Mir Bros Industries Pty Ltd v Chief Commissioner of State Revenue; Mir Bros

Description of the land

1. In total, the Land comprises 17 ha in area: PID 3300618 has an area of 2.6 ha, while PIDs 3300619 and 3300620 each comprise 7.2 ha.
2. The Land makes up part of Lot 2 in DP 1233624 ('Lot 2'). The remainder of Lot 2 has an area of 42.2 ha and is owned by John Mir and his wife Marie. Mr and Mrs Mir's home stands on part of that remainder of Lot 2.
3. PID 3300618 is roughly triangular in shape, and sits in the south-eastern corner of Lot 2, bordered to the south by the Hume Motorway. Adjoining it to the north-west is PID 3300619, roughly rectangular in shape, and with some residential development bordering it to the east. PID 3300620 is the next block to the north-west, again roughly rectangular in shape, although most of the eastern boundary follows the sweep of part of Clydesdale Drive.
4. During the land tax years in question the Land was zoned R2 Low Density Residential under the Campbelltown Local Environment Plan.

The land tax legislation and the issues for determination

1. Under s 8 of the LTM Act, 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. Accordingly, 31 December is often referred to as the 'taxing date' for land tax purposes - 31 December 2016 is the taxing date for the 2017 land tax year, 31 December 2017 for the 2018 land tax year, and so on.
2. Section 10AA of the LTM Act contains provisions exempting land from land tax subject to specified conditions. Relevantly, s 10AA(1) and (2) provide as follows: (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. The expression 'land used for primary production' is defined in s 10AA(3) to mean 'land the dominant use of which is for' one of the uses, activities or types of enterprise specified there. Paragraph (b) of s 10AA(3) specifies as one of the qualifying activities 'the maintenance of animals […] for the purpose of selling them or their natural increase or bodily produce'.
4. The Applicants cannot rely on s 10AA(1) for their exemption claims since the Land was at all relevant times zoned R2 Low Density Residential, which is not a rural zoning: s 10AA(4).
5. That means the exemption claimed by the Applicants is available only if, for the relevant land tax years (or for any one or more of them), the dominant use of the Land is for a qualifying purpose under s 10AA(3), and both paragraphs (a) and (b) of s 10AA(2) are satisfied as well.
6. For convenience I will refer to these tests as: 1. the 'dominant use' test (s 10AA(3)); 2. the 'commerciality' test (s 10AA(2)(a)); and 3. the 'profit' test (s 10AA(2)(b)).
7. Although the imposition of, and exemption from, land tax fixes upon ownership and use of land at 31 December, the enquiry as to the use of land is not restricted to that one day of the year. As White J (as his Honour then was) said in Metricon Qld Pty Limited v Chief Commissioner of State Revenue (No. 2) [2016] NSWSC 332 (Metricon) at [132]-[133]: [132] Liability for land tax arises as at midnight on 31 December immediately preceding a calendar land tax year. In Longford Investments Pty Ltd v Chief Commissioner of Land Tax [(1978) 8 ATR 656)], Sheppard J said (at 660-661) that although the liability for land tax arises as at midnight on 31 December, the question of whether land was used primarily for primary production was to be considered having regard to the facts spanning "some few months" before and after that date. In Leda Manorstead [v Chief Commissioner [2010] NSWSC 867], Gzell J applied this reasoning and said that in the circumstances of that case a reasonable period for inquiry was six months before and after the relevant date (at [4]). His Honour observed that that allowed for a consideration of the financial records pertaining to the uses to which the land was put. [133] This approach recognises that the question of the dominance of a particular use, or whether a primary production use has a significant and substantial commercial purpose or character, requires examination not of a single event but of a state of affairs that exists as a continuum. Experience before and after 31 December that is part of that continuum can throw light on the position as it existed at that date. But that does not alter the fact that liability to land tax is imposed and hence a claimed entitlement to exemption is to be determined as at midnight on 31 December. This is significant where there is a material change occurring after 31 December.
8. The Applicants' case is that the use of the Land that attracts the primary production exemption is use for the grazing, breeding and fattening of cattle for sale. The Applicants rely on activities conducted by others - initially, by a partnership known as Avahar Pastoral ('Avahar'), and later by a company named Loop Organics Pastoral Pty Ltd ('Loop'). The Applicants submit the use of the Land by Avahar, and then by Loop, was the dominant use of the Land, that it had a significant and substantial commercial purpose or character, and that it was engaged in for the purpose of profit on a continuous or repetitive basis.

