Wylarah Pastoral Co Pty Ltd ATF Tallong Family Trust v Chief Commissioner of State Revenue

Applicant's right of review

1. Where land tax has been assessed, s 86 of the Taxation Administration Act 1996 (NSW) ("Administration Act"), allows rights of objection to a taxpayer dissatisfied with an assessment. This is an internal review process under which the Chief Commissioner of State Revenue, the Respondent in these proceedings, must consider and determine the objection (s 91 of the Administration Act).
2. A taxpayer who is dissatisfied with the decision made upon the Respondent's determination of an objection, may apply to the Tribunal for an administrative review under the Administrative Decisions Review Act 1997 ("NSW") ("ADR Act") of the decision of the Chief Commissioner of State Revenue.
3. These circumstances have arisen in the present matter as set out in the background above, so bringing the matter within the jurisdiction of the Tribunal.
4. The onus of proving their case lies with the Applicant (s 100(3) of the Administration Act).
5. The Tribunal, dealing with the taxpayer's application, may do one or more of the following under s 101 of the Administration Act: "(a) confirm or revoke the assessment or other decision to which the application relates, (b) make an assessment or other decision in place of the assessment or other decision to which the application relates, (c) make an order for payment to the Chief Commissioner of any amount of tax that is assessed as being payable but has not been paid, (d) remit the matter to the Chief Commissioner for determination in accordance with its finding or decision, (e) make any further order as to costs or otherwise as it thinks fit."

Consideration

1. Land tax is to be levied and paid on the taxable value of all land situated in New South Wales which is owned by taxpayers, other than land which is exempt from taxation under the Land Tax Management Act 1956 (NSW) ("LTMA") (s 7). The rates of land tax payable are set out in the Land Tax Act 1956 (NSW).
2. Exemption for certain land used for primary production is allowed under s 10AA of the LTMA. That section provides as follows: "10AA Exemption for land used for primary production (1) Land that is rural land is exempt from taxation if it is land used for primary production. (2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land - (a) has a significant and substantial commercial purpose or character, and (b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made). (3) For the purposes of this section, land used for primary production means land the dominant use of which is for - (a) cultivation, for the purpose of selling the produce of the cultivation, or (b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, or (c) commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals, or (d) the keeping of bees, for the purpose of selling their honey, or (e) a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or (f) the propagation for sale of mushrooms, orchids or flowers. (4) For the purposes of this section, land is rural land if - (a) the land is zoned rural, rural residential, non-urban or large lot residential under a planning instrument, or (b) the land has another zoning under a planning instrument, and the zone is a type of rural zone under the standard instrument prescribed under the Environmental Planning and Assessment Act 1979, section 3.20, or (c) the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land".
3. For the exemption claimed by the Applicant to apply, the land in question must, first of all, be "rural land". There was no dispute that the land was rural land as a consequence of its zoning.
4. Where land is rural land, whether exemption applies or not depends on whether the land is "land used for primary production". Land will fall within this description if the "dominant use" of the land is a use within one of the paragraphs in s10AA(3). In the present matter, what is in dispute was whether the "dominant use" was that specified in subparagraph (b) of s 10AA(3).
5. The question for determination in this matter, therefore, is whether the land in question had a dominant use of the "maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce" within the meaning of s 10AA(3)(b).
6. The Applicant's submission is that the dominant use of the land in question fell within s 10AA(3)(b) because the land had been used for the maintenance of cattle for the purposes of selling them or their natural increase or bodily produce. The Respondent's submission, on the other hand, was that the Applicant had not discharged the onus of proof to show that the dominant use was what the Applicant claimed.
7. The first question for determination is what is meant by "use" in s 10AA(3). The meaning attached to the term "use" will generally be determined by the subject matter of the thing used. Where the thing used is intangible, for example intellectual property, the intangible character of thing used will inform the meaning of what is meant by "use". "Use" of intangible property, because of the intangible nature of the property being used, is not in general understood to be physical use. In the case of land, however, "use" within the meaning of s 10AA(3) has been generally accepted to mean a use that is physical rather than intangible.
8. In Young v Chief Commissioner of State Revenue [2020] NSWSC 330, Payne J said, at [136]: "The correct construction of s 10AA(3) is that the "use" of land relevant to s 10AA(3) is one of physical use of the land in pursuance of one of the identified purposes: here, the purpose identified in s 10AA(3)(b). It was common ground that the purpose required must be the dominant, in the sense of ruling or prevailing, purpose. Purpose is to be objectively ascertained although subjective purpose may be taken into account".
9. Once a use or uses have been identified, the onus on the taxpayer is to show what the "dominant" use is. Where there is a single use only, no further inquiry will be necessary. By reason of there being only one use, that use must answer the description of the "dominant use". Where, however, there is more than one use of the land, the taxpayer needs to show that one of the uses is dominant and that this use falls within s 10AA(3) (Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366, at [40]).
10. In the present circumstances, the evidence is that the land the subject of the assessment in dispute had at least two physical uses. Those uses were the maintenance of cattle, in the submission of the Applicant, and the use of the land in question as a residence earning rental income. The question for the Tribunal to decide on the basis of the evidence, is which of the two uses is the dominant use.
11. In Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9, White J set out an approach for determining how multiple uses of land should be assessed in order to make a determination as to which of the uses was the "dominant use". His Honour said, at [157] to [158]: "The question is not simply whether the primary production use is the chief use, being of a greater scale, intensity, character or importance than either of the other two competing uses, but whether having regard to both competing uses, it is the use that dominates. Section 10AA(3) requires weighing the nature and intensity of the competing uses, the physical areas over which they are conducted, the time and labour spent in conducting the different uses, the money spent or assets deployed in each use and the value derived or to be derived from it".
12. What is clear from the cases is that there is no single factor that can determine the dominant use, to the exclusion of other relevant factors. The factors that may be taken into account to determine which use is dominant, may include: 1. the nature and intensity of competing uses 2. the extent of the physical area in which each use takes place 3. the time and labour spent for each use 4. the money spent or assets deployed for each use 5. the value derived from each use.
13. The task of the Tribunal is to assess the importance of each relevant factor going to the competing uses of land, with the object identifying which use is dominant. This is not a task that can be undertaken based on some kind of mathematical formula applied mechanically to every case. Each case will turn on its own particular facts.

