apply. It was not "used for" playing golf. 17 Dodds-Streeton JA, with whom the other members of the Court of Appeal agreed, said at 9,953 [77] that the exemption was confined to use for, or ancillary and incidental to, the prescribed end purposes and did not cover use for a preliminary activity such as construction or development preparatory to such use. 18 In Leda's submission the earthworks at Cobaki did not constitute a "use for" residential development because it was a preliminary activity. 19 A provision almost identical with the Land Tax Act 1958 (Vic), s 9(1)(g), the definition of "recreational lands" in the Cultural and Recreational Lands Act 1963 (Vic), s 2 was considered by Adam J in Mayor, Councillors and Citizens of the City of Essendon v Cox [1967] VR 545. Land falling within that definition was not liable to a general rate under the Local Government Act 1958 (Vic). 20 The land in question consisted of a racecourse with associated facilities, an area abutting the racecourse used for grazing of horses and car parking areas. 21 At 551 his Honour took the view that since the manifest policy of the Act was to encourage, in the interests of the community, the retention of existing outdoor cultural, sporting and recreational lands and their continued use as such, when controlled by organisations that derive no profit for themselves, one was predisposed to give a reasonably wide and liberal scope to the requirement that lands should be used for the specified purposes. 22 His Honour said of the car parks and the associated facilities at the racecourse, although not of the character of land used for outdoor sporting or recreational purposes, that it was sufficient that the immediate and direct purpose served by the use of the lands was fairly to be regarded as merely ancillary and incidental to the use of the lands as a whole for outdoor sporting or recreational purposes. 23 In arriving at this view his Honour regarded it of importance that the legislation did not require the lands to be used exclusively or wholly for the prescribed purposes. 24 In Sandhurst Holdings the Court of Appeal upheld the primary judge's adoption of the legislative goals identified by Adam J in Cox for the Land Tax Act 1958 (Vic), s 9(1)(g) as the retention of existing out-door cultural, sporting and recreational lands and their continued use as such. Hence an extension of the exemption to the construction and development phase was, Dodds-Streeton JA said at 9,952 [64], unnecessary to their fulfilment. 25 Further, her Honour said at 9,953 [78] the condition that the land be vested in a body that exists for specified purposes suggested that it contemplated unrealised or unimplemented purposes or objectives while the second condition was aimed at prescribing the actual current use of the land. 26 The issues raised in Cox are remote from the issue raised by Leda that the earthworks did not constitute a use of Cobaki for property development. And the reliance in Sandhurst Holdings on the goals of the legislation and its requirement that the land be vested in a not-for-profit organisation distinguish it from the instant circumstances. 27 The question whether land is exempt from tax will depend not only upon the particular facts of the case, but also upon the specific wording of the exemption where even subtle changes may spell the difference between exemption and non-exemption. 28 In the case before this court the goal of the Land Tax Management Act, s 10AA(2) was to prevent land destined for other purposes to be exempt from land tax as purported farmland in the interim. 29 When the current provision was introduced by the State Revenue Legislation Amendment Bill 2005, the second reading speech contained the following: "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." 30 The reference was to the Local Government Act 1993, s 515 which was in the following terms: " 515 Categorisation as farmland (1) Land is to be characterised 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 feed lots, 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." 31 Sandhurst Holdings contains a useful analysis of the authorities that deal with the question whether land is exempt from tax during the construction phase of structures intended to be used for a prescribed purpose. What is revealed is a lack of consistency in the authorities. 32 Consistent with the decision in Sandhurst Holdings is Bosa Development Corp v Coquitlam Assessor, Area No 12 (Bosa No 2) (1996) 30 BCLR (3d) 263 and Applewood Residential Development Pty Ltd v Commissioner of State Revenue [2006] VSCA 207; 64 ATR 291. 33 In Bosa No 2 the question was whether land should be classified for tax purposes as land or improvements, or both, used for residential purposes. Three contiguous parcels of land had been assembled for the purpose of forming part of a proposed town centre. Planning was well advanced to develop the land for residential, commercial and civic purposes and by the terms of restrictive covenant 70% was designated residential. Some geotechnical work and soil studies, legal and traffic surveys, and a retail market study had been done. But no application had been made for a development permit and no construction work had begun. 