Vartuli v Chief Commissioner of State Revenue

Court of Appeal (NSW)|2015-04-23|Before: Meagher JA, Ward JA, Gleeson JA, White J

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

MEAGHER JA: For the reasons given by Gleeson JA, this appeal should be dismissed with costs.
WARD JA: I have had the advantage of reading in draft the comprehensive reasons of Gleeson JA. I agree with his Honour that the appeal should be dismissed with costs for the reasons that his Honour has given.
GLEESON JA: Since about November 1985 the appellants (the Vartulis), or companies controlled by them, have conducted a small cattle-farming business on land owned by the Vartulis at Camden Valley Way, Edmondson Park in New South Wales. In 2006 part of the Edmondson Park land was rezoned from "rural" to "residential" and the balance was rezoned for other non-residential use.

The relevant facts

At trial the parties sensibly agreed upon a number of facts. The following summary is taken from those agreed facts, supplemented by his Honour's findings.

The land

The Edmondson Park land comprises 14 hectares (35 acres). It was purchased by the Vartulis in June 1985. Their intention in buying the land was to build a family home on it and to breed and fatten cattle on it for sale at a profit. His Honour found that a cottage was constructed on the property but was only occupied for part of the land tax years in question and not by the Vartulis. His Honour found that the last tenants, Juliana and Pino Pannuccio, left the cottage in June 2012, and that the cottage was in a state of disrepair at the time of the hearing: at [40]-[42].
The land at Edmondson Park is part of the land used by the Vartulis and by two family companies - Deemhire Pty Ltd (Deemhire) and Sydrom Pty Ltd (Sydrom) - to produce cattle. Deemhire is the trustee of a Vartuli family trust of which Mr and Mrs Vartuli, their children, his brothers and sisters and their spouses and their children are beneficiaries. Mr Vartuli and his brother are the directors of Deemhire. Mr and Mrs Vartuli are the directors and shareholders of Sydrom.

The cattle operations

During the land tax years in question, the Vartulis' cattle operations involved the use of Edmondson Park (14 hectares); some lands adjoining it at Camden Valley Way, not owned by the Vartulis (15.4 hectares); and some land owned by the Vartuli family at Appin (22.4 hectares), a total of 51.8 hectares or 128 acres.
The Vartulis' cattle operations (being the operations of the Vartulis, Deemhire and Sydrom) consisted of grazing and fattening cattle for sale.
The Vartulis commenced grazing cattle on Edmondson Park in about November 1985 when they purchased 19 heifers. A dam was built in June 1986, and land was cleared for sowing pasture at a cost of $6,500. In August 1986 a tractor was acquired to sow fodder on the farm for $15,400. In March 1987 a cattle yard was constructed and the land divided into a number of paddocks with stock-proof fencing at a cost of $4,000. By early 1987 the Vartulis were grazing 37 head of cattle on Edmondson Park. Between 1985 and 1995, cattle fattened on Edmondson Park were sold by the Vartulis at the Camden cattle sales when ready for sale.
From 1985 until 1998 Mr Vartuli's father, who was retired, managed the cattle operation on Edmondson Park for the Vartulis without payment.
From 1989 cattle owned by Deemhire commenced grazing on Edmondson Park under an agistment agreement for a fee of $2,600 per annum. That fee increased to $3,120 per annum in 1994. From 1989 the Vartulis began reducing the number of cattle they grazed on Edmondson Park to enable Deemhire to agist more of its cattle on the land.
In 1998 Mr Vartuli commenced devoting himself to full-time management of the grazing activities of himself and his wife (in partnership), Deemhire and, from 2004, Sydrom. Between 1998 and 2008, Mr Vartuli spent between 30-35 hours per week managing the grazing activities on Edmondson Park, the adjoining lands to Edmondson Park, on which cattle were agisted, and at Appin.
In 1999, the Vartulis had ceased grazing any of their own cattle on Edmondson Park - Deemhire owned all the cattle grazing there and paid an agistment fee of $6,000 per annum as at 1 July 2000 pursuant to an agreement. The fee was later reduced to $5,200 per annum.
The Vartulis resumed grazing their own cattle at Edmondson Park in 2000, after a drought broke. In 2004 the Vartulis ceased grazing their cattle at Edmondson Park and Sydrom commenced grazing cattle there and paid agistment fees to the Vartulis.
From August to December 2006 there was no feed on the ground at Edmondson Park and the 24 head of cattle (one grazed by Sydrom and 23 grazed by Deemhire) were handfed by Mr Vartuli with discarded produce.
His Honour found that from 2008 and up to the date of the trial, Mr Vartuli worked on the Edmondson Park land for about 8-12 hours per week, not including time he spent attending sale yards. He found that Mr Vartuli attended the sales about 12 times a year for 2-6 hours.

Stock levels

The primary judge made the following findings concerning the stock levels of the Vartulis' cattle operations.
Between 1990 and 1997 Deemhire grazed between 47 and 79 head of cattle on Edmondson Park and at Appin. This was a period before a drought, and when there was good rain: at [26]. His Honour accepted Mr Vartuli's evidence that the property was affected by drought from about 1998 until 2008 and that the drought was most severe in 2006 and 2007: at [28].
In the financial years to 30 June 2006 and 30 June 2007, the maximum head of stock being carried at any time by the Vartulis' cattle operations was in the mid-20s. This increased to the mid-40s in the following two years, to 50 in the year ended 30 June 2010 and 52 in the year ended 30 June 2011: at [32].
In the year ended 30 June 2012, between October 2011 and January 2012, there were between 77 and 122 head of cattle grazing on the various properties before sales reduced the number to 63 at the end of financial year: at [32].
In the financial year ending in 30 June 2013, 140 cattle were purchased, 97 were sold, and there was a natural increase of 8 cattle. As at early September 2013, there were 79 head of cattle at Edmondson Park. On 6 September 2013, 19 cattle were sold at the local cattle sales, and later that month another 40 head of cattle were sold. Mr Vartuli said that he decided to sell the further cattle as a result of a dry spell. The primary judge found that after the second sale, Mr Vartuli was left with 19 head of cattle at Edmondson Park: at [30]. (It seems that the correct figure was 20, but the difference is immaterial.)

The opinion evidence

Both parties relied at trial upon evidence given by accountants and beef cattle experts. The accountants (Mr Warwick Finney for the Vartulis and Mr John McGuiness for the Commissioner) expressed opinions as to the profitability of the primary production activities. The beef cattle experts (Mr Robert Marsh for the Vartulis and Mr Bill Hoffman for the Commissioner) expressed opinions on the commercial viability of the Vartulis' cattle farming operations.

Accounting evidence

With respect to the accounting evidence, his Honour observed that the focus in s 10AA(2) is on the profit-making purpose of the use of the land and therefore attention is directed to the purpose of the user or users and the profits or losses made from the use of the land, not the profits or losses made by the owner of the land. This made it appropriate to consider the entirety of Sydrom and Deemhire's primary production activities, whether conducted on the land or not, because Edmondson Park was only part of the land used as part of those companies' primary production activities: at [36]. Accordingly, his Honour did not accept the approach in the first report of Mr Finney which focused on the profits derived only from the Edmondson Park land and not the whole of the land used by the Vartuli group.
His Honour concluded that the profitability of the primary production activities should be considered from the perspective of Mr and Mrs Vartuli, Sydrom and Deemhire, by consolidating their results, and excluding the internal agistment charges by which income from those activities were paid to Mr and Mrs Vartuli at the companies' expense: at [36]. There is no challenge to this approach on appeal.
His Honour considered that the rental income from the cottage on the Edmondson Park land should not be taken into account when determining profitability: at [39]. He found that the occupation of the cottage by Mr and Mrs Pannuccio and their payment of rent was not truly incidental to the operation of the primary production activities: at [44].
Accordingly, his Honour concluded that neither the income from the cottage on the Edmondson Park land nor the expenses incurred in relation to the cottage should be taken into account in determining the profitability of the primary production activities: at [45].
Based on the calculations appearing in annexure A to his reasons, his Honour found (at [50]) that the primary production activities of the Vartulis (including Deemhire and Sydrom) produced losses and profits as follows: Year ended $ 30 June 2006 $2,863 30 June 2007 ($5,777) 30 June 2008 ($2,351) 30 June 2009 ($323) 30 June 2010 $2,130 30 June 2011 $96 30 June 2012 $2,859 30 June 2013 ($3,987)

(The calculations appearing in Annexure A were based on Mr Finney's summary of the primary production results of the Vartuli group from 2006 to 2013 in Appendix 2 of his supplementary report dated 17 July 2013).

After observing that these figures did not include council rates, water charges and insurance, his Honour addressed the significance of those omissions. First, he found that water charges and insurance related to the cottage on the property and "for the reasons above" should not be included as an expense in assessing the profitability of the cattle farming operation: at [51]. His Honour's reference to "the reasons above" may be taken to be a reference to his finding (at [45]) that the use of the cottage was not incorporated as part of the primary production business.
Secondly, his Honour noted that as a result of the rezoning and consequential changes to land value, council rates had increased from $4,938 in 2005 to $25,833 in 2009, and that the Vartulis had applied for and were granted a council rates concession under s 585 of the Local Government Act 1993 (NSW). His Honour considered that council rates were in a different category because they are payable in respect of the land and the concession was only given because the cottage was being occupied as a residence. His Honour found that the Vartulis were only entitled to the benefit of the postponement (and he assumed an adjustment of rates under s 594) whilst the cottage was so occupied. Reference was made to ss 597 and 598 of the Local Government Act.
At [51] his Honour set out the council rates paid as follows: Year Ended $ 30 June 2006 $4,936 30 June 2007 $8,672 30 June 2008 $9,121 30 June 2009 $2,604 30 June 2010 $2,604 30 June 2011 $2,604 30 June 2012 $2,604

and then observed that the expense for council rates negated the profit for the 2006 financial year and increased the financial losses for the years ending 30 June 2007, 2008 and 2013.