Licensing of the Land for use by Avahar and then by Loop

1. John Mir, one of the owners of the remainder of Lot 2, is also a director of each of the Applicants. The Applicants' ownership of the parcels comprising the Land, and Mr and Mrs Mir's ownership of the remainder of Lot 2, date back to the late 1970s. Mr Mir says that throughout that time the Land has been used for the purpose of primary production, and specifically for the grazing of cattle.
2. On 1 August 2014 a Licence Agreement was made between Mr and Mrs Mir, Trading and Industries (together, the 'Licensor'), and Don Noble and Grant Liversage trading as Avahar Pastoral (the 'Licensee') for the grazing and depasturing of the Licensee's stock on a number of properties including the Land. One of the properties made available to Avahar under the Licence Agreement is the property now known as Lot 2 in DP 1233624. The other properties adjoin Lot 2 and are owned by Mr Mir. In total the area of land made available to Avahar under the Licence Agreement (the 'Licensed Area') is 144 ha, comprising the Land (17 ha), the remainder of Lot 2 (about 42 ha) and the adjoining properties (about 85 ha). The Land takes up something less than one-eighth of the Licensed Area, and sits in the south-eastern corner of it.
3. Mr Mir explains it as an oversight that Creations was not included as one of the entities comprising the 'Licensor' in the Licence Agreement, despite its ownership of part of the Licensed Area. He notes that the land owned by Creations is 'not separated from and immediately adjoins' the properties owned by the other Applicants. I accept Mr Mir's explanation as to the oversight.
4. The term of the Licence Agreement was 2 years but it was contemplated that the Licensee may continue to occupy the Licensed Area beyond the termination date, subject to the Licensor's consent. The Licence fee was $1,651.19 plus GST per month, to increase by 3.5% on each anniversary of the commencement date.
5. Avahar continued to occupy the land beyond the 2-year term, and then a new 2-year Licence Agreement was made by the same parties, and on similar terms, on 1 February 2017. The Licence fee was now $1,682.56 plus GST per month, subject again to a 3.5% annual increase.
6. Each Licence Agreement provided relevantly as follows: … 4 The Licensee shall give to the Licensor not less than twenty-four hours' notice of intention to put any stock on the said land and no more than 110 head of cattle may be agisted by the Licensee thereon. 4(a) The Licensee will during the term use the demised premises for the grazing of cattle and will manage the demised premises according to the principles of good husbandry and will not permit or suffer the land or the soil to become impoverished. 4(a)(i) IT IS HEREBY AGREED AND DECLARED THAT THE LICENSEE shall use the Property for no other purposes than for the Purpose of Running a Business of Primary Production. … 16 The Licensee will provide upon request, all documentation as required by the Licensor to satisfy Office of State Revenue ("OSR") or any other government authority including all the Licensee's financial records, sales trading invoices, purchase receipts, photos etc to the OSR's sole satisfaction in order to verify that the Licensee is running a significant and substantial business of primary production on this property and that this primary production activity is the dominant use. This clause is essential to this agreement. If the Licensee does not produce such documentation to satisfy the relevant authority for the present and any past years requested within a reasonable amount of time, the Licensor may terminate this agreement forthwith due to the Licensees breach of this essential clause. …
7. From 2 December 2019 the same tract of 144 ha was licensed to Loop, 'to sow crops and to graze and depasture the Licensee's stock on the lands'. In this later agreement, to run for 3 years, Creations was included in the definition of 'Licensor', and the Licence fee was $21,500 plus GST per annum. Like Avahar before it, Loop had to give 24 hours' notice before putting stock on the land but was allowed a maximum of 120 head of cattle. Clause 4(a) authorised the use of the premises 'for the grazing of cattle and or cropping' but was otherwise identical to the corresponding clause in the earlier agreements.
8. Clause 15 of the agreement with Loop was for practical purposes identical to the first paragraph of clause 16 in the Avahar agreements, as extracted above.

The 'dominant use' test

1. The focus of the exemption provision in s 10AA of the LTM Act is with 'use' of the land at large, rather than 'use' by any particular person. In Chief Commissioner of State Revenue v Metricon Qld Pty Ltd [2017] NSWCA 11 (Metricon Appeal) Barrett AJA stated at [47]: There is … in s 10AA a manifested legislative intention that land is to be exempt from land tax (to the advantage of its owner) regardless of the identity and attributes of the owner and by reference solely to the 'use' to which the land is put by the person - whether or not the owner - who has the ability to 'use' it.
2. In this context, 'use' means actual physical deployment of the concrete mass of the land itself for the purpose of obtaining a present benefit or advantage from it: Metricon Appeal at [61]. But physical deployment can also include (also at [61]): … inactivity deliberately adopted as a means of obtaining such actual and present advantage from the land; and with purpose understood as objectively ascertained purpose. There is no requirement that immediate productive return be achieved, as long as some benefit or advantage accrues.
3. The test of dominant use, according to a number of authorities including Metricon Appeal at [52], is that set out by the Land Appeal Court of Queensland in Thomason v Chief Executive, Department of Lands (1995) 15 QCLR 286 (Thomason) 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.
4. The enquiry is directed towards determining whether what may be described, for convenience, as an 'exempt' use of the land (here, the maintenance of animals for the purpose of selling them, or the growing of crops and/or pasture) is the dominant use of the land. Where there is more than one physical use of land, the uses need to be compared and weighed, to see whether the 'exempt' use is dominant over all other uses. The word 'dominant' has been taken to mean 'main, chief or paramount': Leda Manorstead v Chief Commissioner of State Revenue [2010] NSWSC 867 at [69].
5. The enquiry therefore boils down to the following questions: (a) is there a use of the Land for the maintenance of animals for the purpose of selling them, or for the growing of crops and/or pasture; (b) are there any other uses of the Land; and (c) is the 'maintenance of animals' or 'growing of crops' use the main, chief or paramount use, such that it can be characterised as the dominant use of the Land?
6. The questions need to be asked in respect of each of the 4 distinct 'taxing dates' of 31 December 2016, 31 December 2017, 31 December 2018 and 31 December 2019. Answering the questions also needs to take into account the state of affairs for a reasonable period either side of those dates, to determine whether any activities were conducted as a 'continuum' such that they may throw light on the position as it existed at each of the taxing dates: Metricon at [133]; see [17] above.
7. In this particular case, the enquiry can be simplified somewhat. This is because Avahar was the licensee at each of the first three relevant taxing dates, and unless there is something to indicate a significant change in circumstances from one year to the next, the same answer will apply to all three land tax years. However, by 31 December 2019 there was a new licensee, and that will require separate analysis.

