Mould v Commissioner of State Revenue [2014] VSC 268

1 This appeal challenges the 2010 land tax assessment issued to the appellant, Mr Robert John Mould as executor of his mother's estate. The 2010 assessment related to the year ending 31 December 2009.

2 The issue is whether the land was exempt as primary production land in an urban zone in greater Melbourne.

3 That issue required determination of the question whether Mr Mould was the trustee of a trust the sole business of which, at the time of assessment, was primary production.

4 The land comprised approximately 276 acres at Lyndhurst. The land tax assessed was $1,089,898.60.

5 By grant of probate dated 11 July 2006, the appellant, Robert John Mould, was appointed sole executor and trustee of the estate of his mother, Gwenda Meryl Mould, who died on 17 February 2006.

6 Mr Mould appeals a determination of the Commissioner of State Revenue ("Commissioner"), dated 1 September 2011 ("Commissioner's determination"), ruling on the estate's eligibility for the "primary production exemption" provided under s 67 of the Land Tax Act 2005 (Vic) ("the Act"). The Commissioner's determination followed an objection, filed by Mr Mould, to the assessment.

7 The appeal is brought pursuant to s 106 of the Taxation Administration Act 1997 (Vic). Mr Mould requested that the appeal be set down in this Court. The alternative forum for Mr Mould's appeal was the Victorian Civil and Administrative Tribunal ("VCAT").

8 The lands, the subject of the Commissioner's determination of 1 September 2011, comprised three properties, of which only one is the subject of the present appeal, being that located at 155 Dandenong-Hastings Road, Lyndhurst ("the Lyndhurst land"). The Commissioner determined that the Lyndhurst land was liable to land tax and did not attract the primary production exemption contained in s 67 of the Act. Subsequent to the determination, the Commissioner has conceded that the two other properties owned by the estate and included in the Commissioner's determination, which were referred to as the King Road property and the Noack Road property, were exempt from land tax during the period of assessment, because they satisfied the primary production exemption available under s 66 of the Act.

9 The position differed in the case of the Lyndhurst land. Prior to 26 March 2009, it was not in an urban zone within the meaning of Division 2 of Part 4 of the Act. However, on 26 March 2009, the Lyndhurst land was rezoned Industrial 1 and thereby became land in an urban zone within the meaning of Division 2 of Part 4 of the Act. Thereafter, the only land tax exemptions that might have been available to its owner were those contained in s 67.

10 Mr Mould, as executor, conducted a cattle business on three properties, which were the lands at King Road, Noack Road and Lyndhurst. Mr Mould did not prepare and keep separate and exact records of cattle trading referable to each block of land. Cattle were purchased and moved between the different lands depending on proximity and market, and the availability of feed and management of cattle husbandry, so as to maximise the sale value.

11 By decision contained in a letter dated 26 August 2010, the Commissioner determined that the Lyndhurst land did not meet the criteria contained in s 67 of the Act and was therefore not exempt from land tax.

12 By letter dated 25 October 2010, the appellant's solicitor objected to the 2010 assessment on the grounds that the lands were exempt under ss 66 and 67 of the Act. The objection in respect of the Lyndhurst land stated:

1. The Land comprises one parcel of land within the meaning of Section 3 of the Act and section 70 of the Act does not apply.
2. The Land is wholly in Greater Melbourne and wholly in an urban zone.
   1. Up to and including 29 January 2010 the land was used solely or primarily for the business of primary production.
3. The nature of the primary production business carried on upon the land was the grazing and fattening of calves, cattle and the breeding of the same including Angus Hereford, Murray Grey steers and Angus bulls and sundry calves at foot and the maintenance of animals for the purpose of selling them.
4. The primary production business carried on upon the land was within the definitions of primary production in section 64 of the Act.
5. The Taxpayer was the owner of the land and a trustee of a Trust known as the Estate of Gwenda Meryl Mould deceased established by Will dated 12 April 2002.
6. The Sole business of the Trust was the business of primary production noted at point 4 above.
7. The beneficiaries of the trust are Robert John Mould and Dianne Elizabeth Mould.
8. The beneficiaries of the Trust are natural persons entitled to an annual distribution of income.
9. Robert John Mould and Dianne Elizabeth Mould were engaged substantially in a full time capacity in the business of primary production carried out on the land.

13 The Commissioner requested, and the appellant's solicitors provided, further information and documents in support of the objection, including the estate's financial statements, profit and loss statements and/or income tax returns for the 2009 and 2010 financial years.

14 The material relied on by the Commissioner before the Court fell into two categories. First, there were documents filed pursuant to Rule 7.06 of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2008 (Vic), which, in addition to the formal assessment and objection determination documents, included other documents in the Commissioner's possession or control which were necessary for the hearing and determination of the appeal. These documents included correspondence between the appellant (or the estate's solicitor) and the Commissioner, tax invoices relating to cattle trading, profit and loss statements, and documents relating to the three properties on which land tax was initially assessed. Secondly, there were additional documents that the Commissioner referred to in the "Statement of Facts, Issues and Contentions".