His Honour considered that it was arguable that council rates should not be brought to account in assessing the profitability of the farming operation from 2009 to 30 June 2012, because from 2009 the rates were levied only in respect of the occupation of the cottage. However, if council rates were brought to account, his Honour accepted that the rental income from the cottage and other expenses relating to the occupation of the cottage for the same period should also be brought to account: at [52].
His Honour considered that there was insufficient material to make a precise finding as to how such adjustments would affect the statement of profits and losses of the cattle operations. He noted that "at best" the returns for the years between 30 June 2009 and 30 June 2012 would be improved by about $7,500, if rental income of $200 per week from the occupation of the cottage and other expenses (including council rates) for those years were brought to account. He observed that if this approach was taken, the picture of only small profits of up to about $10,000 for those years remained, and that the bulk of such profits would not be derived from primary production: at [53].
With respect to the cattle operations before 2006, his Honour observed that the accountants did not have regard to the companies' financial statements prior to the year ended 30 June 2006. He noted that there was no evidence that the earlier financial statements were not available (at [55]) and that Mr Vartuli had produced schedules of numbers of cattle grazed on the farm from 1989: at [55]. His Honour found that the figures, which were only for Deemhire's business, reflected a similar scale of operations prior to 1998, as obtained during the relevant years in question: at [57].

Beef cattle experts

Mr Marsh was an agricultural and management consultant who assisted landholders who operated primary production businesses. Mr Marsh's opinion was that whilst Edmondson Park itself, consisting of 14.2 hectares, was too small for an adequate cattle grazing business, when other factors were taken into account such a business could stand alone financially. Those other factors included the availability of the adjoining properties on which cattle were agisted, and the use of the Appin property: at [58].
Mr Hoffman had worked in the Department of Primary Industry between 1973 and 2010 in the beef cattle area, and since that time had provided specialist advice on beef breeding to producers and was also a beef producer himself, operating what he described as a moderate sized beef enterprise based on 800 head of steers. Mr Hoffman's opinion was that Sydrom's and Deemhire's business was not carried out in a manner, scale and size characteristic of a profitable commercially viable beef grazing business which had a significant and substantial commercial purpose or character.
Mr Hoffman considered that an important Key Performance Indicator for any beef business was the kilograms of beef produced in each year. He expressed the opinion that the kilograms of beef produced by Sydrom and Deemhire were low when measured either as total kilograms of beef produced, or kilograms of beef produced per hectare grazed by the cattle. He added that the business was burdened by low productivity and high costs resulting in year-on-year losses for the six years that he reviewed.
His Honour referred to and accepted various criticisms of Mr Hoffman's analysis and opinion. The first related to an absence of appropriate data from which to calculate the quantity of beef produced by Sydrom and Deemhire. The second related to the comparator used by Mr Hoffman with respect to kilograms of beef produced. The comparator used represented only 1.7 per cent of the total cattle in New South Wales, and was based on cattle in high production cattle-producing areas. His Honour accepted Mr Marsh's evidence that the Key Performance Indicator used by Mr Hoffman was not a general industry standard and that the use of benchmarks used by cattle producers in a specifically high production cattle-producing area was not comparable with the area in which the Vartulis' land is located: at [74].
His Honour accepted Mr Marsh's opinion that given reasonable seasonal conditions, the number of cattle which can be depastured on the properties of the Vartuli group exceeds 100: at [75].
At [77]-[82], his Honour recorded the Vartulis' submission that regard should be had to comparable cattle farms in comparable areas. His Honour noted that a publication entitled "Financial Performance of Beef Farms, 2006-07 to 2008-09" (issued by the Australian Bureau of Agricultural and Resource Economics (ABARE), not the Meat and Livestock Authority, as indicated by the primary judge) stated that an average of 33 per cent of beef cattle farms in southern Australia had fewer than 100 head of cattle, and 44.9 per cent carried between 100 to 400 head of cattle in 2001-02 to 2007-08, and contained estimates of production and financial performance of broadacre beef cattle farms in southern Australia with more than 100 head of cattle.
At [85], his Honour set out in a table a comparison between the average small farm (ie, 100-200 head of cattle) cash receipts from beef cattle reported in the ABARE publications with the receipts of Deemhire and Sydrom (the Vartuli receipts). Where there was more than one figure provided in the publications his Honour included all of them. It is appropriate to reproduce that table from his Honour's reasons. Average Receipts from Vartuli Receipts $ Beef Cattle Sales $ 2006-07 58,111 925 2007-08 60,300 15,613 2008-09 69,400 18,829 46,064 2009-10 57,425 35,863 56,080 59,400 2010-11 51,860 40,542 51,890 2011-12 43,300 62,415 49,300 2012-13 51,000 38,852

His Honour observed that the table showed that whilst in the first 3 years the Vartuli receipts from cattle sales are well below the average for small producers (fewer than 200 head), in the last 4 years, and particularly the last 3 years, the receipts are comparable. His Honour noted that the first 3 years were years of drought and that stock numbers had to be reduced for lack of feed: at [86].

