Mould v Commissioner of State Revenue [2015] VSCA 285

Court of Appeal (Vic)|2015-10-27|Before: Warren CJ, Tate JA

Mould v Commissioner of State Revenue [2014] VSC 268 (Ginnane J)

TAXATION - Land tax - Exemption of primary production land in an urban zone in greater Melbourne - Whether primary production was sole business of trustee owner - Whether trustee carried on a business of leasing residential properties - Relevance of passivity of ownership of rental properties - Appeal dismissed -

1 In 2010, the respondent ('the Commissioner') issued a land tax assessment in relation to land at 155 Dandenong-Hastings Road, Lyndhurst ('the Lyndhurst land'), which was owned by the appellant in his capacity as the trustee of the Estate of Mrs Gwenda Meryl Mould ('the Estate'). The appellant brought an appeal in relation to that assessment before a single judge of this Court pursuant to s 106 of the Taxation Administration Act 1997, unsuccessfully. He now appeals that decision.

2 The key issue for the Court's determination is whether the appellant satisfied the requirements of s 67(2)(c)(i) of the Land Tax Act 2005, that is, whether he was at the relevant time 'a trustee of a trust of which ... the sole business [was] primary production of the type carried on on the land'. It is common ground that if he was, the Lyndhurst land would have been exempt from land tax pursuant to s 67 of the Land Tax Act, given the form of that section that was in force at the relevant date.

3 In 2009, the Estate derived income from three sources: from primary production, from rent, and from interest on bank deposits. The question before the Court is whether the judge below erred in finding that the Estate conducted a separate business of renting residential properties, such that primary production was not its sole business. The Commissioner has not contended that the interest income was the product of a business carried on by the Estate.

4 Gwenda Meryl Mould died on 17 February 2006. At that time, she was relevantly the registered proprietor of the following properties:

(b) land at 51 Noack Road, Harkaway ('the Noack Road land');

(c) land at 182-192 King Road, Berwick ('the King Road land'); and

(d) 26 residential rental properties ('the residential properties').[1]

5 By a will dated 12 April 2001, the beneficiaries of the Estate (after some specific bequests) are Mrs Mould's children, namely the appellant and Diane Elizabeth Mould, as tenants in common in equal shares. The appellant was appointed the sole executor of the Estate by grant of probate dated 11 July 2006.

6 On 17 May 2006, the appellant agreed to sell the Lyndhurst land for $56 million plus GST. A special condition in the sale contract allowed the appellant to continue to use the land for farming purposes on an ongoing basis, and required the purchaser to give 90 days' notice in writing that vacant possession of the property was required. Settlement of the sale contract for the Lyndhurst land ultimately took place on 29 January 2010.

7 It was not in dispute that, as at 31 December 2009, the appellant in his capacity as the executor of the Estate was the 'owner' within the meaning of the Land Tax Act of the Lyndhurst land, the Noack Road land, the King Road land and the residential properties.[2]

8 The Noack Road land and the King Road land are contiguous. At all relevant times, neither of those properties was in an 'urban zone' within the meaning of Division 2 of Part 4 of the Land Tax Act. Consequently, it would appear that the relevant exemption test applicable to those properties as at 31 December 2009 was whether the land was 'used primarily for primary production' under s 66 of the Act, although the application of the Act to those properties was not in issue in this appeal.

9 Prior to 26 March 2009, the Lyndhurst land was also not in an 'urban zone' within the meaning of Division 2 of Part 4 of the Land Tax Act. However, rezoning of the Lyndhurst land on that date resulted in it becoming land in an urban zone. Section 67 of the Land Tax Act therefore became the primary production exemption capable of application to the Lyndhurst land, and it so remained as at 31 December 2009.

10 As at 31 December 2009, the primary production exemption in s 67 of the Land Tax Act involved both land and owner requirements. It relevantly provided:

(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) ... ; or

(b) ... ; or

(c) a trustee of a trust of which -

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

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

(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.

11 As trustee for the Estate, the appellant conducted a cattle farming business on the Lyndhurst land, the Noack Road land and the King Road land. Cattle were bought and sold, and moved between the different properties. This business was the continuation of a cattle farming business that had been run by the Mould family for many years.

12 It was agreed by the parties that the residential properties were acquired by Mrs Mould and her late husband between 1973 and 1990 for the purpose of generating rental income. The residential properties were continuously let to tenants by Mrs Mould prior to her death, and following her death the Estate continued to let the residential properties on the same basis. The properties were managed by a real estate agent.

13 The parties were also agreed upon income figures declared by Mrs Mould or her Estate to the Commissioner, and upon figures contained in the Estate's accounts. This material was, with respect, helpfully summarised by the judge as follows:

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.

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.

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

The rental income given in these figures differs from the amounts upon which the Commissioner relied, but nothing turns on the differences.[3]

14 On 26 August 2010, the Commissioner issued a land tax assessment notice ('the Assessment') to the appellant. The Assessment assessed the Lyndhurst land to land tax in the amount of $1,089,898.60 for the 2010 tax year.

15 On 25 October 2010, the appellant's solicitors objected to the Assessment, including on the ground that the Lyndhurst land was exempt land under s 67 of the Land Tax Act.

16 On 1 September 2011, the Commissioner issued a determination disallowing the appellant's objection to the Assessment.

17 On 19 October 2011, the appellant's solicitor requested the Commissioner to treat the objection as an appeal and cause it to be set down for hearing at the next sittings of the Supreme Court pursuant to s 106 of the Taxation Administration Act.