34 The Court of Appeal of British Columbia held that the land did not fall within that classification. A majority of the court, Esson JA with Prowse JA concurring, subject to a reservation, agreed at 269 with what had been said by the Chamber Judge and the dissenting member of the Board that the phrase "used for residential purposes" implied actual use beyond surveys and testing and until construction had commenced the property was only "held" for residential use and not "used." 35 The reservation was that if construction had commenced, the property should be found to be used for residential purposes. His Honour said at 270 that it was not clear that land was used for residential purposes at the stage where buildings intended for residential purposes were being built but were not ready to be occupied for such purposes. But his Honour added that he should not be understood as holding that such property was not being used for residential purposes. That question, he said, should be left to be decided in a case that had those facts. 36 The instant circumstances raise that issue at an earlier stage in the construction phase. As will be seen the earthworks were extensive and performed under various consents to development applications. 37 In Applewood, land was acquired for the purpose of developing it as a retirement village in stages. The state of development fell into two categories. The first comprised a number of completed stages that were occupied by retired persons while the second category comprised a number of stages upon which buildings were under construction and a further number of stages awaiting future development. 38 The stages under development contained services such as sewerage, drainage and roadways. The taxpayer claimed the whole of the land was exempt under the Land Tax Act 1958 (Vic), s 9(1)(j). It provided that land which was used and occupied as a retirement village and for no other purpose was exempt from land tax. 39 The Supreme Court of Victoria held that the exemption applied only to so much of the land as was physically used and occupied as a retirement village at the relevant time. 40 Before the Court of Appeal it was common ground that the first category was exempt from tax. The Court of Appeal refused the taxpayer's application for leave to appeal with respect to the other categories. 41 The legislative requirement for exemption in Applewood is quite different from the Land Tax Management Act, s 10AA. Multiplicity of use of the land will deny the exemption in Victoria whereas a dominant use for a prescribed purpose enjoys exemption in New South Wales. Furthermore, occupation is a requirement of exemption in Victoria but not in New South Wales. It was also a case of "use as" rather than "use for." 42 In contrast to Bosa No 2, Applewood and Sandhurst Holdings, there are a number of authorities that have concluded that land in the development phase is capable of being regarded as used for a specified purpose. 43 At issue in Commissioner of Land Tax (NSW) v Joyce (1973-1974) 132 CLR 22 was the correct construction of the Land Tax Management Act, s 10(1)(g)(i) which provided that land owned by or in trust for any person or society and used or occupied by that person or society solely as a site for a place of worship for a religious society, or a place of residence for any clergy or ministers or order of a religious society. 44 Gibbs J with whom Menzies J agreed said at 29 that the word "site" can refer to a piece of ground intended for building purposes, as well as to one on which a building is constructed: "When one speaks of "a site for a church", rather than of "the site of a church", the words naturally suggest that the church is to be built, but has not yet been built, on the site mentioned …. I am disposed to think that the exemption conferred by s.10(1)(g) is not restricted to land on which something of the kind mentioned in the paragraph is already built or constructed. For example, if the other conditions laid down by the paragraph were fulfilled, land on which a church was in the course of erection, as well as land on which a church had been erected, would be exempt from the tax." 45 But the futurity conveyed by the word "site" is absent from the Land Tax Management Act, s 10AA(2). 