The primary judge's reasons

As already mentioned, the primary judge recorded his findings and calculations as to the profitability of the Vartulis' cattle operations (as set out at [36] above). Those calculations did not include any notional expenses for wages for Mr Vartuli. His Honour found that it would be inappropriate to include a notional wage expense when no such expense was actually incurred: at [49]. The Commissioner challenges this finding by ground 1 of the amended notice of contention.
His Honour also found that it was not useful to assess the primary production profits of the Edmondson Park land in relation to its capital value, as valued by the Valuer-General for the purposes of assessing land tax (almost $12 million in 2007), in the relevant years, unlike in Maraya where such an approach was appropriate: at [87]-[89], [137]-[138]. The Commissioner challenges this finding by ground 2 of the amended notice of contention.
His Honour referred to the reasons of the trial judge (Gzell J) and this Court in Maraya. At [103] he observed that this Court upheld Gzell J's approach that to determine whether the use of the land had a significant and substantial commercial purpose, or a significant and substantial commercial character, it was necessary to consider the intensity of the operation, the size and quality of the herd, the carrying capacity of the land, the resources put into the development and maintenance of the operation and the profitability of the operation.
At [106] his Honour referred to the acceptance by this Court in Maraya that whether the primary production use of land had a substantial and significant commercial purpose or a substantial and significant character could be considered by comparison with the use of other lands.
At [107] his Honour referred to the reasons of Leeming JA (with whom Meagher JA agreed) in Maraya at [83]-[86], concerning the significance of the inclusion of the word "substantial" in the phrase "significant commercial purpose or character". His Honour concluded that the adjective "substantial" imposes a more stringent test than would be imposed by the phrase "significant commercial purposes or character". He continued (at [109]): For a use of the land to have a commercial purpose or commercial character, the purpose or character of the use must be or include the making, or the potentiality for the making, of profits. …
At [110] his Honour found that the magnitude and size of the use for primary production and the intensity of the operation are relevant to an assessment of whether the commercial purpose or commercial character of the use is significant and substantial. This includes the size of the herd, the size and carrying capacity of the land, the resources put into the business of primary production, and the revenues and profits generated. His Honour also accepted that it was appropriate to compare the use of the subject lands with other primary production activities of the same kind, in this case cattle-raising, and with how land is generally used.
His Honour observed that the decision in Maraya, although providing guidance, did not by itself provide the answer to the present case: at [112]. He referred to some factual similarities and differences between the present case and the evidence in Maraya. One similarity noted by his Honour was that for the years in question, the cattle operations of the Vartulis, Deemhire and Sydrom operated at a loss for some years (like in Maraya), and otherwise only at a small profit without taking into account the incidence of council rates.
His Honour observed that if council rates and income from the rental of the farm property were taken into account, again there would be losses in the earlier years and only small profits in the years from 30 June 2010 to 30 June 2012, and that after that date the council rates would again mean that the cattle operations were unprofitable: at [114].
As to the evidence of comparable cattle farming, his Honour referred to three matters. First, he noted that the Vartulis had demonstrated that the beef producing clients of Mr Hoffman were not an appropriate comparison. Secondly, he observed that it was impossible to say how many of the small cattle operations whose financial results were summarised in the publications to which the Vartulis had referred would individually satisfy a test of use of the land being for a significant and substantial commercial purpose or character. Thirdly, he accepted that the statistics in those publications demonstrated that there were thousands of beef cattle farms of a comparable size to the cattle operations of Deemhire and Sydrom and that on average small beef producers made losses in the financial years ended 30 June 2007, 2008, 2009, 2010 and 2012. He noted that 2011 seemed to have been the only good year across the industry: at [118].
His Honour then turned to the construction of s 10AA(2)(a) and the cases that led to the adoption of the text now found in that provision and Parliament's purpose in legislating in those terms. Reference was made to Thomas v Federal Commissioner of Taxation (1972) 3 ATR 165 and Hope v Bathurst City Council (1978) 38 LGRA 1 (Rath J), the majority in this Court: Hope v Bathurst City Council [1979] 2 NSWLR 471 at 477 (Samuels JA) which decision was reversed on appeal to the High Court: Hope v Bathurst City Council [1980] HCA 16; 144 CLR 1. His Honour continued: 126 As the Court of Appeal held in Hope v Bathurst City Council (No. 3) [1994] NSWCA 139 and as Leeming JA said in Maraya, the amendment added an additional requirement beyond those considered by Mason J in Hope v Bathurst City Council, namely that the use have a substantial commercial purpose or character as well as a significant commercial purpose or character. In introducing the amendment the Minister stated in her second reading speech (at 3,778 of the Parliamentary Debates, 29 November 1988) that: "The Government wants to help councils to weed out those persons who have exploited the vagueness of the present rural rating provisions of the Act to obtain rates concessions when in fact they have not been genuine primary producers." 127 Following the amendment, it was held in Hope v Bathurst City Council (No. 3) (at 18) that Mr Hope's "agisting a handful of horses and generating a gross annual income in the order of $1,000 was altogether too minor and small to satisfy the requirement of para (a) of the definition". 128 On one view the amendment imposing an additional requirement that the commercial purpose or character be substantial as well as significant may have been intended only to address primary production activities of the scale in Hope v Bathurst City Council. A "significant commercial purpose or character" discussed in Thomas v Federal Commissioner of Taxation, as interpreted in Hope v Bathurst City Council, is satisfied if the venture is in the nature of a going concern engaged in for the purpose of profit on a continuous and repetitive basis. That threshold is low as illustrated by the facts in Hope v Bathurst City Council. The additional requirement that the commercial purpose or character also be substantial raises the threshold. The question is, how high is the threshold raised? 129 It is clear from the Minister's second reading speech that the exemption was intended to apply only to "genuine" primary production. That was the raised threshold. In my view, having regard to the Court of Appeal's reasoning in Maraya, for the use of the land to have a significant and substantial commercial purpose or character, the use must have a character such that it generates, or can reasonably be expected to generate, profit that contributes in a real and not trifling way to the user's income, or a purpose of generating such profit. 130 The use of the land for primary production by way of a recreation or a hobby might fail the requirement of commercial purpose or character. In Thomas v Federal Commissioner of Taxation, Walsh J contrasted the growing of trees merely for a recreation or as a hobby and activities having a significant commercial purpose or character (at 171). In Thomason v Chief Executive, Department of Lands [(1994-1995) 15 QLCR 286] the Queensland Land Appeal Court said (at 306): "It is difficult, and unnecessary, to state a precise and compendious meaning of the expression 'significant and substantial commercial purpose' and 'significant and substantial commercial character'. Bearing in mind the various connotations of the words 'significant' and 'substantial' it is perhaps sufficient for present purposes to say that for s 17(1) of the Act to apply to the subject land there must be evidence that: (a) the business or industry is being carried on with a genuine and sizeable intention or desire that there will be reward, if not profit and is not being engaged in merely for recreational or some other purpose; or (b) the qualities or distinguishing features of the business or industry demonstrate that it is being carried on in a way which (ordinarily, at least) will generate reward, if not profit." 131 This passage distinguishes between a commercial purpose on the one hand, and a mere recreational purpose on the other, and distinguishes between purpose and character. Either a commercial purpose or a commercial character will suffice provided that it is both significant and substantial. 132 It is clear from s 10AA(2)(b) that the subsection as a whole is capable of being satisfied even though a profit is not actually made at the time the subsection has to be applied, that is, at midnight on the 31st day of December immediately preceding the year on which the land tax is levied (s 8). Section 10AA(2)(b) necessarily assumes that use of the land might have a significant and substantial commercial purpose or character, notwithstanding that a profit is not actually made.
His Honour rejected the Commissioner's submissions that the cattle grazing at Edmondson Park should be characterised as a hobby or token business. He gave the following reasons: 133 ... I accept Mr Vartuli's evidence that the fences and other improvements on the farm about which he was cross-examined were adequate for their purpose. I do not think the business is a token business. I accept Mr Vartuli's evidence that since he and his wife acquired Edmondson Park, his purpose has been to use the farm for the breeding, fattening and sale of cattle at a profit, where possible, each year. Mr Vartuli's father had run a cattle business in the 1960s and he had grown up helping his father breed and fatten cattle. Mr Vartuli tries to make money from his cattle operations. But he does not rely on the income earned from the cattle operations for his income other than in a trifling way. He has a purpose of making profit, notwithstanding that his primary motivation, in my view, is his enjoyment of the work entailed. 134 I would not accept the characterisation of Mr Vartuli's grazing activities (through his companies) as a mere hobby. Nor would I characterise the cattle grazing operations as merely "token" whether in the sense of being representative or symbolic or merely nominal. A recreational purpose is not necessarily fatal to the first limb of s 10AA(2)(a) provided that there is a commercial purpose that is substantial and significant. Such a commercial purpose could co-exist with a recreational purpose. The requirement in s 10AA(2)(a) is that the commercial purpose be significant and substantial, not that it be the sole purpose. And a recreational purpose can co-exist with the use of the land having a significant and substantial commercial character.
Nonetheless, his Honour found that the use of the Edmondson Park land has neither a significant and substantial commercial purpose, nor a significant and substantial commercial character. He gave the following reasons: 135 … Notwithstanding the allowance that must be made for the land's having been adversely affected by drought over the earlier relevant years, the subsequent results of the Vartulis' cattle operations show that only minimal profits could be derived from the use of the land, and only then for so long as the Vartulis were entitled to a postponement or reduction of council rates whilst the cottage on the property was occupied. There was no evidence showing greater profits in earlier years. The occupation of the cottage cannot materially affect the assessment of commercial purpose or character. 136 The use of the property does not contribute in a real and not trifling way to the income of Mr and Mrs Vartuli, Deemhire and Sydrom. That income is derived through other businesses or investments of the Deemhire trust and Sydrom. Although the plaintiffs have a purpose of making money from their cattle operations, that is not a significant and substantial purpose because the cattle operations do not make money. The cattle operations are small. Mr and Mrs Vartuli (through their companies) would be classified as small beef producers. The operations are of a sufficient size that the scale of operations in itself would not preclude the use of the land having a commercial purpose or a commercial character that was significant and substantial. But the lack of profitability does mean that the Vartulis' and their companies' commercial purpose in using the land, and the commercial character of the use of the land, cannot be categorised as significant and substantial. 137 I have reached this conclusion without considering the rate of return compared to the value of the land. It is clear from the decision in Maraya that this could be a relevant consideration. It certainly would have been relevant in Maraya where the cattle raising operations started at or not long before the rezoning. For the reasons at paras [87]-[91] above, the present case raises different facts which make a comparison between the rate of return as a percentage of the value of the land and a return which might generally be expected from the use of land to be not useful. 138 In this case I would not conclude that the use of the land lacked a significant and substantial commercial purpose or character because the level of profits did not provide a reasonable return when compared to the value of the land. Rather, I conclude that the use of the land lacked a significant and substantial commercial purpose or character because profits are not derived from the use of the land that make any real, as distinct from trifling, contribution to the income of the plaintiffs, Deemhire and Sydrom.
His Honour noted that his conclusion on s 10AA(2)(a) made it unnecessary to consider whether the requirement under s 10AA(2)(b) was satisfied. Nonetheless, his Honour expressed his factual conclusions with respect to the issues raised by s 10AA(2)(b) as follows: 140 I accept that it was one of Mr Vartuli's purposes that he and his wife should derive profit by using the land for the breeding, fattening and sale of cattle. I accept that his purpose should be attributed also to Mrs Vartuli. That was a purpose of using the land for profit on a continuous and repetitive basis. 141 I do not accept that that was the plaintiffs' only purpose, nor that it was their dominant purpose. I have already explained that in my view Mr Vartuli has continued the operations because he likes cattle farming. He seeks to profit from that activity, but he does not depend on it. Having regard to the absence of profits actually made, I do not think that his purpose of making a profit is his dominant purpose. He continues to engage in cattle farming because he enjoys it and because it is something he has done since he started helping his father in his father's cattle raising activities.
At [142] his Honour observed that the parties' submissions did not focus on the meaning of "purpose" in s 10AA(2)(b) and whether the requirement of the purpose of profit on a continuous or repetitive basis involved a sole or dominant purpose test, or whether a purpose for which the land was used would satisfy this requirement. His Honour refrained from expressing an opinion on that issue, the Vartulis having failed to establish that the requirement under s 10AA(2)(a) was satisfied.

Issues on Appeal

The amended notice of appeal relied on 22 grounds, some of which were connected. A number of the grounds expressed essentially the same complaints. The first complaint concerned whether the primary judge misstated and misapplied the test in s 10AA(2)(a) for ascertaining the significance and substantiality of the commercial purpose or character of the use of the Edmondson Park land. The second concerned whether a sole purpose or dominant purpose test applied under s 10AA(2)(b) in determining whether the Vartulis carried on the cattle operations for the purpose of profit on a continuous or repetitive basis, or whether it was sufficient if this was one of their purposes.
In their written submissions, rather than attempting to distil the issues, the Vartulis formulated 24 separate issues, 16 relating to the requirement under s 10AA(2)(a) and 8 relating to the requirement under s 10AA(2)(b). This approach to the identification of the issues in dispute is hardly consistent with the just, quick and cheap resolution of the real issues in the appeal: Civil Procedure Act 2005 (NSW), s 56.
The Commissioner's amended notice of contention sought to uphold the primary judge's decision on 3 grounds. Two of the grounds have already been mentioned: see [51]-[52] above. They are primarily directed to the requirement under s 10AA(2)(a). The third ground is directed to the requirement under s 10AA(2)(b), and whether it involved either a sole purpose or dominant purpose test of the use of the land.
The Commissioner's written submissions helpfully grouped a number of the grounds of appeal and the issues formulated by the Vartulis. It is convenient to address the issues raised by the appeal generally under these groupings.