The 2017, 2018 and 2019 land tax years (taxing date in each case the immediately prior 31 December)

1. Mr Mir's evidence is that up until December 2019 Avahar grazed and depastured its stock on Lot 2. He says he observed Avahar's cattle 'constantly' on Lot 2. He was in a position to do so, he says, because he also lives on Lot 2.
2. It is clear that the period covered by Mr Mir's statement about the presence of Avahar's cattle on Lot 2 is from the commencement of the first Licence Agreement, on 1 August 2014, until December 2019.
3. It will be recalled that the Land forms only part of Lot 2, and Lot 2 in turn forms only part of the Licensed Area. Mr Mir does not make any specific reference to the Land, in a way that would highlight the use of the Land as opposed to the use of Lot 2 overall. Nor does he comment on the presence of Avahar's cattle on any of the other properties that make up the rest of the Licensed Area.
4. Mr Mir explained there is one cattle yard in the Licensed Area. His 'best estimate' is that it is on the land owned by Trading. That is the block in the middle of the three parcels owned by the Applicants, bordered to the north-west by the block owned by Industries and to the south-east by the block owned by Creations.
5. I accept the truth and accuracy of Mr Mir's evidence and find accordingly.
6. Other information provided to the Tribunal about the use of the Licensed Area (but not specifically the Land) during the period covered by the Licence Agreement with Avahar comes from Don Noble, one of the partners in the Avahar partnership. The information is in the form of a letter dated 13 August 2020 and written 'To whom it may concern'. The Chief Commissioner asked for Mr Noble to be made available for cross-examination so his claims could be tested but he was unable to attend the hearing.
7. In his letter Mr Noble says the Licensed Area (which he labels the 'Blairmount land') 'consists of a mixed topography, which includes flat plains, gently undulating to some steep hilly areas'. He describes it as 'highly fertile, consisting of numerous paddocks, large number of dams and securely fenced all round'.
8. He says he held about 160 head of cattle on the Blairmount land during the months leading up to May 2016 but the 'unprecedented drought conditions' forced him to sell 6 cattle 'as the land started to show signs of stress and could not sustain the cattle holding'. In mid-2016, he says, he decided to relocate some of the cattle to alternative locations, including Rookhurst (a property about which he provides no further detail). By the end of the year he says there were still about 92 cattle on the Blairmount land.
9. Mr Noble's letter continues by tracing the difficulties he says he experienced with the worsening drought conditions: By mid 2018 my cattle operation was severely impacted as Blairmount was still under severe drought conditions, at the time Blairmount held 96 Cattle and I had to relocate 32, 10 cattle were sold and 12 births occurred and approximately 8 deaths. This activity left about 58 cattle at Blairmount. … By the end of 2019 I held approximately 54 head of cattle on the Blairmount land. During 2019 I again was forced to purchase feed and cart water to the Blairmount property at substantial cost as all dams dried up and there was limited to no pasture growth.
10. The stock numbers are not necessarily reliable but the high-level claim about using the Licensed Area for the maintenance of cattle is consistent not only with the requirements of the Licence Agreement but also with Mr Mir's observations. I find the Licensed Area was used for the maintenance of cattle throughout Avahar's period of occupation of the Licensed Area.
11. Where does that leave the three parcels comprising the Land?
12. The Chief Commissioner's position is that the unspecific nature of the evidence does not support a more targeted finding about the status of the Applicants' three parcels. There is some force in that submission, which was put squarely in the Chief Commissioner's written submissions filed on 1 July 2021, along with a number of other concerns in relation to the Applicants' evidence. Those submissions included the following: [50] For the 2017 to 2019 land tax years, the applicants have not discharged their onus of proving that the cattle maintenance on their respective parcels of land occurred to an extent which overcomes the proposition that the land was unused. [51] The applicants' evidence falls well short of establishing: (a) periods of time Avahar's cattle grazed on the parcels; (b) numbers of cattle which grazed each respective parcel; (c) the time and labour that was utilised in respect of any cattle grazing operation as it was conducted on the relevant parcels; and (d) whether [Creations'] parcel of land was grazed at all in the period 2017 to 2019 given it was not a party to the licence agreement with Avahar.
13. Mr Mir swore a second affidavit, on 13 July 2021, to address 'certain matters detailed in the Respondents Submissions dated 1 July 2021': at [3]. Mr Mir explained the omission of Creations from the list of parties comprising the 'Licensor' for the two Licence Agreements with Avahar (referred to in [21] above) but he did not provide any further information concerning the use of the three specific parcels. I must assume this was because his observations of the grazing activities did not extend beyond what he had mentioned in his earlier affidavit, as referred to in [34] above.
14. The other person who may have been able to address these perceived shortcomings in the Applicants' evidence is Don Noble. But nothing has been provided by Mr Noble other than his letter dated 13 August 2020, documentation relating to Avahar's overall primary production activities, and the financial statements of the business. Nothing from Mr Noble focuses on the activities, if any, conducted on the Land or on any one of the three parcels owned by the Applicants.
15. In closing, Mr Bennett for the Applicants submitted that the Licensed Area is one entire parcel and that there are no fences along property boundaries. That may be so, but there is still a lack of evidence about how the three subject parcels were actually used, if at all. In fact, the aerial photographs are inconclusive as to whether there are fences dividing the three parcels either between themselves, or between them and the adjoining segments of the Licensed Area. There are several photographs taken at ground level showing fences, but it is not always clear where the photos were taken from or specifically which areas of land they depict.
16. What ultimately tips the balance in the Applicants' favour is the fact that the only cattle yard on the Licensed Area was, as I have found, located on the middle block, owned by Trading. That block is close to one of the only two road access points, off Clydesdale Drive. It is a strong indicator that the immediately surrounding land was used for primary production purposes and I find that to have been the case.
17. There is nothing to indicate the Licensed Area, or any of the three parcels themselves, were being used for any purpose other than primary production. Examination of the many photographs in evidence before the Tribunal show the Licensed Area to be well suited to the carrying out of primary production activities. Indeed, it is hard to imagine it is well suited to any activities other than primary production activities.
18. In respect of the 2017, 2018 and 2019 land tax years I find the dominant use of each of the three parcels comprising the Land was for primary production.