46 The above passage from the judgment of Gibbs J in Joyce was followed by the Queensland Court of Appeal in Needham v Commissioner of Land Tax [1999] 2 Qd R 611 at 613 with respect to a similar provision in the Land Tax Act 1915 (Qld): "The expression used is "as a site for " rather than "as the site of ". It contains an element of futurity as well as an element of present use." 47 In Assessor of Area # 10 - Burnaby/New Westminster v Intracorp Developments Ltd 2000 BCCA 121 the Court of Appeal of British Columbia considered at what stage during the construction of a residential project it could be said that the land was used for residential purposes, a classification that led to a rate approximately 25% of the general classification. Donald JA, with whom the other members of the court agreed, referred to the question left open in Bosa No 2 and answered it in terms of the degree of commitment to a residential development. His Honour said: "[28] I am attracted to the notion of commitment to a residential use proposed by Mr Justice Lambert in his dissenting opinion in Bosa No 2. The issue remains, however, as to the degree of development required to demonstrate such a commitment. In other words, at what stage in the progress of the project can it be said with confidence that the commitment to follow through with the intention to develop the land for residential purposes has been proven? In light of the majority view in Bosa No 2 , by which I am bound, the commitment must go beyond pre-construction development steps and manifest itself in the actual building of the project. Once it is clear that the project has entered the construction phase then the facts should be examined in each instance to determine whether the development has reached the stage where the owner is committed to one use rather than another. [29] The degree of commitment may be inferred from a number of factors examined in the context of the development as a whole including, but not limited to: 1. the various legal instruments attached or applicable to the land and/or proposed buildings (zoning requirements, restrictive covenants, building permits, purchase and sale agreements, etc.); 2. relevant features of the actual construction (with the acknowledgement that it may be difficult to discern anything meaningful at early stages of construction; and 3. any substantial indication that the owner is using the land for a non-residential purpose or is in some way reneging on the stated intention to develop the land for residential use. [30] Although the construction itself may often itself be the most persuasive indication of commitment, it may not be the determining factor in every instance. This is particularly evident in the early stages of construction. For example, it may be that there is something about the site preparation that establishes that the owner has embarked upon a specific residential project. In the absence of any compelling indication to the contrary, the likely conclusion is that the land is being used for a residential purpose. However, the reverse does not necessarily follow. It may be that the site clearing and demolition leave open a number of optional uses. But this fact alone does not automatically negate a commitment to a residential purpose without further inquiry into all of the circumstances of the development. The issue is really one of whether the owner has dedicated the land to a particular use and has actually started construction. This, as stated, is evaluated by reference to the factors listed above. [31] Applying the above discussion to the facts of this case, I cannot see any error of law on the Board's disposition. The facts amply support a residential use. Having completed 25% of the excavation towards a mixed use project, with many units pre-sold, the owner demonstrated in very specific terms its commitment to a residential use of the property." 48 While there have been no pre-sales by Leda, its commitment cannot be in doubt in light of the extent of the earthworks as evidenced by the moneys expended and the aerial photographs in evidence. While the earthworks have benefited the cattle raising activities it could not be said to evidence cattle raising as a rival pursuit. As will appear, the cattle grazing has not been profitable and could not possibly justify the expenditure that has been incurred on the earthworks. 49 Educang Limited v Brisbane City Council [2002] QSC 374 considered the City of Brisbane Act 1924 (Qld) which provided that all land was rateable other than land used for public, religious, charitable or educational purposes that was exempt from rating under a resolution of the council. The relevant resolution of the council covered any land that was used entirely for a school conducted by or on behalf of a religious body incorporated under the Religious Educational and Charitable Institutes Act 1861 (Qld) or another statute, whether or not the land had other buildings on it that were utilised in conjunction with the school. 50 The applicant owned land on which was to be built and operated a secondary school on behalf of the Corporation of the Synod of the Diocese of Brisbane and the Uniting Church in Australia Property Trust (Queensland). 51 The applicant conducted a primary school and since its inception, as enshrined in its memorandum and articles of association, it intended to establish a secondary school on a different campus. The new campus was acquired and construction of class-room facilities was completed, including their fitting out and the installation of computer equipment preparatory to the commencement of the next school year. 52 The sole question was whether in the period before the commencement of the next school year the land was "used for" a school. The applicant accepted that land was not "used as" a school but submitted that the expression "used for" a school had a wider meaning and encompassed the construction of the school buildings during the relevant period. 