15 The material before the Commissioner included a "Statement of lands owned as at midnight 31 December 2009". In addition to the three properties on which primary production was carried out, there were the 23 rental properties: three at Dandenong, one at South Yarra, four flats in Toorak, eight flats and two properties in Prahran, one property and two units or flats in Stonnington and two properties in Armadale. The rental income received from those properties is important in determining whether the exemption contained in s 67 of the Act applied.

16 The Commissioner's determination disallowed the executor's objection and provided reasons. These included a finding that primary production was not the sole business activity of the estate, as the estate had three sources of income, being income from primary production, rental income from "an extensive residential property business" comprising the 23 residential properties in and around Melbourne, and other investment income.

17 The Commissioner's determination contained 19 paragraphs of reasons. The reasons under the heading of "Law & Analysis" stated in part:

Section 67 provides an exemption from land tax for such land which is used solely or primarily for the business of primary production and where the owner of the land is normally engaged in a substantial full-time capacity in the business of primary production of the type carried out on the land.

It must first be determined whether the Land is used solely or primarily for the business of primary production. The Act defines "business of primary production" as including the business of maintaining animals or poultry on the land for the purpose of selling them or their natural increase or bodily produce.

The definition of 'business' was discussed in the case Hope v Council of the City of Bathurst 80 ATC 4220, where Mason J defined 'business' as activities engaged in for the purpose of profit on a continuous and repetitive basis.

In the years leading up to the year of assessment primary production activities have been undertaken by the Trust on the Land. Those activities have been in the course of operating a primary production business where significant losses have been made. The business of the Trust also includes managing a residential rental property business that has enabled the Trust to operate profitably and other unrevealed sources of income.

Under section 67(2)(c) the owner of the Land, in the case of a Trust, must demonstrate that the Trust's sole business is primary production of the type carried out on the land. In this case the Trust has three sources of business income that of primary production, rental from residential property and other investment income. The primary production business is carried on by RM on behalf of the Trust. Although the claim is made that the Trust's main business is primary production the financial records indicate that the rental property business generates the greater level of income. On the basis of the facts primary production is not the Trust's sole business activity. The Trust also operates an extensive rental property business and as RM has said that he is involved in the management of those rental properties in addition to the primary production activities. (underlining in the original. The letters "RM" were used by the Commissioner to refer to Mr Mould, the appellant).

Section 67 of the Land Tax Act 2005

18 In order for the taxpayer to be entitled to claim the primary production exemption contained in s 67 of the Act, both the land and owner requirements of that section had to be met.

(1) Land is exempt land if the Commissioner determines that -

(a) the land comprises one parcel that is -

(i) wholly or partly in greater Melbourne; and

(ii) wholly or partly in an urban zone; and

(iii) used solely or primarily for the business of primary production; and

(b) the owner of the land is a person specified in subsection (2).

(2) The owner of the land must be -

(a) ...

(b) ...

(i) the sole business is primary production of the type carried on on the land;

(ii) each beneficiary is the natural person who is entitled under the trust deed to an annual distribution of the trust income;

(iii) at least one of the beneficiaries, or a relative of at least one of the beneficiaries, is normally engaged in a substantially full-time capacity in the business of primary production of the type carried on on the land.

21 Primary production is defined in s 64 as including:

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

22 There was no dispute at the hearing of the appeal that the Lyndhurst land was used for primary production, but the question was whether that was the sole business of the trust that owned it.

23 A preliminary question raised by the parties was whether the appeal brought under s 106 of the Taxation Administration Act 1997 (Vic) was limited to the material that was before the Commissioner.

24 Counsel for Mr Mould submitted that the appeal was de novo and therefore additional evidence could be received. The Commissioner argued that it was an appeal in the strict sense and, therefore, Mr Mould must demonstrate legal error in the Commissioner's determination, on the materials that were before the Commissioner at the time the determination was made.

25 After hearing submissions on this question, but without deciding it and subject to the Commissioner's objection, I permitted the appellant to lead new evidence, consisting of two affidavits that he had made. He was cross-examined on their contents.

26 The provisions of the Taxation Administration Act 1997 (Vic), relevant to the nature of the appeal are:

(1) If -

(a) a taxpayer is dissatisfied with the Commissioner's determination of the taxpayer's objection; or

(b) 90 days (not including any period of suspension under section 102) have passed since a taxpayer's objection was received by the Commissioner and the Commissioner has not determined the objection -

the taxpayer, in writing, may request the Commissioner to refer the matter to the Tribunal or to treat the objection as an appeal and cause it to be set down for hearing at the next sittings of the Supreme Court.

(2) The taxpayer's request -

(a) in the circumstances referred to in subsection (1)(a), must be made within 60 days after the date of service on the taxpayer of the notice of the Commissioner's determination of the objection; or

(b) in the circumstances referred to in subsection (1)(b), may be made at any time after the 90 day period (not including any period of suspension under section 102).

(3) Subject to section 107, within 60 days after the request, the Commissioner must refer the matter for review or cause the objection to be set down for hearing accordingly.

