Redmadi Pty Ltd v Chief Commissioner of State Revenue

ISSUES

1. There are two broad issues raised in this application: 1. First, whether the land was used during the relevant years for any purpose of primary production. 2. Second, whether the land was used in the relevant years for the. "dominant " purpose of primary production.

OVERVIEW

1. The applicant's contention is that during the relevant years the land was used for the dominant purpose of the maintenance and breeding of animals comprising alpacas and goats for the purpose of selling them or their natural increase or bodily produce (alpaca fleece) and also for another, non-dominant purpose, namely accommodation on the farm, for letting as a farm stay business activity and that therefore the exemption provided for in section 10 AA (3) (b) applies and there is no land tax payable in respect of the relevant years.
2. The respondent's position is that there was no use of the premises for any primary activity whatsoever and that the alpacas and goats were an incidental feature or part of the farm stay use of the premises in that they provided an attraction to persons taking advantage of the farm stay accommodation. Additionally, the respondent contends that even if there was a use of the land for the purpose of primary production then such use was not the dominant use and that the dominant use was the farm stay accommodation use.
3. There is no dispute in this case that the onus of proof rests on the applicant to establish that on the balance of probabilities, the Tribunal should be satisfied that the premises were used for the dominant purpose of primary production. Nor is there any dispute that the land is within a rural zone.

Witnesses for the Applicant.