The 2020 land tax year (taxing date 31 December 2019)

1. Loop came on the scene towards the end of 2019, becoming licensed to use the Licensed Area on and from 2 December 2019.
2. Lisa Rawlinson is a director of Loop. She swore two affidavits in these proceedings and was cross-examined by the Chief Commissioner's counsel.
3. Ms Rawlinson explained that Loop was registered on 12 July 2019 for the purpose of conducting a business involving the purchase, growing and sale of beef cattle and crop production for silage and hay production. That business, she said, has occurred continuously since registration and is conducted for the purpose of making a profit. Blairmount is only one of the locations where the business is conducted; other properties are at Blossom Lodge, Eagle Vale, Leafs Gully and Mt Carlon. She said the Licensed Area at Blairmount is treated as one agricultural parcel.
4. In her affidavit sworn on 22 May 2021 Ms Rawlinson uses the label 'the land' to refer to what I have labelled in these reasons 'the Land': affidavit at [7]. She then explains: [8] Beef cattle owned by the company [that is, Loop] were first placed on the land in June 2020. In February 2020, 39 cattle were purchased by the company. These cattle were initially located at one of our other properties before being transferred to Blairmount in June 2020 which we are utilising primarily for our heifers. These heifers are pregnant and are currently calving. To date we have 12 calves on the ground. Another 36 heifers were purchased from Que Grazing and placed on the land the subject of the licence agreement during 2020. These heifers had their first calves during 2020 on the land the subject of the licence agreement producing 30 calves. … [9] No stock that were grazing on the land during 2020 were sold in the 2020 year. This is because they had not yet grown to a size required for sale. All of the cattle on the land however were placed there for the purpose of grazing and growing so that they could be sold for profit. … [11] During the course of the 2020 year all of the cattle were regularly rotated around the land the subject of the licence agreement. This was so as to ensure that no part of the land the subject of the licence agreement became over grazed and unsustainable for the growing of pasture to feed the cattle. In carrying out the regular rotation of the cattle I would estimate they would be placed on the land for the purpose of grazing every 2 months or so subject to season. … [13] At some time early in the 2020 calendar year it was necessary to undertake some weed clearing and stump removal on the land using an excavator. This was to improve the carrying capacity of the land. Accordingly the company arranged for the weed clearing work to be done. … The company is continuing to improve the land through our fertilisation and pasture improvement program. … [18] In the 2020 calendar year there were no other uses of the land the subject of the licence agreement being carried out as far as the company was aware. That is it was only the company that was using the land the subject to the licence agreement (including the land) for the purpose of its business.
5. I accept Ms Rawlinson's evidence.
6. Certainly, from the time when the first cattle were brought onto the Licensed Area in June 2020, and for the remainder of that calendar year, the Licensed Area, and including the Land, was used for primary production purposes. Furthermore, on the basis of Ms Rawlinson's statement in [18] of her affidavit, that use was the dominant, indeed the only, use of the Licensed Area and the Land.
7. But the taxing date is 31 December 2019. Does the fact that Loop had no cattle on the Land on that date mean that the primary production exemption is not available for the 2020 land tax year? I don't think it does.
8. As at 31 December 2019 Loop had indicated its intention, by entering into the Licence Agreement, to use the Licensed Area for primary production purposes. Without unreasonable delay it started improving the property in readiness for its actual physical use for those purposes. That it did not start physically using the property until later in the land tax year is not, in principle, different from the kind of circumstance identified in Metricon Appeal, in which inactivity 'deliberately adopted as a means of obtaining such actual and present advantage from the land' can be regarded as physical deployment of land. These were activities incidental to those earmarked for the Licensed Area and they should be viewed in a similar light: Thomason at 303 ([29] above).
9. In respect of the 2020 land tax year I find the dominant use of each of the three parcels comprising the Land was for primary production.