Maintenance of cattle

1. The evidence supporting the Applicant's claim that the dominant use was the maintenance of cattle included: 1. two National Vendor Declaration (Cattle) and Waybills, which in the Applicant's submission, showed the presence of cattle on the land and their maintenance on the land; and 2. evidence of certain works and expenditures relating to the land.
2. The two National Vendor Declaration (Cattle) and Waybills dated 10 November 2022 and 3 February 2023 respectively, purported to describe the moving of 25 Angus heifers onto and off the land. They both purportedly identify the land at Medway the subject of these proceedings by means of a "Property Identification Code" ("PIC").
3. In NSW, a property that has livestock including cattle on land generally has a PIC to identify the property. A PIC is a unique eight-character code assigned by Local Land Services to properties with livestock and placed onto a district register.
4. The Respondent submitted that there was a significant anomaly in the PIC identifications. The documentation referable to the 2023 land tax year stated that cattle were moved off land described in PIC "NB 379085". However, the correct PIC describing the land in question at Medway was different, being "NB 375340".
5. In the Respondent's submission, this anomaly cast significant doubt on the evidentiary weight to be given to the two declarations that the Applicant claimed showed that cattle were present on the land at Medway. The Applicant was unable to explain the anomaly in the documentation referred to above showing the place of origin and destination of the cattle in question when they moved.
6. The Respondent also submitted in evidence aerial images of the land at Medway taken at various times during the period from August 2022 to May 2024. These images did not show any cattle on the land.
7. Having regard to the anomaly as to the identification of the land and also to the evidence supplied by the Respondent in the nature of aerial photography of the land which shows no cattle present on the land, I am unable to find, on the balance of probabilities, that cattle were maintained on the land during the 2023 land tax year.
8. During the 2024 land tax year, no cattle grazed on the land at Medway. This was not disputed.
9. There was preparatory work for cattle grazing carried out during 2022 and 2023. The ability to claim exemption, therefore, depends on whether the carrying out of preparatory works for the maintenance of cattle was sufficient to satisfy the "dominant use" test.
10. The Applicant relies on the ruling of the Respondent relevant to the exemption for land used for primary production. That ruling is LTA093 v 3, "Land used for primary production: Sections 10AA - Land Tax Management Act 1956". It makes the following statement: "Preparation of land for a particular purpose is capable of constituting a use of the land for that purpose. For example, costs associated with construction work and land improvements in preparation for the subdivision and sale of residential lots or completed dwellings may constitute a use for residential development. In the case of primary production activities, land may be classified as land used for primary production if significant preparatory work necessary to commence actual primary production has been undertaken but actual production has not commenced by the taxing date e.g. erecting fencing, weed control, clearing native vegetation, planting and tending of fruit or nut trees, or trees intended to produce timber may constitute primary production use of land even though primary products may not be produced or sold during the relevant tax year. In the case primary production such as fruit, nuts or timber, the products may not be sold for several years".
11. The Applicant submits that it did "significant preparatory work" within the meaning of the Respondent's ruling during the two land tax years in question. It produced evidence of expenses incurred and the kinds of work to which the expenses related. That evidence was set out in copies of a number of invoices.
12. The Respondent on the other hand submitted that the preparatory work in question was not a "use" that fell within s 10AA(3)(b) because, in the Respondent's submission, it was not the "maintenance of animals". I understood the Respondent's submission to be that only the actual "maintenance of animals" within the meaning of that provision would allow the land to qualify for exemption.
13. The Respondent's ruling contemplates that preparation of land for a particular purpose is capable of constituting a "use", if it is "significant preparatory work" necessary to commence actual primary production, even if actual primary production has not commenced. The Respondent's ruling, in support of this statement, refers to the decision of the Supreme Court of NSW in Safety Beach Estate Pty Ltd v Commissioner of Land Tax 79 ATC 4032.