53 White J at [21] took the view that there was an element of futurity in the use of the expression "used for". "For" takes colour from the word "used" that precedes it. Her Honour concluded that the exemption was available: "[29] In this case the applicant conducted a school, the Forest Lake College, and had done so since 1994. Since its inception, as enshrined in its memorandum and articles, it intended to have two campuses but there was only one school. The land acquired in 1997 was the realisation of that plan. From its acquisition by the applicant the land was for a school, that is, for the purposes of a school which was already established. "Conducted" does not add anything to the expression "used … for a school" in temporal terms. It governs or describes the school and is, for example, to be contrasted with a school operated by the State. The town plan for Forest Lake and the terms of the contract for the sale of the land and the planning approval for it as a school make plain that this land was used entirely for a school. To emphasise the point, if "for the purposes of" were inserted before "a school" there could be no doubt about the exemption. Bowen JA said in Commissioner of Land Tax v Christie [1973] 2 NSWLR 526 at 533 "'use' has regard to the purpose to which the land is put". The respondent was wrong in characterising the use to which the land was put as a construction site. That activity was ancillary to its use for a school." 54 In the instant circumstances, Cobaki was acquired for residential development and construction of that residential development has commenced with large sums of money dedicated to earthworks. They are not complete, but that does not alter the principle enunciated in Educang that in appropriate circumstances land in the development phase may be used for the end purpose that is to follow completion of construction. On that basis it is open to determination whether Cobaki was as at 31 December 2005 being "used for" residential development. 55 In Meriton Apartments Pty Limited v Parramatta City Council [2003] NSWLEC 309, Meriton claimed that land categorised as business for rating purposes should be changed to a residential categorisation. The Local Government Act 1993, s 516(1) provided that land was to be categorised as residential if it was a parcel of rateable land valued as one assessment and its dominant use was for residential accommodation. 56 There were two appeals from the council's refusal to change the rating category. 57 In the first appeal, development consent had been received for the erection of two residential towers above basement parking. The relevant period was 1 July 2002 to 30 June 2003. At the commencement of that period the land was in the course of construction of the basement car park. It would remain a construction site beyond 30 June 2003. 58 In the second appeal, development consent had been granted for the erection of a retail/residential development comprising apartments and retial floor space. As at 1 July 2002 the land was vacant, former industrial buildings having being demolished. Excavation of the site was completed in April 2003, when work on the foundations of the buildings commenced. It, too, would remain a construction site beyond 30 June 2003. 59 At [22] Pain J accepted Meriton's reasoning that use of land must be for a purpose and the erection of a building was the means by which the land was made to serve that purpose. While intention to use vacant land was not sufficient, the purpose of the use of land was manifested by the commencement of building construction, the use of which buildings were for the purpose of residential accommodation. 60 Meriton was concerned with a legislative provision requiring a "use for" residential accommodation. I prefer the approach taken in it and in Educang and the British Columbia case, New Westminster, to the approach taken in Sandhurst Holdings which, as I have explained, is distinguishable from the case before this court. 61 In my view, the impact of the earthworks on Cobaki at 31 December 2005; their sheer size and cost; the extent of the devotion of labour and machinery to the activity; the intention of Leda from the time it acquired Cobaki that it would be a residential subdivision; and Leda's continued negotiation with Tweed Shire Council and other regulatory bodies to obtain consents to development applications for subdivision and development applications for associated earthworks; establishes that the purpose of the use of Cobaki was manifested by the commencement of the earthworks, and it was "used for" residential development. Put another way, although in the development phase, Cobaki was being "used for" the end purpose that was to follow completion of construction - residential subdivision. Leda had demonstrated in very specific terms its commitment to Cobaki being "used for" a residential purpose. 