(2017) 105 ATR 11
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384
[1997] HCA 2
Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389
[1996] HCA 36
Commissioner of Land Tax v Christie [1973] 2 NSWLR 526
Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378
[1971] HCA 35
John v Commissioner of Taxation of the Commonwealth of Australia (1988) 166 CLR 417
Source
Original judgment source is linked above.
Catchwords
(2017) 105 ATR 11
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384[1997] HCA 2
Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389[1996] HCA 36
Commissioner of Land Tax v Christie [1973] 2 NSWLR 526
Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378[1971] HCA 35
John v Commissioner of Taxation of the Commonwealth of Australia (1988) 166 CLR 417[1989] HCA 5
Jones v Dunkel (1959) 101 CLR 298[1959] HCA 8
Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366(2011) 85 ATR 775
Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2010) 79 NSWLR 724[2010] NSWSC 867
Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue (NSW) [2017] NSWSC 9(2017) 104 ATR 820
Maraya Holdings Pty Ltd and Ors v Chief Commissioner of State Revenue [2013] NSWSC 23
(2013) 88 ATR 379
McCormack v Commissioner of Taxation of the Commonwealth of Australia (1979) 143 CLR 284
[1979] HCA 18
Metricon Qld Pty Ltd v Chief Commissioner of State Revenue (No 2) [2016] NSWSC 332
(2016) 102 ATR 781
Mills v Commissioner of Taxation of the Commonwealth of Australia (2012) 250 CLR 171
[2017] HCA 34
Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of New South Wales (2011) 245 CLR 446
[2011] HCA 41
Taylor v The Owners - Strata Plan No 11564 (2014) 253 CLR 531
[2014] HCA 9
Thomason v Chief Executive, Department of Lands [1995] QLAC 4
Judgment (18 paragraphs)
[1]
1996] 1 AC 543
Rainn Pty Ltd v Commissioner of State Revenue [2016] VSCA 338
SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34
Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of New South Wales (2011) 245 CLR 446; [2011] HCA 41
Taylor v The Owners - Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9
Thomason v Chief Executive, Department of Lands [1995] QLAC 4; (1995) 15 QLCR 286
Texts Cited: New South Wales Legislative Council, Parliamentary Debates (Hansard), 29 November 2005
Category: Principal judgment
Parties: Spencer Martin Young as trustee for the Spencer Young Family Trust (Plaintiff)
Chief Commissioner of State Revenue (Defendant)
Representation: Counsel:
M L Robertson QC with E Bishop (Plaintiff)
R L Seiden SC with A H Rider (Defendant)
PAYNE J: This is an application under s 97 of the Taxation Administration Act 1996 (NSW) seeking review of land tax assessments issued by the Chief Commissioner of State Revenue for the 2016 and 2017 land tax years.
The plaintiff, as trustee for the Spencer Young Family Trust, is the registered proprietor of adjoining parcels of land at Arcadia. During the relevant land tax years, the land comprised:
1. 15 Wylds Road, Arcadia - Lot 1 in DP 561571 ("Lot 1") in the 2016 land tax year;
2. 11 Wylds Road, Arcadia - Lot 12 in DP 866410 ("Lot 12") in the 2016 land tax year;
3. 11 Wylds Road, Arcadia - Lot 121 in DP 1219461 ("Lot 121") in the 2017 land tax year; and
4. 35A Halls Road, Arcadia - Lot 122 in DP 1219461 ("Lot 122") in the 2017 land tax year.
On 29 September 2016, the Chief Commissioner issued the plaintiff a Land Tax Assessment Notice in respect of Lot 1 and Lot 12 in the amount of $32,096 for the 2016 land tax year.
On 21 October 2016, DP 1219461 was registered, creating new Lots 121 and 122. This resulted in the Chief Commissioner adopting Lots 121 and 122 for the 2017 land tax year. On 21 October 2017, the Chief Commissioner issued the plaintiff a Land Tax Assessment Notice in the amount of $45,280 for the 2017 land tax year in respect of Lots 121 and 122.
The issue is whether the dominant use of each parcel of land at the relevant taxing dates of 31 December 2015 (the 2016 land tax year) and 31 December 2016 (the 2017 land tax year) was for the maintenance of horses for the purpose of selling them or their natural increase or bodily produce as required by s 10AA(3)(b) of the Land Tax Management Act 1956 (NSW). If the answer to that question is "yes", each parcel of land was used for primary production within the meaning of s 10AA(1) of that Act and exempt from land tax.
The proceedings are an "appeal" for the purposes of s 19(2) of the Supreme Court Act 1970 (NSW) and s 97(4) of the Taxation Administration Act 1996 (NSW). The review is a de novo review not limited to the material before the Chief Commissioner: Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue of New South Wales (2011) 245 CLR 446; [2011] HCA 41 at [12]-[22]. The plaintiff bears the onus of proving his case on the balance of probabilities: s 100(3) of the Taxation Administration Act.
[4]
Evidence
The plaintiff read the affidavits of Spencer Martin Young affirmed on 6 December 2018 and 20 September 2019, Nathan John Fenner sworn on 10 August 2018, Chris Walters affirmed on 7 December 2018, David Jones affirmed on 7 December 2018 and Brett Parbery affirmed on 8 December 2018.
Mr Young, in his capacity as trustee, is the plaintiff in the proceedings. Mr Fenner, a partner at KPMG, was engaged (inter alia) by the plaintiff in relation to his dealings with the Chief Commissioner. Mr Jones is a building consultant with expertise in the design of equine facilities. He was engaged by the plaintiff to work on the Yindarra Polo facility and, subsequently, the land the subject of these proceedings. Mr Parbery is a professional dressage rider and coach. Mr Walters is a professional photographer who took aerial footage of the property the subject of these proceedings on 20 November 2018.
The defendant read the affidavit of Ava Hurley sworn on 18 February 2019. Ms Hurley, a solicitor acting for the defendant, annexed to her affidavit correspondence between the parties, property searches, aerial imagery of the relevant property at the dates the subject of the assessments and documents produced under subpoenas issued to Mr Fenner and Hornsby Shire Council. Documentary evidence was admitted and included in Exhibit B, comprising three lever-arch folders.
I made rulings about a substantial number of paragraphs in the evidence to which objection was taken, admitting the evidence provisionally under s 57 of the Evidence Act 1995 (NSW). In the case of the plaintiff I also made a large number of limiting orders under s 136 of the Evidence Act, ruling that a large number of paragraphs in Mr Young's affidavit evidence were admissible only to prove his state of mind.
As will become apparent, there is only a limited extent to which the subjective purposes, intentions or views of Mr Young and other participants are relevant in determining any issue before me. I will admit the evidence provisionally admitted under s 57 of the Evidence Act, but it is of little assistance in addressing any relevant issue. This is for two reasons. First, as I will explain, the subjective purposes of relevant actors have little role to play in determining the questions raised in this litigation. Secondly, a great deal of Mr Young's evidence was argumentative and sought to address legal issues or conclusions in the proceeding. On critical issues it is clear that Mr Young's affidavit and oral evidence was, at best, a reconstruction, and I do not regard it as reliable.
[5]
Findings of fact
In this section I will set out my principal findings of fact. The plaintiff, as trustee for the Spencer Young Family Trust, is the registered proprietor of each parcel of land. I accept that Mr Young has had extensive experience with start-up businesses. From 1995 to 2000, he was a director of Rothschild Australia Private Equity. From 1998 to 2012, he was Chief Executive Officer and executive director of HFA Holdings, a hedge fund investment group he founded. Mr Young was the non-executive chair of HFA Holdings from 2012 to 2014.
Whilst I make no adverse credit findings about Mr Young, his evidence on analysis was unreliable in a number of important respects. In the absence of support from contemporaneous documents or other evidence I do not regard Mr Young's evidence as sufficiently reliable to base any firm conclusions on.
Further, Mr Young's evidence did not address a number of important issues in the proceedings. In respect of other issues he made it clear in his cross-examination that despite what appeared in his affidavits he left decisions concerning important matters such as the ownership of assets to his advisors at KPMG. Mr Fenner of KPMG, who swore an affidavit in the case, gave no evidence relevant to this subject.
Mr Young's evidence reflected a close appreciation of the issues. I discerned a clear desire on Mr Young's part to make submissions about what he perceived to be the relevant legal issues. Properly understood, his evidence reflected in large measure a later reconstruction of his contemporaneous state of mind which was shaped by what he perceived to be the issues in these proceedings. This was reflected in a "business plan" prepared for the purposes of his objection to the assessments. That "business plan" was prepared long after the relevant tax years. I do not accept that the "business plan" reflected Mr Young's contemporaneous state of mind during the relevant tax years. Many assertions in the "business plan" are simply incorrect.
Mr Young's evidence about his state of mind was also inconsistent with a number of contemporaneous documents about which he was aware and also with a number of objectively ascertainable matters. It is for this reason that I regard assertions by Mr Young about his contemporaneous subjective purpose, in 2015 and 2016, of maintaining horses on the land for the purpose of selling them or their natural increase or bodily produce, as of little weight.