14. Safety Beach concerned the question of whether exemption for land used for primary production could be claimed under provisions of the LTMA that were predecessors to s 10AA(3). These provisions, like s 10AA(3), required determination of what were the "uses" of land. Rath J in considering what comprised the "cultivation" of land, said (at 4,063): "ln my opinion the expression "cultivation thereof for the purpose of selling the produce of such cultivation" should not be limited to annual crops, or crops with periodical production. The idea conveyed by the expression is the improvement of the land for the purpose of selling the produce of the improved land. The land may in the relevant sense be cultivated in some instances by breaking it up, as by ploughing, or in other instances by activities that may or may not be associated with the breaking up of the soil. lt is the land, not the soil alone, which is the subject of cultivation. This may be achieved by improvement to the water supply to the plants, by fertilising, by spraying plants with insecticides and fungicides and by the establishment of windbreaks".
15. The Supreme Court in Safety Beach held that what was "cultivation" of land could extend to improvements carried out on the land for the purposes contemplated by the statute before the production of crops. Under the LTMA as it now stands, exemption in similar terms to the provision considered in Safety Beach may apply in respect of land whose dominant use is "cultivation, for the purpose of selling the produce of the cultivation" (s 10AA(3)(a)).
16. Section 10 AA(3)(b) on the other hand, does not, in its express terms, deal with the "cultivation" of land or some other activity that directly involves making physical changes to land. What s 10AA(3)(b) relevantly applies to is land, the dominant use of which is "for" the "maintenance of animals". The question is whether this language is expansive enough to capture preparatory work on land that is required to allow animals to be maintained on the land.
17. The primary meaning of "for" is "with the object or purpose of" (The Macquarie Dictionary). As such, the language of paragraph (b), in my opinion, can capture preparatory work as forming or forming part of a dominant use, being a use "for" or "with the object or purpose of" the maintenance of animals.
18. What is encompassed by a "use" for the "maintenance of animals" on land should not, having regard to the language used in s 10AA(3), be confined only to activities taking place at times when animals are physically present on the land. I doubt that the statutory purpose could be served if exemption were to be disallowed during periods when animals need to be removed from land, as can sometimes happen during the normal operation of a livestock business, such as during the period of an extreme weather event. A construction of s 10AA(3) that could disallow exemption at particular times when land needs to be prepared to allow its use for a purpose qualifying for exemption, similarly does not accord with the statutory purpose. That purpose is generally to confer exemption for land used for primary production within the terms of s 10AA.
19. While the Respondent's ruling may not be binding and have force of law, I am of the opinion that the observations made in ruling LTA093 concerning preparatory work as a possible "use" of land, are consistent with the scope intended for s 10AA(3), for the reasons set out above.
20. The works undertaken by the Applicant included the improvement of pastures, improvement of fencing, application of fertilisers, application of insecticides, improvement of roads, the installation of a stormwater system around the machine shed and installation of water tanks and plumbing.
21. The Applicant gave evidence that the land was stocked on 24 September 2024 with five cows and six calves. This number was expected to increase. The Applicant's evidence was that the expected initial income to be generated from raising cattle was $27,500. That income was expected in later years to exceed $180,000 per annum.
22. The Applicant estimated that approximately 50 hours per week had been spent on work since the land came into its ownership. This work involved work by a director of the Applicant, a full-time paid manager and part time casual labour.
23. These preparatory works, for the reasons set out above, satisfy the description of a "use" of the land within the meaning of s 10AA(3). The question remaining to be considered is whether that use was the "dominant use", having regard to the other use of the land, namely as a rental property.

Use as rental property

1. The second use of the land during the land tax years in question was the provision of accommodation at a residence located on the land in return for rental income.
2. The evidence was that the return by way of rent amounted to $650 per week. The total rental return for the two land tax years in question was $58,500, being the sum of $24,700 for the 2023 year and $33,800 for the 2024 year.
3. The evidence also was that the land area comprising the residence and its surrounds constituted 5% of the total area of the land. The remainder was said to represent grazing land. The Applicant's evidence was also that little to no time was devoted to work on the renting of the house.