Assessment of significance and substantiality of the commercial purpose or character - grounds 1-3 and 7

Ground 1 asserts that the primary judge misconstrued the decision of this Court in Maraya as to whether the use of the land has a significant and substantial commercial purpose or character: s 10AA(2)(a).
The Vartulis' central contention is that his Honour misdirected himself (at [129]) that it was necessary to consider whether the use of the land generates, or can reasonably be expected to generate, profit in an amount that contributes in a real, and not a trifling, way to the user's income, or whether it has a purpose of generating such profit.
The Vartulis characterise his Honour's reference to "a real and not trifling" contribution to the user's income, as invoking a novel test of whether the use of the land has the requisite commercial purpose or character. They contend that the existence and extent of other sources of income of those engaged in the use of the land can have no relevance to the commerciality of the purpose or the character of the use to which the land is put. Such a comparison is said to be unsupported by the text and purpose of s 10AA(2)(a).
The Vartulis contend that the only comparator for determining the significance and substantiality of the commerciality of the purpose or character of the Vartulis' cattle operations is all the other similar size cattle farms (tcpt CA at 4, lines 35-44).
The Vartulis further contend that a comparison to other income of the user of the land is wrong because there was no consideration of this factor by either the trial judge (Gzell J) or this Court in Maraya.
In my view, the complaint that the primary judge misconstrued the decision in Maraya is misconceived. For the reasons that follow, this complaint involves a misreading of the reasons of this Court in Maraya and those of the trial judge, Gzell J: Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 (Maraya (Gzell J)). It also involves a misreading of his Honour's reasons.

Maraya trial and appeal

Maraya concerned an unsuccessful application by taxpayers to the Supreme Court and on appeal to this Court, for review of the Commissioner's decision to disallow their objections to land tax assessments in respect of 27 hectares of land, at Prestons or Edmondson Park, on which the taxpayers conducted a small cattle operation. The subject lands were zoned industrial. During the land tax years in question (2006-2010), the livestock trading activities of Maraya had results ranging from a loss of $4,712 in 2007 to a profit of $1,213 in 2008. The number of cattle ranged between 6 and 41, and in the years after 2010 (being the last relevant land tax year) there were up to 55 cattle on the subject lands.

Maraya (Gzell J)

Gzell J observed that "substantial" connotes size or bulk, and means an ample or considerable amount, quantity or size (at [88]) and that "significant" connotes importance, something of consequence or an element that is key, vital or critical: at [83]. His Honour referred to the "commerciality" test in s 10AA(2)(a) and found that it required that the commercial purpose or character of the use had a relatively high degree of importance: at [89]. His Honour continued (at [90]): The test distinguishes activities amounting to a business that is carried on in a small way or as a sideline from those of a more serious and weighty kind. A business that satisfies the commerciality test will be an important one. It will usually also exhibit some of such characteristics as size, depth, bulk, weight, seriousness, quality, intensity and prominence.
Gzell J had regard to the intensity of Maraya's cattle operation, the size and quality of its herd, the size and carrying capacity of the subject lands and the resources, whether of time, labour or expenditure, put into the development and maintenance of the cattle operation: at [91]. He did not consider that 40, or even 55, cattle grazing on the subject lands constituted a serious or intense primary production use when the grazing areas of the lands are taken into account: at [92]. He accepted the expert evidence that Maraya's cattle operation was not and would not be commercially viable: at [97].
Gzell J concluded that Maraya's cattle operation did not have such characteristics as importance, size, depth, bulk, weight, seriousness, quality, intensity and prominence that are indicative of a significant and substantial commercial purpose or character: at [98]. Accordingly, he found that Maraya had failed to establish that the primary production use of the subject lands had a significant and substantial commercial purpose or character within the meaning of s 10AA(2)(a): at [99].
In reaching that conclusion, Gzell J accepted (at [95]), the evidence of Mr Hoffman, who had been jointly retained by the parties as a beef cattle expert. Mr Hoffman expressed the opinion that the Maraya cattle business did not make a positive financial return in the relevant tax years when assessed in terms of operating profit: at [34]. Mr Hoffman identified the most likely corrective steps he would expect an entity, which is not returning a positive "profit", to take would be to increase productivity and reduce the cost of production: at [95]. Mr Hoffman observed that such steps are often difficult to implement when an entity is based on a small area of land and is largely operating what is commonly referred to as a "hobby" farm. Mr Hoffman explained that "[t]he term 'hobby' is normally applied in cases where the beef business is not the full time occupation of the operator, is only contributing a minor portion of the income and is supported by 'off farm' income": at [95].
Implicit in Gzell J's acceptance of Mr Hoffman's evidence, is an acceptance of the proposition that the contribution to Maraya's income from the cattle operation relative to its other income, was relevant for contextualising whether a commercial purpose or character was significant and substantial.
In my view, the context in which Gzell J accepted the relevance of the relative contribution to the user's income (being Mr Hoffman's explanation of the term "hobby" farm), does not detract from the force of Gzell J's acceptance of Mr Hoffman's evidence.
The acceptance by Gzell J of Mr Hoffman's evidence was not challenged on appeal in Maraya. Accordingly, it is not surprising that this Court did not comment on this issue.

Maraya - Court of Appeal

In Maraya, Emmett JA noted that the relevant land was zoned for residential and industrial use, and could only be used for cattle-grazing by reason of existing use rights. It may be accepted that having observed (at [56]) that an assessment as to whether use of land has a significant and substantial commercial purpose or character cannot be undertaken in the abstract, Emmett JA added that "[w]hether a particular use has a commercial purpose or a commercial character can only be assessed by reference to the way in which land is generally used". However, the context of this observation was his Honour's rejection of a ground of appeal by the taxpayer (which he recorded at [49]) that the trial judge in Maraya had erred insofar as he considered that the test in s 10AA(2)(a) permitted a comparison between the use of taxable lands with other parties' use of other lands. His Honour concluded (at [56]) that "[a] relevant consideration in determining whether use of land has a commercial purpose or a commercial character must be the way in which land is generally used".
Importantly, Emmett JA did not state that a comparison with other parties' use of other lands was the exclusive test or determinative when applying s 10AA(2)(a).
Leeming JA, who also agreed with Emmett JA, added (at [84]), that there was no error by the trial judge in that case contrasting the small scale and impossibility of profit of the cattle business on the land with other cattle-raising businesses. Again however, Leeming JA did not state that such a comparison was the exclusive test or determinative when applying s 10AA(2)(a).