[6]
Plaintiff's submissions
The plaintiff's submissions may be summarised as follows:
1. from at least the time that any horses were brought onto the contiguous parcels of land, the land was used for the maintenance of horses. The "maintenance" of the horses included feeding and watering the horses, the fencing of separate paddocks so they could graze in rotation, the setting aside of manure pits and areas for training and exercise and the use and construction of sheds for storing additional feed and farm equipment;
2. the construction on the land during the tax years in question of facilities for the horses was central to the maintenance of horses on the land and not a "separate competing use of the land". The construction of those facilities was indicative of the "main" purpose of selling the horses or their progeny. Horse grazing was only one of the activities on the land to be taken into account in the characterisation of the physical use of land for "maintenance" and was not itself the relevant physical use of the land. The plaintiff relied upon the statement of Gageler J in Mills v Commissioner of Taxation of the Commonwealth of Australia (2012) 250 CLR 171; [2012] HCA 51 at [66] as establishing that "... the centrality of a purpose to the design of a scheme directed to the achievement of another purpose may be the very thing that gives it a quality of subsidiarity and therefore incidentality";
3. a small part of the land was also used for a dual residential and land maintenance purpose, as the former owner lived on the land for free in return for tending the land. This was the only competing relevant physical use of the land; and
4. the Court should conclude that the dominant physical use of the land for the maintenance of the horses was for "the [main] purpose of selling" them. The activities on the land were said to be directed to the maintenance of the horses for the purpose of selling them.
The plaintiff approached the questions in this case by reference to three topics:
1. use of the land;
2. the dominant use of the land; and
3. the purpose of selling.
As I will explain, I do not accept that it is appropriate to break up the statutory exemption in this way, but for present purposes will adopt the plaintiff's approach to explain the way he put his case.
[7]
Use of the land
The plaintiff submitted that the Court's first task is to identify and characterise the actual physical uses of the land in the relevant land tax years. Then, if a number of uses are identified, each use is to be compared to determine which is dominant. It was submitted that all of the activities on the land in the relevant land tax years served a particular purpose or benefit for the establishment of the "Yindarra Park dressage facility". The maintenance of horses was a use of the land characterised as "intense and weighty, valuable", and requiring human resources on an ongoing basis. The use was continuously conducted throughout the relevant years from November 2015 when five horses were first maintained on the land.
The plaintiff submitted that as "use" includes retaining land in a state of inactivity as integral to a particular purpose, it similarly includes the development and construction on land which is integral to a particular purpose, here the establishment of the "Yindarra Park" facility: see Newcastle City Council v Royal Newcastle Hospital [1959] AC 248 at 255; Thomason v Chief Executive, Department of Lands [1995] QLAC 4; (1995) 15 QLCR 286; Chief Commissioner of State Revenue v Metricon Qld Pty Ltd [2017] NSWCA 11; (2017) 105 ATR 11 at [39].
The plaintiff submitted that the Court of Appeal held in Metricon at [60], that "the inquiry directed by s 10AA(3) is as to current tangible and physical employment and its purpose". It was submitted that the purpose of each of the possible competing physical activities on the land were, in fact, for the maintenance of the horses. That, it was submitted, supported the conclusion that the dominant use of the land was the maintenance of the horses, but also that their maintenance was for the purpose of selling them.
The plaintiff submitted that at midnight on 31 December 2015 and midnight on 31 December 2016, the only usages of the land were "the maintenance of horses" (in which use was included the construction of the stables) and a residential use. The plaintiff submitted that "construction" as a use of land is characterless. It was submitted that the purpose of the construction gives it the character of a use of the land.
[8]
Dominant use of the land
The plaintiff submitted that whether land is being used for primary production within the meaning of s 10AA is decided by an objective test (Greenville Pty Ltd v Commissioner of Land Tax NSW (1977) 7 ATR 278 at 280), which includes as one factor the owner's state of mind (Metricon per Barrett AJA at [37] citing Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378; (2014) 96 ATR 875 at [204] per White J):
"… the content of the subjective intention of the person who claims to be using land for primary production is a relevant consideration in making an objective evaluation of the whole of the circumstances."
The plaintiff distinguished the purpose for which land is acquired and its current use: Metricon per Barrett AJA (with whom Macfarlan and Ward JJA agreed). The plaintiff accepted that "the purpose of acquisition of this land was in large part the building of a country residence", however emphasised that the question posed by the section is "what is the land currently being used for" in each of the tax years? It was submitted that the earthworks that were on the land at midnight, 31 December 2015, and the further construction activities on the same date in 2016, were all directed towards the maintenance of horses.
The plaintiff characterised the Chief Commissioner's case as being that the earthworks, of themselves, were a competing physical use. The plaintiff submitted that this is not correct, that the earthworks have to be characterised into a use, and that an activity (being the earthworks) is not a use of the land. It was submitted that one looks to what the person's purpose or intention was in doing the earthworks. This, it was submitted, can be done objectively, but sometimes resort has to be had to subjective purpose. Here, it was submitted, the earthworks and footings put down related to the stables and other facilities to maintain horses, meaning the earthworks were ancillary to, not competing with, that use of the land, referring to: Bayside Council v Karimbla Properties (No 3) Pty Ltd (2018) 99 NSWLR 66; [2018] NSWCA 257 at [17], [109]; Commissioner of Land Tax v Christie [1973] 2 NSWLR 526, at [28].
[9]
Purpose of selling
The plaintiff submitted that the plaintiff's intentions in respect of the actual physical present use of the land in the relevant years are relevant but his intentions in respect of future use in later years are not. The plaintiff submitted that the test was "the same as the income tax test, where you look at all the circumstances to infer a purpose including the subjective evidence of the taxpayer and the contemporaneous statements the taxpayer makes about his purpose." It was submitted that this approach was consistent with the Victorian Court of Appeal in CDPV Pty Ltd v Commissioner of State Revenue [2017] VSCA 89.
Senior Counsel for the plaintiff accepted that it was an "essential element for us to get the exemption, which is that our maintenance of the horses on the land must be for the purpose of selling them". That purpose was submitted to be the main or dominant purpose rather than the sole purpose.
The plaintiff submitted that in considering whether the purpose of sale exists, the expected period of time before the horses are ready for sale, which, as here, may be many years, must be taken into account. The plaintiff submitted that the Chief Commissioner's submission, that within s 10AA(3)(b) is an additional criterion that "the purpose of selling" must encompass a purpose of selling for profit and/or a commercial business-like undertaking, has been rejected many times: see CDPV Pty Ltd v Commissioner of State Revenue [2016] VSC 322 at [19], [24], [25]; John v Commissioner of Taxation of the Commonwealth of Australia (1988) 166 CLR 417; [1989] HCA 5 and the cases cited therein.
The plaintiff submitted that "purpose" of selling requires a consideration of both subjective and objective evidence: CDPV Pty Ltd v Commissioner of State Revenue [2017] VSCA 89. The Victorian Court of Appeal's observations, following its consideration of Metricon, were submitted to be apposite to s 10AA(3). This approach was submitted to be consistent with the income tax cases that consider the issue of the purpose of sale: McCormack v Commissioner of Taxation of the Commonwealth of Australia (1979) 143 CLR 284; [1979] HCA 18; Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1.
It was submitted that the purpose of selling is an inference to be drawn from the user's evidence of his or her purpose as tested by reference to the surrounding circumstances at the time of use. Subsequent evidence of the user's conduct is admissible insofar as it assists in drawing the inference.
[10]
Use of the land
The Chief Commissioner submitted that for the purposes of s 10AA(3), "use" refers to present physical activity (or deliberate inactivity) on the subject land. The Chief Commissioner submitted the meaning of the word "for" in s 10AA(3) is as follows:
1. used "for" is to be seen as a present use of the land;
2. the focus is on the objective character of the physical activities that are being conducted on the land at the relevant date so as to determine what the land is being used "for";
3. focusing on the current or present activities on the land corresponds with the word "is", in the present tense, appearing before the word "for";
4. a distinction must be drawn between the present use of the land, on the one hand, and any intended future, or ultimate use that may come into existence if and when the activities that constitute the present use have been brought to a successful conclusion;
5. land can be used now for a particular purpose, even though its use for that purpose may also be in preparation for its eventual use for a different purpose. For example, land might be used for the purpose of commercial land development at one point in time, even though the use of it for that purpose at that time is preparatory to its eventual use for residential purposes;
6. land on which a project is being developed is not being used for the purpose for which it will be used once it has been developed; and
7. regard cannot be had to the subjective intention, past, present or future, of the owner except insofar as that intention sheds light on the objective character of the physical activities being conducted on the land.
The Chief Commissioner submitted that where construction activities take place on land in a tax year, the "use" of the land in that tax year is "for" construction, regardless of the end purpose of that construction and/or the use of the land in a later tax year when construction is complete.
As an annual tax, the statutory test looks to what the land is presently used "for", not what it will be used for in a later tax year. Where the physical activities on the land comprise both construction and primary production in a tax year, the land is used "for" both of those activities in the tax year. Further, where a portion of the land is under construction and is not presently used for actual primary production activities in a tax year (because, for instance, the animals are excluded from that portion of the land), its present use for construction in that tax year is not somehow recharacterised as a present use for primary production, by its subsequent use for primary production in a later tax year.
[11]
Dominant use of land for the maintenance of animals for the purpose of selling them or their natural increase
It was submitted that s 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: Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9; (2017) 104 ATR 820 at [158]. In summary, in determining the "dominant use" of land, it is necessary to consider and compare the measurable quantitative factors (or "metrics") concerning the actual activities conducted on the land in both a physical sense (eg area, time, extent, and intensity) and a financial sense (eg expenditure incurred, income derived, and benefits obtained): Leppington at [153].