On a review or an appeal -

(a) the taxpayer's case is limited to the grounds of the objection; and

(b) the Commissioner's case is limited to the grounds on which the objection was disallowed -

unless the Tribunal or Court otherwise orders.

On a review or an appeal, the taxpayer has the onus of proving the taxpayer's case.

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

(2) If the taxpayer does not appear before the Tribunal, the Tribunal must confirm the assessment or decision. However, if good cause is shown, the Tribunal, within the time prescribed by the regulations, may re-open and review the matter.

(3) If the matter under review relates to a valuation made for or on behalf of the Commissioner under section 21(1)(b) of the Land Tax Act 2005 used by the Commissioner in an assessment of land tax, the Tribunal has the same powers with respect to that matter as it has in a review under Part III of the Valuation of Land Act 1960 and the provisions of that Part, with any necessary modifications, apply accordingly.

(4) The powers of the Tribunal under subsection (3) are in addition to its powers and functions under this Act and the Victorian Civil and Administrative Tribunal Act 1998.

(1) On the hearing of an appeal by the Supreme Court, the Court may make any order it thinks fit and may by order confirm, reduce, increase or vary the assessment or decision.

(2) The costs of the appeal are in the discretion of the Court.

1. Giving effect to decision on review or appeal

(1) Subject to section 115, within 60 days after the decision on review or appeal becomes final, the Commissioner must take any action that is necessary to give effect to it.

(2) If no appeal to a court from -

(a) a decision of the Tribunal on a review; or

(b) a decision of the Supreme Court on an appeal -

is instituted within 30 days after the day on which the decision is made, the decision is to be taken, for the purposes of this section, to have become final at the end of that period.

27 Section 8 of the Taxation Administration Act 1997 (Vic), when read with ss 7, 8 and 36 of the Act, provides for the making of assessments of land tax.

28 As previously stated, the taxpayer had two avenues to challenge the Commissioner's determination of his objection. He could request the Commissioner to refer it to VCAT. In that case, VCAT would review the determination considering only the grounds of objection and with the taxpayer having the onus of proving his case. VCAT in performing that review on the merits would be able to take into account material that was not before the decision maker.[1]

29 The question in this case is what kind of appeal to the Supreme Court s106 of the Act provides to the taxpayer. Again, the taxpayer is limited to the grounds of objection, unless the Court otherwise ordered and bore the onus of proving his case.

30 Because the statute does not describe the nature of the appeal it creates, it is necessary to construe its provisions to determine the nature of the appeal provided. In Tasty Chicks Pty Ltd v Commissioner of State Revenue ('Tasty Chicks'),[2] a case relied on by the appellant, the High Court stated:

An "appeal" from an administrative decision to a court is the creature of statute and it confers original, not appellate, jurisdiction. Further, where a jurisdiction called an "appeal" is enlivened, it is essential to identify its nature and the duties and power of the court in the exercise of that jurisdiction. The term "review" presents similar considerations. It takes its meaning from the context in which it appears. It may be used by the statute in question to empower decision-making by an administrative body, or to confer a species of original jurisdiction on a court. If the latter, again it will be necessary to identify the nature of the "review" and the duties and powers of the court in the exercise of that jurisdiction.

31 The appellant, in support of his argument that the appeal was a de novo appeal, relied on the Court's power to give leave to allow an appellant to add further grounds of objection. He also submitted that the onus of proof provision would have no application if the appeal was limited to legal issues.

32 The powers of the Court and of the Victorian Civil and Administrative Tribunal are not identical. The Court has the power upon hearing the appeal to confirm, reduce, increase or vary the assessment or decision: s 112(1) of the Taxation Administration Act 1997(Vic). VCAT has those powers and also the powers given by s 51 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic), including the power to set aside the decision under review and make a decision in substitution for it, which is deemed to be the decision of the decision maker.

33 The Commissioner relied on the statement by Dixon J in Avon Downs Pty Ltd v Federal Commissioner of Taxation ('Avon Downs').[3]

But it is for the commissioner, not for me, to be satisfied of the state of the voting power at the end of the year of income. His decision, it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review. Moreover, the fact that he has not made known the reasons why he was not satisfied will not prevent the review of his decision. The conclusion he has reached may, on a full consideration of the material that was before him, be found to be capable of explanation only on the ground of some such misconception. If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law.

34 The grounds that Dixon J lists are analogous to the grounds available on an appeal against the exercise of a discretion.[4]

35 In my opinion, the nature of the appeal provided will often be determined, and is to be determined in this instance, by consideration of the character of the decision or judgment against which the appeal is brought. The opinion that I express as to the nature of this appeal is directed only to a decision of the character made by the Commissioner in this determination. Section 106 of the Taxation Administration Act 1997 (Vic) may give a taxpayer a different appeal right in respect of a different determination by the Commissioner. In the same way, an appeal to the Court of Appeal will be more limited if made against a discretionary judgment than against a non-discretionary judgment, although both appeals are brought under the same statutory provision.

