Reysson Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187 | Case summary

REASONS FOR DECISION 1 The appellant, Reysson Pty Ltd, appeals from a decision of the Tribunal constituted by Judicial Member Verick in which the decision of the Chief Commissioner of State Revenue ("the Commissioner" or "the respondent") to disallow an exemption for an exemption from land tax for the 2005 land tax year was upheld. The decision was made on two bases:- a)that the land in question was not used primarily for the keeping of bees thereon for the purpose of selling their honey (see s 3(1) of the Land Tax Management Act 1956 ("the Act"); and b)the land was not flood liable land (see s 6 of the Act). 2 The appellant does not seek, in this appeal, to appeal from the second ground of the decision in the Tribunal below. Nor does it seek, as sought in the Notice of Appeal, to extend the appeal to the merits pursuant to s 113 of the Administrative Decisions Tribunal Act 1997. Legislation 3 The only issue in these proceedings arises out of the construction by the learned Tribunal member of the exemption from land tax contained in s 10(1)(p), which provides:- "10 Land exempted from tax (1) Except where otherwise expressly provided in the Act the following lands shall, subject to sections 10B, 10D, 10E, 10G and 10P, be exempted from taxation under this Act: … (p) with respect to taxation leviable or payable in respect of the year commencing 1 January 1991 or any succeeding year, land that: (i) is land used for primary production in the course of the carrying on of a business of primary production, or (ii) is land used for primary production (whether or not in the course of carrying on a business of primary production) if the land is within a "rural" or "non-urban" zone under a planning instrument or (in the case of land not within a zone under a planning instrument) is land that the Chief Commissioner is satisfied is rural land, …" "Land used for primary production" is defined in s 3(1) of the Act as follows:- "land used primarily for: (a) the cultivation thereof for the purpose of selling the produce of such cultivation, (b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, (b1) the purpose of commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) and the commercial farming of fish, molluscs, crustaceans or other aquatic animals, (c) the keeping of bees thereon for the purpose of selling their honey, (d) a commercial plant nursery, but not including a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or (e) the propagation for sale of mushrooms, orchids or flowers, …" 4 The question for the Appeal Panel, therefore, is whether the Tribunal misconstrued the exemption in s 10(1)(p) in holding, on the facts before it, that the land in question was not exempt from land tax because it was not used for primary production, being "the keeping of bees thereon for the purpose of selling their honey". The Facts and the Tribunal Decision 5 The land for which the exemption under s 10(1)(p) is sought is located in Tweed Heads, New South Wales, and was purchased in 1979 by the current owner. It was intended by the directors of the appellant that it would be developed into a caravan park and "a village and recreational type accommodation". That plan proved unworkable due to various restrictions and it was partly fenced and used for cattle grazing in the early 1980s. In 1994 an application was made for development of the land for a residential subdivision with an artificial waterway, which was also unsuccessful, and from about 1996 Mr Nikola, who is a keeper of bees and a producer of honey, kept bees on the land from time to time. 6 Mr Nikola's bees produce about 35,000 kgs of honey per year, providing an income for Mr Nikola of approximately $80,000. There was significant evidence over three days of hearing before the Tribunal member as to the extent, nature and activities of beekeeping undertaken on the land. What was clear is there were a limited, and varying, number of bees kept on the subject land; that other sites were also used for beekeeping and for the production of honey, and that the actual physical footprint of the bee hives was a very small percentage of the land for which the exemption was sought. 7 The Office of State Revenue conducted a Compliance Field Investigation in 2003 and over the next few years made assessments of the land and eventually assessed the land as being subject for land tax on 13 January 2005. On 10 March 2005, the appellant filed an objection, the terms of which are set out in full in the decision of the Tribunal. 8 There was a further Compliance Field Investigation on 8 August 2005. The officers saw, amongst other things, some 60 beehives over approximately 600 square metres. On 25 January 2007 the respondent notified the appellant that the objection had been disallowed, on the (relevant) basis that the land was zoned residential and that it was "not considered to be used for primary production in the course of carrying on a business of primary production for the tax year". 