The Chief Commissioner submitted that even if the dominant use of each parcel of land could be characterised as being "for" the maintenance of horses, the Court would not be satisfied that the use of the land for the maintenance of horses was for the purpose of selling them or their natural increase or bodily produce .
The Chief Commissioner submitted that in Metricon, the Court of Appeal considered "the purpose of selling" requirement in s 10AA(3) of the Land Tax Management Act and held at [59]: "[e]ach of the six activities in paras (a) to (f) has a purpose or objective of commercial gain".
1. The Chief Commissioner submitted that the following principles regarding "the purpose of selling" were apposite here:
2. the prescribed primary production activity must have an objective of commercial gain;
3. the words "selling the produce" require the activity to be a commercial undertaking;
4. a commercial undertaking requires purchase and/or production of relevant products and their subsequent sale;
5. the purpose of the activity is determined objectively and not based on subjective intention;
6. a subjective intention, of itself, to maintain animals for the purpose of sale does not satisfy the statutory test;
7. in objectively determining the purpose of an activity said to be for "primary production", relevant considerations include:
1. whether any sales of "produce" have occurred and/or what steps have been taken to sell "produce";
2. whether any breeding has occurred and/or any breeding program is in place for the purpose of producing something to sell;
3. the length of time that has passed since animals were initially acquired until any successful breeding or sales occur;
4. whether animals are maintained for recreational or hobby purposes; and
5. the extent and intensity of the activity, including whether it was conducted in accordance with accepted husbandry or would promote a useful product.
[12]
Relevant legislative framework
Land tax is imposed on land in New South Wales by the combined operation of the Land Tax Act 1956 (NSW) and the Land Tax Management Act. The Land Tax Act imposes land tax, prescribes the rates of land tax payable and is to be read and construed with the Land Tax Management Act. The Land Tax Management Act makes provision relating to the imposition, assessment and collection of land tax.
Under the Land Tax Management Act, land tax is an annual tax 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 Act: ss 7 and 9. Under s 10AA(1) of that Act, land that is "rural land" is exempt from taxation if it is "land used for primary production" at the taxing date. It is common ground that the land during the relevant period was "rural land".
Land tax is charged on land as owned at midnight on the 31st of December immediately preceding the year for which the land tax is levied: Land Tax Management Act, s 8. The relevant taxing dates here are 31 December 2015 for the 2016 land tax year and 31 December 2016 for the 2017 land tax year.
The "land" for the purposes of s 10AA is the parcel of land separately identified, valued and entered on the register by the Valuer-General as at 1 July preceding each land tax year. The Chief Commissioner is bound by the Valuer-General's determination of what the relevant parcel of land is for taxing purposes: Leppington at [10], [46]. Determination of whether land satisfies the exemption is to be approached on a parcel by parcel basis: Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34 at [46]-[47]. As the two lots comprising the land were separately valued for the 2016 and 2017 tax years, it is necessary to consider each of:
1. Lot 1 for the 2016 tax year;
2. Lot 12 for the 2016 tax year;
3. Lot 121 for the 2017 tax year; and
4. Lot 122 for the 2017 tax year.
The issue is whether the land owned by the plaintiff was exempt from land tax under s 10AA(1) for the 2016 and 2017 land tax years pursuant to s 10AA(3)(b) of the Act, as land, the dominant use of which was for the maintenance of animals for the purpose of selling them or their natural increase or bodily produce.
Extrinsic material in the form of the Explanatory Note to the Bill that became the State Revenue Legislation Further Amendment Act 2005 (NSW) and the speeches of the relevant Minister upon the second reading of that Bill in the Legislative Assembly was considered by the Court of Appeal in Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366; (2011) 85 ATR 775. In that case Allsop P said (at [28]):
"Both parties provided the Court with extrinsic material relating to s 10AA and related provisions in the Local Government Act 1919 (NSW), in particular s 118. Much of the secondary material can be seen to be directed to the mischief or purpose of sub-s (2), rather than sub-s (3): see the Second Reading Speech to the State Revenue Legislation Amendment Bill 2005 and the definition of 'farmland' in the Local Government Act 1993 (NSW), s 515 and the similarly worded earlier provision of the Local Government Act 1919 (NSW), s 118. Looking at the terms of s 10AA in its place in the Act, the provision is not to be understood as a statutory encouragement for primary production as that phrase is used in the colloquial sense. The provision concerns land used for primary production as defined. What the provision is apt to achieve and what can be taken as its purpose from its text and context in the Act is the provision of an exemption for land used for primary production to the extent and in the manner referred to in sub-ss (2) and (3). There is no requirement to approach the matter in some beneficial fashion striving to expand the reach of the exemption or to narrow the taxing operation of the section according to strict language. More particularly, there is nothing in the purpose of the legislation, drawn from its words and context or from the secondary material insofar as that addresses mischief to require used 'for' to be limited to use of land which is producing beneficial or commercial return, as argued by Leda."
[13]
Principles of construction
The relevant principles of construction were not controversial on the appeal. The meaning of words and phrases is influenced by the immediate context in which they are used. The meaning of the whole may be different to the sum of the meaning of the parts: Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389; [1996] HCA 36 at 396-397 (Brennan CJ, Dawson, Toohey, Gaudron and McHugh JJ) citing Lord Hoffmann in R v Brown [1996] 1 AC 543 at 561.
The modern approach to statutory interpretation uses "context" in its widest sense "to include such things as the existing state of the law and the mischief which, by legitimate means … one may discern the statute was intended to remedy": CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; [1997] HCA 2 at [88] (per Brennan CJ, Dawson, Toohey and Gummow JJ).
Those "legitimate means" include any material that may be considered in the interpretation of a provision of an Act, or a statutory rule made under the Act, including all matters not forming part of the Act that are set out in the document containing the text of the Act as printed by the Government Printer: Interpretation Act 1987 (NSW), s 34(2)(a). A construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object: Interpretation Act, s 33.
In Taylor v The Owners - Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9 French CJ, Crennan and Bell JJ said at [39]:
"[39] … the task remains the construction of the words the legislature has enacted. In this respect it may not be sufficient that 'the modified construction is reasonably open having regard to the statutory scheme' because any modified meaning must be consistent with the language in fact used by the legislature. Lord Diplock never suggested otherwise. Sometimes, as McHugh J observed in Newcastle City Council v GIO General Ltd, the language of a provision will not admit of a remedial construction. Relevant for present purposes was his Honour's further observation, '[i]f the legislature uses language which covers only one state of affairs, a court cannot legitimately construe the words of the section in a tortured and unrealistic manner to cover another set of circumstances.'" (Footnotes omitted.)
[14]
The correct construction of s 10AA(3)(b)
As noted at the outset the submissions of the plaintiff tended to break up the requirements of s 10AA(3) into three separate strands: "use of land", "dominant use of land" and "the purpose of sale". Such a reading tends to obscure the proper attribution of legal meaning to the statutory text, read in context. It is not to be forgotten that s 10AA(3) was part of a suite of anti-avoidance measures. As the Minister explained in the Second Reading reply (at 20064):
"The primary production use of the land will have to have significant and substantial commercial purposes, which must be engaged in for the purpose of a profit or on a continuous and repetitive basis. Running a few head of cattle or sheep to attract a land tax exemption rather than to make profits will no longer suffice."
The relevant exemption is afforded to "land used for primary production": s 10AA(1). The definition of land used for primary production is that it "means land the dominant use of which is for" one of the six matters identified in s 10AA(3). A relevant matter to note at the outset is that matters (a), (b), (d) and (f) in s 10AA(3) identify a use carried on for the purpose of sale. Matters (c) and (e) identify a use by reference to a characterisation of that use as a commercial one.
As Barrett AJA (with whom Macfarlan and Ward JJA agreed) recognised in Metricon:
"[49] It is significant that each of the six activities listed in paras (a) to (f) involves deliberate physical acts in relation to the land. There cannot be fortuitous or accidental cultivation, maintenance of animals, commercial fishing, keeping of bees or propagation of orchids for sale. Nevertheless and as observed by the primary judge, the authorities support the abstract notion that land may be "used" without immediate physical activity. I shall return to that matter."
In relation to the present case, in order to be entitled to the exemption for "land used for primary production" under s10AA(3)(b) the dominant "use" of the land must be "for the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce".
There was much discussion by the parties of the decision in Thomason, a decision of the Land Appeal Court of Queensland, which was referred to with approval by the Court of Appeal in New South Wales in both Leda Manorstead and Ferella. The question in Thomason was whether certain land was "exclusively used ... for purposes of farming" and therefore subject to a special valuation regime. The expression "farming" was defined in a way that required that activity to represent the "dominant use" of the land. The Queensland Land Appeal Court made the following general observations about the meaning of "use", at 293 (of the QLCR):
"The land must be 'used', that is, it must be applied to, employed for some purpose, put into service, turned to account (see Macquarie Dictionary). The word 'use' has been held to be 'a word of wide signification' (British Motor Syndicate Ltd v Taylor & Son [1900] 1 Ch 577 at 583 per Stirling J) and 'a word of wide import' (Shell-Mex & BP Ltd v Clayton [1955] 3 All ER 102 at 106 per Court of Appeal) the meaning of which in any particular case depends to a great extent on the context in which it is employed (Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 at 637 per Gibbs ACJ, 651 per Stephen J, 658 per Aickin J). For land to be 'used' it must be actually used, not be contemplated or intended to be used nor be suitable for use (London & South Western Ry Co v Blackmore (1870) LR 4 HL 610 at 617 per Lord Hatherley LC.). That does not mean that there must be activity on all the land. An owner can use land by keeping land in its unimproved state where retaining it in that state is relevant to a particular purpose (Newcastle City Council v Royal Newcastle Hospital [1959] AC 248 at 255, 1 All ER 734 at 735, 100 CLR 1 at 4, Privy Council)."