Disposition of grounds 1-3 and 7

The Vartulis' contention that the true and only test for significance or substantiality under s 10AA(2)(a) requires a comparison with competitor farms with similar attributes, should be rejected. That would be inconsistent with the evaluative judgment required by s 10AA(2)(a). The comparison contended for is a relevant consideration but not the exclusive test.
Further, nothing in the reasons of either Gzell J or this Court in Maraya precludes consideration of the relative income contribution from the primary production use for the purpose of contextualising the significance and substantiality of any commercial purpose or character of the use of the land. The relative contribution to the income of the user is a relevant consideration when determining whether any commercial purpose or character of the use of the lands has a "relatively high degree of importance": Maraya (Gzell J) at [89].
The primary judge referred to the reasons of Gzell J and this Court in Maraya in some detail: at [92]-[119]. For the reasons that follow, the contention that his Honour misdirected himself when applying s 10AA(2)(a) should be rejected.
First, as already mentioned, his Honour correctly observed (at [106]) that this Court accepted in Maraya that whether the primary production use of land had a substantial and significant commercial purpose or commercial character could be considered by comparison with the use of other lands. Thus at [110] his Honour accepted that it was appropriate to compare the use of the subject lands with other primary production activities of the same kind, in this case cattle-raising, and with how land is generally used. This was entirely consistent with the observations of Emmett JA in Maraya at [56].
Secondly, his Honour had regard to the evidence relevant to comparable cattle farms. At [112], he found that the Vartulis' scale of use is consistent with thousands of other cattle farms of comparable size. At [118], he rejected the comparison contended for by the Commissioner between the Vartulis' operations and the cattle growers who are clients of Mr Hoffman.
At [118] his Honour also observed that it was impossible to say how many of the small cattle operations (whose financial results were summarised in the publications tendered by the Vartulis) would individually satisfy a test of use of the land being for a significant and substantial commercial purpose or character. Nonetheless, he accepted that these facts were relevant in assessing whether an inference should be drawn of an absence of commercial purpose, or of a significant and substantial commercial purpose, from the lack of profits: at [119].
Thirdly, I do not read his Honour's reasons, particularly at [129] and [136], as ignoring the focus of s 10AA(2)(a) on the purpose and character of the use of the land and introducing a "novel" test focusing on the Vartulis' other sources of income.
His Honour found that the Vartulis' cattle operations are small and do not make money. This was the context in which his Honour observed (at [136]) that the cattle operations do not contribute in a "real, and not trifling way", to the income of the Vartulis and their companies. That contextualised the small scale and consistent lack of profits of the Vartulis' cattle operations. Importantly, the finding of minimal profits after the drought ended is not challenged (tcpt CA at 19, lines 16-17).
The fact that the contribution to the Vartulis' income from the cattle operations was insignificant, underscored that the revenues and profits generated from the Vartulis' cattle operations did not have a commercial purpose or character which was significant and substantial. No error has been demonstrated in the approach adopted by his Honour.
In written submissions, the Vartulis postulated various examples (extrapolated from the example given by Leeming JA in Maraya at [84]) of income generated by a hypothetical truffle grower compared to the average net profit of other truffle farmers with comparable farms and the taxpayer's other income. Such examples were said to demonstrate that the hypothetical truffle grower would pass the test in s 10AA(2)(a) enunciated by this Court in Maraya, if he was significantly more profitable than the industry average, but would only pass the test on the primary judge's approach if he had no other source of income, or only a very small source of other income. It was contended that such examples highlighted the error in the primary judge's approach. I do not agree.
First, unlike the example postulated by the Vartulis, the example given by Leeming JA in Maraya was used to demonstrate the appropriateness of considering as a relevant factor, the use of the subject land compared with that of relevant competitors. It can be accepted that this is a relevant factor.
Secondly, the example proffered by the Vartulis treats a comparison of the primary production income and other sources of income as a "benchmark" for satisfaction of s 10AA(2)(a). That is not the approach which his Honour took, nor is it appropriate to characterise as a "benchmark" any of the factors relevant to the evaluative judgment which s 10AA(2)(a) requires. The relative contribution to the users' income contextualises the significance and substantiality of any commercial purpose or character. It is not a "benchmark" when applying s 10AA(2)(a).
Thirdly, hypothetical examples can only ever be of limited assistance in the absence of a careful consideration of the particular factual circumstances of the hypothetical taxpayer, which obviously is not possible.
Grounds 2, 3 and 7 are related to ground 1. Grounds 2 and 7 repeat the "trifling" contribution argument. Ground 2 asserts that the primary judge erred in finding that, although Mr Vartuli had tried to make money from his cattle operations, it was relevant that he does not rely upon the income earned from the cattle operations other than in a trifling way. Ground 7 asserts that the primary judge erred in finding the requirement under s 10AA(2)(a) was not met because the profits derived from the cattle operations do not make any real as distinct from trifling contribution to the income of the Vartulis and their related companies.
The challenge to the findings the subject of grounds 2 and 7 has been rejected above, in dealing with ground 1.
Ground 3 asserts that the primary judge erred (at [133]) in finding that although Mr Vartuli has a purpose of making a profit from his cattle operations, his primary motivation in pursuing his cattle operations was his enjoyment of the work.
His Honour's finding that Mr Vartuli's primary motivation in pursuing his cattle operations was his enjoyment of the work was open on the evidence, including the cross-examination of Mr Vartuli. The difficulty with this ground is that it ignores the considerable advantage of the primary judge in seeing Mr Vartuli give his evidence: Fox v Percy [2003] HCA 22; 214 CLR 118 at [23]. The complaint that his Honour misused the evidence of Mr Vartuli given in cross-examination is not made out.
The Vartulis also contend that his Honour conflated the enjoyment of work and the profit purpose of the business in which the work is performed. I do not agree. His Honour did not conflate the concepts of motive and purpose when applying s 10AA(2)(a). He expressly recognised the distinction between the two (at [133]), when he observed that Mr Vartuli has a purpose of making a profit, notwithstanding that his primary motivation is his enjoyment of the work. His Honour accepted (at [134]) that a commercial purpose could co-exist with a recreational purpose. Contrary to the Vartulis' submissions, his Honour did not treat Mr Vartuli's enjoyment of the work as rendering the commercial purpose which his Honour found any less important. The Vartulis failed the commerciality test under s 10AA(2)(a) because the commercial purpose or character of the use of the land was not significant and substantial.

Significance of cattle operations being not merely a token business or mere hobby - ground 4

Ground 4 asserts that the primary judge erred (at [135]) in concluding that the requirement in s 10AA(2)(a) was not met, even though he found that the Vartulis' cattle operations was not merely a token business and not a mere hobby.
The Vartulis contend that the inevitable consequence of those findings is that his Honour had no alternative but to find that the requirement in s 10AA(2)(a) had been met. The argument ran as follows: the purpose of the Vartulis' cattle operations was the derivation of profits whenever possible; no other available purpose was or could be found; the purpose of deriving profits where possible is "self-evidentially" a commercial purpose; accordingly, that purpose is "equally" a significant and substantial commercial purpose.
That line of reasoning is flawed. It simply does not follow from a finding of a commercial purpose of the use of the land, that such purpose is "equally" a significant and substantial commercial purpose. The commerciality test under s 10AA(2)(a) does not involve a binary choice between hobby farm or token business and a significant and substantial commercial purpose. The Vartulis' argument assumes, wrongly, that negating one purpose, relevantly a hobby farm or mere token business, necessarily entails establishing not only a commercial purpose, but also a significant and substantial commercial purpose. This would also be to ignore the language of the provision and the force of the more stringent test flowing from the composite phrase "significant and substantial".
His Honour found (at [136]) that the small scale of the operations and lack of profitability meant the commercial purpose in the use of the land and the commercial character of that use could not be categorised as "significant and substantial". The challenge to that finding has been rejected above, in dealing with grounds 1, 2 and 7.

Significance of minimal profits after the end of the drought - grounds 5, 9 and 12

Ground 5 asserts that the primary judge erred (at [135]) in finding that it was either decisive or relevant that the financial results of the Vartulis (through their companies) after the end of the drought showed that only minimal profits could be derived from the land (as distinct from had been derived).
Contrary to the Vartulis' contention, the primary judge did not treat the financial results of the Vartulis (through their companies) as "decisive" in determining whether s 10AA(2)(a) was satisfied. That was made clear in [110] of his Honour's reasons where reference was made to the revenues and profits generated from the land as being only one of the factors relevant to an assessment of whether the commercial purpose or commercial character of the use is significant and substantial.
Insofar as the Vartulis' contention is to be understood as suggesting that the financial results of the cattle operations were not relevant to whether s 10AA(2)(a) was satisfied, that submission is contrary to Maraya and must be rejected.
Insofar as the Vartulis' contention seeks to draw a distinction between the profits that had been derived from the land after the end of the drought and the profits that could be derived from the land, no error has been demonstrated in his Honour's approach.
In considering the financial results of the cattle operations, his Honour expressly made allowance (at [135]) for the land having been adversely affected by drought over the earlier relevant years. This reflected his Honour's earlier acceptance of Mr Vartuli's evidence that the land was affected by drought from about 1998 until 2008 and that the drought was most severe in 2006 and 2007, being two years relevant to the land tax years in dispute. This was the context in which his Honour found that only minimal profits could be derived from the use of the land after the end of the drought. That finding was well open to his Honour, having regard to the net primary production results of the Vartulis' cattle operations (set out at [36] above).
Ground 9 asserts that the primary judge erred in applying s 10AA(2)(a) by treating the amount of profits actually derived, or the amount of profits which could reasonably be expected to have been derived by the Vartulis (through their companies) from their cattle operations, as the "touchstone" when applying s 10AA(2)(a). This complaint, which is directed to [129] of his Honour's reasons, involves the proposition that his Honour treated lack of profitability as determinative when applying s 10AA(2)(a).
The complaint is misconceived. First, the amount of profits the use generates, or can reasonably be expected to generate, was a factor which his Honour was entitled to take into account. So much was ultimately accepted in oral argument by counsel for the Vartulis (tcpt CA at 16, lines 14-31).
Secondly, his Honour did not treat lack of profitability as determinative of whether the commerciality test in s 10AA(2) was met. As already mentioned, profitability was only one of the factors which his Honour correctly regarded as relevant, as made clear in [110] of his reasons. His Honour also took into account the magnitude and size of the use of the land for primary production and the intensity of the cattle operations including the size of the herd, the size and carrying capacity of the land, and the resources put into the business. His Honour concluded, correctly, that the Vartulis' cattle operations are small. His Honour did not treat lack of profitability as the "touchstone" of the "commerciality" test when applying s 10AA(2)(a).
Ground 12 asserts that the primary judge erred (at [134]-[138]) in applying s 10AA(2)(a) by failing to recognise that cattle operations which derived small profits after the drought ended, had the requisite significance and substance to their commercial character by virtue of the "very nature" of those operations.
This complaint is connected to grounds 5 and 9. In support of this complaint, the Vartulis referred to a number of findings by his Honour: that the cattle operations involved utilising Edmondson Park up to the limit of its carrying capacity; that this scale of use was consistent with the scale of thousands of other (small) farms; and that Edmondson Park was drought affected until 2008, which explained the losses sustained from cattle operations until 2009. The Vartulis contend that these findings precluded his Honour's findings of the absence of a significant and substantial commercial purpose or character of the cattle operations. I do not agree.
The flaw in this contention is that it assumes the conclusion to which the Vartulis seek to argue. It simply does not follow from the fact that the Edmondson Park land was used for cattle operations up to the limit of its carrying capacity, and that this scale of operations was comparable with thousands of other small farms, that the requirement in s 10AA(2)(a) has been satisfied.
Accepting, as his Honour found, that the Vartulis' cattle operations was an optimal use of the Edmondson Park land does not establish error in his Honour's conclusion that this use was not a "substantial and significant" commercial purpose or commercial character. In Maraya, as his Honour correctly observed (at [112]), the evidence also showed that cattle grazing was an optimal use of the land, but the requirement in s 10AA(2)(a) was found not to have been met.
Here his Honour accepted that the evidence of the Vartulis' scale of use was consistent with thousands of other small cattle farms: at [112]. Nonetheless, as already mentioned, his Honour found that it was impossible to say how many of the small cattle operations, whose financial results were summarised in the publications tendered in evidence, would individually satisfy a test of use of the land being for a significant and substantial commercial purpose or character: at [118].
Nor did his Honour overlook that the Edmondson Park land was drought affected until 2008. As already indicated, his Honour expressly made allowance for this matter when assessing the profits generated from the land in the earlier land tax years. Nevertheless, his Honour was not satisfied that the minimal profits generated since the drought, demonstrated that the use of the land had a commercial purpose or character that was "significant and substantial". The challenge to that finding has been rejected above, in dealing with ground 5.
The "very nature" of the Vartulis' cattle operations is that they did not exhibit in the relevant land tax years, the characteristics of a business which had a relatively high degree of importance. As his Honour correctly found, the cattle operations are small and do not make money. The findings of the primary judge referred to at [117] above, concerning the optimal use of the Edmondson Park land and the effect of the drought on profits, did not compel his Honour to find that the commerciality test under s 10AA(2)(a) was met.