36 A number of authorities to which the Commissioner referred were appeals against a decision maker's formation of an opinion or a conclusion that the decision maker was satisfied of prescribed matters. Such decisions can only be the subject of judicial review in limited circumstances.[5] Avon Downs[6] was such a case. The statute there provided that no loss incurred by a company in any year prior to the year of income should be an allowable deduction unless the company satisfied the Commissioner of matters relating to its shareholding in the year of income and also in the year in which the loss was incurred.[7] The legislation provided for a right of appeal to the Court as well as a right to an appeal before a Taxation Board of Review. As is the case with the Taxation Administration Act 1997 (Vic), the taxpayer could add further objections and the taxpayer bore the onus of proof.[8]

37 The decision in Ballarat Brewing Co Ltd v Commissioner of Pay-Roll Tax (Vic),[9] on which the Commissioner also relied, was a similar case. Gray J considered the nature of an appeal under s 33 of the Payroll Tax Act 1971 (Vic), which required the taxpayer to satisfy the Commissioner of various matters to avoid the grouping provisions of that Act. The statutory provisions conferring rights of appeal on the taxpayer were similar to the scheme of the Taxation Administration Act 1997 (Vic). Gray J applied the decision in Avon Downs and concluded that s 33 gave a right of appeal in the strict sense and therefore the taxpayer had to establish that the decision appealed against was wrong at the time it was given upon the material before the Commissioner.

38 The more recent decision in Conte Mechanical and Electrical Services Pty Ltd v Commissioner of State Revenue,[10] is a further example of this line of authority.

39 The Commissioner contended that the legislative intention was to entrust to the Commissioner the function of determining whether land was exempt land by the process of application and determination. The Commissioner could request information in order to determine whether the land was exempt from land tax.

40 In my opinion, neither the decision in Tasty Chicks nor that in Avon Downs is determinative of the nature of the right of appeal given by s 106 against the Commissioner's determination in this case.

41 I consider that s 106, in this instance, gives the appellant an appeal to the Supreme Court with a right to a rehearing de novo including a right to lead further evidence, although limited to the grounds of the objection, unless leave is granted to add to them.

42 This is not a case like Avon Downs[11] where the Commissioner has to be satisfied of particular matters. Rather, the Commissioner, in the first instance, had to issue an assessment of land tax by applying the statute to the facts relating to the land and the owner. In determining the appellant's objection he was performing that same function.

43 The statutory regime in Tasty Chicks,[12] which involved the conferral of identical powers on the Supreme Court and on the Administrative Decisions Tribunal differed from the regime under the Taxation Administration Act 1997 (Vic). As I have stated above, VCAT, which can review the Commissioner's determination, possesses wider powers than the Court.

44 In my opinion, the authority of most assistance in determining the nature of the appeal granted by s 106 is Feez Ruthning v Commissioner of Pay-roll Tax.[13] That case concerned the nature of the appeal granted by the Queensland Pay-Roll Tax Act, which contained appeal rights substantially similar to those contained in the Taxation Administration Act 1997 (Vic). The issue arose in connection with the determination of the appropriate interlocutory orders and directions to make in connection with the appeal. At first instance, de Jersey CJ stated:

I adopt this concluding submission presented by Ms O'Reilly QC for the appellants.

This proceeding might be described as an appeal by way of rehearing. On an appeal by way of rehearing, further evidence relevant to the issues on appeal is admissible.

The most common restriction on adducing further evidence in pay-roll tax appeals, is that evidence not before the Commissioner at the time the Commissioner achieved some necessary state of mind, is not admissible. The question there is whether the Commissioner ought to have achieved some state of satisfaction, or should have exercised some discretion.

Where that restriction applies, it is because the Court does not immediately step into the Commissioner's shoes to re-exercise the discretion, or to determine whether the state of satisfaction ought to have been achieved. Instead, the Court examines whether there was error on the part of the Commissioner in relation to the attainment of satisfaction or exercise of discretion. Matters not before the Commissioner at the time that the state of mind is achieved are therefore irrelevant to the question of whether the Commissioner fell into error in reaching the decision.

...

There being no state of mind or discretion of the Commissioner under attack in these appeals, the evidence led is that relevant to determine the issue of fact related to whether the fixed draw partners were employees. That evidence may include matters not before the Commissioner when the assessments were raised and the objections determined.'[14]

...