[15]
Conclusion in the present case
The physical uses of the land in the tax years were:
1. demolition, clearing and construction works from August 2015 onwards, with construction works continuing for many months after the taxing date of 31 December 2016 for the 2017 tax year;
2. residential use from July 2015 onwards, with Mr Geelan continuing to live in his former home on the land and the plaintiff and his family staying in the renovated cottage on the land; and
3. maintaining horses from 27 November 2015 onwards, when five horses were moved onto the land, with another horse (The Last Emperor) being moved onto the land in October 2016.
The objective character of these physical activities, not the subjective intention behind them, determined the "use" of each lot during the tax years. Mr Geelan's residential use and the occasional residential use by the Young family may be put to one side for the relevant tax years. Residential use was not the dominant physical use of the land in those years.
The competing physical uses of the land in the tax years were, on the one hand, demolition, clearing and construction works and, on the other, the maintenance of horses.
Based on all of the evidence, including the contemporaneous aerial photographs of the land, the ruling or prevailing physical use of the land being Lots 1 and 12 in the 2016 year and Lot 122 in the 2017 year was the ongoing clearing, excavation, demolition and construction works. These lots on which the physical activities comprising "construction" occurred were used "for" the relevant "works" (comprising demolition, clearing and/or construction works) and not "for" the maintenance of horses, which self-evidently could not occur on land on which these "works" were taking place. I would conclude that the maintenance of horses was the dominant use of Lot 121 in the 2017 year. In so finding, I note that the plaintiff did not advance a fall-back case that part only of the land in question was exempt from land tax.
I reject the plaintiff's submission that "[a]ll of the activities on the land in the relevant land tax years served a particular purpose or benefit for the establishment of the Yindarra Park dressage facility", such that the construction takes its character from the intended outcome of that construction, being the establishment of the "Yindarra Park dressage facility".
[16]
Orders
The plaintiff has failed to prove that during each of the tax years the dominant physical use of the land was for the maintenance of horses for the purpose of selling them or their natural increase or bodily produce.
For the foregoing reasons I make the following orders:
1. Application dismissed;
2. Assessments of land tax for the 2016 land tax year, issued on 29 September 2016, and the 2017 land tax year, issued on 21 October 2017 are confirmed;
3. Plaintiff to pay the costs of the defendant.
[17]
Endnotes
Some documents in evidence appear to refer to the wrong lot number, but that it is an immaterial error, the same lot was contemplated whether referring to Lot 121 or Lot 122 as the site for development, being the southern strip of land running east-west which was in fact Lot 122.
Version for 3 December 2014 to 7 January 2015. There have been no subsequent amendments to these provisions.
Version for 12 December 2014 to 14 July 2015. There have been no amendments to this provision.
[18]
Amendments
07 April 2020 - Typographical error on cover page corrected.
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: 07 April 2020
Parties
Applicant/Plaintiff:
Young
Respondent/Defendant:
Chief Commissioner of State Revenue
Legislation Cited (10)
Revenue Legislation Further Amendment Act 2005(NSW)
State Revenue Legislation Further Amendment Act 2005(NSW)
In his first affidavit Mr Young stated that "Yindarra Services", which was defined in the affidavit to mean Yindarra Services Pty Ltd, operated "Yindarra Park" which is how he described an alleged business being operated on the land the subject of the assessments.
Mr Young is the shareholder and director of Yindarra Services Pty Ltd, which did not during the tax years have any material assets or liabilities. Yindarra Services Pty Ltd is the trustee of The Yindarra Services Trust, which also during the tax years did not have any material assets.
Mr Young said of Yindarra Services Pty Ltd:
"Q. … Para 6, you are a, 'Director of Yindarra Services and Yindarra Services operates Yindarra Park', the second line there of para 6.
A. Yeah.
Q. So by, 'Operates', you mean, pays the bills and administers the expenses.
A. I assume so.
Q. You assume so. You don't know.
A. My accountants determine where the allocation of expenses go, but we tend to run Yindarra Services as the operating entity.
…
Q. … I can tell you that this is a document that was prepared by KPMG. At item 2, this is talking about the land at Arcadia, right-hand column, item 2, 'Carried on by the Spencer Young Family Trust'. So what you've said about Yindarra Services operating, could it in fact be the Spencer Young Family Trust that operates whatever is happening at Yindarra Park?
A. I will be very direct. I rely on KPMG to advise me on what appropriate entities to use and how to allocate my funds and expenditures against those entities.
Q. So I think what you are saying is that right now, you don't know who operates the activities at Yindarra Park.
A. Ultimately, Spencer Martin Young is the family trust principally and it is Yindarra Services director, et cetera. So it is still me making all of the decisions and taking the responsibility and it comes back to an administrative issue, as far as I am concerned, on how that all gets accounted for."
I have no doubt that Mr Young, speaking broadly, was in a position to cause cash to be spent or not spent and to control all of the relevant entities identified in the evidence in these proceedings. It is a different question, however, whether I am satisfied that the person seeking the exemption under s 10AA(3)(b) has proven his case.
Mr Young asserted in his first affidavit that Yindarra Services Pty Ltd "operated" a dressage business on the property the subject of these proceedings, which he describes as "Yindarra Park". I do not accept the plaintiff's characterisation of the activities of Yindarra Services Pty Ltd. I am unable to conclude that Yindarra Services Pty Ltd conducted any business activities during the relevant years, or as far as I know subsequently. I reject the submission that the plaintiff has proven that Yindarra Services Pty Ltd "operated" any business in 2015 or 2016, let alone a business of maintaining horses (including dressage horses) for the purposes of sale.
Mr Young also stated that Yindarra Services Pty Ltd "as a rule, does not hold, terribly, a great number of assets". On the evidence before me that is a significant understatement. During the relevant years it had none. Mr Young said in cross-examination that he does not have a budget for "Yindarra Park" and has not allocated an amount of capital he is prepared to spend on "Yindarra Park".
In what follows I will assume, in accordance with the plaintiff's ultimate submission, that in 2015 and 2016 (contrary to Mr Young's affidavit evidence) Yindarra Services Pty Ltd had no role in maintaining horses on the land or in operating any proposed dressage business.
Mr Young is a former polo player. From 1995 to 2013, he played in domestic and international polo competitions. In 2001, he decided he wanted to establish a "world-class" elite equine facility for polo horses and competitions. In 2006, he purchased land at Richmond on which to stable polo horses and build polo fields and exercise arenas for training. This land became known as "Yindarra Polo". It is common ground in relation to Yindarra Polo that the land was used to maintain horses for recreational purposes, as explained by Senior Counsel for Mr Young:
"ROBERTSON: Mr Spencer Young can't ride these horses. These are not like his polo ponies. If we were doing a predication of his former polo pony use, we would predicate because he's also riding them and competing. But even though he might subjectively have a purpose of sale objectively, his dominant purpose would be recreation."
Prior to purchasing the land the subject of these proceedings Mr Young suffered an unfortunate back injury that meant he could no longer ride a horse. In October 2015, the plaintiff sold the land upon which Yindarra Polo had been conducted.
The plaintiff submitted that Mr Young's activities in relation to Yindarra Polo were irrelevant to the present dispute. I do not agree. It is an important part of the plaintiff's case here that I should infer from the planned construction of "world class" facilities for horses at "Yindarra Park" that Mr Young, via whatever entity actually planned to conduct dressage activities on that land, was maintaining horses on the land for the purpose of ultimate sale. On the evidence relating to "Yindarra Polo", where horses were maintained by Mr Young in "world class" facilities for a recreational purpose, no such inference should necessarily be drawn. As will become apparent, and despite steps being taken in 2016 to begin to construct "world class" dressage facilities on the subject land, I am not satisfied that the land was used in 2015 and 2016 for the maintenance of horses for the purpose of selling them or their natural increase or bodily produce.
Mrs Young was an equestrian hacking rider and from 2008 developed an interest in dressage. On the evidence it is clear that Mrs Young in 2015 and 2016 had a close interest in dressage as a recreational pursuit. Mrs Young was the person intimately involved in maintaining the horses on the land. I find that Mrs Young managed the horses and did everything associated with the horses on the land. The documentary evidence demonstrates that it was Mrs Young who dealt with service providers in relation to the horses. As the plaintiff put it in his evidence:
"A. Jade [Mrs Young] is the one who makes the phone call and places the order. And, in the absence of any further information, they put it in the - the invoice is in the name of the person making the call. I'm the way [sic] who pays the bill. Now, in all fairness, Jade is not a - a skilled, experienced business person.
She manages the horses and does everything associated with - arranges everything for the horses. So she, first of all, gets approval from me to make sure it is made to the expenditure. I tell her to go and get it done. She gets it done. The bill arrives, I pay it."