9 The evidence before the Tribunal ranged wide. An expert, Dr Somerville, noted that the footprint of the apiary itself was not the extent of the land used for beekeeping; rather, the flight of the honey bees would be over a considerable distance (one kilometre in winter and three to four kilometres in summer), and the combination of the local floral species, the lack of surrounding development and absence of other commercial apiaries within flying distance made the land suitable for commercial beekeeping. Mr Nikola gave evidence that the size of the land and its uncleared nature meant that it was of great assistance in his beekeeping business, in particular because he used it for queen-rearing. He gave evidence that he had from a small number, up to 200 hives, on the site at any one time. Most of his queen bees were reared on the subject land. However, most of his honey production took place elsewhere, on the "Tablelands". 10 Mr Anderson, a Certified Practising Town Planner, gave evidence that the "100 or so beehives" he had witnessed on the land gave the Land a "substantial agricultural commercial nature", and that the "dominant use of the property as at 1 July 2004 and continuing to [the date of his evidence] is beekeeping and honey production". 11 The Commissioner did not call any evidence specifically related to beekeeping, or any experts who dealt with the same questions as those called by the appellant, except for tendering a document entitled "Beekeeping Code of Practice for NSW" produced by the NSW Department of Primary Industries, which was not relied upon, it appears, by the learned Tribunal member, nor were the Appeal Panel taken to it in terms. 12 The learned Tribunal member upheld the decision of the Commissioner on the following grounds:- a)the area of the land which was used for beekeeping was "no more than 0.4% of the total acreage of the land", almost half the land was not being used, 30% of the land was being used as a borrow pit and 13% of the land as an open drain; b)as a result, the land was not used "primarily" for primary production; c)it was "difficult to avoid" asking the question why the beekeeping took place there at all, given that it was not economically advantageous for the owner, and the "only commonsense reason" for that activity was "the prospect of getting the exemption under the Act"; d)the bees were not kept permanently on the land, and the number of bees varied with the weather, similarly to the observation of Newman J in Shanahan v. Chief Commissioner of Land Tax 96 ATC 4320 to the effect that allowing agistment of animals on the land from time to time did not constitute a business of primary production. 13 After listing those factors (at par [56]), the learned Tribunal member then went on to discuss the expert evidence that it was not the footprint of the beehives that was relevant, but that the flying ranges of the bees should be taken into account. The learned Tribunal member held that the movement of the bees outside of the hive was difficult to characterise as keeping the bees "on" the land ("the keeping of bees thereon"). The learned Tribunal member said, at [64]:- "The exemption deals with "keeping of bees thereon". I think the word " keeping " restricts the scope of the exemption. It is not defined in the Act. But as submitted by [counsel for the Commissioner], some assistance is available from the definition of the term "keep" in the Apiaries Act 1985. It is defined in that Act to include "have possession and keep control of". Bees are kept in beehives with the beekeeper having the possession and control of the bees. The enquiry should in those circumstances be directed to the land physically used for keeping of the beehives. That interpretation would be consistent with the requirement of human control in relation to the other exemptions". (the "other exemptions" referred to are the kinds of production listed in the definition of "primary production" in s 3(1) of the Act, cited above). 14 At paragraph [68], the learned Tribunal member held that he was not satisfied that the whole of the land was used primarily for the keeping of bees thereon for the purpose of selling their honey. The application for review was also rejected on the second issue, that of whether the land was liable to flooding, but that finding is not a part of this appeal to the Appeal Panel. The appellant's questions of law 15 The appellant made submissions, in effect, that the learned Tribunal member:- a)misconstrued the land tax exemption in s 10(1)(p) of the Act; b)failed to apply the proper construction of the statutory exemption; and c)failed to take into account relevant evidence, and misconstrued the evidence. 16 As noted above, the appellant did not pursue its application for an extension of the appeal to the merits of the decision. 17 The specific means by which the learned Tribunal member erred in misconstruing the primary production exemption are said by the appellant to be:- a)the beekeeping activity was merely a colourable use of the land, and entered into for the purpose only of gaining an exemption under the Act (par [55]) b)the use was not conducted by the owner, and therefore the exemption does not apply (par [56]); and c)only 0.4% of the land was used for beekeeping, and thus the land was not "primarily" used for the "keeping of bees thereon" (par [67]) 18 The Commissioner, in addition to the submissions which are detailed below, says that none of these questions are questions of law and therefore the appeal should be dismissed. 