18 The appeal was heard by a judge of the Trial Division.

19 On 12 June 2014, the judge delivered judgment and ordered that the appeal be dismissed.

20 At the hearing before his Honour, there was no dispute that the Lyndhurst land was used primarily for primary production. The question before his Honour was whether that was the sole business of the trust which owned that land, for the purposes of s 67(2)(c)(i) of the Land Tax Act, given that the Estate also rented out the residential properties.[4]

21 As a preliminary matter, the judge considered whether the appeal brought under s 106 of the Taxation Administration Act was limited to the material that had been before the Commissioner in determining the appellant's objection, or whether the Court could consider additional evidence. His Honour concluded that the appeal in this case required a de novo determination involving the consideration of the additional evidence and material brought before the Court.[5] The Commissioner has not sought to contest that conclusion in the present appeal.

22 His Honour then considered the appellant's evidence before the Court. That evidence principally described the history of the Mould family's farming business and acquisition of rental properties, as well as the extent of the appellant's more recent involvement in the management of the farming and rental activities. It would appear that his Honour accepted the appellant's evidence on these matters. The appellant does not challenge any of the judge's factual findings on this appeal, save for the conclusion that the rental activities amounted to the carrying on of a business of renting properties.

23 In relation to the Estate's primary production business, his Honour referred to the appellant's evidence that:

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.[6]

24 His Honour relevantly described the appellant's evidence regarding the residential properties owned by the Estate as follows:

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.[7]

...

[In his second affidavit] 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.[8]

...

In cross-examination, Mr Mould gave further details of the rental properties. ... 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. 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.[9]

25 His Honour also referred to the evidence before the Court regarding the Estate's sources of income,[10] including the table set out earlier in these reasons.[11] His Honour observed that '[t]here was little evidence about the interest received or the investment income', but that it may be explained at least in part by the Estate's receipt of the deposit following the agreement to sell the Lyndhurst land.[12]

26 Turning to identify the legal test for determining what constituted a business of the Estate, the judge held:

The word "business" in s 67 of the Act, which is not defined, is to be given its ordinary meaning. It refers to activities engaged in for the purpose of profit on a continuous and repetitive basis. The context in which the word "business" is used often reflects that it is a "wide and general" word. 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.[13]

27 In this regard, his Honour referred to the High Court's statement in Spriggs v Federal Commissioner of Taxation[14] that:

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 the 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.[15]

28 On the question of whether the leasing of residential properties could constitute a business of the Estate, his Honour concluded:

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.[16]

29 The judge then applied the above legal conclusions to the facts of the case in the following way:

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.

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 large-scale, involving 23 [sic], 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.

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.

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.

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 [the] taxpayer was carrying on a business.[17]

30 Finally, his Honour held that the Estate's business of leasing properties was separate from its primary production business, in the following terms:

The extent of [the rental] 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.

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.[18]

31 On the basis of his conclusion that the Estate's primary production business was not its sole business, the judge dismissed Mr Mould's appeal.

32 The appellant appeals from the judge's decision on the following grounds:

His Honour erred in finding that, upon the proper construction of section 67(2) of the Land Tax Act 2005 (Vic), in the year ended 31 December 2009 the Appellant's sole business was not primary production of the type carried on on the land within the terms of section 67(2)(c)(i) (Reasons 88 and 89).
His Honour should have held that, in the year ended 31 December 2009, the Appellant's rental activities did not amount to carrying on a business of renting properties and therefore the Appellant's sole business was primary production of the type carried on on the land within the terms of section 67(2)(c)(i).

On the evidence and findings of fact made that:

The rental properties were properties acquired by the Appellant's parents and were assets of the Appellant's family, having been purchased between 1973 and 1990 (Reasons 51 and 54); 2. The business of farming and primary production was the core activity of the Appellant's family for many generations (Reasons 51);

Changes of tenants [were] infrequent and long term tenants were obtained by the Appellant (Reasons 57 and 87); and

The Appellant retained a real estate agent to manage the properties and was not involved in the management of the rental properties other than carrying out some maintenance (Reasons 57 and 87);

His Honour erred in holding that the Appellant conducted a business of renting properties (Reasons 84).

Ground 3

The fact that rental income was received from the properties (Reasons 15); 2. The number of rental properties held in the estate (Reasons 82 and 84);

The quantum of rental income received by the estate (Reasons 86); and

The fact that the income received from rent exceeded the income received from the primary production activities (Reasons 85);

Where those matters were irrelevant to the issue under determination being whether the requirements of section 67(2)(c)(i) were satisfied in the year ended 31 December 2009.

33 For present purposes, it suffices to note that the appeal grounds raise the following questions:

1. As a matter of law, could the Estate's rental activities constitute a 'business' for the purposes of s 67(2)(c)(i) of the Land Tax Act?

2. In determining whether the Estate's rental activities constituted a 'business' in that sense, did the judge err in attaching significance to the matters identified in subparagraphs (a) to (d) in Ground 3?

3. Did the judge err in concluding that the Estate's rental activities constituted a 'business' in that sense, in particular given the evidence and factual findings identified in subparagraphs (a) to (d) in Ground 2?

34 The appellant's principal submission was that the mere holding of residential properties for lease could not, without more, constitute a 'business' for the purposes of s 67 of the Land Tax Act.

35 The appellant submitted that in the absence of a statutory definition of 'business' in the Land Tax Act, the term 'business' in s 67 'takes its meaning from the common law'.