For the reasons I have expressed, I consider that upon the hearing of an appeal under s 33 of the Payroll Tax Act 1971, an appellant should not be confined to the materials before the Commissioner for Payroll Tax, but may adduce evidence of any circumstances relevant to the issue arising under the Act, subject to the appellant's being limited by the grounds of objection (s 33 (3)(a)). Acknowledging that to be the nature of such an appeal, the court should lend its interlocutory support, through a preparedness to make orders as to pleadings and disclosure which may facilitate the elucidation of the issues and their proper presentation.[15]

45 The Queensland Court of Appeal in dismissing an appeal, substantially adopted the Chief Justice's reasoning.[16] Wilson J, with whose judgment the other members of the Court of Appeal agreed, stated:

I am satisfied that the Court has power to receive further evidence on appeal. Whether it should do depends on whether it is an appeal against the application of statutory criteria to the facts or an appeal against what is really the exercise of a discretion.[17]

46 Wilson J agreed with de Jersey CJ's conclusion that the question whether the appellants were liable to payroll tax was to be determined by applying to the facts of the case, the objectively stated statutory criteria.[18]

47 In this case, there is no state of mind or discretion involved in the Commissioner's determination. The question is whether the taxpayer had established the matters entitling him to claim the exemption. Whether land tax is payable depends upon the applicability of statutory criteria, which do not involve any individual satisfaction or exercise of discretion on the part of the Commissioner.[19]

48 The other matter that has influenced my conclusion that s 106 provides an appeal that is a rehearing de novo is that the appeal is from an administrative decision maker to the Court sitting in its original jurisdiction. Such appeals are often construed as appeals de novo.[20] This is in part because the appellant has not previously had a hearing. That is the position in this case. The Commissioner made a determination after a consideration of written material rather than any dialogue or exchange of views with the taxpayer about all the matters that might have influenced the Commissioner. The appellant had no right to a hearing or to call witnesses before the Commissioner. In such circumstances, an administrative decision maker may well take into account matters upon which the taxpayer has not made submissions. In the present case, there was little, if any, discussion between the Commissioner and the taxpayer about whether the taxpayer carried on a business of renting properties.

49 I will therefore proceed to determine this appeal on the basis that is requires a de novo determination based on the evidence and material that is before me, which includes the documents that were before the Commissioner together with the affidavits and oral evidence of Mr Mould. The appeal is limited to the grounds of objection but they include ground 7 that primary production was the sole business of the Trust.

50 I will next summarize the additional evidence of Mr Mould given in affidavits and orally at the hearing of the appeal.

51 Mr Mould, in his first affidavit, stated that the rental properties were properties acquired by his parents and had been held for some time. His parents' wealth creation strategy had been to hold properties for rental income rather than to buy and sell properties. At all times, the estate carried on the business of farming and primary production. That had been the core business activity of the family for many generations. The farming and primary production business was highly successful for many years, with a significant turnover of cattle. However, a significant long-term drought, beginning in about 1996, caused a gradual reduction of the size and numbers of the cattle herd. As the only son of his parents, he had, for many years prior to his mother's death, run the farming business and continued to do so thereafter. The Lyndhurst land was, for the relevant period, used for the de-pasturing of cattle, for the purpose of fattening steers, holding cattle in transit while on the way to market and general farming activities. The Lyndhurst land was approximately 276 acres, was divided into a series of paddocks, had virtually no tree coverage and had been improved by pasture management and fertiliser over the period of management.

52 Mr Mould exhibited information, provided by an accountant, from the financial statements of the estate for the financial years ended 30 June 2008 to 30 June 2011. I set out that information below.

53 In his second affidavit, Mr Mould repeated matters contained in his first affidavit and gave further details of the estate's farming properties. He stated that the farming business carried on by the estate continued the farming business that his family had carried on since he was a child. As the only son he had effectively become the manager of the enterprise. His parents and he would regularly buy and sell and breed and fatten cattle. They would regularly transfer cattle from one property to another to maximize the potential of each farm. They did not record cattle numbers for each farm. The business contracted during the latter part of his parents' lives.

54 Mr Mould also stated that the rental properties held by the estate were assets of the family, having been purchased between 1973 and 1990. He exhibited documents giving details of the purchase of each property and their title particulars.

55 The Commissioner's determination of the objection, from which I have quoted above, referred to Mr Mould's statutory declaration that he was involved in the management of the rental properties, in addition to the primary production activities. That declaration related to a property in Malvern that Mr Mould stated was the home in which he lived with his wife and family and was his principal place of residence. Mr Mould set out matters to establish that contention. In parts of the declaration he described his responsibilities concerning other properties and stated:

I have continued to act in respect of the administration of my parents large property portfolio including management of rental properties and farming land. My parents held when they were alive several farming properties and the Noack Road Harkaway property referred to in the Land Tax Assessment of Gwenda Mary Mould ... is the last farming asset held by my family. For many years the centre of the farming activity and business activity was the Noack Road property and my office is still located there...

I am often away through business having to manage many rental properties and having to manage and run the current farming property of the Estate and my own farming properties...

56 Mr Mould, in his second affidavit, stated that he made the statutory declaration to explain why he spent time at the Harkaway property, rather than to describe his involvement with the rental properties. He made the statements in the declaration upon which the Commissioner now relied because the State Revenue Office sought to contend that his property at Harkaway was his principal place of residence rather than his home at Malvern.

57 In cross-examination, Mr Mould gave further details of the rental properties. There was also a family property in Toorak where his mother had lived. The residential properties were accumulated from 1973. Changes of tenants were infrequent. He was responsible for maintenance of the properties and a real estate agent collected rent.[21] He himself owned a number of residential properties. He generally signed the leases of the properties, but did not approve or consider the applicants who wished to lease the properties. He denied that he had been personally involved in the management of the rental properties, other than cleaning, carting rubbish to the tip and arranging for tradesmen to do various work.[22]

58 In 2009, the estate derived three kinds of income: income from primary production, income from rent and interest income from bank deposits.