1. Mrs Redelman has affirmed an affidavit in August 2016. In outline her evidence is that she has visited the property on a fairly regular basis every four or five weeks over the relevant years to supervise the livestock activities on the land. A number of Managers were engaged over the years to manage the accommodation and livestock activities. Backpackers were regularly engaged from time to time over the period to assist in various tasks in return for a small payment and accommodation. They generally stayed for short periods. Ms Redelman assumed responsibility for negotiating and preparing contracts with the managers from time to time as to their duties and responsibilities. The evidence of Mrs Redelman is that at the time of purchase the premises were operated as a farm stay accommodation business. The premises were purchased for $1.85 million by the applicant in February 2005. At that time there were no animals on the pastures. The premises had three sheds, a cattle ramp, water storage tanks ,a dam and fenced off paddocks. It also had a cottage, nine accommodation cabins and 2 out of service train carriages which were able to be used as accommodation. There was also an office.
2. The land is zoned rural. It has an area of 33.945 ha of which 24 ha of is bushland except for some fire trails and some solar panels erected in Dectember 2009.
3. In August 2005 an eight month old sire was purchased. In September 15 pregnant females were purchased and the applicant began a breeding operation. In January 2006 the first alpaca was born and gradually the number of alpacas was increased over the years and it is claimed that the average number of alpacas during the relevant years was in the order of 75. Mrs Redelman is the director of the applicant.She gives a history of the buildup of the stock since 2005 and recounts the problems which were encountered over the years. She gives details of the work and effort which she has put into the building up of the alpaca stock over the years.
4. As at the time of purchase the property comprised providing significant facilities relating to the farm stay accommodation which had been carried on prior to purchase under the name of Madison's Mountain Retreat.
5. In addition to the accommodation there has been over the period a pool and a tennis court and spa bath facilities.
6. The accommodation was rented out at prices ranging from $250 to $350 per night and they were occupied by families. The evidence indicates they are busiest during school holidays.
7. Mrs Redelman has some expertise in relation to genetics and has been able to provide services over the years in relation to the alpacas. She has a science degree in genetics and has undertaken some medical studies. She has a great interest and affection for alpacas.
8. By August 2016, she says there were some 60 alpacas available for sale. Also there were about twenty goats on the premises. She gives a history of the purchase of various items said to be related to the livestock including the purchase of a tractor in 2009, a mower, and expenditure on capital improvements such as fencing, pasture improvement and other works on the property also including water troughs and shearing facilities on the property. She gives a history of the buildup of the site and the specific problems with the stock over the years. She gives details of some problems with the alpacas which call for particular attention.
9. She notes that the applicant has taken part in a number of shows relating to the alpacas over the past years. She has taken an active role in alpaca associations. She says that customers of the business are generally breeders but that a lot of the alpacas are sold as pets or herd guards to other farmers.
10. She says that the herd had been valued as at August 2016 at $211,000. This valuation is the subject of a report by Ms Dickson who gave evidence for the applicant which is considered later in these reasons.
11. She refers to the duties of the manager which will be referred to later. She says that the alpacas are marketed for sale on the applicant website.
12. Over the relevant years, she says that the total income from the sale of animals was in the order of $40,000 and about $4,500 in total from the sale of the fleece.
13. She refers only very briefly to the accommodation use and says that only 0.3% of the land was used for accommodation and that 99.7% was used for the maintenance and care of the livestock.
14. Ms Redelman also says that the reason for the failure of the operation to make any significant profit from the livestock operations activities over the 9 years of operation was because costs were too high and the land quality was degraded. She also contends that the alpaca operation must be considered a long term investment.
15. She does not deal in any detail with the amount of time expense or income relating to the accommodation or farm stay operations. All the emphasis in her affidavit is in relation to the claimed work on the livestock operations.
16. In her evidence affirmed in December 2016, Mrs Redelman deals with the alpaca feeding, caring and nursing practices which she undertook in relation to the alpacas. She deals with the treatment of sick animals and refers to the the duties of a manager in relation to the animals and the need for veterinary attention in order to avoid animal deaths. The contracts of engagement with the managers however make no reference to any significant livestock duties.
17. Mrs Redelman says that there is no unused land on the property and that the bushland areas are used by the goats from time to time and part is used by some wethered alpacas. She also indicates that the fire trails on the property were not used by those taking part in the farm stay to her observation. She mentions the solar panels on the property but says they are not relevant to the use of the land, although they produce a significant income and are not part of the claimed primary production use of the premises.
18. Mr Geoff Redelman is a company director who has expertise in the textile industry and he has given evidence as to the quality of the fleece from the alpacas . He has listed in considerable detail the operations and work which he claims are and have been carried out in relation to livestock.
19. His evidence does not cover in any detail the day-to-day activities carried out on the premises in relation to the accommodation. These are carried out by the manager of the premises from time to time and there is a regular pattern of backpackers to be engaged casually for short periods and provided with accommodation and a modest payment in return for carrying out some general work, including some work in relation to the livestock from time to time.
20. He has been actively engaged in the Australian Alpaca Association for some years and has considerable expertise in relation to fibre quality for the manufacture and use of textiles. He claims the alpaca fleece is very fine. He describes the buildup of the herd since 2005 and he refers to the need for and the carrying out of substantial improvements on the land since that date to accommodate the livestock operations.
21. The evidence is that he visited the premises much less regularly than Mr Redelman. However, he says that he maintained a strong interest in the livestock activities on the premises.
22. He says that the farm accommodation was used to house the farm manager and for paid and unpaid staff to maintain the livestock and suggests that it was only when they were unoccupied by the backpackers the cabins and other accommodation were left available for hiring out to the visiting public. The evidence of Mr Butchart is that there were only a few backpackers at any one time and that they were accommodated in one or two areas leaving a great deal of accommodation available for hiring to the public.
23. He refers to the sales of fleece and to a recent valuation which placed a value $225,000 on the livestock. Presumably this is a reference to the $211,000 figure referred to by Mrs Redelman perhaps with the addition of a figure for the goats.
24. He claims over the relevant time to have spent some 8-12 hours per week on average on major projects concerning the farm.
25. There were a number of managers working on the property over the relevant years. Only 2 managers gave affidavits for the applicant but despite ample opportunity they were not made available for cross examination and so their assertions are untested. The respondent on the other hand called Mr Butchart who was cross examined and whose evidence I accept.
26. The managers were employed under written contracts negotiated by Mrs Redelman setting out the duties and work required to be performed by the managers. Generally, these contracts were entered into after the managers had responded to advertisements in relation to the positions. These advertisements made no reference to any substantial livestock duties and the focus was on the hospitality role. The backpackers did not have any contracts and were given accommodation on the premises.
27. The premises were regularly advertised over a wide range of media such as Madison's Mountain Retreat providing farm stay accommodation and there was frequent mention in these advertisements to alpacas, goats, and some chickens on the premises as being an attractive feature of the stay with an appeal to families and children. By contrast were little if any references in the advertisements to the breeding and the sale of alpacas in the media produced in evidence.
28. During the relevant years the number of alpacas on the premises was in the order of about seventy-six and there were some small sales of goats.
29. In his later affidavit, which is largely by way of reply to the evidence of the respondent, he refers to his position as a director of the Australian Alpaca Association and seeks to make out a case why Mr Winter, an expert witness for the respondent, had a conflict of interest. The Tribunal finds there was no substance in this claim and no evidence of any reason which would affect or detract from the credibility of the evidence of Mr Winter.
30. Mr Redelman also endeavours to explain why there was an omission in the applicant's tax returns for the years ended 30 June 2014 and 2015 to any livestock primary production. He says this was an accounting omission and he provides an amended income tax returns for those years, which greatly and without any explanation increases the amounts claimed by way of expenses for livestock activities far above any comparable range of expenses in the three preceding years.
31. Counsel for the respondent suggests that this unexplained variation of the figures in the tax returns for the final two years of the relevant period be approached with considerable caution and there is substance in that submission. The tribunal finds that no reliance can be confidently placed on these amended unexplained figures.