36 At common law, the appellant submitted, there is an 'established distinction' between business and investment, the former producing 'active' income and the latter 'passive' income.[19] The appellant contended that this distinction was reflected in federal taxation legislation and case law.[20]

37 The appellant accepted that the judgment in Spriggs[21] was authority for the proposition that whether an activity amounts to a business is a question of fact and degree. In that case, the High Court considered whether management fees incurred by two professional football players were incurred in carrying on a business and could thereby be deducted under s 8-1(1) of the ITAA 97. Having regard to the indicia of a business it identified,[22] the Court held that 'the appellants were engaged in the business of commercially exploiting their sporting prowess and associated celebrity'.[23] On this appeal, however, the appellant submitted that the indicia-based approach adopted by the High Court in Spriggs must be understood in the context that the mere passive receipt of rental income from investment properties could never on its own have the character of a business.

38 It followed, on the appellant's argument, that the leasing of residential properties could amount to a business where it was accompanied by the provision of 'substantial ancillary services' to tenants, such as cleaning or the provision of furniture. However, if a lessee of residential properties performed only the minimum obligations imposed upon landlords by law, rent from those properties would be 'passive' income and leasing those properties would not amount to carrying on a 'business'.

39 In support of this proposition, the appellant relied principally upon the Federal Court's decision in Federal Commissioner of Taxation v McDonald,[24] and upon decisions applying that case.

40 The appellant asserted that on the proper construction of McDonald, the Estate's renting out of the residential properties ought to be characterised as an investment generating passive income, rather than as a business. On his argument, it was relevant that the residential properties had been held by the Mould family over a long period for the purpose of generating passive income, that changes in tenants were infrequent and that no ancillary services were provided beyond the landlord's obligation to maintain the properties.

41 Initially, the appellant also submitted that the involvement of a real estate agent further separated the Estate from the management of the properties, although in argument counsel for the appellant ultimately conceded that this made no real difference, given that the agent did manage the properties on behalf of the Estate.

42 The appellant contended that the number of residential properties, the quantum of rent they generated, and the proportion of the Estate's income which that rent represented were all factors that were irrelevant to whether renting the residential properties ought to be characterised a 'business' of the Estate. He submitted that the judge erred in taking those matters into account.

43 In argument, counsel for the appellant also admitted of the possibility that there may come a point where so many properties are passively held, or where they generate so much rent, that they must constitute or amount to a business. However, counsel maintained that the Estate was 'nowhere near' any such threshold in this case. Counsel submitted that the difficulty of identifying those thresholds with precision reinforced the need to focus on the nature of the activity said to constitute a business, rather than its scale.

44 For his part, the Commissioner submitted that the judge applied the correct legal principles and correctly found as a matter of fact that as at 31 December 2009 the Estate carried on a business of leasing properties in addition to a primary production business.

45 The Commissioner contended that the starting point in determining the meaning of 'business' must be the statutory language and context of s 67(2)(c)(i), bearing in mind that 'business' is ordinarily a concept of broad meaning. He rejected the proposition that the word takes its meaning from the common law.

46 Relying upon Spriggs, the Commissioner submitted that whether activities amount to a business is a question of fact and degree requiring the consideration of a range of indicia, none of which are determinative. It was submitted that these indicia included 'the pursuit of profits, the scale and commercial character of the activities, the presence of system or organisation, and whether the activities are engaged in [in] a continuous and repetitious manner'.

47 The Commissioner submitted that in this context, there was limited utility in drawing any bright-line distinction between 'active' and 'passive' income, since any finding that an activity generated 'passive' income could not of itself resolve the statutory question in any event. In particular, the Commissioner rejected the proposition that without the provision of ancillary services the leasing of residential properties could never amount to a business.

48 The Commissioner sought to caution against reliance upon principles developed in a different legislative context, namely in relation to the distinction between income according to ordinary concepts and gains of a capital nature. In addition, the Commissioner contended that the McDonald line of cases addressed a specific issue in a different context, namely whether a property investment made by several persons amounted to a partnership business, as opposed to mere co-ownership, for the purposes of determining the allocation of income tax deductions. The Commissioner submitted that these cases did not prevent the leasing of residential property from being capable of amounting to a business, and referred to a number of cases including the decision of the New South Wales Court of Appeal in Havyn Pty Ltd v Webster.[25]

49 As to the relevant considerations on the facts of this case, the Commissioner submitted that the judge was correct to consider the size of the Estate's portfolio of rental properties, the amount of rental income it generated, the repetition involved in entering tenancy agreements and receiving rent, and the scale of the rental activities in relation to the primary production activities of the Estate.

50 In the Commissioner's submission, in light of the relevant indicia the judge correctly found on the evidence that the rental activities of the Estate amounted to a separate business of the Estate.

51 The construction question before the Court is whether the Estate's renting out of the residential properties was capable of amounting to a 'business' of the Estate for the purposes of s 67(2)(c)(i) of the Land Tax Act.

52 In determining the meaning of 'business' in that provision, the Court must consider the context of the provision with the object of interpreting it in a manner consistent with the language and purpose of the statute as a whole.[26] The ordinary and natural meaning of the word 'business' in its statutory context must necessarily be taken into account.[27]

53 The ability of the word 'business' to assume different meanings in different contexts has been recognised by the High Court. In Re Australian Industrial Relations Commission; Ex parte Australian Transport Officers Federation, Mason CJ, Gaudron and McHugh JJ observed that '[o]f all words, the word "business" is notorious for taking its colour and content from its surroundings'.[28]

54 In NT Power Generation Pty Ltd v Power and Water Authority, McHugh ACJ, Gummow, Callinan and Heydon JJ remarked:

While the word "business" in any particular context takes its meaning from that context, normally it is a "wide and general" word.[29]

55 Both the appellant and the Commissioner accepted that in Spriggs the High Court set out the indicia of a 'business' in the ordinary sense, and that those indicia inform the meaning of 'business' as it is used in s 67 of the Land Tax Act. The High Court's statement bears repeating:

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 the 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.[30]

56 On the appellant's argument, however, that general statement operates in the context of the business/investment distinction that he contended was well established at common law. Effectively, he contended that there must be a preliminary step in the analysis requiring consideration of whether the activities generated 'active' or 'passive' income. He submitted that activities in the latter category must be understood to lack a business character on the proper application of the Spriggs indicia.