59 There was evidence before the Commissioner that Mrs Mould declared rental income of $252,266 for the 2005 tax year and that in the 2006 tax year the rental income received by Mrs Mould and, after her death, by her estate was $249,507. In the 2007 tax year the estate received $261,399 in rent, in the 2008 tax year $275,912, and in the 2009 tax year $298,470. These were gross figures as, for instance, in the 2009 tax year there were rental deductions of $150,011.

60 The beef cattle farming income for the year ended 30 June 2009 was $54,394 with total expenses of $175,797. In the year ending 30 June 2009 profit from livestock trading was $49,936 and total expenses were $45,495 with a net profit of $4,441. In the year ending 30 June 2010, profit from livestock trading was $55,349 and total expenses were $168,808 with a net loss of $111,950.

61 The estate's accountant prepared figures showing the financial accounts for the estate for the years 2008, 2009, 2010 as follows:

62 The rental income given in these figures differs from the amounts upon which the Commissioner relied, but nothing turns on the differences.

63 There was little evidence about the interest received or the investment income. The estate had sold the Lyndhurst land and was entitled to receive the deposit in two payments totalling $22,000,000, the first in May 2006 and the second 18 months thereafter.

The application of s 67 of the Land Tax Act

64 The Commissioner accepted that the requirements of s 67(1)(a) of the Act were met in respect of the Lyndhurst property, including that the land was used primarily for the business of primary production.

65 The issue in dispute was whether, the Lyndhurst land was owned by a trustee of a trust, the sole business of which was primary production of the type carried on on the land within the meaning of ss 67(1)(b) and 67(2)(c)(i).

66 Counsel for Mr Mould contended that the residential lands were rented out on a continuous long-term basis, by his mother prior to her death and later by her estate, to the date of the 2010 land tax assessment. At all times, the estate carried on the business of farming and primary production. Mr Mould continued to conduct the business as executor of her estate. The rented properties were managed by real estate agents and were passive investments. The GST legislation was predicated on the distinction between passive investment income and income received from business activities.

67 Mr Mould contended that the word "business" should take its ordinary meaning.[23]

68 Mr Mould submitted that the Commissioner erred in determining that primary production was not the sole business of the estate, as the estate's residential rental income came from "passive activity" that did not constitute a business within the meaning of s 67(2)(c)(i).

69 Mr Mould contended that the rental of residential lands and the holding of bank deposits did not constitute a business for the purposes of s 67(2)(c)(i) of the Act. He relied particularly on a statement by Professor Parsons in his text Income Taxation in Australia as follows:

It may be accepted that there is no business, within the ordinary usage business gains principle, where an investment or any number of investments have been made with the purpose simply of obtaining income derived from property - interest, rent, dividends - which attends the investment. To treat this income as supplying a profit purpose, so as to make the investing a business, would be to bring about a radical extension of the concept of income into the field of capital gain. A purpose simply to obtain income derived from property, it was submitted above, is not a profit purpose. In any case, on the hypothesis that the purpose is simply to obtain that income, there will not be any system in the taxpayer's activities such that a change in his investments can be seen as part of or as incidental to it. Sometimes the taxpayer will cease to hold the investment because he has been repaid money he has lent, or the company in which he has invested has been liquidated. Sometimes he will have realised his investment because he has need, for some private purpose, of the money he had invested. None of these events is part of or incidental to whatever system there may be in obtaining the income derived from the investments.[24]

70 Immediately after the passage quoted by the appellant, Professor Parsons stated:

A relatively small variation in the hypothesis about the taxpayer's purpose will require a re-examination of the conclusion that there is no business.[25]

71 Professor Parsons then considered four hypothetical scenarios in which the conclusion that the taxpayer was not conducting any business would require re-examination. For instance, the first was that the taxpayer's purpose included a purpose to choose investments, having regard to the prospect of increasing their value, and to realise investments so as to realise increases in value when they have occurred.

72 Counsel for Mr Mould submitted that the authorities supported the proposition that the holding of properties of real estate for lease is not a form of business.[26] Managing properties in a business-like manner does not turn rental activities into a business. Renting a property and maintaining it while it was rented were not activities in the nature of a business.