There is no precise evidence of the ownership of the relevant horses, and in particular whether any were owned by Mrs Young. There is no evidence that Mrs Young ever intended, in 2015 or 2016 or at any time in the future, to sell any of the horses maintained on the property or their progeny. While the Commissioner made no Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 submission about the absence of evidence from Mrs Young, it was submitted that the absence of her evidence meant that there was a significant gap in proof in the plaintiff's case. That submission should be accepted. Maintaining horses on land is not, in and of itself, evidence of either a purpose of sale or a purpose of recreation. There was evidence about Mrs Young's keen interest in dressage as a recreational pursuit. The evidence about her involvement in supervising, riding and training the horses maintained on the property is consistent with maintaining horses on the property for the purposes of recreation rather than the purposes of sale. That purpose of maintaining horses on the land for the purposes of recreation also aligns with the evidence about the plan for the land to be used as a long term country residence for the Young family. The absence of Mrs Young's evidence about her involvement in the maintenance of horses on the land for the alleged purpose of sale is an important gap in the plaintiff's case.
In about late 2013, Mr Young commenced searching for a suitable property to purchase to develop. On 14 June 2014, Mr Young advised Mr Fenner of KPMG:
"I have agreed to purchase two adjoining 5 acre blocks of land in Arcadia (Sydney). My intention is to build a House and Stables (6 horse) as a long term hold country residence for Jade and myself. I expect to keep Bondi as my principal place of residence. I expect to continue to hold the Biddaddabba [sic] Farm as a long term hold (albeit transfer it into the SYFT in the next few months).
…
The immediate question I have is 'What should I use as the acquiring entities?'"
I am conscious that the statutory question posed by s 10AA(3)(b) is concerned with the present use of land during the tax years "for" the asserted purpose. I find that to the extent it is relevant, Mr Young's subjective purpose in acquiring the properties the subject of these proceedings was to build a large house (with a swimming pool) for his family together with stables for six horses. Mr Young from the beginning intended that he and his wife would keep horses on the property.
On 1 July 2014, Mr Young filed a trademark application in his own name for the trademark "Yindarra Park". Class 41 of the trademark includes "[c]onducting horse shows, gymkhanas, rodeos, show jumping events, polo events, polo cross events, endurance events for horse and rider, dressage events, training and education for horse riding, horse handling, horse grooming and care of horses, breaking in of horses, horse breeding and the purchase and sale of horses". On 19 November 2014, the trademark application for Yindarra Park was accepted. This trademark application provides some evidence that the subsequent maintenance of horses on the land was for the asserted "purpose of sale". So far as Mr Young's subjective purpose is concerned, I find that in 2014, Mr Young's (albeit distant) hope was sometime in the future to maintain horses on the land for the purposes of breeding, training and eventually selling dressage horses reared at the property.
On 10 July 2014, Mr Young, in his capacity as trustee for the Spencer Young Family Trust, exchanged contracts with a Mr Geelan to purchase Lot 1 for $1,900,000 and Lot 12 for $950,000 with a 12-month settlement period. Lot 1 had a house on it in which Mr Geelan lived. It was agreed that Mr Geelan could live in the house on Lot 1 rent-free for two years in exchange for ongoing property maintenance services for the property, including pasture and garden maintenance as well as other ad-hoc tasks such as being available to assist with various contractors who would require access when building commenced on the land.
In August 2014, Mr Jones, the plaintiff's building consultant, commenced drawing up plans for the development application process. On 24 December 2014, Mr Jones lodged a development application with Hornsby Council (DA/1648/2014) to adjust the boundaries of the existing Lots 1 and 12 to create new Lots 121 and 122.
The accompanying Statement of Environmental Effects submitted to Hornsby Council prepared by Mr Jones on 23 December 2014 stated:
"2.04 Proposed Use
The proposed adjustment of boundaries is to allow for the construction of a new dwelling house on a site to the rear of the existing house on Lot 1 DP 561571.
The new dwelling house will be the subject of a separate application. That application will include the removal of the disused chicken sheds and horticultural buildings. The application will also include the construction of some private equestrian facilities.
The realignment of the boundaries allows for the best use of the available land for the dwellings and for the proposed equestrian activities.
The small cottage on existing Lot 12 DP 866410 will become a secondary dwelling subject to Council approval.
An application for the removal of the sheds and for the construction of the new dwellings is lodged concurrently with this application for the adjustment of boundaries.
An easement is proposed to preserve the existing access driveway from Halls Road and maintain the existing services corridor - see the site plan."
On 31 December 2014, the plaintiff lodged another development application with Hornsby Council (DA/1649/2014) for proposed construction on new Lot 122. The accompanying Costs Summary Report prepared by Mr Jones on 23 December 2014 stated that the total estimated cost was $1,280,000, including $555,600 for the dwelling, $48,500 for the swimming pool, $252,000 for the stables and $126,000 for the equestrian arena.
The accompanying Statement of Environmental Effects prepared by Mr Jones on 23 December 2014 stated:
"2.01 Zoning & Compliance
The property is zoned RU4 Primary Production Small Lots under the current Hornsby LEP.
The proposed uses - a dwelling and an animal establishment - are permissible in the zoning.
There is a small cottage on the same lot as the proposed dwelling house. This cottage will be preserved as a 'secondary dwelling' on the site. The area of the cottage is less than 80sq.m or 20% of the floor area of the principal dwelling, so the 'secondary dwelling' is permissible in the zoning.
…
2.04 Proposed Use
The proposed development is for a new dwelling house and carports and an animal establishment consisting of equestrian arena and stable building to be used for private equestrian training. This use is consistent with the use of surrounding properties.
The use is permissible in the zoning."
I find that when Mr Jones prepared the Statement of Environmental Effects he had read the Hornsby Local Environmental Plan 2013 (NSW) and was aware that "animal boarding or training establishment" was a defined term under the Hornsby Local Environmental Plan. I find that Mr Jones' description of the proposed development of structures relating to horses on the property as being for "private equestrian training" was accurate. The proposed development of structures relating to horses on the land was not an "animal boarding or training establishment" within the meaning of the Hornsby Local Environmental Plan 2013 and was not a building or place to be used for the breeding, boarding, training, keeping or caring of animals for commercial purposes.
I find that Mr Young was aware that the development consent he was seeking was limited to the proposed use of the land for a new dwelling house, carports and animal establishment consisting of an equestrian arena and stable building to be used for "private equestrian training".
I find that, objectively, the Statement of Environmental Effects provides a foundation for my conclusion that the purpose of the construction of a proposed new dwelling house, carports and animal establishment consisting of an equestrian arena and stable building was "private equestrian training" being a private recreational purpose. I am not satisfied that during the land tax years there was any plan to operate a dressage business on the land the subject of these proceedings.
On 7 July 2015, Hornsby Council approved the plaintiff's development application (DA/1648/2014) to adjust the boundaries of the existing Lots 1 and 12 to create new Lots 121 and 122. Work commenced to clear the land of infrastructure. On 10 July 2015, completion of the contract for the sale of Lots 1 and 12 occurred. The plaintiff, acting as trustee of the Spencer Young Family Trust, became the registered proprietor of the land.
On 28 July 2015, a delegated report recommended that Hornsby Council approve the plaintiff's development application DA/1649/2014 for construction on new Lot 122 [1] . The report stated:
"2. THE DEVELOPMENT
The application proposes to erect a new dwelling house, garage structure, equestrian arena and stables on the proposed Lot 121 and the demolition of existing sheds. The following works that form part of this application consist of the following:
• Erection of a dwelling-house to comprising of 4 bedrooms, 3 bathrooms, 4 wardrobes, a dressing room, a laundry, a mud [room], a guest water closet, a study, dining room, kitchen and living room;
• Change of use of the existing fibro cottage in the north-east corner on the site as a secondary dwelling;
• Demolition of existing shed on the site;
• Erection of an equestrian arena and Stables for horses, The stables will consist of 6 horse boxes, a prep area, a tack room, a rug room, a vet room laundry, a wash room, a feed room and a porch;
• Ancillary works including water tanks, retaining wall and landscaping on the site;
• Detached out building comprising of 2 carports, a store room and a gymnasium; and
• Lap Swimming pool.
…
5.1.3 Training establishment
The proposed stables and arena would be used for private use only and as a consequence the proposed use would not be considered an 'animal boarding or training establishment' in accordance with the [Hornsby Local Environmental Plan] and does not warrant an assessment under Part 2.2.4 of the [Hornsby Development Control Plan] Animal Boarding or Training Establishment.
Whilst the application was not assessed as a 'animal boarding or training establishment', it is noted that the location of the proposed arena and stables would be located more than the required 30 metre separation to sensitive land uses in accordance with the [Hornsby Development Control Plan]."
On 30 July 2015, Hornsby Council approved the plaintiff's development application (DA/1649/2014) for construction on new Lot 122. I find that Mr Young was aware of the terms of the approval of the development application from about the time it was granted, including that the approval was based on a finding that the "proposed stables and arena would be used for private use only".
From August to November 2015, works at the property commenced including demolishing sheds, clearing land, installing new boundary and paddock fencing, horse boxes, stalls and waterers, levelling and filling on Lot 1 for stables, sheds, three smaller yards and a horse exercise arena, and levelling and filling on Lot 12 for another paddock. I find that for the 2016 land tax year, concluding on 31 December 2015, over 50% of the area of Lot 1 and about 50% of the area of Lot 12 were devoted to this construction activity. The land devoted to construction activity was uninhabitable by horses. I am not satisfied that any horses were maintained on Lot 1 during the 2016 tax year. I am satisfied that five horses were maintained on Lot 12 for about one month between 27 November 2015 and 31 December 2015.
On 11 September 2015, a construction certificate was issued for the demolition of pre-existing buildings under the plaintiff's development application (DA/1648/2014).