57 A key difficulty for the appellant's argument is that many of the materials on which he relied in support of this submission relate to different statutory contexts. They are of very limited assistance in determining what constitutes a business, in particular in the context of the Land Tax Act.

58 The appellant first relied upon an extract from RW Parsons, Income Taxation in Australia, which stated as follows:

Business and investing

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, rents, 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 gains. 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 activity 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 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.[31]

59 As the Commissioner submitted, that extract does not bear upon the question of whether rents from investment properties can arise from a 'business' in the ordinary sense. Rather, as the author noted two paragraphs earlier:

There are decisions which hold that investing to derive interest, dividends or rents, if done on a sufficient scale, constitutes a business. But the notion of business in these decisions is not necessarily the notion which is an aspect of the business gains principle in the ordinary usage meaning of income.[32]

60 The appellant also sought to rely on the lack of reference to an intention to profit from rents from Professor Parsons' list of four situations in which there may be a need to re-examine the conclusion that there is no business.[33] Once again, the sense of 'business' there considered was the narrow, technical sense relevant to whether a receipt is a 'business gain' and therefore income according to ordinary usage. That is not the sense of 'business' presently in issue before the Court.

61 Secondly, the appellant relied upon the distinct definitions in s 6 of the ITAA 36 of 'income from property' and 'income from personal exertion', the latter of which includes 'the proceeds of any business carried on by the taxpayer'. In addition, he relied upon the inclusive definition of 'business' in s 995-1 of the ITAA 97 in support of his general contention that statutory definitions occur against the background of the common law.[34] It is not clear that those definitions have any relevance to the dispute at hand. Even if the appellant be correct that the Land Tax Act in fact requires reference to some common law concept of 'business', the definitions to which he referred do not purport to reflect any common law definition or understanding of what a business is.

62 Thirdly, the appellant relied generally upon statements in a number of federal tax cases to the effect that business revenues will usually have the character of income,[35] as will gains derived from property.[36] It is difficult to see how those propositions can assist the appellant to establish that mere rental income cannot be income of a business. That is quite a different proposition, and it does not follow as a matter of logic from the conclusions reached in those cases.

63 Fourthly, the appellant relied upon the distinction drawn in federal income tax law between the carrying on of a business by two or more persons as partners and the co-ownership of property by such persons. He pointed to the definition of 'partnership' in s 995-1 of the ITAA 97,[37] which relevantly provides:

partnership means:

(a) an association of persons (other than a company or a *limited partnership) carrying on business as partners or in receipt of *ordinary income or *statutory income jointly; or

(b) a limited partnership.

In the appellant's submission,[38] the first limb of paragraph (a) reflects the general law definition of a partnership,[39] while the second limb extends the scope of the definition to include some situations of joint receipt of income, described in the relevant tax ruling as 'tax law partnerships'.[40] The appellant relied upon the statements in a further tax ruling that '[m]ost tax law partnerships arise in situations involving the leasing of co-owned property'[41] and that '[t]he receipt of income jointly from investments without carrying on business is outside the definition of a partnership under general law'.[42]

64 It may be accepted that the lease of co-owned property will sometimes result in the receipt of rent by an association of persons who are not carrying on a business in common but who nevertheless fall within the expanded tax law definition of a partnership. However, it is ultimately the question of whether the partners are carrying on business that determines whether they are a general law partnership or a tax law partnership, not the reverse. It is not possible to reason backwards from the proposition that many tax law partnerships lease property to conclude that the leasing of property can never of itself amount to the carrying on of a business.

65 In a similar context, the appellant relied upon the operation of the 'refinancing principle' elaborated in Federal Commissioner of Taxation v Roberts.[43] That principle, which need not be detailed for present purposes, was held in that case to apply to 'original partnership capital in the Lord Linley sense'.[44] A tax ruling outlines the Federal Commissioner's view that the principle 'has no application to joint owners of investment property which are not common law partnerships'.[45] The better reading of the ruling[46] is not that the joint holding of investment property per se cannot amount to the carrying on of a business; rather, it is that where such joint ownership does not amount to the carrying on of a business, the refinancing principle will not, in the Federal Commissioner's view, have application. I return later in these reasons to the partnership cases on which the appellant relied which considered the question of whether joint owners of property were in fact carrying on a business in common, but at this point observe that his reliance on the distinction drawn in the partnership context otherwise depended on leaps in reasoning in which the Court cannot engage.

66 Fifthly, the appellant contended that the definition of 'enterprise' in s 9-20(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) assumed the existence of a distinction between leasing and the carrying on of a business. That section relevantly provides:

(1) An enterprise is an activity, or series of activities, done:

(a) in the form of a *business; or

...

(c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; ...

67 Although that definition of 'enterprise' extends beyond business activity and includes leasing activity,[47] it does not require a conclusion that leasing activity can never of itself amount to the carrying on of a business. Even if it did, it must be recalled that the GST legislation is a different statutory context, in which 'business' is a defined term.[48] Whether 'business' in that context can include leasing activity is of minimal relevance to what is meant by 'business' in the Land Tax Act.