The 'commerciality' test

1. Several cases have discussed the meaning of s 10AA(2)(a) and explored the factors that can be relevant in determining whether the use of land has a significant and substantial commercial purpose or character.
2. In Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 (Maraya), Gzell J noted at [83] that in ordinary parlance, 'significant' connotes importance, something of consequence, a key element, a vital or critical one. At [88] his Honour noted 'substantial' connoted size or bulk: 'It means an ample or considerable amount, quantity or size.' His Honour said at [89]-[91]: [89] The commerciality test in s 10AA(2)(a) of the [LTM] Act required Maraya's use of the lands for primary production, either individually or in conjunction with the other lands, to have had a significant and substantial commercial purpose or character. That test required the commercial purpose or character of the use of the lands to have had a relatively high degree of importance. The combination of "significant" and "substantial" demands that conclusion. [90] Not every business will satisfy the commerciality test. The test distinguishes activities amounting to a business that is carried on in a small way or as a sideline from those of a more serious and weighty kind. A business that satisfies the commerciality test will be an important one. It will usually also exhibit some of such characteristics as size, depth, bulk, weight, seriousness, quality, intensity and prominence. [91] To determine whether Maraya's cattle operation had a significant and substantial commercial purpose or character, the court should consider the intensity of the operation, the size and quality of the herd, the size and carrying capacity of the land and the resources (whether of time, labour or expenditure) put into the development and maintenance of the cattle operation.
3. On appeal (Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408 - Maraya Appeal) the Court of Appeal endorsed that approach (Emmett JA at [55], Meagher and Leeming JJA agreeing).
4. In Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678 (Vartuli), White J (as his Honour then was) said at [109]-[111]: [109] … For a use of the land to have a commercial purpose or commercial character, the purpose or character of the use must be or include the making, or the potentiality for the making, of profits. Nothing in the Court of Appeal's decision [in Maraya] excludes the potentiality for making profits from satisfying the requirement of commercial purpose or commercial character. [110] The magnitude and size of the use for primary production and the intensity of the operation are relevant to an assessment of whether the commercial purpose or commercial character of the use is significant and substantial. This includes the size of the herd, the size and carrying capacity of the land, the resources put into the business of primary production, and the revenues and profits generated. In deciding whether the use has a significant and substantial commercial purpose or character it is appropriate to compare the use of the subject lands with other primary production activities of the same kind, in this case cattle-raising, and with how land is generally used. [111] The return from the primary production use relative to the value of the land can be relevant in determining whether there is a commercial purpose or character of the use, and, if so, whether that commercial purpose or character is significant and substantial.
5. The current version of s 10AA(2) is relevantly identical to s 118 of the now repealed Local Government Act 1919. His Honour explained, at [126] and following, the apparent rationale behind the addition of the word 'substantial' to that legislative scheme: [126] As the Court of Appeal held in Hope v Bathurst City Council (No. 3) [1994] NSWCA 139 and as Leeming JA said in [Maraya Appeal], the amendment added an additional requirement beyond those considered by Mason J in Hope v Bathurst City Council, namely that the use have a substantial commercial purpose or character as well as a significant commercial purpose or character. In introducing the amendment the Minister stated in her second reading speech (at 3,778 of the Parliamentary Debates, 29 November 1988) that: "The Government wants to help councils to weed out those persons who have exploited the vagueness of the present rural rating provisions of the Act to obtain rates concessions when in fact they have not been genuine primary producers." [127] Following the amendment, it was held in Hope v Bathurst City Council (No. 3) (at 18) that Mr Hope's "agisting a handful of horses and generating a gross annual income in the order of $1,000 was altogether too minor and small to satisfy the requirement of para (a) of the definition". [128] On one view the amendment imposing an additional requirement that the commercial purpose or character be substantial as well as significant may have been intended only to address primary production activities of the scale in Hope v Bathurst City Council. A "significant commercial purpose or character" discussed in Thomas v Federal Commissioner of Taxation, as interpreted in Hope v Bathurst City Council, is satisfied if the venture is in the nature of a going concern engaged in for the purpose of profit on a continuous and repetitive basis. That threshold is low as illustrated by the facts in Hope v Bathurst City Council. The additional requirement that the commercial purpose or character also be substantial raises the threshold. The question is, how high is the threshold raised? [129] It is clear from the Minister's second reading speech that the exemption was intended to apply only to "genuine" primary production. That was the raised threshold. In my view, having regard to the Court of Appeal's reasoning in Maraya, for the use of the land to have a significant and substantial commercial purpose or character, the use must have a character such that it generates, or can reasonably be expected to generate, profit that contributes in a real and not trifling way to the user's income, or a purpose of generating such profit.
6. On appeal to the Court of Appeal (Vartuli v Chief Commissioner of State Revenue [2015] NSWCA 372 - Vartuli Appeal), the taxpayers took issue with his Honour's articulation of the need for actual or expected profit to contribute 'in a real and not trifling way' to the user's income. This was said to invoke a novel test of whether the use of the land has the requisite commercial purpose or character. The Court of Appeal (Gleeson JA, Meagher and Ward JJA agreeing) rejected the argument, adding the following guidance: 1. The fact that the contribution to the Vartulis' income from the cattle operations was insignificant, underscored that the revenues and profits generated from the Vartulis' cattle operations did not have a commercial purpose or character which was significant and substantial (at [94]); 2. It is not appropriate to characterise as a 'benchmark' any of the factors relevant to the evaluative judgment which s 10AA(2)(a) requires. The relative contribution to the users' income contextualises the significance and substantiality of any commercial purpose or character, but is not a 'benchmark' when applying s 10AA(2)(a) (at [97]); 3. The commerciality test under s 10AA(2)(a) does not involve a binary choice between hobby farm or token business and a significant and substantial commercial purpose (at [106]).