19 Given that "the proper interpretation of the relevant statutory provision is most certainly a question of law" (B and L Linings Pty Limited and Anor v Chief Commissioner of State Revenue [2008] NSWCA 187 at [95]), the question of whether the Tribunal member properly interpreted that provision in the light of the factual findings which he reached is also a question of law, and the appeal should not be dismissed on that ground. As, however, the learned Tribunal member phrased his decision at par [57] as: "On the guidance provided by the cases, it is not difficult on the facts of this matter to conclude that the Land was not used primarily for primary production, in the relevant land tax year." it is certainly an issue in this Appeal whether the relevant finding was, in truth, a finding on the facts, or whether it is properly characterised as a question of statutory construction, or one of disregarding or misconstruing evidence to a point which amounts to an error of law. Was the use a "colourable" use? 20 The first ground, that of the use being "colourable", is, it is said by the appellant, a ground of appeal because there was no proper basis on the evidence for that finding, and because irrelevant considerations were taken into account. 21 The making of findings and the drawing of inferences without any evidence to support them is an error of law: see, eg, Sinclair v Mining Warden at Maryborough (1975) 132 CLR 473 at 481, 483, Bruce v. Cole & ors (1998) 45 NSWLR 163 at 176. 22 The finding of the learned Tribunal member in relation to this point appears in par [55] of the decision, and it is expressly noted that the respondent did not make the suggestion that the only purpose for the beekeeping activity was so that the appellant could obtain the exemption. It is common ground that there was no cross-examination on this issue, but there was an exchange between Counsel for the appellant in the Tribunal below and the Tribunal member, to the effect that:- "He (Mr Nikola) is there because he's a beekeeper who came to our client and asked to use the land. That someone deliberately constructs their affairs to take advantage of a tax concession is perfectly legitimate and appropriate" (T 43 ll 27-29). There were also comments made (at T 34) to the effect that:- "... there is nothing wrong and no moment in this matter in the fact that my client is endeavouring to take advantage of that provision because it does save him a hell of a lot of money. No question about that". Neither of these comments were in evidence, being given during exchanges between the Tribunal member and counsel. There was certainly no evidence before the Tribunal member that when Mr Nikola approached the appellant's officers in around 1996 and sought permission to keep his bees there, he did so as part of an attempt to reduce or evade land tax. 23 It was submitted by the appellant that no evidence to support any inference that that the appellant was, in truth, engaging in a sham, or even engaging in beekeeping for the sole purpose of gaining advantage of the exemption from land tax. The irrelevant considerations pointed to by the appellant are as follows:- a)"the land was clearly awaiting development approval" b)"the beekeeper is on the property almost gratis", 24 The learned Tribunal member relied on the decision in Shanahan (supra) to ground this finding. In that decision Newman J said:- "On the contrary if animals were being grazed not for any profitable purpose, but merely to create a situation where a claim could be made that the land fell under the exemption created by s10(1)(p)(i) of the Act, then such a claim should fail." 25 While the intention of the owner as to the use is not the deciding factor (see Roden J in Saville & Ors v Commissioner of Land Tax (NSW) 81 ATC 4373 at p 4377) and the actual use of the land is decisive, it is clear that some kind of sham arrangement would not attract the exemption. There was no evidence for any such sham in this arrangement. While it is not profitable to the owner of the land, the statement cited above by Newman J in Shanahan does not require that the owner of the land take the profits - there, of grazing, and here, of beekeeping. 26 In our view, the learned Tribunal member erred in finding that there was evidence upon which he could say that "the only commonsense reason for allowing the activity was the prospect of getting the exemption under the Act", or that that reason was the "dominant" reason. With respect, this cannot be so. The statement from Shanahan of Newman J, cited above, discusses a situation where cattle were brought onto the property, not with the intention of selling them or their offspring, but merely to create an illusion of a primary production business. It is not in contention that Mr Nikola's business, in which the bees on the land are participants, is worth some $80,000 a year. Was the use conducted by the owner? 