68 It is not ultimately necessary for this Court to determine whether the general law or the materials relied upon by the appellant make the distinction between business income and income from property for which the appellant contended. As I have explained, on proper analysis the materials on which he relied shed little light on the meaning of 'business' in the Land Tax Act. Nevertheless, if it be necessary to reach a conclusion, it must be thought that the position was far less clear than the appellant sought to establish. Indeed, the appellant acknowledged that 'many cases ... recognise that chattel and personal asset leasing can amount to an activity in the nature of a business'[49] and that hotels and short term accommodation providers generally conduct business in the form of leasing rooms or apartments. He sought to distinguish those scenarios on the basis that 'substantial ancillary services' were provided, and I return later in these reasons to the question of whether they ought to be so distinguished. For present purposes, it suffices to note that he ultimately agreed that it is possible for a person to engage in a business of leasing property.

69 It was for the appellant to demonstrate that the word 'business' is used in the Land Tax Act in the qualified sense for which he contended, that is, in a sense which excludes leasing activity not involving the provision of ancillary services. For the reasons that follow, I do not consider that it was so used.

70 Fundamentally, the appellant's argument conflates the test for whether particular income is derived from a 'business', in the sense employed in the Land Tax Act, with tests from other legislative contexts. There was no dispute in the present case that the Estate's receipt of rent from the residential properties constituted income. It is also clear that as the properties were held by a sole owner, the question of whether they were held by a general law or a tax law partnership did not arise.

71 The appellant nevertheless sought to rely on the partnership case of McDonald[50] and on two Administrative Appeals Tribunal cases that applied that decision.[51] Those cases considered the question of whether co-owners of property were carrying on a business in common and therefore constituted a general law partnership. In McDonald, the taxpayer jointly owned two investment properties with his wife. In order to determine whether he could deduct the whole of the losses of the venture or only his share of them, the court had to determine whether a general law partnership subsisted. Beaumont J found that there was little active participation by either owner, and that the taxpayer was the one who attended to matters concerning the property on the few occasions they arose. His Honour concluded:

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.[52]

72 In AAT Case 5857, the co-owners had spent many weekends carrying out improvements and routine maintenance on their investment property,[53] but the tribunal member nevertheless concluded that the owners were not partners in a business operation.[54] In Cripps v Federal Commissioner of Taxation, the tribunal member found that although 16 properties were involved, that of itself was not a reason for distinguishing McDonald.[55]

73 I accept the Commissioner's submission that those cases ought to be distinguished from the present case because of their different statutory context. The question of whether two or more persons are carrying on a business in common is a different question from whether a trust is carrying on a business, or for that matter a business within the meaning of the Land Tax Act. It was relevant to the decision in McDonald that pursuant to s 2(1) of the Partnership Act 1892 (NSW), co-ownership of property did not 'of itself create a [general law] partnership as to anything so held or owned, whether the ... owners do or do not share any profits made by the use thereof.'[56] In that context, the respective and collective involvement of the joint owners in the management of their investment became relevant to the determination of whether a general law partnership subsisted; something more than co-ownership was required. In the absence of an analogous statutory rule to the effect that a sole owner cannot carry on business by the mere ownership of rental property, I am not persuaded that a comparable requirement of active involvement by a property owner (for example, by the provision of 'substantial ancillary services') is a necessary prerequisite to any finding that a business of leasing is being carried on.

74 It might be thought that some assistance for the appellant's contention may be found in American Leaf Blending Co Sdn Bhd v Director-General of Inland Revenue,[57] where Lord Diplock, delivering the advice of the Privy Council, stated:

In the case of a private individual it may well be that the mere receipt of rents from property that he owns raises no presumption that he is carrying on a business.[58]

In contrast, in their Lordships' view, in the case of a company incorporated for the purpose of making profits for its shareholders any gainful use to which it puts any of its assets prima facie amounts to the carrying on of a business. Where the gainful use to which a company's property is put is letting it out for rent, their Lordships do not find it easy to envisage circumstances that are likely to arise in practice which would displace the prima facie inference that in doing so it was carrying on a business.[59]

76 Even if the nature of the legal entity owning property does give rise to a presumption about whether the receipt of rents amounts to the carrying on of a business, that does not mandate the interpretive approach proposed by the appellant. On the contrary, the Privy Council's remarks in American Leaf imply that the mere letting of rental property will in some circumstances amount prima facie to the carrying on of a business, while in other circumstances further indicia of a business will be required. That even an individual's ownership of rental property may constitute the conduct of a business is clear from Lord Diplock's observation:

A property company or an individual may be carrying on the business of letting premises for rents from which the gains or profits of that business are derived.[60]

77 In Havyn Pty Ltd v Webster,[61] the New South Wales Court of Appeal considered whether the letting out of six flats through managing agents was part of a business activity, such that a misrepresentation in a brochure prepared by the agent for marketing the property would be subject to the provisions of the Fair Trading Act 1987 (NSW). The Court affirmed the analysis of the trial judge on this point, who relevantly stated:

In my opinion, what the Plaintiff did in letting out the six flats in the building through managing agents in a businesslike way since 1988 did constitute the carrying on of a business on the property. The fact that the property had been acquired by inheritance rather than purchase did not change the character of what the Plaintiff did with the property.

...