On 27 November 2015, five horses, My Precious Jewel, Champagne and Roses, Diamonds and Roses, Aber Kadabra and Surprise, were brought onto part of the land. I am not able on the evidence to make a finding about which person or entity owned any one of those horses. In his affidavit evidence Mr Young referred to purchases of horses that "we" made. Certainly, Mr Young caused one or more entities controlled by him to make payments in relation to each of the horses but beyond that the evidence does not permit a more precise finding about ownership to be made. When giving evidence Mr Young, often in the context of discussing matters relevant to the horses, described matters in the plural; what "we" did or thought or arranged. It is possible that Mrs Young may have had an interest in some or all of the horses. On the evidence I am unable to say.
Mr Parbery, whose evidence I accept, explained that there were the following levels of dressage competition: Preparatory, Preliminary, Novice, Elementary, Medium, Advanced, Prix St Georges, Intermediate I, FEI Medium Tour (Introduction to Grand Prix), Intermediate II, Grand Prix, Grand Prix Special, and Grand Prix Freestyle. Mr Parbery stated that to get a horse ready for Grand Prix, a horse would typically start dressage training at three years old, compete at four years old and may be ready for Grand Prix by the time they are nine to ten years old. Mr Parbery's evidence was that developing a successful dressage horse is a seven day per week commitment which involves riding the horse four to six days per week.
My findings about each of those horses are as follows:
1. Champagne and Roses is not and never has been a dressage horse. She was purchased by or on behalf of Mr Young or an entity associated with him prior to the time when he developed an interest in dressage. Mr Young's evidence was that he decided in 2015 that this horse was not part of his business plan. Champagne and Roses was nevertheless brought onto the land in November 2015 and remained on the property throughout the remainder of the relevant land tax years. Champagne and Roses was first offered for sale shortly after 14 August 2019, long after these proceedings were commenced. I am not satisfied that Champagne and Roses was maintained on the land during either of the land tax years for the purpose, whether purpose be ascertained subjectively or objectively, of selling her or her natural increase or bodily produce. If a positive finding were required, Champagne and Roses was most likely maintained on the land during both tax years for recreational purposes;
2. Diamonds and Roses is not and never has been a dressage horse. She was purchased by or on behalf of Mr Young or an entity associated with him prior to the time when he developed an interest in dressage. Mr Young's evidence was that he decided in 2015 that she was not part of his business plan. Diamonds and Roses was nevertheless brought onto the land in November 2015 and remained on the property throughout the remainder of the relevant tax years. Diamonds and Roses was first offered for sale shortly after 14 August 2019. I am not satisfied that Diamonds and Roses was maintained on the land during either of the land tax years for the purpose, whether purpose be ascertained subjectively or objectively, of selling her or her natural increase or bodily produce. If a positive finding were required, I find that Diamonds and Roses was most likely maintained on the land during both tax years for recreational purposes;
3. Surprise was described by Mr Young as a "companion horse" and is not and never has been a dressage horse. Surprise was purchased by or on behalf of Mr Young or an entity associated with him prior to the time when he developed an interest in dressage. I find that Surprise was not maintained on the land during either of the tax years for the purpose, whether purpose be ascertained subjectively or objectively, of selling it or its natural increase or bodily produce. I find that Surprise was maintained on the land during both tax years for recreational purposes;
4. My Precious Jewel was not a dressage horse and was purchased by or on behalf of Mr Young prior to the time when he developed an interest in dressage. She is the dam of The Last Emperor (2008) and Aber Kadabra (2013). I am not satisfied that My Precious Jewel was maintained on the land during either of the tax years for the dominant purpose, ascertained subjectively or objectively, of selling her or her natural increase or bodily produce. I am satisfied that Mr Young's subjective purpose was, in part, to maintain My Precious Jewel on the land during both of the land tax years for the purpose of selling her or her natural increase or bodily produce. I am not satisfied that this was Mr Young's dominant subjective purpose. As I have said, from 2014 Mr Young had an (albeit distant) hope that in the future he could maintain horses on the land for the purposes of breeding, training and eventually selling dressage horses reared at the property;
5. The Last Emperor is a male gelding born in 2008 and the progeny of My Precious Jewel. The Last Emperor was born prior to the time when Mr Young developed an interest in dressage in 2010. It was trained in dressage between May 2015-October 2016 (away from the subject land) and intermittently thereafter. The Last Emperor was only brought onto the land in October 2016, during the last three months of the second land tax year the subject of these proceedings. Mr Young stated that it was ridden two to three times per week. Mr Parbery said that he established the "basics" with The Last Emperor. The Last Emperor participated in one or two dressage events in 2018. Having regard to Mr Parbery's evidence, there was no realistic prospect looking forward during the land tax years that The Last Emperor would ever be a successful dressage horse. The Last Emperor was not maintained on the land during the first land tax year. I am not satisfied that The Last Emperor was maintained on the land during the second tax year for the dominant purpose, ascertained subjectively or objectively, of selling it or its natural increase or bodily produce. I am satisfied that Mr Young's subjective purpose was, in part, to maintain The Last Emperor on the land for the last three months of 2016 for the purpose of selling it. I am not satisfied that this was Mr Young's dominant subjective purpose. As I have said, from 2014 Mr Young had an (albeit distant) hope that in the future he could maintain horses on the land for the purposes of breeding, training and eventually selling dressage horses reared at the property; and
6. Aber Kadabra was the progeny of My Precious Jewel and was born in 2013. My Precious Jewel was inseminated with purchased semen from a leading overseas dressage horse, Aber Hallo. Aber Kadabra has been trained in dressage twice per week by Mr Riley Alexander since 2018, and more regularly ridden by Mrs Young in accordance with instructions from Mr Parbery and Mr Alexander. I am not satisfied that Aber Kadabra was maintained on the land during either of the tax years for the dominant purpose, ascertained subjectively or objectively, of selling it or its natural increase or bodily produce. I am satisfied that Mr Young's subjective purpose was, in part, to maintain Aber Kadabra on the land during both of the tax years for the purpose of selling it or its natural increase or bodily produce. I am not satisfied that this was Mr Young's dominant subjective purpose.
I am not satisfied that the plaintiff has proven that he or anybody else operated any business or undertaking using the land in 2015 or 2016, let alone a business or undertaking of maintaining horses on the land (including dressage horses) for the purposes of sale. I am not satisfied that, even now, a business or undertaking of maintaining horses (including dressage horses) for the purposes of sale is being conducted on the land. I am not satisfied that the steps being taken to construct facilities for horses are part of any planned "Yindarra Park dressage facility". I am not satisfied that any facility properly characterised as a "dressage facility" as distinct from a long term country residence exists now or is planned to be completed by "say 2025" as Senior Counsel for the plaintiff submitted.
For completeness, there is another horse now maintained on the land, the progeny of My Precious Jewel, born long after the tax years. On 26 June 2018, approximately 18 months after the end of the tax years in question, Mr Young purchased quantities of semen of two world leading dressage horses, Totilas and Estobar, for approximately $5,000 each. On 14 August 2019, My Precious Jewel gave birth to a foal named Esquire, having been inseminated with the semen from Estobar. This evidence is consistent with my conclusion that during the land tax years Mr Young had a subjective purpose of maintaining horses on the land for sale. I am not satisfied that this was his dominant subjective purpose.
On all of the evidence I am not satisfied that any of the horses maintained on the land in the taxation years formed any part of a business or plan, objectively ascertained, to sell dressage horses or their progeny. In relation to My Precious Jewel, Aber Kadabra and The Last Emperor (in the last three months of 2016 only), I am satisfied that Mr Young subjectively had a purpose of one day selling horses or, in the case of My Precious Jewel and Aber Kadabra, their progeny. I am not satisfied that this was Mr Young's dominant, in the sense of ruling or prevailing, subjective purpose in maintaining these horses on the land in 2015 and 2016.
At December 2015, an aerial photograph of the land showed a large fenced arena where earthworks were being carried out. As I have said, those earthworks comprised over 50% of the area of Lot 1 and about 50% of the area of Lot 12. I am not satisfied that horses were being maintained on Lot 1 at that date. There were also three large paddocks and a long shed which had been one of the existing machinery sheds and was being used as a temporary area to wash the horses and store materials. I find that there was a house on the property where Mr Geelan resided and a separate house on the property where Mr Young and his family stayed when they visited.
From January to December 2016, further works were undertaken on the land, including demolition of existing structures, earthworks and the installation of drainage systems. In May 2016, an additional paddock on part of Lot 12 was fenced and used in rotation by the horses I have described at [47].
On 29 September 2016, the Chief Commissioner issued the plaintiff with a Land Tax Assessment Notice in the amount of $32,096 for the 2016 land tax year in respect of Lots 1 and 12.
On 30 September 2016, Mr Young advised Mr Fenner that "[i]n the next two weeks we will commence construction of various structures (stables, roofed arena etc) at the Arcadia property. This initial stage will cost approx. $800k - $1m."
In October 2016, The Last Emperor, was brought to the land. Mrs Young usually rode The Last Emperor and Aber Kadabera and Mr Parbery, and later Mr Alexander, provided Mrs Young with a training regime for the horses in their absence.
On 21 October 2016, Lots 121 and 122 were registered by the Land Titles Office. The effect of this new configuration was only a change in boundaries. Lots 1 and 12 were two adjoining north facing parcels. Lots 121 and 122 were two adjoining east-west aligned parcels, with Lot 121 to the north and Lot 122 to the south.