32. Mr Redelman speculates that in the relevant years he together with his staff and volunteers spent hundreds of labour hours on improving the farm to the primary production use.
33. Mr Redelman also refers to births and sales of alpacas and the solar panel installation.
34. In relation to the solar panels he notes that they are a good use of the rocky portion of the paddock on the edge of higher ground within the farm and that they do not prevent the goats from grazing in that area. He does not suggest that the rocky portion of high ground is suitable in any way for grazing by any of the alpaca herd. He seeks to explain the failure to make any significant profit in the livestock operations since commencement as being attributable to labour and other costs in carrying out the primary production activities. He also attaches to his later affidavit a series of fleece testing results which he says shows the high quality of the fleece provided by the alpacas on the Madison property.
35. The tribunal finds that the affidavits of Mr and Mrs Redelman and their oral testimony under cross examination in particular are argumentative in character being more in the nature of submissions to the Tribunal and that they are directed to making out a case to support a conclusion of a primary production activity being carried out on the land rather than attempting to give a clear overall picture of the total operations carried out on the premises.
36. More specifically, they do not attempt in any way to give details of the cost, expenses, labour, advertising and promotion and hours occupied by the managers daily workers on the farm. Their failure to objectively comment on the day-to-day activities carried out on the farm in all its aspects, particularly including the accommodation aspects which produced by far the greatest income and involved by far the greatest expenditure, substantially diminishes the weight which can be given to their evidence when compared with the objective, tested and directly observed evidence of Mr Butchart who was engaged on a day-to-day working basis with both the livestock and the accommodation operations, together with his wife over a period of over 398 days during the relevant years.
37. In relation to the claim by the applicant that most of the accommodation on the premises was used by the backpackers and that there was only some residual accommodation left for renting out the tribunal prefers the tested evidence of Mr Butchart which is to the contrary. He stated that the backpackers were accommodated in one place and that there were not many of them, there being in the order of about two or three generally working on the premises from time to time.
38. The applicant sought to lead evidence from only two managers out of five of the managers of the premises. These were Mr Perfrement and Ms Hoyland
39. Mr Perfrement made his Affidavit in 2016 while he was still an employee of the applicant. He had ceased to be such an employee by December 2016. He was not made available for cross examination and this greatly diminishes the weight which can be attributed to, the attempt to rely on his evidence in comparison to, conflicting evidence of a witness who had been cross-examined.
40. He took over the position of manager in August 2015 which was more than six months after the expiry of the relevant time. His evidence consisted of a lengthy list of duties which he said he performed as manager in relation to the livestock, but he gives no specific figures as to times spent. He claims that all animals were available for sale which is contrary to the evidence of Mr and Mrs Redelman that they were keeping the best animals for breeding stock and not selling up selling them. His evidence does not give any details as to the work which he carried out in relation to the accommodation part of the business which provided by far the greatest income and incurred by far the greatest expenditure over the relevant years. He apparently gave indications that he would be available for cross examination but failed to attend, notwithstanding that the matter had been stood over for more than six months after being part heard in December 2016. Having regard to the above considerations the tribunal gives his evidence little weight and prefers the evidence of Mr Butchart as to the use and activities actually carried out on Madisons during the relevant years.
41. In relation to the evidence of Ms Hoyland it is noted that she was not available for cross examination and accordingly her evidence also carries lesser weight when compared with that of the tested evidence of Mr Butchart.
42. She was the farm manager from September 2012 until early February 2014. She sets out a long list of duties in relation to her employment but gives no details of any duties in relation to the accommodation operations. The contract which she made with the applicant contains no details as to any duties concerning livestock which one might have expected if this was an important and relevant purpose of the engagement. She estimates that she spent 70 to 80% of her time on tasks directly related to the livestock and only 20 to 30% on other general activities such as mowing lawns and repairing cabins but gives no detailed breakdown or any particulars of the daily work carried out. She claims that her co-worker Kathryn Symons spent 30% of her time also working on livestock related matters.
43. Having regard to the fact that this evidence was untested and to its generalised conclusions and lack of detail, including the failure to deal with any material relating to the accommodation activities, I prefer the evidence of Mr Butchart where it conflicts with her evidence in relation to the time, extent and nature of the work involved in the daily operation of the farm and livestock activities.
44. The applicant has also filed an affidavit by Mr Favaro, who is the director of a company which manufactures alpaca knitwear. He says that he has been "gifted with and bought" some high-quality alpaca fleece for research and development and for commercial production purposes from the applicant. He says Mr Redelman has worked with him in an advisory capacity. Mr Favaro was not required for cross examination by the respondent.
45. While his evidence supports the quality of some fibre produced to him by Mr Redelman there is no evidence as to the quantity or details as to the precise source of the fibre produced. Nor is there any estimate of its value or cost or of the precise use to which it was put in a conclusion to be reached as to whether there were commercial quantities of high quality fibre produced for manufacturing purposes.
46. Accordingly, the evidence of Mr Favari is of limited use and little weight in the present dispute.
47. The expert evidence called by the applicant was from Ms Lyn Dickson and related to the valuation of the herd, and the livestock operations and suitability of the site. She is a senior alpaca judge and alpaca breeder and has been a breeder for the last twenty-four years. She has considerable experience with respect to alpacas and the growth of the breeding operations in Australia. It is a fledgling and growing industry.
48. She carried out a preliminary estimate in June 2016, without having seen the animals, and estimated the value to be $211,000 for the herd. She later inspected the animals and reached the same conclusion. Her valuation is based on the sale price she thinks would be achieved if the alpaca herd would be offered on the open market in the near future and the total value realised.
49. Ms Dickson refers to the methodology of valuation in relation to alpacas and points out that they are different in many respects having special characteristics and call for a particular form of appraisal.
50. She outlines the average size of alpaca herd in Australia and considers the Madison herd to be one of the larger herds within the Hawkesbury area. She refers to the dry sheep equivalents and to alpaca breeding practices which she says are still in their infancy in this country. She emphasises that alpaca breeders in Australia make their profit by improving the genetics of the herd and since the 1990s the general quality has increased.
51. In a supplementary report in May 2017 she points out that the alpaca industry in Australia is not well established and that there is no established market and that the concentration is on long-term profit profitability.
52. She refers to various aspects of the evidence of Mr Winter the expert of the respondent. She considers that his valuation is a substantial under estimate. In addition, she expresses an opinion in relation to the farmland and its suitability and features of a typical alpaca breeding operation.
53. She also discusses the time she considers necessary to devote to the care and management of an alpaca herd such as that at Madison's. In relation to the question of expected returns, she expresses the view that when it comes to pedigree alpacas, the focus of breeders is on maintaining a breeding stock and disposing of inferior stock in the meantime. She refers to the national sales figures for the Australian Alpaca Association over the past few years and does not deny that there has been a downtrend in market value.
54. Ms Dickson does not profess to be a qualified valuer in respect of alpaca herds and did not consider the material as to the past sales achieved by alpacas from Madison's. As appears from Mr Winters report, the alpaca industry generally is a relatively small fledgling industry with no established market and it is difficult therefore to objectively assess the value of an alpaca herd.
55. Mr Winter considers that Ms Dickson did not give sufficient weight to the existence of the falling market in recent years. Ms Dickson stated that the herd was valued on the basis that the animals were all breeding stock unless proved otherwise which Mr Winter considered to be optimistic particularly having regard to the evidence of Mrs Redelman that the alpacas were sold for various other purposes.
56. In the light of the special nature of the alpaca industry and the absence of any broadly established guidelines as to valuation I consider the valuation of Ms Dickson of $211,000 to be unduly optimistic.
57. Whilst her expertise in relation to alpaca breeding and management is accepted, there are reservations as to how experienced she is in relation to the commercial operations of the industry.
58. After taking into account the long-term commercial and management experience of Mr Winter in the livestock industry, I prefer his more conservative approach to the question of valuation and his observations as to the maintenance and management of the Madison herd and the suitability of the land to optimistic evidence of Ms Dickson in her reports.