73 Reliance was placed on the judgment of Beaumont J in Federal Commissioner of Taxation v McDonald.[27] In that case a husband and wife purchased two income producing properties. The husband claimed losses in respect of one property. The issue was whether the husband and wife were partners under the general law and could claim losses in accordance with their agreement or were deemed to be partners under the Income Tax Assessment Act 1936 (Cth) and only entitled to deduct half the loss as joint tenants. Beaumont J considered that they were not partners at general law and stated:

In the present case, a number of indications point to the conclusion that the parties were not carrying on a business, with the consequence that their relationship was that of co-ownership rather than partnership. Their investment involved little, if any, active participation from either party. This was inevitable because the respondent was apparently in full-time employment, and Mrs McDonald was fully committed at home. On the few occasions on which the owners needed to be involved, the respondent and not Mrs McDonald attended to the matter. This was not a case of the active joint participation by the parties in a business activity. Rather, it was a case of renting out of premises without the provision of other services of the kind discussed in Wertman (supra). In my view, there was here a mere investment in property rather than a partnership in the properties or their profits. This is not, of course, to say that it is not possible for husband and wife to enter into a partnership under the general law with respect to land dealings: see, for example, Spence v Commissioner of Taxation (Cth).

Given the respondent's minor participation in the affair and given Mrs McDonald's apparent lack of commercial expertise and her passive role, it is, I think, more accurate to describe them as co-owners in investments rather than as partners in a business operation.[28]

74 The Commissioner contended that the estate owned a large portfolio of residential properties which had been rented on a continuous basis for the purpose of deriving a profit. The letting of the properties was managed through agents, although it also required some involvement by Mr Mould. The management of the rental properties involved business-like activities and repetition both in entering tenancy agreements and receiving rental income. The scale of the activities was substantial, comprising 23 properties. Their rental produced most of the income of the estate. The properties had been purchased for the purpose of generating income.

75 Counsel for the Commissioner submitted that it was open for the Commissioner to find that the estate had multiple sources of business income, including income derived from operating a rental property business. The Commissioner contended that the activities of renting a portfolio of properties amounted to a business other than that of primary production. This followed from a consideration of factors, such as the pursuit of profits, the scale and commercial character of the activities, their system or organisation, and how continuous and repetitious the activities were. The Commissioner relied on authorities to establish that activities associated with leasing residential properties were capable of amounting to a business.[29] For instance, in Lilydale Pastoral Co Pty Ltd v Commissioner of Taxation,[30] which was a withholding tax case, Pincus J considered whether activities amounted to an 'enterprise'. 'Enterprise' was defined as a 'business or other industrial or commercial undertaking'. Pincus J stated:

I think that the purchase of a property to rent out whether or not after renovating it, and the proprietorship of that property, constitute an undertaking of a business or commercial kind.[31]

76 Pincus J, of course, was applying a statutory definition which included the term 'business'.

77 The Commissioner also advanced submissions that would have been more applicable if the appeal was an appeal in the strict sense. These were that it was open for the Commissioner to determine that the appellant was not the trustee of a trust of which the sole business was primary production within the meaning of s 67(2)(c)(i) of the Act and that there was no legal error in the Commissioner's determination.

78 The word "business" in s 67 of the Act, which is not defined, is to be given its ordinary meaning.[32] It refers to activities engaged in for the purpose of profit on a continuous and repetitive basis.[33] The context in which the word "business" is used often reflects that it is a "wide and general" word.[34] Whether an activity is, or activities are, a business is a question of fact, to be answered by examining all the relevant features of the activity or activities.

79 In Ferguson v Federal Commissioner of Taxation,[35] Fisher J, as a member of the Full Court of the Federal Court of Australia, in considering whether the activity of a taxpayer who leased five cows, with the view, on his retirement from the Navy, to purchasing a grazing property and raising cattle, constituted the carrying on of a business for the purpose of gaining or producing assessable income, entitling the taxpayer to claim deductions, stated:

It is necessary to give consideration to the essential nature of the activity, and the question whether it has the characteristics of a business is primarily a matter of general impression and degree.[36]

80 The Full Court decided that the taxpayer was carrying on a business. The activities were undertaken in a systematic, commercial and organized manner.

81 In Spriggs v Federal Commissioner of Taxation,[37] in considering whether two professional footballers were carrying on a business of exploiting their sporting prowess and associated celebrity, the High Court stated:

The existence of a business is a matter of fact and degree. It will depend on a number of indicia, which must be considered in combination and as a whole. No one factor is necessarily determinative. Relevant factors include, but are not limited to, the existence of a profit-making purpose, the scale of activities, the commercial character of the transactions, and whether the activities are systematic and organised, often described as whether the activities are carried out in a business-like manner.[38]

82 The appellant's submission that, in renting properties, the trust was engaged in a passive activity and not a business activity does not, in itself, resolve the issue posed by s 67(2) of the Act. There is no one, clear-cut factor that determines the issue. The activities associated with the gaining of income by renting the properties must be considered. There is no fixed rule that buying and leasing properties cannot amount to a business. While the holding of a few properties may not amount to the conducting of a business, the renting of a significant portfolio of properties may be regarded as a business.

83 I have taken into account the nature and extent of the rental activities, how these activities were conducted, the extent to which they had a purpose of profit-making, the extent to which they were repetitious and regular, and whether they were performed in a business-like manner. Also of significance, is the volume of operations and the amount of capital employed.[39]

84 In my opinion, the evidence leads to the conclusion that, in the assessment year, the trust conducted a business of renting properties. The trust's activities in renting properties were largescale, involving 23, mainly inner city, properties and were carried out systematically over a long period of time, commencing in 1973. There was repetition in entering leases and in the receipt of rent.