In the present case, the Plaintiff wished to realise the value of the capital asset represented by the property because it was not providing a sufficient return. She intended to invest the proceeds of sale in other, more profitable, rental properties. She had already acquired one other property for rental purposes prior to the sale, a unit in the city, although it was not yet showing a return on the investment due to the size of mortgage repayments.[62]

78 While that particular issue in Havyn was considered concisely in the context of a judgment dealing with many other issues, it is notable that the New South Wales Court of Appeal did not impose any special requirement of active involvement by the landowner of the kind the appellant contends is required. Certainly, there was no reference to or reliance upon any evidence of such involvement by the landowner. The appellant contended that the decision arose out of a specific statutory context or that, if it did consider 'the common law definition' of a business, it was wrongly decided. I reject that submission. In my view, no error is disclosed in the Havyn approach and, further, that approach is quite compatible with the Spriggs indicia-based approach to the determination of whether a business is being carried on, in the ordinary sense of that word. This Court should not depart from the decision of an intermediate appellate court in another jurisdiction on a matter of non-statutory law unless it is convinced that it is plainly wrong.[63] The appellant has not satisfactorily demonstrated that the leasing of property cannot amount to the conduct of a business, in the ordinary sense of that term, without a threshold level of active involvement by the landowner or provision of ancillary services.

79 In addition, I consider that there is no basis in the text of the Land Tax Act to prefer the appellant's construction insofar as the term 'business' is used in that Act.

80 While the Land Tax Act does not define 'business', s 67 and other provisions in Division 2 of Part 4 plainly comprehend that 'primary production' may constitute a business. 'Primary production' is defined in s 64 to mean:

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

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

(c) the keeping of bees for the purpose of selling their honey; or

(d) commercial fishing, including the preparation for commercial fishing or the storage or preservation of fish or fishing gear; or

(e) the cultivation or propagation for sale of plants seedlings mushrooms or orchids.

It may be observed that a key element of each type of primary production envisaged by the Act is an income-generating purpose or a commercial character, but that the definition otherwise sheds little light on what may constitute a business for the purposes of the Act.

81 The word 'business' is also used in the Land Tax Act in the context of the principal place of residence exemption found in Division 1 of Part 4. Section 62(1) provides that where land which would otherwise fall within that exemption is used to carry on a 'substantial business activity', the exemption applies only to the extent that the land is used and occupied for residential purposes. Section 62(2) then sets out factors which must be taken into account in determining whether land is used to carry on a 'substantial business activity'.[64]

82 In the same Division, in the context of the temporary absence of a natural person from his or her principal place of residence, s 56(2) provides:

For the purposes of s 62, land to which [s 56(1)] applies is not to be taken to be land used by a person to carry on a substantial business activity only because the owner lets the land for residential purposes during the absence.

83 The presence of s 56(2) indicates that, absent that provision, the letting of land for residential purposes upon the temporary absence of the usual resident might otherwise be considered to amount to a 'substantial business activity' in appropriate circumstances. If it could not, there would be no need for the provision. It is noteworthy that no equivalent provision excludes the letting of land for residential purposes from the concept of a 'business' in Division 2 of Part 4.

84 Having regard to the above matters, I consider that 'business' in s 67 of the Land Tax Act bears its ordinary, general meaning, and that determining the existence of a business in that sense requires consideration of the Spriggs indicia. There is no rule that the mere holding of residential properties for lease cannot, without more, constitute a 'business' for the purposes of s 67. With respect, the judge's decision was correct in this regard. The appellant's contention on the construction point must be rejected.

85 In reaching this conclusion, I have taken into account that the Land Tax Act is a taxation Act. That s 67 is an exemption to a tax provision is a relevant part of its context, although that does not displace the ordinary principles of statutory construction that apply.[65] Neither the appellant nor the Commissioner submitted that this factor ought to alter the Court's approach to the construction issue.

Did the judge have regard to irrelevant matters?

86 The appellant submitted that the judge erred in taking into account:

(a) the fact that rental income was received from the properties;

(b) the number of rental properties held by the Estate;

(c) the quantum of rental income received by the Estate; and

(d) the fact that the income received from rent exceeded the income received from the primary production activities.

87 In view of my conclusion on the statutory construction issue, it is plain that it was proper for the judge to take into account factors referred to by the High Court in Spriggs as relevant indicia of a business.[66] They include the scale of the activities and the commercial character of the transactions. The factors listed at (a)-(c) above clearly go to those issues. The judge did not err in considering them, nor were they the only factors his Honour considered. It is true that none of those factors in isolation would necessarily be determinative of whether the Estate's rental activities constituted a business,[67] however it was not contended that the judge treated them as such, and it is clear that his Honour did not do so.[68]

88 On the other hand, it is less clear that factor (d), the scale of the rental income relative to the primary production income, ought to affect whether the rental activities of the Estate constituted a business in and of themselves. It does not appear that this matter was the subject of significant argument below, which may explain the limited emphasis given to the factor by the judge. His Honour stated:

In the year of assessment, and in the preceding years, income received from rent exceeded the income received from the primary production activities.[69] ...

A substantial part of the estate's income was obtained from the renting of properties.[70] ...

89 While the scale of other business activities carried on by the trustee of a trust is plainly relevant to determining whether a given business is the sole business of the trustee,[71] as a matter of principle, it is not apparent why it should be relevant to the antecedent question of whether an activity amounts to a business to begin with. The Commissioner's submissions did not explain why this was asserted to be the case.

90 In any event, the appellant's submission was that the factor did not bear upon the question of whether the residential properties were passively held. Since that was the wrong question to ask, I am not persuaded that the appellant has established error in the judge's approach, taking into account the way the case was argued before his Honour. Certainly, the judge did not give the matter any great weight.