Lack of profitability - ground 6

Ground 6 asserts that the primary judge erred (at [136]) in finding that the Vartulis' purpose of making money is not a significant and substantial purpose because the cattle operations do not make money in the sense of lacking profitability.
The Vartulis contend that lack of profitability and failure to contribute in a real and not a trifling way to the income of the Vartulis and their companies does not preclude a finding of a significant and substantial commercial purpose in the primary production use of the land. This contention is connected to grounds 1, 5 and 9 which have been addressed above and accordingly, may be dealt with briefly.
First, contrary to the Vartulis' contentions, his Honour did not find that "making money is not a significant and substantial purpose because their cattle operations do not make money, in the sense of lacking profitability". His Honour's actual finding (at [136]) in relation to lack of profitability is set out above at [62]. That finding was well open on the evidence.
Secondly, as already mentioned, his Honour correctly recognised that profitability is only one of a number of factors relevant in determining whether the requirement under s 10AA(2)(a) is satisfied. Here, the findings that the cattle operations were small and generated either losses, and on occasions, very small profits, revealed a very telling picture of the lack of significance and substantiality of the commercial purpose or commercial character of the Vartulis' primary production business. There was no error in the approach that his Honour adopted.

Conflation of purpose and character in s 10AA(2)(a) - ground 8

Ground 8 asserts that the primary judge erred in applying the phrase "a significant and substantial commercial purpose or character" in s 10AA(2)(a), by incorrectly conflating purpose and character.
This complaint is directed to his Honour's finding at [136] (set out at [62] above). The Vartulis contend that his Honour conflated purpose and character because he assessed the Vartulis' purpose against the size of their cattle operations. The Vartulis say that size and scale of the cattle operations are the appropriate comparator for the character of the use of the land, but are wholly inapt for assessing the purpose of the use of the land.
Counsel for the Vartulis frankly conceded that his Honour correctly recognised the distinction between purpose and character earlier in his reasons: at [131] (tcpt CA at 1, lines 37-40). The complaint made is that nonetheless his Honour later applied them together and in doing so erroneously conflated the purpose limb and character limb of s 10AA(2)(a).
A similar complaint was made by the taxpayers in Maraya and rejected in this Court. There, the taxpayers were unable to demonstrate a different outcome of the purpose limb to the outcome under the character limb of s 10AA(2)(a). Accordingly the complaint could not affect the outcome in Maraya.
The Vartulis seek to distinguish the present case from Maraya on the ground that no other available purpose for the conduct of the Vartulis' cattle operations was found by his Honour, nor (it was submitted) could one be found, than the derivation of profits whenever possible. It was contended that if there is no other available purpose for the conduct of the cattle operations, and that purpose is "self-evidently" a commercial purpose, then that purpose is "equally" a significant and substantial commercial purpose. The flaw in that reasoning has been identified above, in dealing with ground 4.
In any event, I do not agree that character and purpose are totally separate concepts. In ascertaining whether the use of the land had a commercial purpose that was significant and substantial, his Honour was entitled to have regard to the fact that the cattle operations are small. Having a commercial purpose for the use of the land could not alone satisfy the purpose limb under s 10AA(2)(a). The fact that a business is carried on in a small way is relevant to determining whether its quality or significance may be regarded as having a substantial commercial purpose. There was no error in the approach that his Honour adopted.

Irrelevance of derivation of historical profits in s 10AA(2)(a) - ground 10

Ground 10 asserts that having recognised that a profit need not be made to satisfy the requirement under s 10AA(2)(b), the primary judge erred (at [134]-[138]) by failing to apply s 10AA(2)(a) in the same way.
The Vartulis contend that if a profit need not be made to satisfy s 10AA(2)(b), and the requirements subs (2)(a) and (2)(b) of s 10AA are cumulative tests, then a profit need not be made to satisfy s 10AA(2)(a). The argument ran that if a profit had to be made to satisfy s 10AA(2)(a), then the words in parentheses in s 10AA(2)(b) "(whether or not a profit is actually made)", are otiose having regard to the cumulative need to satisfy both requirements of s 10AA(2).
The difficulty with this contention is that it ignores the different focus of the requirements under ss 10AA(2)(a) and (b), and the relevance of the qualifying words in parentheses in subs (2)(b). The focus in subs (2)(a) on substantiality and significance of a commercial purpose or character of the use of the land, necessarily looks to factors such as the income and profit generated by the primary production use, or that which could be generated from the use of the land.
The focus in subs (2)(b) on the use of the land for the purpose of a profit on a continuous and repetitive basis looks to the continuity of the profit purpose. The qualifying words in parentheses in subs (2)(b) allow for the possibility that the continuity of the profit purpose may exist despite an absence of profits. The qualification would allow for the effect on profits of climatic conditions and events, such as floods, drought, frost or hail damage etc. It is conceivable that other circumstances might also result in an absence of profits for a period of time without affecting the continuity of the profit purpose of the user of the land.
Whether the requirement under s 10AA(2)(b) is met in circumstances where no profit is made, must necessarily depend upon the circumstances of the particular case, including the reason for the absence of profits and the period of time over which there is an absence of profits. The mere absence of profits in one year would not necessarily preclude the requirement under s 10AA(2)(b) being met. Nor might that circumstance alone preclude the requirement under s 10AA(2)(a) being met.
However, merely because the requirement under s 10AA(2)(b) may be met in the absence of profits, says nothing about whether a commercial purpose or character may be characterised as significant and substantial in accordance with the requirement in subs (2)(a). Moreover, as the Commissioner correctly submitted, it could be expected to be extremely difficult for a taxpayer to satisfy s 10AA(2)(a) if no profits or very small profits are made spanning many land tax years, and similarly such taxpayer might not meet s 10AA(2)(b).
Here the financial evidence concerning the Vartulis' cattle operations demonstrated continuous losses and very small profits in respect of the relevant land tax years from 2007 to 2013. The losses and minimal profits are relevant to whether the commercial purpose or character of the use of the land has a relatively high degree of importance when determining whether the commerciality test under s 10AA(2)(a) is met. There was no error in the approach his Honour adopted.
The Vartulis also challenge his Honour's findings that only minimal profits could be derived from the use of the land after the drought ended in 2008 and that there was no evidence showing greater profits in earlier years. The Vartulis contend that these findings are contrary to the evidence of the Mr Marsh, the agricultural expert called by the Vartulis, whose evidence his Honour accepted. They submit that his Honour's findings are speculative and should be set aside. In support of this submission reliance is placed on five parts of Mr Marsh's evidence. It is necessary to briefly refer to Mr Marsh's evidence.

Mr Marsh's evidence

The first reference is to observations of Mr Marsh and the summary of his opinion in paras 23-35 of his first report dated 5 October 2012. Relevantly:

at para 26, Mr Marsh referred to the primary production results of the Vartuli group for the years 2006 to 2011 set out in Table 1 to his report, which was taken from Mr Finney's 17 July 2013 report.
at para 30, Mr Marsh set out tables of estimated daily pasture growth rates and any weight gains to be expected from that pasture.
at para 33, Mr Marsh expressed the view that Table 1 shows the enterprise of cattle trading, as carried on by the Vartuli group, is profitable in its own right. That may be taken to be a reference to the small profits recorded in Mr Finney's 9 October 2012 report in 2010 ($2,131) and 2011 ($2,879). Mr Marsh attributed the losses in 2007, 2008 and 2009 to poor seasonal conditions in 2006 and 2007.
at para 34, Mr Marsh expressed the view that the cost of operations for the Vartuli group appear normal and comparable with areas that have similar enterprises to the Vartuli group.
at para 35, Mr Marsh concluded that the business operated by the Vartuli group is consistent with other similar cattle trading operations and that it was operated "with a significant and substantial commercial purpose engaged in profit making on a continual and repetitive basis." The stated basis of this opinion was the continuity of stock turnover as demonstrated in the livestock trading schedule, that is, the trading cattle are purchased and sold in order to make a profit on the exchange.