Weighing the two uses

1. The remaining task of the Tribunal is to weigh the two uses shown in the evidence, namely matters relating to the use for maintenance of cattle and the use for residential purposes, and determine which is the dominant use.
2. I accept that the proportion of the land devoted to particular uses is a relevant consideration for the determination of what is the dominant use (Cornish Group & Anor v Chief Commissioner of State Revenue [2009] NSWADT 191, at [29]). The evidence, which is not contested, is that 95% of the land was used for grazing purposes and 5% of the land was used for residential purposes. In the Applicant's submission, these relativities supported its submission that the dominant use was the maintenance of cattle. However, the proportions of land used for each purpose is not the only consideration relevant to determination of the matter (Cornish Group, at [41]).
3. The Respondent's submission emphasised the relativities of the comparative economic returns from rental activity compared with the economic returns from activities involving cattle. The income earned from the land during the two land tax years in question was derived entirely from rents from the residence. The evidence was that there was no income derived from the sale or any other use of livestock at all. The relative financial returns from each of the two competing uses weighs in favour of a dominant use that is residential rental.
4. The Applicant gave evidence of their expectations of what future income would be derived from the maintenance of cattle. These expectations were of anticipated returns that were well in excess of the income earned from rent.
5. Anticipated future receipts of income from the maintenance of cattle may well be relevant to the determination of what the dominant use will be in future years. However, determination of what is the dominant use during a particular year needs to be made, primarily taking into account the financial returns during that year and not what may be anticipated for future years, even if evidence of anticipated future returns may be relevant to show an end purpose of the sale of animals or their natural increase or bodily produce.
6. There was evidence of various expenditures on works incurred during 2022 and 2023, relating to the residence on the land and the future maintenance of cattle on the land. A table of invoices referencing the land at Medway provided by the Applicant showed total expenses for 2023. $11,581.77 related to the house and $8,388.60 related to the balance of the land.
7. While work had been carried out and expenditure incurred to prepare the land in question for the maintenance of animals, I am not satisfied that the work or expenditure was significant enough to allow for a conclusion that the dominant use was the maintenance of animals, whether that work and expenditure is considered in isolation or considered together with the other factors in evidence. Most of the work and expenditure in 2023, on the evidence, related to the residential use of the land. While the difference between the amounts spent for each of the two competing uses is not substantial, the preponderance of the expenditure towards residential use does not assist the Applicant's submission that the dominant use was the maintenance of animals during the land tax years in issue.
8. The intensity of the competing uses is also a relevant consideration, even if not determinative (Ferella & Anor v Chief Commissioner of State Revenue [2014] NSWCA 378, at [44]). The residential property in question appears to have been in use during the entire period in question. While there was full use of the residential property for its intended purpose, this was not the case for the remainder of the land. The parts of the land to be used for grazing were in the course of being prepared for grazing, with various kinds of preparatory works having been done. Whether or not there were 25 Angus heifers on the land for parts of the period in question, the relative intensity and extent of the use of the residential property was greater than the intensity and extent of use of the relevant grazing land during the period of preparation.
9. I accept the evidence as to the relativities between the land area used for residential purposes and the area used for the maintenance of animals. I also accept the evidence as to the relative hours worked towards each use. However, these matters are not sufficiently weighty to displace the weight of the other considerations relevant to the determination of what was the dominant use. I place particular weight on relativities as to income, the only income derived from the use of the relevant land coming from the rental of the residence on that land, although this is not the only consideration weighing in favour of a dominant use that was residential.
10. Even if 25 Angus heifers had been present on the land at particular times during the land tax years in issue, I am not of the opinion that the presence of these cattle on the land for a period, would displace the conclusions that I have reached as to what the dominant use was.
11. In Ferella & Anor v Chief Commissioner of State Revenue [2014] NSWCA 378, the Court of Appeal considered a situation where about 5% of the land in issue in that case comprised of a residence from which rental income was earned. A few horses were kept on the remainder of the land. Primary production activity was found to be minimal. The Court of Appeal dismissed an appeal from a decision of the Administrative Decisions Tribunal that the dominant use was not one of primary production. The circumstances of that case are comparable to those in the present case.
12. Accordingly, I am of the opinion, following consideration of the evidence, that the Applicant has not shown, on the balance of probabilities, that the dominant use of the land in question was the maintenance of animals within s 10AA(3)(b).
13. The Respondent's assessment should be confirmed.

Orders 1. The assessment of the Respondent is confirmed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 06 December 2024