27 The appellant submitted that paragraphs [56] and [62] were indicative of a finding by the learned Tribunal member that an error in the construction of s 10(1)(p)(i) arose "by proceeding on the basis that the land must be used by the owner in the course of carrying out primary production, when on its true construction there is no such requirement". The relevant paragraphs provide as follows:- 56. His Honour, also in Shanahan , made an important observation, that allowing other person's animals on the land of an owner merely for agistment would not satisfy the test that the land was being used for primary production business. Here, the beehives were placed on the Land for short periods, in particular the cold months whilst the honey was actually made on the Tablelands. It was argued by Mr Rider for the Respondent that the activity was very much like the agistment his Honour referred to in Shanahan . I agree with that submission. ... 62. The LTM Act exemption is confined to the land used primarily for keeping the bees thereon for the purpose of selling their honey. In determining the scope of this exemption, it is necessary to note that the other exemptions set out in s 3(1) of the LTM Act relate to human activity involving control by the owners of the land in respect of cultivation of produce or maintenance of animals or commercial fishing or commercial plant nurseries or the propagation of mushrooms, orchids or flowers." 28 The respondent submits that no such restriction - that the learned Tribunal member refused the application for review on the grounds that the person operating the beehives was not the owner - arises from the above paragraphs. The Appeal Panel agrees with that submission. While the Appeal Panel agrees with the submissions of the appellant that:- "the requirement for the land to be (i) used and (ii) occupied by the owner [for the principal place of residence exemption in Schedule 1A of the Act] is in stark contrast to the exemption allowed under s 10(1)(p)(i). ... Properly construed, s10(1)(p)(i) only applies to the use of land for primary production." we also agree with the submission of the respondent that the learned Tribunal member did not place any such restriction upon the construction of the primary production exemption. Accordingly, this ground of appeal fails. The meaning of "the keeping of bees thereon for the purpose of selling their honey". 29 The appellant points to the decision of the learned Tribunal member as requiring that to obtain the exemption, the land would have to be substantially covered with beehives. In support of the contention that the section does not require high-density beehives, it points to the decision of Newcastle City Council v. Royal Newcastle Hospital (1959) 100 CLR 1, in which the Privy Council, on appeal from the High Court, considered whether the Hospital should be exempted from Council rates for a portion of vacant land outside the hospital, used for hospital, lawn and garden purposes, and a further portion of land marked out as a buffer for fresh air, peace and quiet. 30 The submission of the appellant is that the area of the footprint of the hives is an unrealistic way to regard the "use" of the land by the beekeeper and that the whole of the range of the bees must be looked at. The evidence was that the foraging bees ranged freely over the land and that they collected pollen, nectar and drinking water for the hive, and the size of the land, as explained by Mr Nikola and Dr Somerville, provided a buffer for the bees for protection of neighbourhood property and persons. 31 This "buffer" and range use was compared to the finding of the Privy Council in the Royal Newcastle Hospital case which was that "an owner can use land by keeping it in its virgin state for his own special purpose" and examples were given by their Lordships of a rifle range for which a buffer was acquired, even though the owner never intended to set foot on it, or the owner of an island using the land for the purposes of a bird sanctuary. 32 It was submitted that the finding of the learned Tribunal member that the words "the keeping of bees thereon" equated to "land physically used for keeping of beehives" (see par [64] of the decision) was an error of law. 33 The Member also dealt with the expert evidence on the various roles of bees within a hive thusly (after the portion of [64] quoted above):- '64 ... Bees are kept in beehives with the beekeeper having the possession and control of the bees. The enquiry should in those circumstances be directed to the land physically used for keeping of the beehives. That interpretation would be consistent with the requirement of human control in relation to the other exemptions. 65 The exemption also speaks of the keeping of the bees, " thereon ". It is difficult to regard bees in the territory outside the hives as keeping of bees "thereon". The suggested interpretation by the Applicant would create difficulties for the Respondent to determine the actual area to extend the exemption. 66The Tribunal also notes that, as submitted by Mr Rider, only the "forager" bees leave the beehives to collect pollen or nectar or to drink water. The "forager" bees collect and deliver nectar to the indoor bees, which are the only bees that make the honey. This adds further support to the view that the exemption only extends to the land on which the beehives are physically located, being the land where the production of honey takes place. 