91 The appellant submitted that the judge erred in concluding that the appellant conducted a business of renting properties in view of the factual findings that:

(a) the rental properties were properties acquired by the appellant's parents and were assets of the appellant's family, having been purchased between 1973 and 1990;

(b) the business of farming and primary production was the core activity of the appellant's family for many generations;

(c) changes of tenants were infrequent and long term tenants were obtained by the appellant; and

(d) the appellant retained a real estate agent to manage the properties and was not involved in the management of the rental properties other than carrying out some maintenance.

92 It was not in dispute that each of those factual findings was made by the judge and was supported by the evidence at trial. However, while the appellant contended that they necessitated a finding that the Estate did not conduct a business of renting properties, the Commissioner submitted that the appellant was relying on selective findings and that there were other findings sufficient to justify the conclusion that the Estate carried on a separate business of renting properties.

93 Much of the appellant's argument depended upon his construction of the legislation, which I have rejected. The factual findings on which he relied stand to benefit him much less once passivity in holding residential properties is not seen as a bar to a finding that their lease amounts to the conduct of a business.

94 For example, while the appellant sought to demonstrate the passivity of the investment by pointing to the length of time the residential properties had been held and leased by his family and to the infrequent changes in tenants over that period, those matters in fact reinforce the systematic and repetitious nature of the rental activities conducted by the Estate, factors which point towards the rental activities having a business character.[72] Moreover, as Havyn makes clear,[73] the fact that the properties were inherited by the appellant (in his trustee capacity) upon Mrs Mould's death is not relevant to the character of the Estate's activity in renting out the properties.

95 As I have explained earlier in these reasons,[74] though the appellant failed to establish error in the judge's approach to the issue, it is not clear in principle why the scale of the Estate's cattle farming business was relevant to whether its rental activities constituted a business. It is even less likely that the prior duration of the cattle farming business could be a relevant matter. That the appellant's family had long farmed cattle does not affect the fundamental character of the rental activities in which it engaged in the relevant tax year.

96 As I have also explained,[75] counsel for the appellant ultimately conceded at the hearing that the management of the residential properties by an agent did not affect the character of the activities which the agent carried out on behalf of the appellant. This was plainly correct.

97 I am not persuaded that the findings of fact relied upon by the appellant demonstrate error in the judge's conclusion that the Estate conducted a separate business of renting properties as at 31 December 2009. On the contrary, the evidence soundly supported his Honour's conclusion. In particular, this was due to the cumulative effect of the following factors:

(a) the residential properties were leased by the Estate at least in part for a profit-making purpose;

(b) the Estate leased 26 residential properties in the relevant year;

(c) the Estate generated substantial income from leasing the residential properties, in the order of $317,182 in 2009 and $353,188 in 2010;

(d) the residential properties had been leased in a regular and systematic way over a number of years; and

(e) the residential properties were leased in a businesslike manner, including with the assistance of an agent.

98 Even when the scale of the Estate's cattle farming business is left to one side, it is clear that the judge's conclusion was correct.

99 It follows that as at 31 December 2009, the primary production business carried on on the Lyndhurst land was not the sole business of the Estate and, thus, the Lyndhurst land was not exempt land pursuant to s 67(2)(c)(i) of the Land Tax Act. No basis for setting aside the orders of the judge has been established. The appeal must be dismissed.

100 I have had the benefit of reading the draft reasons of the Chief Justice and of Digby AJA. I agree with their Honours, for the reasons they give, that the appellant has not demonstrated that the trial judge fell into error in concluding that the business of primary production was not the sole business of the Estate[76] and thus that the Lyndhurst land was not exempt from land tax under s 67 of the Land Tax Act for the year ending 31 December 2009. I agree with their Honours that the appeal should be dismissed.

101 This proceeding is an appeal under s 106 of the Taxation Administration Act 1997 ('TAA') in relation to a land tax assessment for the 2010 tax year, which was issued by the Respondent in relation to 276 acres of land owned by the Appellant in his capacity as the trustee of the Estate of Mrs Gwenda Meryl Mould ('the Estate') at 155 Dandenong-Hastings Road, Lyndhurst ('the Lyndhurst land').

102 The issue on appeal is whether (at 31 December 2009) the Lyndhurst land was exempt land under s 67 of the Land Tax Act 2005, and in particular whether the requirements in ss 67(1)(b) and 67(2)(c)(i) of the Land Tax Act (as in force at 31 December 2009) were satisfied - that is, whether the Appellant was the trustee of a trust of which the sole business was primary production of the type carried on at the Lyndhurst land.

103 In 2009, the Estate derived three kinds of income: income from primary production, income from rent, and income from interest on bank deposits.

104 At trial, the Respondent conceded that the Estate was engaged in primary production, including on the Lyndhurst land, and the trial judge accepted that the Estate engaged in the business of primary production on the Lyndhurst land.

105 The Commissioner did not contend that the interest income was the product of a business carried on by the Estate.

106 The sole issue raised in this appeal is whether the trial judge erred in finding that the Estate also conducted a separate business of renting residential properties so that the business of primary production was not the sole business of the Estate for the purposes of the statutory requirement in s 67(2)(c)(i) of the Land Tax Act. If at the relevant time the Estate conducted a separate business other than primary production, it will lose its exemption for land tax.

107 The following uncontroversial facts are extracted from the parties' summary.

108 On 26 August 2010, the Commissioner issued to the Appellant the 2010 Land Tax Assessment Notice (No 063030658) ('the Assessment'). The Assessment relevantly assessed the Lyndhurst land for land tax in the amount of $1,089,898.60.