Witnesses for the Respondent

1. The respondent has led evidence from Mr Winter, who is an agricultural consultant with thirty years experience with emphasis on meat and livestock. He prepared a report in which he estimated the value of the 36 alpacas which he inspected as having a value between $30,000 - $40,000. Since there were more than 70 alpacas on the premises during the relevant years his valuation figures would be in the range of $60,000 - $80,000 for the entire herd.
2. He also concluded that from his observations and the materials furnished to him the nature and level of operations conducted on the land was not consistent with a focused and organised commercial livestock operation with clear goals and planning. He considered that it was being run as a lifestyle enterprise. He did not consider the land suitable for a commercial alpaca operation. He emphasised that the trend in prices since 2000 is downward and noted that there was no established market for alpacas and their produce.
3. Although Ms Dickson had more experience with alpacas, the evidence of Mr Winter is to be preferred because of his greater experience in the commercial livestock industry and in relation to the operation of commercial livestock businesses.
4. It is not necessary to reach a definitive conclusion as to the value of the alpaca herd in this case, however the tribunal accepts that the higher figure in the valuation range arrived at by Mr Winter is closer to the mark than that contended for by Ms Dickson, having particularly regard to the modest historical sales figures actually achieved by the alpaca operation at Madison's.
5. Extensive evidence has been provided by way of affidavits and annexures from Ms Kerr who is a solicitor acting for the respondent in this matter. She has collated a large number of documents and material including photographs website publications and correspondence obtained from a range of sources including material obtained from the applicant and has verified the sources of this material through her affidavits.
6. The substance of her evidence is that the advertisements for managers from time placed by the applicant from to time did not mention as part of the duties or work on Madisons property did not refer to livestock duties as being of any significance. This is in accord with the affidavit by Mr Butchart.
7. The evidence of Mr Butchart is that he and his wife prior to their engagement with the applicant had very extensive experience in relation to the management of accommodation properties and the maintenance and operation of such properties. For example, before taking up his engagement at Madison's he had managed an accommodation property in the Sapphire Coast and before that in Western Australia.
8. Mr Butchart was cross examined at length on his affidavit, but his evidence was not diminished in any way.
9. He says that at his interview with Mrs Redelman for the position he was asked about his previous experience in relation to hospitality management and the maintenance of hospitality facilities and the management of housekeeping staff. There was some mention of the goats and alpacas as requiring twice-daily tasks which were generally performed by backpackers and that there was a need for occasional injections of item supplements mentioned. The chickens required daily feeding and water troughs and all the animals had to be checked but these tasks were allocated to backpackers. He accepted a written letter of offer expressed to constitute the terms and conditions of employment for he and his wife, but there was no reference to livestock management as a major task.
10. Bonuses were to be provided on increased occupancy above the average occupancy rates for previous years. No bonuses or incentives were referred to in relation to the alpaca herd.
11. He and his wife lived in the managers accommodation on the property. He describes the property and the activities in detail and the work carried out in relation to the alpacas. He also sets out the work which he carried out in relation to the accommodation. He says that he was occupied between 10 to 12 hours, seven days a week in the work of maintaining accommodation cleaning of the facilities managing reservations and checking in guests. He gives extensive details as to the tasks in which he was engaged on in operating and in managing the operations at Madison's retreat. In this respect his evidence is direct, detailed and clear.
12. He noted that a large percentage of the guests were children who like to interact with the alpacas and goats by helping to feed them.
13. In addition to Mr Butchart and his wife working on the property, he says there were generally about 2 to 3 backpackers at a time, staying in basic accommodation beside the office which was not used for paying guests and they received meals and accommodation in exchange for daily work around the property. They carried out maintenance work, providing firewood in cabins and cleaning in relation accommodation with some work in relation to the alpacas.
14. He mentions that the overall primary care of the alpacas' health was carried out by Mrs Redelman. Other than the daily task of feeding them she was in charge of the animal husbandry. Mr Butchart says that Mrs Redelman visited about once every 4 to 6 weeks and sometimes stayed for the weekend and carried out various tasks such as inoculations, drenching, toe dipping, breeding and ear tagging in relation of the alpacas. He estimated that Mr Redelman visited the property about half as frequently as Mrs Redelman.
15. He estimated that approximately 10 - 20% of his time and 2% of his wife's time was dedicated to the alpacas and goats and the remainder of the time was dedicated to the accommodation. I accept this evidence.
16. During his time at the premises he carried out improvements to the cabins and facilities which had been run down and renovated the car park so that guests and visitors will not parking in mud. He says that having worked at a number of resorts it appeared to him that the alpaca herd at Madisons was a Redelman interest and hobby and noted the appeal of alpacas and goats to families with small children. He considered that the property would have attracted less custom without the appeal of the alpacas, chickens and goats.
17. I consider that the evidence of Mr Butchart presents the clearest most relevant and most reliable picture of the activities at Madison's Retreat in the relevant years and the work carried out by the manager and the time spent by the manager on the care of the animals during his relatively lengthy tenure and also as to the activities of the backpackers and the use of the land by the guests.
18. As to the amount of time required in relation to work on the livestock as compared with the amount of time required to be dedicated to the accommodation there is evidence in the affidavits of Ms Kerr to the effect that a previous manager of the premises, Ms Wendy Mills, estimated that about 80% of her time as manager was dedicated to accommodation and 20% to other duties. Ms Mills also refers to the fire trails on the property being used by visitors for bushwalking activities.