The 2017, 2018 and 2019 land tax years

1. In his letter dated 13 August 2020 Mr Noble claims to have been a cattle farmer 'for the past 20 years'. He refers to his 'Primary Production Business activities' and, as I have already mentioned, traces the worsening drought conditions from 2016 to 2019.
2. His accountant has formed the view that Mr Noble is 'operating a business of cattle breeding and raising' (JM12 at page 84, and also JM44 at page 458). (It is not clear why the accountant refers to Mr Noble alone, rather than Mr Noble and Mr Liversage together, but I will assume that the view he expresses applies equally to Avahar, which throughout this proceeding has been treated as if it is a partnership between the two men.)
3. Even if I accept that characterisation, operating a business of primary production is not by itself enough to meet the raised threshold established by s 10AA(2)(a): as Gzell J stated in Maraya at [90], '[n]ot every business will satisfy the commerciality test.' What is needed is for an applicant to establish that an entity's use of the subject land, either alone or as part of a larger enterprise, has a 'significant and substantial commercial purpose or character'. This will be measured by factors such as the intensity of the operation, the size and quality of the herd, the size and carrying capacity of the land, the resources (whether of time, labour or expenditure) put into the development and maintenance of the cattle operation (Maraya at [91]), the revenues and profits generated (Vartuli at [110]).
4. The Chief Commissioner's written submissions include the following at [15]: There is little to no evidence about the cattle operation conducted by Avahar such as the labour component utilised in the operation, number of hours spent in the operation, equipment and machinery, business plans, cattle management, pasture improvement or fertilising methods and practices, rotational practices or location of paddocks. Nor is there evidence about how the cattle operation at Blairmount was physically integrated with that conducted in Rookhurst.
5. That submission is undoubtedly correct.
6. The difficulty for the Applicants is that, aside from the size of the herd, the size of the land and some financial reports, there is little information from which the Tribunal can gauge whether the use of the Land has a significant and substantial commercial purpose or character.
7. The size of the herd seems to have fluctuated during the relevant years, according to Mr Noble, between about 160 and 50 or 60. I note the claimed high water mark of 160 head exceeds by almost 50 per cent the number Avahar was permitted to have on the Licensed Area. Even so, there is no information on which I can assess whether the Licensed Area was operating below, at or above its capacity. There is no information on which I can assess the quality of the herd. There is no expert evidence on the quality of the Blairmount property or its suitability to sustain the activities being conducted. Even more tellingly, there is no detailed information about the actual activities, if any, being conducted. There is no evidence to tell me whether the amount Avahar was paying for the use of the Land was an appropriate amount for a commercial cattle farmer to pay. All of these are matters that could shed light on whether Avahar's use of the Land had a significant and substantial commercial purpose or character. But I have almost no detailed information to help me undertake the enquiry.
8. The financial results are modest, with losses sustained - even without the drawing of salary or wages by either Mr Noble or Mr Liversage - in every year bar one between 2015 and 2020. I have not been told whether Mr Noble or Mr Liversage, or either of them, treated the Avahar operation as their principal income-generating activity or as a sideline. In any event, the operation has contributed, at best, in only a trifling way to their income. Nor is there any worthwhile information about the Rookhurst operation, which makes it impossible to determine that what occurs at Rookhurst should be taken into account in the consideration of s 10AA(2)(a). I must therefore make an assessment of what occurred at Blairmount alone.
9. The two Licence Agreements that applied during the relevant years seem designed to require the Licensee not only to carry on activities that would satisfy s 10AA(2) of the LTM Act, but also, if asked to do so, to provide information and documents to demonstrate that fact. Mr Mir said in cross-examination that he requested such information from time to time. But what has been produced falls far short of supporting the claim.
10. I cannot conclude, on the evidence before me, that Avahar's use of the Blairmount land during the relevant years had a significant and substantial commercial purpose or character. The requirement in s 10AA(2)(a) of the LTM Act has not been met for any of the land tax years 2017, 2018 or 2019.