85 In the year of assessment, and in the preceding years, income received from rent exceeded the income received from the primary production activities. The rental activities achieved significant profits and were not a loss-making activity designed to secure taxation advantages.

86 The nature and extent of the rental activities and the income received show that they had a significant commercial purpose. A substantial part of the estate's income was obtained from the renting of properties. The gaining of that income can be taken, at least in part, as the purpose of the holding of the properties.

87 The activities were carried out in a systematic and organised way. Long term tenants were obtained. A real estate agent managed the rental properties, although the appellant carried out some maintenance. The fact that some of the activities were performed by an agent or manager does not preclude a finding that taxpayer was carrying on a business.[40]

88 The extent of activities means that the rental business was not merely an extension of the primary production business, but, rather, constituted a separate business or activity. The proposition that the scope of the primary production business included renting residential properties was not advanced in any detail. I do not consider that the primary production activities and the rental activities were part of the one business of primary production. There was no evidence of a significant connection and interdependence between the two activities.[41]

89 That is not to say that primary production was not a core business of the estate. Rather, I conclude that, in the year of assessment, the estate was carrying on a business of renting properties, as well as a business of primary production.

90 For the above reasons the appellant has not proved his case.[42] The appeal is dismissed.

[1] Victorian Civil and Administrative Tribunal Act 1998 (Vic) s 51; McDonald v Guardianship & Administration Board [1993] VicRp 36; [1993] 1 VR 521, 528-530.

[2] [2011] HCA 41; (2011) 245 CLR 446, 450.

[3] [1949] HCA 26; (1949) 78 CLR 353, 360.

[4] Minister for Aboriginal Affairs v Peko-Wallsend [1986] HCA 40; (1986) 162 CLR 24, 42; Minister for Immigration and Citizenship v Li [2013] HCA 18; (2013) 297 ALR 225, 249 [75].

[5] Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611, 650-651; Minister for Immigration and Citizenship v SZMDS [2010] HCA 16; (2010) 240 CLR 611, 623, 638-639.

[6] [1949] HCA 26; (1949) 78 CLR 353.

[7] Income Tax Assessment Act 1936 (Cth) s 80(5), as inserted by s 10 of the Income Tax Assessment Act 1944 (Cth).

[8] Income Tax Assessment Act 1936 (Cth) s 190.

[9] (1979) 10 ATR 228.

[10] [2011] VSC 104.

[11] [1949] HCA 26; (1949) 78 CLR 353.

[12] [2011] HCA 41; (2011) 245 CLR 446.

[13] [2001] QSC 303; (2001) 48 ATR 137.

[16] Feez Ruthning v Commissioner of Pay-Roll Tax [2002] QCA 396; [2003] 2 Qd R 41. See also Tourism Holdings Pty Ltd v Commissioner of Taxation (NT) (2005) 59 ATR 145.

[17] Feez Ruthning v Commissioner of Pay-Roll Tax [2002] QCA 396; [2003] 2 Qd R 41, 48 [19].

[19] Feez Ruthning v Commissioner of Pay-Roll Tax [2001] QSC 303; (2001) 48 ATR 137 [22].

[20] Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd [1976] HCA 62; (1976) 135 CLR 616, 621; Re Coldham; Ex parte Brideson (No.2) [1990] HCA 36; (1990) 170 CLR 267, 273; United Petroleum Pty Ltd v Victorian WorkCover Authority [2011] VSC 570 [81].

[23] Hope v Bathurst City Council [1980] HCA 16; (1980) 144 CLR 1, 8-9.

[24] Ross Parsons, Income Taxation in Australia: principles of income, deductibility and tax accounting (Law Book Co, 1985) 148-149 [2.456].

[26] The appellant relied on Commissioner of Taxation v McDonald (1987) 15 FCR 172; Case X48 (1990) 90 ATC 384; Cripps v FC of T (1999) 99 ATC 2428.

[27] (1987) 15 FCR 172.

[29] Lilydale Pastoral Co Pty Ltd v Commissioner of Taxation (1987) 15 FCR 19, 26; American Leaf Blending Co Sdn. Bhd v Director-General of Inland Revenue [1979] AC 676, 682; Commissioner of Taxation v Janmor Nominees Pty Ltd (1987) 15 FCR 348, 353.

[30] (1987) 15 FCR 19.

[32] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27,31 [4], 46-47 [47].

[33] Hope v Bathurst City Council [1980] HCA 16; (1980) 144 CLR 1, 8-9.

[34] NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90, 116.

[35] [1979] FCA 29; (1979) 37 FLR 310.

[37] [2009] HCA 22; (2009) 239 CLR 1.

[39] Ferguson v Commissioner of Taxation [1979] FCA 29; (1979) 37 FLR 310,314.

[41] Spriggs v Federal Commissioner of Taxation [2009] HCA 22; (2009) 239 CLR 1, 20.

[42] Taxation Administration Act 1997 (Vic) s 110.