LEGAL PRINCIPLES

1. The first question is whether the land was used for the purpose of primary production and this is determined by looking at the way in which the land is used, exploited, or employed in fact. It requires consideration of the present use of the land during the land tax years in question. The recurring physical acts carried out on the land by which the land is made to serve a purpose will usually constitute use of the land. It is not essential that there should be a productive return, but it requires actual physical use as opposed to some notional or potential future or contemplated use. It is not necessary that physical use must extend over the whole area of the land. It is a question of fact, and degree, and must be approached in a broad commonsense way as an objective matter of impression in the light of the facts.
2. In Chief Commissioner of State Revenue v Metricon Q'land Pty Ltd [2017] NSWCA 11 at [32] the judgment in Leda Manorstead v Commissioner for State Revenue [2011] NSWCA 366 was offered with approval. Allsop P said: "There must be a present use for which the land is being used. That does not deny, however, the proper evaluation of any given circumstances. The appropriate task is the one which the primary judge undertook. Upon evaluation of all the material he asked himself what the people who own the land were actually using it for. Or, to put the matter. another way, what was the purpose of what the owner was doing on the land so that the question as to what the land was being used for could be answered? Here, looking at all the activities together with the surrounding circumstances….it could be concluded….that the land was being used for commercial land development."
3. It must be a purpose of the use that the animals or their bodily produce are for sale as opposed to being for a hobby purpose. For example, if the land is used simply as an adjunct or incident of another activity and not for a commercial purpose with the objective of sale or gain in prospect.
4. The word "for" imports a relationship between the use of the land and the sale of the animals or their produce, in this case for their progeny or for their fleece. The activity carried out may be so minimal as to not constitute a use of the land for any purpose.
5. Alternatively, it may be that the physical use made of the land is entirely subservient to some other activity and is not a use in its own right.
6. The second question for determination is whether, if there are competing uses, one use is dominant.
7. The principles concerning the determination of the question whether a use is "dominant were considered by Gzell J in Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867 at [69] as follows: "[69] Dominant in its ordinary meaning, connotes, ruling, prevailing, or most influential. The statutes' reference to a dominant use presupposes that land may be used for more than one purpose and requires a determination of which use of the land is the main, chief or paramount use. [70] That is a question of fact and degree that may, in the end, be determined as an objective matter of impression having regard to the facts."
8. In Thomason v The Chief Executive Department of Lands (1994-1995) 15 QLCR 286 at 303 the Land Court of Queensland stated the principles in the following terms: "In our view, the proper approach to be taken when ascertaining the dominant use of land is to consider such matters as the amount of land actually used for any purpose, the nature and extent and intensity of the various uses of the land, the extent to which the land is used for activities which are incidental to a common business or industry of a type specified…, the extent to which land is used for purposes which are unrelated to each other, and the time and labour and resources spent in using the land for each purpose. When undertaking this exercise, one cannot ignore the conclusion that an objective observer would reach from viewing the land as a whole."
9. These observations were adopted by Gzell J at first instance in Leda and were approved by the Court of Appeal in affirming his reasons for judgment. They were also later applied by the New South Wales Court of Appeal in Chief Commissioner of State Revenue v Metricon Queensland Pty Ltd (2017) NSWCA 11 at [51]-[52] and for the purposes of the present case, they set out the guiding principles by which to determine whether a particular use is dominant over one or more competing uses of the land in question.
10. Also in Thomason the Court also pointed out at 300 that : "It is not easy to state precisely how to determine the dominant use of land in every case. One approach could be to ascertain the use to which most of the land is put. Another could be to ascertain from time to time which use of the land produces the main source of revenue or of gross profit, irrespective of the proportion of the land used to generate that income."
11. This latter quotation indicates that there is no fixed or determinative factor which will of itself decide the question and that it is necessary to look at all the particular circumstances context and evidence.