The 2020 land tax year

1. Ms Rawlinson's first affidavit, sworn on 22 May 2021, noted that none of the cattle grazing at Blairmount during the 2020 calendar year were sold during that year. There cannot be a positive trading result in those circumstances but that needs to be seen in the context of the start-up nature of the business.
2. The affidavit includes, at [17], Ms Rawlinson's claim that 'the use of [the Land] by the company plays an important part of the operation of the business of the company'. If I accept that claim, then there is scope to examine the entirety of Loop's activities - no matter where they were conducted - in determining whether Loop's use of the Land had a significant and substantial commercial purpose or character in respect of the 2020 land tax year.
3. The Chief Commissioner submitted the evidence was insufficient to establish many of the matters identified in Maraya (see [62] above) and that, in the absence of any detail about the plans for the business, the Tribunal could not be satisfied that s 10AA(2)(a) was satisfied.
4. Ms Rawlinson swore a second affidavit on 14 July 2021. She annexed to it a copy of Loop's Business Plan, dated June 2021. Ms Rawlinson describes the Business Plan as a 'living document', first created in 2020 and which she reviews and updates regularly with her Farms Manager and accounts administrator.
5. In this second affidavit Ms Rawlinson states: [8] The Blairmount property is an integral part of the business operations of the company in the Sydney Basin as other properties currently farmed are under crop and this land is required for cattle grazing. The rotation of cattle amongst all these properties, along with cropping is strategically planned to ensure that the maximum yield at each property is achieved in line with the rotation of cattle grazing. [9] Pasture improvements for cropping at Blairmount are planned to commence in September 2021. [10] Tim Wilson, the Farms Manager, is employed by the company on a full time basis to manage all beef cattle and cropping operations. He oversees the use by the company of the land at Blairmount. We use contract labour on an as required basis. [11] The Company's administrative process reviews expected yields against actual yields year on year concerning our cropping operations. The following graph shows a snapshot of one property within the Sydney Basin. This is done for all properties year on year managed by the company. [Graph not reproduced] [12] Similar to cropping forecasts, cattle forecasts are undertaken with projections based on current birthing rates as identified in the Business Plan. In this regard I refer to page 11 of the Business Plan. [13] Although it is only a relatively new farming business, it is intended by the company to operate for a lengthy period of time into the future and to operate for the purpose of making a profit. The Business Plan is intended to assist and guide the company in achieving that aim and the use of the land at Blairmount by the company is integral to achieving that aim.
6. I accept Ms Rawlinson's evidence and find accordingly.
7. It is appropriate to characterise Loop as a start-up business as at the taxing date of 31 December 2019. Accepting that a start-up business will rarely be operating at full speed on day one, it may be reasonable in appropriate cases to take account of whatever plans were in place around the taxing date in assessing whether the use of land at that time had a significant and substantial commercial purpose or character, provided that whatever was planned appears to have been reasonable and achievable (and not fanciful), and broadly consistent with the activities that were being undertaken at or around the taxing date. Subsequent performance can, in appropriate circumstances, tend to confirm the reasonableness of the plan.
8. In this case the Business Plan as it existed in 2020 no longer exists. Instead I have a Business Plan dated June 2021 which is said to be an update on what was written the previous year. Nevertheless, I accept that the company was, as claimed by Ms Rawlinson, created for the purpose of conducting a business involving the purchase, growing and sale of beef cattle and crop production for silage and hay production. By June 2021 the company's 'key goals' were expressed as: 1. Sale of 10,000 bales per annum 2. Increase cattle herd by 40% year on year 3. Inhouse baling and harvesting operations by July 2022 4. Contracting services for feeding & silage production
9. On the basis of that goal statement, together with Ms Rawlinson's claims at [8] of her second affidavit, I find that the cattle activities at Blairmount have always formed an integral part of Loop's primary production activities. It follows that in determining whether Loop's use of the Land as at 31 December 2019 had a significant and substantial commercial purpose or character, all of Loop's primary production activities should be examined, not just those undertaken on the Land.
10. I am not told what the company's total landholdings were around the taxing date of 31 December 2019 but the Business Plan includes the following table setting out 'Current Land Holdings Production Estimates' (in other words, as at June 2021): Property Name Size (ha) Potential Yield - Winter Crop Potential Yield - Summer Crops MC - NSW 123 1084 900 LG - NSW 313 1972 1637 FD 45 717 595 GV - NSW 74 946 785 Blairmount 145 1250 Grazing EV 15 Grazing Grazing BL 80 715 593 EP 152 3340 2772 TOTAL 947 8774 7282