The second reference is to a supplementary report of Mr Marsh dated 20 December 2012 at paras 4.7-6.4. These paragraphs responded to Mr Hoffman's use of kilograms of beef produced per hectare as the key performance indicator of the financial viability of the Vartulis' cattle operations. Reference is made by Mr Marsh to the Vartulis' trading loss in 2009-2010 because of poor seasonal conditions. Mr Marsh expressed the opinion that the extreme weather conditions in the area of the Vartulis' cattle operations had a greater effect on the performance of agricultural businesses in that area than on comparatively safe country such as New England which Mr Hoffman has used as his comparator.
The third reference is to the third report of Mr Marsh dated 14 May 2013 at para 31. In this paragraph, Mr Marsh expressed the opinion that Mr Hoffman's reports were narrow in their scope and did not portray a realistic impression of the use of the land by the Vartuli group in any given tax year. He noted that Mr Hoffman's reports did not take into account the viability of small cattle producers generally, and tended to make comparisons with larger cattle producers who have a greater opportunity to cover profits or losses by trading larger numbers of cattle run on larger properties.
The fourth reference is to the fourth report of Mr Marsh dated 21 August 2013 at paras 32-33. This report responded to a further report of Mr Hoffman, in particular the data used by Mr Hoffman to estimate the total kilograms of beef purchased or sold by the Vartuli group. Mr Marsh expressed the opinion that the Vartuli group is comparable with the size of 44.9 per cent of other beef cattle properties in southern Australia and had suffered losses during the period 2006 to 2009, as had all other small cattle properties in southern Australia.
The fifth reference is to the joint report of Mr Marsh and Mr Hoffman, signed on 7 and 8 November 2013 respectively, following the conclave of the beef cattle experts. The Vartulis rely upon answers given by Mr Marsh to questions 1, 2, 3, 5, 8, 12, 14 and 18 under the heading 'Questions where agreement was not reached'. Insofar as those questions address the effect of the drought on the Vartulis' cattle operations, the answers given by Mr Marsh go no further than referring back to the relevant paragraphs in his reports summarised above (at [141]-[144]). Otherwise, Mr Marsh repeated his opinions previously given concerning: the gross margin figure calculated before the net primary production result in Table 1 of his first report (question 5); and the stock density also referred to in that report (see [141] above) (question 18).
In my view, none of the evidentiary references relied upon by the Vartulis supports the challenge to his Honour's findings. The finding that only minimal profits could be derived from the use of the land after the drought ended in 2008 was well open on the evidence. It bears repetition that the primary production activities of the Vartulis after the drought ended in 2008 produced a loss of $323 in the year ending 30 June 2009, minimal profits of $2,130, $96 and $2,859 respectively in the years ending 30 June 2010, 2011 and 2012, and a loss of $3,987 in the year ending 30 June 2013.
The Court was not otherwise taken to any material which contradicted his Honour's finding that there was no evidence which showed greater profits in earlier years (that is, prior to 2006).
There was no error in the approach his Honour adopted to the historical profits generated by the Vartulis' cattle operations when applying s 10AA(2)(a).

The Vartulis' primary motivation in engaging in cattle operations - grounds 11, 13 and 14

Grounds 11 and 13 are related. Ground 11 asserts that the primary judge erred (at [135]-[138]) in failing to conclude that the only possible purpose or character of the Vartulis' cattle operations was to earn profits, where possible each year, which is a commercial purpose or character. Ground 13 asserts that the primary judge erred (at [129]-[138]) in applying s 10AA(2)(a) by treating as the "benchmark" for assessing significance and substance of the commercial purpose or character of the use of the land, the amount of "other" income derived in each year by the Vartulis and their companies.
Ground 11 raises a non-issue. Describing a commercial purpose or character of the use of the land as the "only possible" purpose or character does not really assist, nor is it determinative of whether the use of the land has a significant and substantial commercial purpose or character.
His Honour accepted Mr Vartuli's evidence that his purpose was to use the Edmondson Park land to earn a profit where possible each year. He also accepted that the size of the operations was such that the use of the land was not precluded from having a commercial character: at [136]. However, as already indicated, it does not follow that a commercial purpose or character of the use of the land is a significant and substantial commercial purpose or character. That would fail to give the word "substantial" its ordinary meaning of considerable or large; it would fail to give the word "significant" its ordinary meaning of something of consequence: Maraya (Gzell J) at [83] and [88]. It would also fail to give effect to the relative judgment about the substantiality of any commercial purpose or character of the use of the land that s 10AA(2)(a) requires: Maraya at [84] (Leeming JA; Meagher JA agreeing).
His Honour found that the lack of profitability meant that the Vartulis' commercial purpose in using the land and the commercial character of the use of the land could not be categorised as significant and substantial. That conclusion was, in my view, correct.
Ground 13 is connected with grounds 1-3, 7 and also 4. It adopts the similar line of reasoning relied upon for ground 4 - that the negation of one purpose necessarily establishes that another purpose is significant and substantial. That contention has been rejected above in dealing with ground 4.
Ground 13 also wrongly characterises the primary judge's reasons as having treated as a "benchmark" for assessing the significance and substantiality of any commercial purpose or character of the use of the land, the relative comparison of "other" income with the income from the cattle operations. The primary judge did not adopt that approach and no error has been demonstrated.
Ground 14 asserts that the primary judge erred (at [135]-[138]) in failing to conclude that the primary production use had a commercial purpose in each year that was significant and substantial and accordingly there was no need to inquire into the character of the use of the land in s 10AA(2)(a).
The premise of this ground is that his Honour erred in concluding that the purpose limb of s 10AA(2)(a) was not met. For the reasons already given, that premise is incorrect.
Insofar as this ground asserts that his Honour should not have considered the character limb of s 10AA(2)(a), the complaint should be rejected. It is not in dispute that s 10AA(2)(a) contains alternative tests which may be conveniently referred to as the purpose limb and the character limb. There was no error in his Honour considering the alternative test under the character limb of s 10AA(2)(a), having found that the test under the purpose limb was not met.

Significance of postponement of council rates for profitability of cattle operations - grounds 14A and 14B

Grounds 14A and 14B are related. Ground 14A asserts that the primary judge erred in two respects. First, in finding (at [51]) that the Vartulis were only entitled to a postponement or reduction of council rates on the land pursuant to s 585 of the Local Government Act, whilst the cottage on the land was occupied as a residence. Secondly, in finding (at [135]) that only minimal profits could be derived from their cattle operations after the drought and only for so long as they were entitled to a postponement or reduction in rates whilst the cottage was so occupied.
Ground 14B asserts that the primary judge erred by failing to find a number of matters concerning the basis upon which a postponement of council rates was granted in respect of the Edmondson Park land as from the 2008 tax year. It was submitted that the postponement of rates was pursuant to s 585(c) of the Local Government Act because the land was "rural land" which had been rezoned "residential land" to permit its use otherwise than as "rural land". It was further submitted that the postponement of rates would continue until such time as the Vartulis sold Edmondson Park, not when the cottage was vacated as a residence, as his Honour found.
The significance of these matters is said to be that council rates charged on the land (but which were postponed) were not a legitimate expense to be taken into account in assessing the profitability of the cattle operations.
The premise of this complaint is that his Honour took into account the component of council rates which had been postponed when assessing the profitability of the cattle operations.
His Honour's findings concerning the postponement of council rates are summarised at [38]-[41] above. The following observations should be made.
First, contrary to the submissions of the Vartulis, the 2010 rate notice (ie, covering the year ending 30 June 2011) from Liverpool City Council (the Council) only establishes that rates were postponed commencing from rating year ending 30 June 2010 (ie, the 2009 year). The rates for the 2008 year (ie, that ending 30 June 2009) of $9,401.21 were not postponed. His Honour found that the rates paid in the 2008 year were $9,121 (being slightly less than the amount stated in the 2008 rate notice). That finding is not challenged. The reference in the 2010 rate notice to "postponed rates and interest" of $50,066.07 represents part of the 2010 residential rate which was postponed and part of the 2009 residential rate which had been postponed and had been included as "arrears" in the 2010 rate notice.
Secondly, there was in evidence a transaction summary, apparently from the Council which established that for the 2012/2013 rating period the postponed rates were $23,425.30 and the component of rates charged was $2,605.14.
Thirdly, his Honour seems to have assumed that council rates were not postponed after 30 June 2012 because the cottage was no longer used as a residence by Mr and Mrs Pannuccio: at [114]. That assumption seems to have been based on the standard form of application to the Council for rate relief dated 13 August 2009 and signed by Mr Vartuli. The stated basis of the application for rate relief related to a single dwelling-house on the land used solely for habitation by not more than one family, which is not a flat and the land is zoned for the purposes of "residential". The notes to that application form stated, consistently with his Honour's assumption (when the cottage was no longer occupied as a residence): (6) When the land ceases to be used or occupied solely as the site of a single dwelling-house- (a) the rateable person shall within one month inform the Council of the date upon which the land ceased to be so used or occupied; (b) the rateable person shall cease to be entitled to a postponement of rates under this section [s 585 of the Local Government Act]. ...
Fourthly, his Honour did not identify which of the three limbs of s 585 the relief was granted under. This is not surprising. The Commissioner submitted, without contradiction, that no such finding was sought at trial. Certainly it does not seem from the oral submissions that his Honour was asked to make any finding in this regard.
The scheme of the legislation concerning the postponement of council rates is as follows. Section 585 of the Local Government Act provides: 585 Who may apply for postponement of rates? The rateable person for land described in any of the following paragraphs may apply to the council for a postponement of rates payable for the land in the current or following rating year (or in both years): (a) a parcel of land on which there is a single dwelling-house used or occupied as such and which is zoned or otherwise designated for use under an environmental planning instrument for the purposes of industry, commerce or the erection of residential flat buildings, not being land referred to in paragraph (b) or (c), (b) a parcel of land (which may comprise one or more lots or portions in a current plan) on which there is a single dwelling-house used or occupied as such and which is zoned or otherwise designated under an environmental planning instrument so as to permit its subdivision for residential purposes, not being land referred to in paragraph (c), (c) a parcel of rural land (which may comprise one or more lots or portions in a current plan) which is zoned or otherwise designated under an environmental planning instrument so as to permit its use otherwise than as rural land, or its subdivision into two or more lots or portions, one or more of which has an area of less than 40 hectares.
The expression "rural land" is, relevantly, defined in the dictionary of the Local Government Act as: rural land, in Division 2 of Part 8 of Chapter 15, means: (a) a parcel of rateable land which is valued as one assessment and exceeds 8,000 square metres in area and which is wholly or mainly used for the time being by the occupier for carrying on one or more of the businesses or industries of grazing, animal feedlots, dairying, pig-farming, poultry farming, viticulture, orcharding, bee-keeping, horticulture, vegetable growing, the growing of crops of any kind or forestry, or (b) an area which is wholly or mainly used for aquaculture within the meaning of the Fisheries Management Act 1994.
If the Council is satisfied that the land comes within s 585(a), (b) or (c) the Council must, under s 586, refer the application to the Valuer-General to determine the "attributable part of the land value of the land". That expression is defined in s 587. It is unnecessary for present purposes to set out the definition. It is sufficient to note that the Council must postpone the payment of rates for land in any rating year for which a determination or redetermination of the attributable part of the land value is in force: s 591(1). On a redetermination of the attributable part of the value of the land, an adjustment of rates applies under s 594.
Under s 597, a person ceases to be entitled to a postponement of rates under Division 2 of Part 8 of Chapter 15 of the Local Government Act if the whole of a parcel of land used or occupied solely as a site for a single dwelling-house, or as rural land, ceases to be so used or occupied. Section 596 provides that a rateable person must inform the Council within 1 month of that change in use or occupation.
Both parties directed detailed submissions in this Court to the question of under which limb of s 585 the postponement of council rates was granted by the Council. As will appear, it is unnecessary to canvass all the arguments.
The Vartulis accept that there is no direct evidence that the Council granted the postponement of rates under either subs (a), (b) or (c) of s 585 of the Local Government Act. Counsel for the Vartulis contends that the evidence is equivocal. It was emphasised that Mr Vartuli's evidence that the relief related to the cottage being used as a residence, was based on his understanding. The application form was a standard form. The Vartulis contend that neither matter is determinative. I agree.
This being the state of the evidence, if it were necessary to decide the issue, the question of whether subs (a), (b) or (c) of s 585 was engaged would need to be determined by reference to the objective facts.
Let it be assumed however, favourably to the Vartulis, that the only basis for postponement of the council rates from the 2009 tax year was s 585(c) of the Local Government Act. On this assumption, his Honour erred in finding that the council rates would again be payable after 30 June 2012, when the cottage was no longer occupied as a residence. However, in my view, any such error was not material to his Honour's assessment of the profitability of the cattle operations.
His Honour found that the profits that could be derived from the land after the drought were minimal. That finding did not rely upon the impact of the postponed council rates. His Honour added (at [135]), that the minimal profits would be negated if the Vartulis were no longer entitled to a postponement or reduction in the council rates after 30 June 2012. However, that additional observation was not essential for his Honour's conclusion that the requirement under s 10AA(2)(a) was not satisfied. So much was recognised by his Honour's observation (at [135]) that the occupation of the cottage (which his Honour assumed was the basis for the postponement of rates) cannot materially affect the assessment of commercial purpose or character.
Taking the Vartulis' case at its highest and assuming an entitlement to postponed rates until the Edmondson Park land is sold (leaving the adjusted rates under s 594, in the order of $2,604 per annum), there was no error in his Honour's finding that the cattle operations did not make money.