REASONING

1. The first question which arises is whether the activities of maintaining alpacas and goats on the land constituted a "use" of the land for the purpose of selling or their bodily produce within in the meaning of s. 10 AA (3)(b) of the Act.
2. The second question is whether the use of the land for that purpose was the "dominant" use of the land in the relevant years.

Primary production use

1. In relation to the first question the respondent contends that the question is one of fact and degree which must be approached in a broad and common sense way as an objective matter of impression based on the evidence.
2. The respondent says that the alpacas, goats and chickens were maintained in the fenced paddocks on the land which constituted about 8 ha of the 33.95 ha of the land. It contends there were between forty-three and sixty-three alpacas and between eight and twenty goats and some chickens maintained on the land in the relevant years. There is some uncertainty in the evidence about the precise number, but the applicant says there were up to 75 and I accept this figure. I also accept that there were up to 20 goats.
3. The respondent says that it is important to ascertain the "purpose" of the land use objectively and that the and that the critical expression in the provision is the word "for". The respondent also emphasises the use of the words, "for the purpose of" and submits that this requires that the selling of the alpacas or the fleece of the animals is the sole purpose of the use and accordingly if there are any competing uses for any purpose other than the sale of the animals or their produce, then the test is not satisfied. In the present case, on the facts, the respondent says that the livestock use is not a separate independent use of the land but is part of the use for accommodation and is subsumed in that use.
4. The respondent proceeds to consider the evidence in detail to support the submission that there is only a single use in the present case, and that therefore the question of dominant use does not arise.
5. The first matter relied on by the respondent is the grossly disproportionate difference between the income and expenditure as disclosed in the applicant's income tax returns and other financial records regarding the livestock and the accommodation farm stay activities during the relevant years.
6. In the relevant years revenue from the accommodation use of the land was in the order of $1.15 million whereas the revenue from sales of 50 alpacas and fleece was less than $46,000 in total. The expenditures were also grossly disproportionate.
7. The evidence of Mr Butchart indicates that 80% of his time was spent on accommodation operations and that only 20% of the time was spent on other activities including the livestock. The work of his wife on livestock was relatively insignificant being only about 2% of the time.
8. The advertisements in evidence indicate that the Madison's Mountain retreat was marketed as a bed-and-breakfast homestead on acres in the Blue Mountains, which was said to be secluded with stunning scenery but easy to reach. The alpacas and the other the farm animals were mentioned in the advertisements and it was stated as a feature that children were invited to feed the alpacas and goats and collect eggs from the chickens. There are also advertisements about an annual national alpaca week where the alpacas could be seen and touched. The respondent says that this evidence clearly indicates that the alpacas were only an incidental use of the land for accommodation purposes and did not constitute an independent use for a commercial purpose.
9. The animal husbandry work was carried out by Mrs Redelman. There was some shearing but her work of manager did not involve carrying carry out daily activities of overseeing the feeding of the alpacas,or goats .She only provided limited assistance.
10. Both Mr and Mrs Redelman have a strong personal interest and pride in the alpacas and they exhibited them at some shows and exhibitions.
11. On the question of purpose there is a significant admission by Mrs Redelman in May 2010, in evidence, that when talking to a journalist for a local publication she declared that while some people would raise alpacas for the fleece and others for their guarding ability she raised alpacas as a tourist attraction and the babies were a major drawcard. When put to her in cross examination Mrs Redelman could not remember saying this but she did not deny it.
12. There is considerable doubt about the reliability of the amended tax returns for 2014 and 2015 as to income and expenditure arising from the omission of any reference to primary production in the original returns and the unexplained very dramatic increase in the amount of expenditure for those two years in relation to livestock operations.in the previous 3 years. The amended income tax returns for 2014 and 2015 signed by Mr Redelman showed that expenses increased to $181,000 and $184,000 from $18,502 in the financial year ended 30 June 2013 without any explanation.
13. The tax returns of the applicant for relevant years clearly show a far greater intensity of activities on the accommodation operations as opposed to the livestock operations.
14. The records also indicate that, taken on its own, the livestock operations have never generated any significant profit and did not comprise a viable commercial operation. Mr Redelman agreed that after ten years keeping alpacas the expenses were more than the income earned from the alpacas or their fleece. He said that it was a long-term investment and that it would take another 5 to 10 years to make a reasonable profit from the alpacas. Some support for this view was found in the evidence of Ms Dickson.
15. The respondent's contention is that the insubstantial revenue and expenditure for livestock relative to the accommodation sales and expenditure clearly establishes that the livestock operation was a minor incident or incidental use of the premises for the purpose of accommodation and was in the nature of a hobby financed partly by sales of fleece and animals. The modest sales and fleece cannot support the inference that there was an additional separate use for the purpose of sale of alpacas or goats or their bodily produce.
16. In relation to the first question the tribunal finds on balance that, the evidence as to sales of animals and their produce, although small in scale, was sufficient to conclude that there was a use of the land which, although incidental to the accommodation farm stay use, was in itself properly to be characterised as a use of the land for the purpose of selling the animals or their fleece.