109 On 25 October 2010, the Appellant's solicitors objected to the Assessment. The grounds of objection included that the Lyndhurst land was exempt land under s 67 of the Land Tax Act.

110 On 1 September 2011, the Commissioner issued a Notice of Determination disallowing the Appellant's objection to the Assessment.

111 On 19 October 2011, the Appellant's solicitors requested the Commissioner to treat the objection as an appeal and cause it to be set down for hearing in the Supreme Court of Victoria, pursuant to s 106 of the TAA.

112 The trial judge ordered that the appeal be dismissed, and made findings including the following:

(a) In the context of these proceedings, s 106 of the TAA gave the Appellant a right to a rehearing de novo including a right to lead further evidence.[77] Accordingly, the Court below proceeded to determine the appeal on the basis that it required a de novo determination based on the evidence and material before the Court of the question whether the Appellant had established the matters entitling him to claim the exemption under s 67 of the Land Tax Act.[78]

(b) The Estate was engaged in a business of primary production on three properties, including the Lyndhurst land.[79]

(c) The Estate was also carrying on a separate business of renting residential properties and for that reason the sole business of the Estate was not primary production of the type carried on at the Lyndhurst land.[80]

113 This appeal concerns whether the trial judge erred in his findings as set out in paragraph 112(c) above.

114 The materials filed both before the judge below and in this appeal included:

(a) documents filed pursuant to r 7.06 of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2008, as listed in the Respondent's List dated 11 February 2013;

(b) affidavit of Robert John Mould, sworn 8 March 2013; and

(c) further Affidavit of Robert John Mould, sworn 22 August 2013.

115 The Appellant and the Respondent agreed the following facts, for the purpose of this appeal:

(1) At all times prior to her death on 17 February 2006, Mrs Gwenda Meryl Mould (Mrs Mould) was the registered proprietor of the following lands:

(b) the land located at 51 Noack Road Harkaway 3806 and contained in the Certificate of Title Volume 8255 Folio 013 ('the Noack Road land');

(c) the land located at 182-192 King Road Berwick 3806 and contained in the Certificate of Title Volume 09331 Folio 265 ('the King Road land'); and

(d) 26 residential rental properties ('the Residential Lands') located at:

(2) In addition to the Residential Lands, Mrs Mould owned the land situated at 3 St James Place, Toorak (contained in the Certificate of Title Volume 6132 Folio 353). That property was subsequently transferred from the Estate to Ms Diane Elizabeth Mould on 6 March 2007.

(3) On 17 February 2006, Mrs Mould died. By a Will dated 12 April 2001, Mrs Mould:

(a) appointed the Appellant to be the sole executor and trustee of her Will;

(b) bequeathed the whole of any real estate and the residue of her personal estate (after specific bequests to her grandchildren and her son, Robert John Mould) to the Appellant upon trust to sell, call in and convert into money the whole of the estate with power to postpone such sale, calling in and conversion; and

(c) out of the proceeds thereof, to pay specified expenses and to stand possessed of the balance upon trust for her children Robert John Mould and Diane Elizabeth Mould absolutely as tenants in common in equal shares.

(4) By Grant of Probate dated 11 July 2006, the Appellant was appointed the sole Executor of the Estate.

(5) By a Contract of Sale dated 17 May 2006 ('Contract of Sale'), the Appellant agreed to sell the Lyndhurst land to Salta Properties (Lyndhurst) Pty Ltd ('Salta Properties') on terms which included the following:[81]

(a) Sale price of $56 million plus GST, comprising:

(i) a deposit of $22 million, $11 million of which was to be paid on the signing and $11 million on the expiration of 18 months from the date of signing;

(ii) the balance of $34 million, to be paid on the expiration of 36 months from the date of signing;

(b) Special condition 3 relevantly provided that the property 'is sold subject to any restrictions as to use under any order, plan, scheme regulation or by-law made by any authority empowered by any legislation to control the use of land'; and

(c) Special condition 14.1 ('Right to farm') provided:

The Purchaser acknowledges that the Vendor has the right to continue using [Dandenong-Hastings Road] for farming purposes on an ongoing basis. The Purchaser will give the Vendor (90) days notice in writing that vacant possession of the property is required. The Vendor acknowledges and undertakes to remove at his own cost all livestock, water troughs, Yards and Gates, Hay Shed and internal fences on the property prior to the Settlement Date.

(6) At 31 December 2009, the Appellant was the owner within the meaning of the Land Tax Act of the Lyndhurst land, Noack Road land, King Road land, and the Residential Lands.

(7) Settlement of the Contract of Sale took place on 29 January 2010. On 2 March 2010, Salta Properties was registered as the proprietor of the Lyndhurst land.

The Lyndhurst land - primary production activities

(8) King Road is contiguous with Noack Road. At all relevant times, none of the lands comprising Noack Road and King Road were in an urban zone within the meaning of Division 2 of Part 4 of the Land Tax Act.

(9) Prior to 26 March 2009, the Lyndhurst land was not in an urban zone within the meaning of Division 2 of Part 4 of the Land Tax Act. On 26 March 2009, when Amendment C87 to the Greater Dandenong Planning Scheme came into effect, the Lyndhurst land was rezoned Industrial 1 and became land in an urban zone within the meaning of Division 2 of Part 4 of the Land Tax Act.[82]

(10) The Appellant conducted a cattle business on the Lyndhurst land, the King Road land and the Noack Road land.[83] 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.

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