Notice of contention

Given my view on s 10AA(2)(a), the issues raised by grounds 1 and 2 of the Commissioner's amended notice of contention do not require resolution. However, as the matters have been argued I will briefly indicate my views.

Ground 1

Ground 1 of the amended notice of contention asserts that the primary judge should have attributed a value to Mr Vartuli's labour and taken that expense into account (even though no actual wage expense was incurred) when assessing profitability of the cattle operations.
As already indicated, his Honour did not consider that any notional expense should be included as a wage expense for Mr Vartuli because no actual expense was incurred.
The Commissioner contended that, consistent with the view of the primary judge in Maraya (Gzell J) (at [91]), it was relevant to take into account, amongst other matters, the resources whether of time, labour or expenditure, put into the development and maintenance of the cattle operation in that case, when considering the commerciality test under s 10AA(2)(a). The Commissioner emphasised that this finding was upheld by Leeming JA (Meagher JA agreeing) in Maraya at [83].
It may be accepted that this Court in Maraya agreed with the observation of Gzell J at [91] concerning the need to take into account the resources put into the primary production use of the land. That however does not demonstrate error by the primary judge in not imputing a notional cost for Mr Vartuli's labour.
In Maraya (Gzell J) his Honour judge found that Mr Giusti and his son spent approximately 1.5 to 2 hours and 1 hour per week respectively on the cattle operation. Gzell J did not impute a notional cost for their labour. He focused on the resources put into the cattle operation and found that the times spent by Mr Giusti and his son was consistent with a part-time operation: at [95].
Nor did Gzell J hold that the notional cost of any labour contribution must be included in the calculation of the profits generated by the cattle operation. His Honour's point was a different one. The reference by Gzell J to resources, in terms of time, labour and expenditure put into the cattle operation, recognised that a contribution of time or labour may not necessarily involve any actual expense. Nonetheless, time and labour should be taken into account (even where no actual expense is incurred) in assessing whether the resources put into the cattle operation exhibit a commercial purpose or character of the use of the land that has a relatively high degree of importance.
This is not to say that the omission of labour costs is irrelevant. As illustrated in Maraya (Gzell J) at [96], where labour costs are omitted from the primary production results because no actual expense has been incurred, this may serve to highlight that cattle operations which produce very small amounts of profit, do not constitute a serious primary production use.
One further matter should be mentioned. The evidence before the primary judge did not in any event enable a finding to be made of the cost to be imputed concerning Mr Vartuli's labour. In his 2 August 2013 report, Mr Hoffman attributed a cost to "Owner/Operator Labour" of $50,000 per annum; it seems based on a standardised Meat and Livestock Australia cost of production calculator.
This evidence was relevant to Mr Hoffman's estimate of cost of kilogram of beef, an approach which was rejected by the primary judge. The parties did not otherwise direct evidence to the notional cost of Mr Vartuli's labour (being 8-12 hours per week and the time spent at sale yards), nor it seems advance submissions before the primary judge on this issue. In the circumstances, his Honour did not err in failing to attribute a value to the notional cost of Mr Vartuli's labour, where the evidence did not permit such a finding to be made.
I would reject ground 1 of the amended notice of contention.

Ground 2

Ground 2 of the amended notice of contention asserts that it was necessary for the primary judge to take into account the value of the Edmondson Park land in determining whether the requirements under s 10AA(2) were met.
Although ground 2 is directed to both requirements under s 10AA(2), the primary judge seems to have only considered the relevance of the capital value of the Edmondson Park land under s 10AA(2)(a). In that context, his Honour found that a comparison of the profits from the use of the land to the capital value of the lands of almost $12 million in 2007 was not useful in the present case, in contrast to the position in Maraya.
His Honour found that the Edmondson Park land had been used for the same purpose and the use had the same character both before and after rezoning in 2006: at [88]. He also accepted Mr Vartuli's unchallenged evidence concerning difficulties in developing and subdividing the land for residential purposes for which it was zoned: at [89].
His Honour observed that if the use of the land had a significant and substantial commercial purpose or character at the time of rezoning, a continued use of the land in the same way and for the same purpose would have continued to be for a significant and substantial commercial purpose and have a significant and substantial character, even if the land could have been put to more profitable uses: at [90].
His Honour distinguished between a return on the value of land which might not be regarded as "commercial" in some senses because the value of land, as a result of rezoning or developer activity, may have increased greatly, and the use of land having "a substantial commercial purpose and commercial character", prior to a rezoning which continued after the rezoning: at [91].
His Honour accepted that a consideration of the rate of return compared to the value of the land could be a relevant consideration, as in Maraya. He noted that in Maraya the cattle-raising operations started at or not long before the rezoning: at [137]. That distinguished the present case from Maraya.
His Honour concluded that the present case raised different facts to Maraya which made a comparison between the rate of return as a percentage of the value of the land, and a return which might generally be expected from the use of the land, to be not useful. In my view, no error has been demonstrated in the reasons given for the approach taken by his Honour. Accordingly, I would also reject ground 2 of the notice of contention.

Section 10AA(2)(b) - grounds 15-20 and notice of contention ground 3

I have considered in accordance with Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1 at [12], whether the grounds of the appeal and the amended notice of contention directed to s 10AA(2)(b) should be resolved, although unnecessary to the outcome of the appeal. The meaning of s 10AA(2)(b) (in particular, the test of "purpose") is not the subject of authority and the parties did not squarely focus on that issue at trial. Nor did the primary judge express an opinion on that question. Since the meaning of "purpose" in s 10AA(2)(b) is not without difficulty, the resolution of that issue should be left to an occasion where it arises for decision.

Conclusion

The appeal should be dismissed. The Vartulis should pay the Commissioner's costs of the appeal.

Amendments 30 November 2015 - Typo in [156] - s 10AA(2)(a) 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: 30 November 2015

Local Government Act 1993(NSW)ss 585, 586, 587, 591, 594, 597

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