Dominant use

1. The second question then arises as to whether the evidence is sufficient to establish that use of the land was for the dominant purpose, whether the use of the land was for the dominant purpose of selling the animals or their produce or their fleece.
2. At all relevant times the premises were clearly adapted for use as accommodation and farm stay activities consisting of the eight self-contained cabins, two refurbished rail carriages, a common room, together with an eighteen metre pool and spa, a tennis court and a gazebo with barbecues as well as metal shed. The cabins had kitchenettes, bathrooms and two beds and three had private spas. The rail carriages had kitchenettes, bathroom and bedding for five and the cabins and carriages could accommodate up to 50 people at prices ranging between $200-350 per night. The evidence of Mr Butchart was that, the premises were heavily occupied. During the school holidays, the premises were heavily occupied by families and there were substantial numbers of children coming to the premises who interacted with the alpacas, goats and chickens.
3. The question of dominant use calls for a comparison between the nature and intensity of the different uses of the land, the area over which those uses took place and the time and labour spent in conducting them and the goal to be achieved by the activities. The authorities indicate that the dominance of one over the other use must be of such a degree as to give a character to the use of the parcel as a whole.
4. In deciding this question regard can be had to the relative expenditures on and the revenue derived from the uses. But this is not of itself a determinative consideration. It is necessary to look at the whole of the evidence.
5. When the land was purchased in 2005 it was used for the purposes of a farm stay accommodation business and that has continued throughout the years. During the relevant years it has been widely advertised as farm stay accommodation in the various media outlets including the applicant's website and also through various travel sites. There were a number of fire trails on the property which could be used for bushwalking purposes and which the evidence indicates were so used.
6. A small part of the land is used for solar panels which are not related to the livestock operations This is an independent use and is not significant for present purposes.
7. In relation to the goats, the evidence is that they were sold for relatively insignificant amounts and no reliance is placed on the sale of chickens or eggs to support the exemption claim.
8. Accepting the evidence of Mr Butchart, based on his direct observation over a period of approximately 500 days working on the premises, and for the reasons given earlier, I find that the vast majority of the work and time for and in which he was engaged consisted of managing and maintaining the farm stay accommodation and facilities together with providing services for guests.
9. The tribunal accepts that the 20% estimate of working time for Mr Butchart and 2% for his wife is an accurate and reliable estimate in relation to time spent in relation to the livestock.
10. It is important to note in relation to the contracts for engagement of all the managers during the relevant years there is no detail given of any significant duties relating to the maintenance or care of the alpacas or the goats. If such work had been an important part of the duties of the managers over the relevant years it would have been expected that there would be such a provision in the contract of employment or at least some correspondence or record of the obligation to perform such duties .
11. In June 2012 Ms Wendy Mills, who was engaged as a manager during the relevant period for a period of about 380 days, raised a question with Mrs Redelman as to how that the Hospitality Industry (General) Award 2010 applied to her contract as manager.
12. On 18 December 2012, Mrs Redelman wrote to Ms Mills on behalf of herself and her husband confirming that at times, Ms Mills is expected to perform some farming tasks that most likely fit better in a different award but that she and Mr Redelman had taken the approach that the bulk of her duties best fitted under the Hospitality Award. This indicates an emphasis on the accommodation operations.
13. Also in that letter, Mrs Redelman states: "As you know, we are very happy with your proactive approach to the property in sales, repairs and maintenance, and certainly have had excellent feedback from customers. We note that although occupancy has not increased you have been able to improve revenue. We have spoken to the Accommodation Association of Australia, whose old model contract was used as the basis of your contract. They now have a new version of the old model Contract which I have revised."
14. This letter indicates that the purpose of the contract of engagement and the duties to be performed under it were primarily directed to accommodation duties and not to "farming tasks" as contended for by the applicant in this case.
15. Ms Wendy Mills was not called by the applicant in this in this case before the Tribunal to assist in discharging the onus of proof on it.
16. In relation to the valuation of the herd, I prefer the evidence of Mr Winter to that of Ms Dickson. The evidence indicates that Ms Dickson was assisted in the preparation of her valuation by Mr Redelman who helped her with the drafting.
17. In the absence of any established market or accepted valuation methodology for this fledgling industry Mr Winter's more conservative figure in the order of eighty thousand dollars is a fair and reasonable estimate. The estimate of Ms Dickson was admittedly somewhat optimistic and did not pay sufficient attention to the historical sales from the premises which showed that the applicant sale prices had never exceeded $1,700 per head and did not take into account a trend which showed falling prices during the relevant period. Nor did it take into account the fact that the costs of the herd of alpacas was less than $20,000 for the entire herd. Nevertheless, the value of $80,000 shows that there was a significant value to be attributed to the herd and and this lends support to the conclusion that there has been a buildup in the value of the herd.
18. The applicant submits that profit from the investment in the livestock operations must be looked at in the longer term and that it should be taken into account that profits may not be generated for several more years.This approach is taken by Ms Dickson and I have taken this into account.
19. In relation to the extent of the land used, the evidence is that the livestock used about one quarter of the land and that although the goats may have wandered over the more difficult terrain from time to time comprising the bushland it was not used by the alpacas. The accommodation area, although small, was used on an intensive basis by family guests. The evidence that about 24 ha of the land was bushland which was unsuitable for alpaca grazing. The evidence does not support a conclusion that the alpacas extensively used areas outside the paddocks.
20. The revenue, earned during the relevant years through sale of alpacas was less than $8,000 per financial year which is insignificant when compared with the income from the accommodation operations.
21. Over the relevant years, the average income from the accommodation sales is $193,000 per year. The price of accommodation ranged between $200 and $350 per night. The types of activities involved in servicing families and guests included cleaning, maintaining facilities, providing food hampers, fixing roads and maintaining gardens and lawns. These are intensive in nature and extent.
22. The great differences in expenditure and revenue points to a more intensive use for non primary production purposes.
23. The evidence does not satisfy the tribunal that the dominant use of the land during the relevant years was for the purpose of primary production. The dominant use of the land during the relevant years was for accommodation by way of farm stay.
24. Accordingly, the order of the Tribunal is that the application is dismissed.