On 25 November 2016, a construction certificate was issued under development application (DA/1649/2014) for construction to be commenced on Lot 122.
At December 2016, an aerial photograph of the land showed that the large fenced area now had a long rectangular roof over the arena. There were also footings for the stables in the area. That area could not be used by horses at that time. I find that in relation to Lot 122 an area of greater than 50% of the lot was being used for construction and was uninhabitable by horses. It may be that one of the horses was being maintained on Lot 122 at this date. In relation to Lot 121 a much smaller area was the subject of construction and it appears the remaining horses were being maintained on the lot.
Between October 2016 and March 2017, the exercise area was covered and a new stable building and water tanks were constructed on part of Lot 122. In April 2017, the horse stables and training area were still under construction.
On 21 October 2017, the Chief Commissioner issued the plaintiff a Land Tax Assessment Notice in the amount of $45,280 for the 2017 land tax year in respect of Lots 121 and 122. On 6 December 2017, the plaintiff lodged with the Chief Commissioner objections to the assessments for the 2016 and 2017 land tax years and a primary production land exemption application.
An application for "interim occupation certificates" for the horse stables and arena buildings was lodged with Council in December 2017. I find that these structures were not useable before that time.
At January 2018, an aerial photograph of the land showed that there were two large water tanks on the property. I find that the arena had sand and a network of drains by that time. The arena could be used to ride horses by about December 2017. I find that in January 2018, the yard, new house and pool, which were proposed in the development application DA/1649/2014, had not yet been built, but that Mr Young intended to complete them. The proposed stables, arena and garage are positioned adjacent to the proposed dwelling. When completed the buildings will be in a circle around the swimming pool.
On 2 January 2018, the Chief Commissioner wrote to the plaintiff, advising that the land did not qualify for the primary production land exemption. On 13 March 2018, the Chief Commissioner wrote to the plaintiff, requesting further documentation including the "business plan for the horse breeding enterprise operating and plans for its future planned operations".
On 26 March 2018, the plaintiff wrote to the Chief Commissioner, enclosing a document styled as a business plan titled "Yindarra Park Equestrian". I find that the business plan was prepared by Mr Young for the purposes of this litigation and largely contains material essentially in the nature of submission rather than evidence. Save to the extent that it contains assertions which accord with contemporaneous documents, I afford that business plan little weight in addressing the issues to be decided about each of the land tax years. My findings based on this business plan are as follows:
1. the legal entity to which this business plan applies is not identified. "Yindarra Park Equestrian" is not a legal entity. The covering letter from KPMG, Mr Young's advisors, states that the business plan relates to "the Taxpayer's primary production activities carried on the land as lots 11 and 35A Wylds Road, Arcadia";
2. the business plan describes the "mission" of "Yindarra Park Equestrian" to be a "recognised boutique commercial producer of quality performance horses in dressage and showing";
3. the business plan contains a number of future-looking assertions which, as at March 2018, had not come to fruition. I find that, objectively speaking, there is no realistic prospect that those projections would come to fruition in the 10 year time frame from March 2018;
4. the stallions which the business plan describes as "livestock" were not owned by any entity associated with Mr Young and not kept at the property;
5. the assertions made about the horses actually maintained on the property and related to dressage, My Precious Jewel, The Last Emperor and Aber Kadabra were, at best, grossly exaggerated and in the nature of submissions. No cogent explanation was offered of the relationship to the "business plan" of the remaining horses maintained on the property during the taxation years: Diamonds and Roses, Champagne and Roses, and Surprise.
At the same time Mr Young created a "Yindarra Park website". I find that the website was created for the purposes of this litigation and does not contain information providing any reliable guide to the objective purpose of maintaining horses on the land during the land tax years.
In his evidence before me Mr Young somewhat belligerently insisted that the business plan prepared for the Commissioner in 2018 represented his actual unwritten business plans in 2015 and 2016. Mr Young described a typical private equity portfolio as his business model for what he described as his dressage business. He described his model as follows:
"… I have, as you realise, a strong background in venture capital, private equity, et cetera. Those funds are closed in funds for 8 to 10 years. That means you get no yield for 8 to 10 years and you get your total return at the end. Quite often, individual investments are quite risky. That's why there is a portfolio of investments made. And investors know that going into individual investments, but by having a portfolio of individual investments, the aggregating return averaged over the portfolio is what the investor is looking for.
Hence, similar to venture capital, I view the horses to be the same. We may get no return and a loss of capital for a couple of horses, we may get our money back on a couple of horses, we may get a reasonable sale on a couple of horses and we may get one which is a rock star or two, but for me as an investor, it is the average return I'm getting from my portfolio that I am interested in. It is just the same as a portfolio of speculative mining stocks, a portfolio of start-up tech companies. A lot of them die, but there is a potentially a rock star and there are usually some that will average out the return for the portfolio."
The clearest explanation of Mr Young's subjective purposes in relation to using the land during the land tax years emerged in re-examination:
"…. So, out of my seven million dollars, I'm actually six odd million dollars is invested in quite conservative investment, being land and improvements, which on the OSR's own numbers, is up 60% already. So, my capital at risk is less than a million dollars on this operation and I expect I will make a better - a decent return on that million dollars because if I stuck it in the bank, I'm getting less than 1%. I'm not putting it in the equity market, which I could lose 50%. It's - I believe it's an appropriate allocation of my capital with an expected return which is appropriate for someone of my net wealth."
In relation Mr Young's subjective expectations of dressage horses being sold at any time in the future, he said:
"… I expect to yield some sort of returns in the next eight to 10 years, just like a venture capital fund and then we should be able to get annual returns after that point in time."
I find that Mr Young's subjective purposes in the years 2014-2016 inclusive were to acquire land and make improvements on that land for the dominant purpose of creating a long term country residence for his family. His dominant subjective financial purpose in using the land during that period was, as he said in re-examination, to make a "conservative investment, being land and improvements" in this long term country residence which he hoped would appreciate in value. He asserted that it had already appreciated 60% in value. I find that a subsidiary subjective purpose of Mr Young's in using the land in 2014-2016 was to breed, train and eventually sell dressage horses reared at the property. I do not accept that the approximately $1 million Mr Young asserts was spent on building facilities for horses at the property demonstrates, even subjectively, a dominant purpose of using the land for this subsidiary purpose of breeding, training and eventually selling dressage horses. The dominant subjective purpose of the construction activity on the land during the land tax years was to build facilities for horses as part of a long term country residence for the Young family.
Objectively, I reach the conclusion that the land was principally used during the land tax years for construction of facilities forming part of a long term country residence for the Young family. That country residence would include "world class" facilities for horses maintained on the property. The construction was a use of the land for that purpose during the land tax years. The photographs and drone footage in evidence underline my conclusion that the long term country residence and its associated facilities will be of a high quality. The facilities being constructed for the horses were correctly described in contemporaneous documents as being for "private equestrian training" only. That is, the dominant purpose of the building activity during the tax years, being the principal relevant use of the land, was to create the first part of a luxurious country residence for Mr Young's family. That country residence was to have dressage training, horse riding and separate grazing facilities which were being constructed during the land tax years as part of the country property.
The plaintiff's fall-back submission was that Mr Young could not himself ride dressage horses yet was spending a great deal of money on facilities for the horses. The land was being used to train horses and in these circumstances, on an objective predication test, the relevant purpose would be of sale "because [the horses] are increasing in value by their nature".
It was submitted that the question for the Court is whether the purpose of sale is the genuine main purpose, rather than a side benefit of another purpose. In CDPV, the main purpose of the cultivation was to keep down weeds on the land, with the purpose of sale being a side benefit. And in considering whether the purpose of sale exists, the expected period of time before the horses are ready for sale, which, as here, may be many years, must be taken into account.
The plaintiff submitted that in Thomason itself the Court held that the additional "purpose of profit" test was subjective. In Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23; (2013) 88 ATR 379, Gzell J held that the additional "purpose of profit" test in s 10AA(2)(b) was subjective at [101]. That is, where the land use is of non-rural land, not only must the maintenance of horses be for the purpose of selling them, it must also be for the subjective purpose of profit.
The plaintiff submitted that the Court should be satisfied on the evidence that the maintenance of the horses was for the purpose of selling them or their natural offspring. There need be no actual sales in the land tax years. The plaintiff submitted that the Chief Commissioner did not accuse Mr Young of lying about his firmly stated purpose, or about his unfortunate back injury that ended his polo pony riding. The Commissioner did not put to Mr Young that these horses were maintained for his recreation.
In the Minister's speech in reply on the second reading of the Bill (New South Wales Legislative Council, Parliamentary Debates (Hansard), 29 November 2005 at 20063-20064), the Hon Michael Costa, Minister for Finance, Minister for Infrastructure and Minister for the Hunter said:
"Land tax for rural lands for genuine farm purposes is important. We are closing the loophole that has emerged. A developer buys a parcel of rural land from a genuine farmer and organises rezoning to allow subdivision for residential, commercial or industrial use. Under the current legislation all he or she has to do to retain the land tax exemption that applied previously to the land is to ensure that it is fenced, run some farm animals, periodically sell some of them and buy some replacements. The land is then subdivided in stages. Fences are moved back so that the remaining area of subdivided land can continue to be used for primary production. This process continues until all of the land is subdivided and sold.