62 I therefore reject Leda's submission that earthworks cannot constitute a "use for" a residential purpose. 63 In my view, in any event, the question whether earthworks can be a "use for" a residential development is misconceived. 64 Leda submitted that because the Land Tax Management Act, s 10AA(3)(b) speaks of the dominant "use for" the maintenance of animals, that which is dominant is to be determined by reference to uses that constitute a "use for" a specified purpose. 65 But the legislation does not require such a comparison. It requires "use for" the maintenance of animals to be the dominant use whether or not a competing use or uses is a "use for" a specified purpose. 66 If Cobaki contained a huge quarry and the "use as" a quarry was such that the dominant use of the land could not be said to be for the maintenance of animals, Leda would fail the dominant use test. 67 Likewise, if Cobaki 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, Leda would again fail the dominant use test. 68 I reject the submission that the dominant use test requires a comparison of uses that constitute "use for" specified purposes. The legislation requires that as between competing uses of land, a use for, in this case, maintenance of animals was dominant. The dominant use test 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." The cattle grazing operations 77 Cobaki was purchased by Leda in 1995 and included 330 cattle depastured on the property. At least since 1989 cattle have been continuously depastured on Cobaki. Existing use rights for grazing up to 400 cattle apply to Cobaki and that number might be increased by obtaining development consent from the council which, according to the evidence, could be obtained readily. 78 When Reginald Anthony Van Rij became the regional manager for Leda he was instructed to maximise the outcome of the cattle raising venture in terms of revenue and minimising cost. When Michael Lucas became farm manager of Cobaki he was told to get the best return and asked his advice on what to do. Mr Lucas advised that cattle should continue to be run on the property and the best return was the sale of yearlings to the supermarket trade. 79 Mr Lucas said the herd was in poor condition and he recommended the best way to improve the herd. He got rid of old cows and other poor breeding stock by sending them to market. He kept three quality bulls with the herd to be crossed with the existing cows. As new calves were dropped the steers were raised to yearlings and sold and the cow calves were kept. 80 When of breeding age, the first calves dropped by new breeders are usually of poor quality. They were sent to market. Mr Lucas said that from early 2004 new cow calves were sent to another property, Kings Forest, where they were crossed with three other quality bulls on that property. New calves dropped from these cows were then returned to Cobaki and later crossed with the bulls on that farm to keep strong bloodlines. Mr Lucas said the restocking in this way to levels suitable for achieving the best results at the market is approximately an eight-year process. 81 In the year to 30 June 2002 there were 433 cattle on Cobaki and in 2003 Cobaki carried 427 animals. In subsequent years drought affected pasture quality and the number of beasts carried fell. Over the past 10 years Cobaki has suffered from periods of drought and dry spells. 82 Monthly reports and stock records were maintained, Mr Lucas making regular reports on the progress of the herd. Cattle inventory reports were maintained that detailed stock held, stock transfers to Kings Forest and sales. 83 Mr Lucas worked for 25 hours per week on average on site at Cobaki. He also managed Kings Forest. 84 George Vougioukas was the Leda group internal auditor. He produced cattle trading summaries from 2002 to December 2008. He also reconciled cattle trading sales as per the cattle trading statement with audited cattle sale figures and the tax returns for Leda to produce a detailed analysis of cattle sales for each year from 2002 to December 2008 showing cattle sales made each year by sales invoice, a reconciliation of the yearly cattle sales with the audited financial accounts and disclosed tax return information relating to cattle sales. 85 In the 2005 and 2006 years there were sales of 121 head of cattle including 3 bulls and 19 calves. 86 Mr Lucas estimated that Cobaki's carrying capacity under non-drought conditions on poor quality pasture was approximately one beast per hectare and the carrying capacity on good quality pasture was approximately two beasts per hectare. He said with the breaking of the drought and the improvement of the pasture the carrying capacity of Cobaki had significantly improved and he continued to restock Cobaki to achieve its highest return. 87 Cobaki's carrying capacity can be increased. In terms of breeding units the estimated range is 266 plus or minus 15%. In terms of land usage measured in hectares, 84% is committed to grazing while less than 25% of the surface area undergoes earthworks at any one time. The council rating category for Cobaki is farmland. The earthworks 88 Leda described itself in its 2002 - 2004 income tax returns as having property development as its main business activity. 