COSTS

1. Both parties have filed submissions together with affidavits seeking an order as to costs. I have considered these affidavits and the material furnished to me.
2. The principles as to the award of costs in this Tribunal are well-settled. Section 60 of the Civil and Administrative Tribunal Act 2013 provides that the prima- facie rule with respect to costs is that they will not be awarded unless the Tribunal is satisfied that "special circumstances" exist.
3. The expression "special circumstances" refers to circumstances that are out of the ordinary but they need not be exceptional or extraordinary. In deciding this question regard can be had to the way the litigation was conducted and whether it was unreasonably prolonged by the conduct of a party. The tribunal can take into account any other relevant matter. The considerations are therefore very broad and the discretion is wide ranging.
4. The applicant refers to a series of interlocutory matters relating to discovery and applications to set aside summonses for production; refusals to consent to adjournment applications, and disputes with representatives of the respondent. It contends that the respondent was unreasonable in contesting the use of the land for a commercial business purpose when the real issue was only the question of "dominant" use. The applicant seeks to rely on the fact that the respondent sought to include the dispute relating to the land tax year 2016 in the proceedings, but did not succeed in that application.
5. The respondent refers to what it claims is the unreasonable conduct of the applicant in refusing to allow an inspection of the property by Mr Winter, who was the expert for respondent as to the nature and extent of the claimed livestock business and the valuation of the alpaca herd. The respondent says that as a consequence of this unreasonable approach by the applicant it was necessary to incur the expense of a further report and that this was unnecessary if the applicant had acted reasonably In addition, the applicant unreasonably objected to Mr Winter, seeing the whole of the transcript of the hearing on 15-16 December, 2016. The applicant also did not make available 2 key witnesses relied on by the applicant for cross examination on the critical matter of the use of the premises while they were managers of the property during the relevant years. These witnesses had sworn affidavits and at the last moment without any proper warning they were not made available for cross examination. No doubt, this led to some costs thrown away in relation to the preparation of cross examination by the respondent of these most important anticipated witnesses.
6. This litigation was complex and difficult in many respects especially in relation to discovery and there was a need for a substantial number of interlocutory applications. The need for the resolution such disputes between the parties in such a case is by no means unusual or special.
7. The applicant had elected to conduct this complex proceeding without the benefit of any solicitor to instruct counsel and as a consequence much of the material produced by way of affidavits records and documents by the applicant was unduly prolix and irrelevant. While an applicant is entitled to brief counsel directly, but nevertheless the failure to instruct a solicitor in this case has substantially contributed to the misunderstandings between the parties, leading to a number of interlocutory disputes.
8. In all the circumstances, having regard to the nature, size and complexity of this case and the way in which the case was conducted by both parties in a robust and strongly contested manner, neither party has demonstrated that there were any circumstances or matters which were out of the ordinary or which were in any sense "special" which would warrant any order to the displacement of the prima facie rule that there should be no award of costs. For the above reasons there will be no order as to costs.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar

Amendments 29 August 2017 - Typographical errors corrected in reasons for decision DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 August 2017