67 There is also further support that only 0.4% of the Land is actually used for keeping of bees thereon when the activity of the "forager" bees is fully examined. The movement of the bees occurs to collect pollen or nectar or to drink water. The pollen and nectar is collected from various floral species found on the Land. The floral species are growing naturally and have not been cultivated by the beekeeper on the land for the precise purpose of pollen or nectar for his bees. In that context, it is difficult to say that the land on which the floral species is found is used for the keeping of bees. The nature of the unused land would not change simply because some bees have collected nectar or pollen from floral species growing on the unused land. There was also an indication that the bees could use the floral on the adjoining golf course and native reserve. 34 A beehive, the evidence revealed, needed a queen, forager bees (who collect food and water for the bees which do not forage) and indoor bees, which make the honey. The Member, in effect, restricted the exemption to land upon which beehives were constructed, in which honey was made. 35 The evidence further revealed that the bees kept on the land were largely kept there, not so much for the making of honey which took place largely in the warmer months, but for the breeding of queens and the maintenance of beehives and swarms in the winter, due to the floral species which were present on the land which were not present elsewhere. The evidence for the appellant was that the presence of a queen, who was routinely replaced by a new queen, was vital for the production of honey. 36 The respondent argued that the forager/indoor bee distinction was irrelevant, and that the relevant aspect is that the "human activity of beekeeping on the land was confined to the land where the beekeeper had control over the bees, that is, where they were physically located" (see submissions of respondent, par [36]). The respondent's submission was that because honey was not produced on the land, the owner of the land was not entitled to the exemption. The question was not, it was argued, whether the land was used for beekeeping; it was whether the land was used for the production of honey. 37 In any case of statutory interpretation, the first recourse must be to the words of the statute. Those words refer neither to the role of individual bees, nor to the production of honey. Section 10(1)(p)(i) requires that the land is "land used for primary production in the course of the carrying on of a business of primary production". Section 3(1) defines "land used for primary production" as "land used primarily for ... the keeping of bees thereon for the purpose of selling their honey". 38 Each party relied to some extent on the definitions in the Apiaries Act 1985. It is not considered by the Appeal Panel that definitions of other terms (apart from that of "honey") assist very much in the construction of the present exemption. The definition of "honey" is:- "saccharine secretions from the nectaries of flowers that are gathered, modified and stored in bee combs and is laevo-rotatory" (laevo-rotatory is an aspect of the polarising quality of honey when light passes through it, and while interesting, is not relevant to the proceedings). It is clear from this definition that various bees undertake various components of the honey-making process; forager bees, for example, gather the nectar (and bring pollen for food back to the hives), and the honey-making bees modify the nectar to make honey. The queens are necessary for the hive to breed, and effectively to direct proceedings. Without a queen, the hive will not survive as a colony. 39 It is clear on the evidence and the findings of the learned Tribunal member that:- a)Mr Nikola ran a business of selling honey; b)he used the land the subject of these proceedings for raising queens and wintering hives; c)some of the bees kept in the hives on the land foraged over the land in order to keep the queens and other bees in the hive alive; d)in summer, the bees were removed (and the queens placed in other hives) and the honey was produced on other blocks, although some hives remained on the land. 40 The learned Tribunal member found that the land was not "primarily" used for the "keeping of bees thereon" because of the restricted size of the land actually occupied by hives. The appellant says that is an unnecessary restriction on the statutory words; the respondent counters that it is a finding of fact which is not able to be disturbed in this appeal. 41 Three elements of the statutory wording are in contention. The first is the extent of the words "the keeping of bees thereon", the second is "selling their honey" and the third is "primarily". 42 The words of the statute must be examined in the light of the legislative intention. It seems to the Appeal Panel that such a restrictive requirement as to the footprint of hives would render the "beekeeping" limb of the primary production exemption unattainable if the finding were allowed to stand. Forager bees must be able to range to find food and water in order for the other bees to make honey and for the queen to direct proceedings; without forager bees, there would be no honey. The Royal Newcastle Hospital case shows that there is no need for a wide ranging use of the land which is visible to the passerby - such as would be the case with the cultivation, say, of flowers - for the exemption to be triggered. Accordingly, the Appeal Panel is of the view that the whole of the land was used for the keeping of bees, and that the learned Tribunal member erred in holding that a more restrictive interpretation was correct. 