1. While it is not clear what the unit of measurement is in columns 3 and 4, the total size of the land dedicated to Loop's activities by June 2021 had become substantial. The fact that it had become so within 18 months of the relevant taxing date suggests, and I find, that landholdings of that magnitude were being planned for by at least the relevant date of 31 December 2019.
2. The 'Livestock' section of the Business Overview in the Business Plan states: Cattle are grazed on lands not suitable for cropping and allowing for grazing on crops improves production yields prior to harvesting. These cattle will be sold for consumption to the retail markets.
3. In relation to the Blairmount property the Business Plan states: The Blairmount property is being utilised for calving of our heifers. The calves that have been born on Blairmount will remain there until they are old enough to be weaned and the heifers rejoined. All young female calves will be retained for the growth of the herd. Young bull calves will be grown out to at least 12-18 months before sale. The timing of the sale of these steers will be depend[e]nt upon market conditions.
4. According to the Business Plan, in June 2021, Loop owned 125 cows in calf, and 21 cows with calf. Ms Rawlinson estimated their total value at around $450,000. Those estimates appear reasonable. The stock value represents a significant increase on the initial outlay of about $95,000 (excluding GST) in December 2019 and February 2020.
5. The livestock trading statement (cattle) for the year ended 30 June 2020 discloses a gross profit of $15,218.14. As already noted, none of the 36 head of cattle sold during that financial year had come from Blairmount. Other farm income during that year (grain sales, millrun sales, silage sales and transport income) totalled $99,948.55. Expenses totalling $274,895.49 resulted in a loss of $159,728.80.
6. Significant items of expenditure included freight and cartage (($14,949.69), millrun purchases ($28,038.53), seed ($13,580.00), fodder ($2,501.42), drench, dip and vet supplies ($2,264.00), rent ($96,220.66) and subcontractors ($93,853.68). They are expenditures of a kind and a level consistent with the carrying on of a significant and substantial commercial operation.
7. The company employs a full-time Farm Manager and engages contract labour when required. Crop yields and cattle numbers are forecast and monitored. Pasture improvements are planned. Cattle are rotated. There is a plan for the development of the herd, and as the relatively recent snapshot (July 2021) demonstrates, the plan is being realised.
8. I am satisfied that the company's activities, and in particular the use of the Land as part of the Licensed Area, were on a trajectory of growth within a reasonable time after the taxing date of 31 December 2019. Gzell J's identification in Leda Manorstead of a six-month period either side of the taxing date was appropriate in the circumstances of that case, as emphasised by White J in Metricon at [132]. It was neither put nor intended as a universal rule. In the circumstances of this case, since it is a start-up business, I consider a broader enquiry, taking account of that period but not confining oneself to it, is appropriate. It is important that the initial trajectory was maintained beyond June 2020, as is evident from the position outlined by Ms Rawlinson in the Business Plan snapshot taken in June 2021.
9. This is plainly a business of a serious and weighty kind: Maraya at [90]. Not only is the cattle operation itself substantial, with a clear potential to generate profits, but Loop's operations overall exhibit at least the following characteristics identified by Gzell J in Maraya: size, depth, bulk, weight, seriousness and intensity. In respect of the cattle operation the company has a well-articulated plan for the coming years. Its purchases of cattle during the 2020 year, and deployment of those cattle on the Licensed Area, constituted the first steps in realising that plan.
10. I find that Loop's use of each of the three parcels at Blairmount, when viewed in conjunction with the activities conducted by Loop across the rest of the Licensed Area as well as at the various other properties it uses, had both a significant and substantial commercial purpose, and a significant and substantial commercial character in relation to the 2020 land tax year.

The 'profit' test

1. Having found against the Applicants on the 'commerciality' test in respect of the 2017, 2018 and 2019 land tax years, it is necessary to consider the 'profit' test only in respect of the 2020 land tax year.
2. The 'profit' test in s 10AA(2)(b) is the statutory formulation of what amounts to carrying on a business of primary production, as explained by Mason J in Hope v Bathurst City Council (1980) 144 CLR 1 (Vartuli at [10]).
3. In Vartuli White J ultimately decided that s 10AA(2)(a) was not satisfied and as a result it was unnecessary to consider paragraph (b). Nevertheless his Honour then stated some factual conclusions he would have reached on paragraph (b), in case his conclusion on paragraph (a) was found to be in error (at [139]).
4. One of the conclusions his Honour would have reached is that, although one of the purposes of the Vartulis was that they should derive profit by using the land for primary production, that was neither their only purpose nor their dominant purpose (at [140]-[141]). His Honour then noted at [142]: The submissions did not focus on the question whether s 10AA(2)(b) requires that the purpose of profit on a continuous or repetitive basis be the sole or dominant purpose of the use of the land, or whether the section would be satisfied if it were one of the purposes for which the land was used. That question is not resolved by [Thomason at 306]. It is unnecessary for me to express an opinion on that question.
5. This is not a case where the niceties around the expression 'for the purpose of profit' need to be explored. In my view there is no doubt that, objectively viewed, Loop's use of each of the three parcels at Blairmount, when considered in conjunction with the activities conducted by Loop across the rest of the Licensed Area as well as at the various other properties it uses, was engaged in for the purpose of profit on a continuous or repetitive basis in relation to the 2020 land tax year.

Decision 1. Land tax assessments for the land tax years 2017, 2018 and 2019 confirmed. 2. Land tax assessment for the land tax year 2020 revoked.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 January 2022