89 When Cobaki was acquired it was subject to a development application consent for a 730 lot urban subdivision and to a development application for associated bulk earthworks that ran with the land. 90 Leda performed the earthworks under construction certificates relating to the original development applications creating an internal road, Cobaki Parkway, and associated works. This is visible on the aerial photographs in evidence. 91 The development consents acquired before Leda purchased the land were 92/315 of 5 January 1993 for the Boyd Street extension; 94/438 of 27 January 1995 for bulk earthworks and S94/194 of 19 September 1995 for a 730 lot urban subdivision at The Entrance and the Sand Ridge. 92 Leda obtained further development consents in respect of additional bulk earthworks and residential subdivisions. They were 96/271 on 8 April 1997 for a bridge over Cobaki Creek; S97/54 on 21 October 1997 for a 430 lot residential subdivision at The Knoll and Piggabeen; K99/1124 of 21 July 2000 for a 560 lot urban subdivision at The Foothills, The Plateau, Valley East, Valley West and East Ridge; and 1162/2001 DA of 8 October 2002 for 8 management lots and bulk earthworks at Town Centre. 93 Some or all of the $12.4 million spent on improvements to Cobaki were treated as tax deductible. 94 Leda was in regular contact with the Tweed Shire Council negotiating the additional development applications and performing works under them. Mr Van Rij confirmed that significant bulk earthworks began in 2004. The results can be seen in the aerial photographs. He said the earthworks were primarily for the benefit of the property development with only incidental benefit to cattle raising. 95 Mr Van Rij estimated that a further 2.5 million cubic metres of earth are yet to be moved to create the Cobaki Lakes residential subdivision for sale either to the public or as master lots to other developers. 96 Leda has not proceeded with the development application granting subdivisional approval because it was thought that the existing approvals are out of keeping with today's market demand. Modern planning philosophy has changed and a much better planned development is more appropriate for Cobaki. Leda has decided to change the development concept of Cobaki substantially rather than proceed with the current approvals. 97 So Cobaki is the subject of a Part 3A Concept Plan application under the Environmental Planning and Assessment Act 1979. In the first instance it is required to obtain approval for a concept plan before development approval can be obtained. Mr Van Rij said that the Part 3A application had not yet proceeded to a point where the application was ready for submission for the Minister's approval. 98 In the year ended 30 June 2006, Leda spent $2.3 million on developing earthworks on the land. By 30 June 2006 its total investment in improvements to the land was $13.7 million according to one of the accountants who provided a financial report, Mark Bryant. The other accountant, James Edward Forrest Frayne, did not challenge these figures. 99 Mr Bryant extracted figures totalling $66,912 as the costs of the cattle grazing operation in 2006. Mr Frayne's updated cattle trading results showed a figure of $64,598. The experts met and produced a joint report in which they agreed that audited accounts, tax returns and various cattle trading statements prepared by others at various times did not provide analyses of the profitability of the cattle trading that were completely satisfactory. In light of this opinion, the difference in the above figures cannot be reconciled. But they are reasonably comparable. 100 Issues that may not have been satisfactory were the value of inventories at each year's end; transfers of cattle from Cobaki to Kings Forest; whether some of Leda's employee costs should be attributed to operations at Kings Forest; An appropriate figure for depreciation; and the costs of using or holding the land. What they did agree was that on no basis of calculation had Leda made a profit in aggregate in the periods 2003 - 2006, or 2007 and 2008. 101 The cattle trading statement for the period 1 July 2005 to 30 June 2006 showed a closing stock value of $92,750. 102 The different figures for the loss on cattle trading in 2006 in the cattle trading statements, those adjusted by Mr Frayne, the company's financial accounts and the company's tax return makes it impossible to divine an accurate figure. Resolution 103 While the relative amounts of expenditure on the cattle operation and the earthworks is not the only relevant factor in determining which was the dominant operation, there is a significant disparity in the levels of expenditure on the two operations. 104 From the land area perspective, while 25% of the land was involved in earthworks at any one time, Mr Van Rij said that approximately 50% of the land overall had been the subject of earthworks. His estimate was that 2.5 million cubic metres of earth had already been moved and there remained a further 2.5 million cubic metres to be moved. A job that would take at least two and a half years in ideal conditions. 