43 As to the question of whether the land was used for the keeping of bees for the selling of "their" honey, the statutory wording is less clear. Does the definition refer to the honey produced only by the particular bees kept on the land, the contention for which the respondent contends? Or does it mean "their" in the more general sense - the honey which, later, and at a different location, the queens which were bred on the land, and the forager bees which kept the queens alive during the winter, made their own special contributions to? 44 It seems to the Appeal Panel that the finding of the learned Tribunal member that the exemption applies only to honey actually being produced on the land is too restrictive. The business of primary production which is taking place is one which has more facets than merely the making of honey on the land. The word "thereon" refers to the keeping of bees; and bees are, indubitably, kept on the land. The purpose for which the bees are to be kept on the land is the purpose of selling of "their honey". The honey which is sold is contributed to in a material and vital respect by the activities undertaken by the beekeeper on the land. There is no statutory requirement that the bees be kept on the land AND that the honey be produced on the land. The restriction to land upon which only honey-making bees are housed is not one which is, in our opinion, available when the section is properly construed, and given the expert evidence of Dr Somerville as to the intertwining of the roles of foraging, queen, and honey-making bees. 45 Accordingly, we are of the view that the learned Tribunal Member erred in finding that the production of honey taking place elsewhere disqualified the landowner from entitlement to the exemption under s 10(1)(p)(i). 46 As to the question of whether the land was "primarily" used for the keeping of bees in accordance with the exemption, the finding of the learned Tribunal member must be looked at in the light of the errors already identified. If, as we have said, the foraging use by the bees of the land is one which can fall within the definition of the exemption, then the finding of the learned Tribunal member that "almost half of the land was not being used" and therefore the use of the land was not "primarily" for beekeeping must also be in error. 47 In par [62] of the decision, the learned Tribunal member paraphrases the exemption in s 10(1)(p) as being "confined to the land used primarily for keeping the bees thereon for the purpose of selling their honey". It is this construction of the exemption which shows the error into which, with respect, he fell. The section cannot be confined to the physical land upon which the hives are kept; as an analogy, an exemption for land used for, say, dairy farming would not be confined to the footprint of the dairy itself and the land upon which the cows stood. It would also apply to gaps between fences for the weaning of calves, and the full extent of the paddocks in which the cattle ranged to feed in order to produce their milk. 48 As the only evidence before the Tribunal relating to the range of the bees supported the conclusion that the bees foraged over most of the land, and that other parts of the land were used as buffers, then, on the proper construction of the section, the only conclusion open to the learned Tribunal member was that the land in question was "primarily" used for the keeping of bees within the meaning of the exemption. There was no other actual use. In fact, the assessment of 0.4% of the land being used for beekeeping was made on the assumption that all the land was useable land, when in fact a large proportion of it was not. Conclusion 49 As appears from the reasons above, it appears to us that the learned Tribunal Member erred in three respects:- a)he found, on the basis of no evidence and irrelevant considerations, that the appellant was not entitled to the exemption because business alleged to be primary production of beekeeping on the land was allowed by the appellant only for the purpose of obtaining the exemption under the Act; b)he misconstrued the exemption in that he held that the words "the keeping of bees" referred only to the keeping of bees in hives, and that the land "used" by the beekeeper was only that on which the hives were actually placed; c)he misconstrued the exemption in that he held that the words "their honey referred only to honey actually produced on the land, and not to honey to which the bees kept on the land actively and usefully contributed. 50 As a result of these errors, the appeal is allowed. As a result, the decision of the Commissioner is set aside, and the application for review is allowed, resulting in the appellant being entitled to an exemption from land tax for the 2005 land tax year on the basis of the exemption for primary production.

Reysson Pty Ltd v Chief Commissioner of State Revenue

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