105 Five non-accounting experts were retained and provided reports. For Leda there was Jasen Allen Somerville, a licensed stock and station agent and auctioneer of livestock; Neil Matthew Sutherland, a soil and water scientist and engineer; and Philip Leslie Mathew, an agricultural scientist. For the Chief Commissioner there was William David Hoffman, a technical specialist (beef breeding) and livestock officer (beef products) with the Department of Primary Industries; and Kerry Charles Moore, a district agronomist with the Department of Primary Industries. 106 They met together and produced a joint report. They agreed that 63% of Cobaki had an agricultural suitability class 4 and was used for grazing purposes consistent with the suitability class. 21% was heavily timbered and constrained to an extent that would best fit agricultural suitability class 5 and was used for low intensity grazing purposes consistent with the suitability class. The remaining 16% of Cobaki, they agreed, was not usable agricultural land and needed rehabilitation. 84% of Cobaki was committed to grazing. 107 From a land use perspective cattle grazing predominates over the areas the subject of earthworks. 108 Mr Van Rij gave evidence that the earthmoving operation involved the use of a substantial fleet of machinery - two large excavators, eight trucks, water carts, rollers and a blue metal crusher for the quarrying operation. The work was carried out by Ecovale Pty Ltd and samples of its invoices were in evidence. For December 2005 the total expenses were $114,973.17. 109 The scale, extent and intensity of the earthworks activities far outweighed those of the cattle raising operation. 110 At 30 June 2006 there were 268 animals depastured at Cobaki. Mr Vougioukas produced audited special purpose financial reports of Leda. The balance sheet as at 30 June 2006 showed that the written down value of plant and equipment used for the cattle operation was $96,232. 111 Again, there is a significantly greater scale, extent and intensity of use related to the earthworks operation as compared with the cattle raising operation. 112 When it comes to the numbers of persons working in each operation, the contrast is again weighted towards the earthworks activities. The operation of the fleet of vehicles required a workforce far greater than the 25 hours per week worked on Cobaki by Mr Lucas. 113 The earthwork activities at Cobaki required expenditure of significant funds, the employment of a reasonably large workforce and the utilisation of a substantial fleet of machinery. On the other hand the cattle grazing activities continued an existing non-conforming use of the land with a herd limited to 400 unless an application was made for an increase. The operation was subject to a gradual programme of herd improvement and a history of losses. 114 An increase in the herd size above 400 was unlikely even though beasts above that number were depastured at Cobaki at certain times. This is because of the joint report of the non-accountant experts. They estimated an increase in breeding units to 266 plus or minus 15%. That was the average of the estimates of 232, 273 and 300 breeding units by three of the experts who expressed an opinion on herd numbers. On that basis, Cobaki would not support an increase in herd size beyond 400. 115 On account of assets and risk, in addition to $16 million paid for Cobaki, Leda has expended a further $13.7 million on earthworks. This is to be compared with the value of the cattle herd at 30 June 2006 at $92,750 and plant and equipment at $96,232. 116 Finally, on a time basis the comparison favours the cattle grazing activities for they may be regarded as using the land continuously. 117 Having regard to these comparisons I take the view that the earthworks activities predominated. Putting it in terms of the Land Tax Management Act, s 10AA(3) it cannot be said, in my judgment, that the dominant use of Cobaki was for the maintenance of animals for the purpose of selling them or their natural increase or bodily produce. 118 In my view, Leda has failed the dominant use test prescribed by the Land Tax Management Act, s 10AA(3) and Cobaki was not land used for primary production at 31 December 2005. 119 It follows that it is unnecessary for me to consider the further aspects of significant and substantial commercial purpose or character and the purpose of profit on a continuous or repetitive basis. 120 In terms of the Taxation Administration Act 1996, s 101(1)(a), I confirm the assessment issued to Leda dated 6 February 2006. In terms of s 101(1)(e), I order Leda to pay the Chief Commissioner's costs.

Leda Manorstead v Chief Commissioner

At a glance

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Before

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Judgment (11 paragraphs)

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Legislation Cited (7)

Cases Cited (5)

Cited By (50)