The only parcels of land on which land tax is ever paid by the subdivider are the subdivided blocks created during the year that have not been sold on 31 December. The amendments will require that the dominant use of the land is primary production. This will allow the portion of the revenue generated from the land from sale of subdivided lots compared to the revenue generated from the sale of animals to be taken into account. The primary production use of the land will have to have significant and substantial commercial purposes, which must be engaged in for the purpose of a profit or on a continuous and repetitive basis. Running a few head of cattle or sheep to attract a land tax exemption rather than to make profits will no longer suffice."
The Land Tax Management Act provides, relevantly: [2]
7 Land tax on taxable value of land
Land tax at such rates as may be fixed by any Act 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 this Act).
8 Date of ownership for purposes of land tax
Land tax shall be charged on land as owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied.
In this section year means the period of twelve months commencing on the first day of January.
…
9 Taxable value
(1) Land tax is payable by the owner of land on the taxable value of all the land owned by that owner which is not exempt from taxation under this Act.
(2) The taxable value of that land is the total sum of the average value of each parcel of that land.
(3) The average value of a parcel of land is to be calculated, as provided for by section 9AA, on the basis of the land value of the land.
(4) The land value of land, in relation to a land tax year, is the value entered in the Register as the land value of the land as at 1 July in the previous year.
(5) The fact that there is no land value entered in the Register on 31 December in a year as the land value of the land as at 1 July in that year does not prevent land tax being levied and charged and becoming payable for any following tax year once that land value is entered in the Register and the average value is ascertained.
…
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 section 33A (1) of the Environmental Planning and Assessment Act 1979, or
(c) the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land.
As it is relevant to an extent, the Hornsby Local Environmental Plan 2013 (NSW) provides, relevantly: [3]
Dictionary
animal boarding or training establishment means a building or place used for the breeding, boarding, training, keeping or caring of animals for commercial purposes (other than for the agistment of horses), and includes any associated riding school or ancillary veterinary hospital.
At [65]-[67] in the same case Gageler and Keane JJ said:
"[65] Statutory construction involves attribution of legal meaning to statutory text, read in context. 'Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning ... But not always'. Context sometimes favours an ungrammatical legal meaning. Ungrammatical legal meaning sometimes involves reading statutory text as containing implicit words. Implicit words are sometimes words of limitation. They are sometimes words of extension. But they are always words of explanation. The constructional task remains throughout to expound the meaning of the statutory text, not to divine unexpressed legislative intention or to remedy perceived legislative inattention. Construction is not speculation, and it is not repair.
[66] Context more often reveals statutory text to be capable of a range of potential meanings, some of which may be less immediately obvious or more awkward than others, but none of which is wholly ungrammatical or unnatural. The choice between alternative meanings then turns less on linguistic fit than on evaluation of the relative coherence of the alternatives with identified statutory objects or policies.
[67] The construction of s 12(2) adopted by the majority in the Court of Appeal coheres with the statutory object of subjecting an award of damages of the kind identified in par (c) of s 12(1) to the rule set out in s 12(2). But it is a very strained construction." (Footnotes omitted.)
In SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 Kiefel CJ, Nettle and Gordon JJ said at [14]:
"[14] The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute whilst, at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, that meaning must be rejected." (Footnotes omitted.)
It is obviously correct that the question of the meaning of any word, including "use", depends to a great extent on the context in which it is employed. I do not doubt that, depending on context, an owner can "use" land by keeping land in its unimproved state where retaining it in that state is relevant to a particular purpose. That is an explanation for the conclusion in Royal Newcastle Hospital where the unimproved land was "used" by keeping it in its natural state for the purpose of enhancing the amenity of the mental health facility it adjoined. Contrary to the plaintiff's submissions here, that conclusion provides little or no support for the propositions he advances.
The statutory language should not be broken up and construed separately from its obvious context. I reject the plaintiff's submission that there is a separate test to determine the "dominant use of land" and a test to determine the "purpose of selling".
The plaintiff's submission that subjective evidence is more significant in determining the "purpose of selling" was based in large measure upon decisions dealing with cases arising under statutory schemes other than the one here engaged. Save to the extent that those decisions have been referred to in cases under the Land Tax Management Act by the Court of Appeal in a way which binds me, I do not think it a productive exercise to examine those decisions in any detail. On the question of determining "purpose", the submissions of the plaintiff tended to focus on decisions of high authority concerning completely different statutory schemes, such as McCormack and Investment and Merchant Finance Corporation Ltd v The Commissioner of Taxation of the Commonwealth of Australia (1971) 125 CLR 249; [1971] HCA 35. In the present case I found those references to be of little assistance. The circumstances and statutory test engaged in those cases bear no resemblance to the present. To seek to apply those cases here would be, to paraphrase the High Court in another context, to be guided by the muffled echoes of past controversies.
There is some limited assistance to be gained from looking at cases dealing with statutory schemes much closer to the present. In Bayside Council the subject matter was s 516 of the Local Government Act 1993 (NSW) which provided, inter alia, that land is to be categorised as residential if "its dominant use is for residential accommodation". Emmett AJA (with whom McColl JA agreed) held at [109]:
"It is possible to discern three different stages in relation to a parcel of land's possible use for residential accommodation, namely, acquisition and holding of the land, followed by the construction phase, and then actual occupation. At the first stage, land may be acquired and then held by the owner with the intention that, in the future, it will be developed so as to be used for the purposes of residential accommodation. At that stage, the owner might, for example, carry out surveys and testing. However, the land's use at that stage could not be said to be for residential accommodation. Relevantly, a distinction can be drawn between the purpose for which land is acquired, on the one hand, and the purpose for which it is currently being used, on the other. The purpose of acquisition may or may not correspond with the current use. For example, land specifically acquired for the sowing of crops may be put either to that use or to some other use, such as cattle grazing. The inquiry must be as to the current tangible and physical deployment of the land and not to the purpose for which it was acquired." (Footnotes omitted.)
The plaintiff's reliance upon the decision of the Victorian Court of Appeal in CDPV does not advance his case. I do not accept that the Victorian Court of Appeal in CDPV decided anything about the use of subjective evidence which was inconsistent with cases binding on me, much less that the approach of the Victorian Court was consistent with the income tax cases that consider the issue of the purpose of sale such as McCormack. The approach of the Victorian Court of Appeal was orthodox and, particularly at [55]-[60] consistent with the NSW Court of Appeal in Metricon, as I will shortly explain. However, even if it were not, I am bound by Metricon.
The critical cases in determining the correct construction of s 10AA(3)(b) are decisions of the New South Wales Court of Appeal.
The first, Leda Manorstead, concerned a landowner's claim for exemption from land tax pursuant to s 10AA of the Land Tax Management Act. The question, as here, was whether the dominant use of land was "for" the maintenance of animals for the purpose of selling them or their natural increase or bodily produce (s 10AA(3)(b)). The plaintiff was the owner of some 593 hectares of land on which, at the relevant date for the imposition of land tax, somewhere between 268-279 cattle were grazing. The landowner intended that the land would be developed as a residential subdivision and substantial earthworks had been carried out to that end. The landowner contended that the cattle operation was the only relevant use of the land and that the earthworks did not constitute a "use" "for" property development. At first instance (Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue (2010) 79 NSWLR 724; [2010] NSWSC 867) Gzell J reviewed many of the authorities and concluded (at [54]):
"In the instant circumstances, [the relevant land] was acquired for residential development and construction of that residential development has commenced with large sums of money dedicated to earthworks. They are not complete, but that does not alter the principle enunciated in Educang [Ltd v Brisbane City Council [2002] QSC 374] that in appropriate circumstances land in the development phase may be used for the end purpose that is to follow completion of construction. On that basis it is open to determination whether [the relevant land] was as at 31 December 2005 being 'used for' residential development."
His Honour concluded that the earthworks activities that were "for" residential development constituted the dominant use of the land. The conclusion was upheld on appeal (Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366; (2011) 85 ATR 775). Allsop P (with whom Campbell and Whealy JJA agreed) held (at [25]) that:
"The primary judge's overall evaluation of the use for which Leda was putting the land, as commercial land development or residential development was, in my view, correct."
Allsop P said:
"[29] The various cases to which his Honour made reference and which were referred to in argument do not advance the resolution of the appeal. None was directed to a statutory provision in the same terms as s 10AA. Each was directed to a particular form of words in which a particular use was identified and the question arose whether antecedent or collateral activity could be seen to be part of that use because of its proximity or connection or whether it was to be seen as antecedent and separate from the later particular use. A brief examination of these cases will reveal that this was their context and that they are of no particular utility in resolving this appeal.
...
[38] It is true that the primary judge said that he preferred the approach in Meriton, Educang and New Westminster to the approach taken in Sandhurst Holdings.
[39] It is unnecessary to come to a view whether his Honour was correct in the expression of that view, just as it is unnecessary to analyse each of these cases in order to consider whether they were correctly decided on their relevant provisions.
[40] It can be accepted that for the resolution of this appeal used 'for' is to be seen as a present use. Leda was using the land for two purposes: cattle grazing and commercial land development. The question was whether the former was the dominant use so as to attract or satisfy s 10AA(3)."
I understand Allsop P to have held that cases dealing with a statutory provision other than s 10AA will be of limited, if any, assistance in determining critical questions arising under s 10AA(3). In particular, his Honour in the quoted passages cogently explains that even cases of high authority dealing with other statutory schemes do not assist in resolving the question of the extent to which antecedent or collateral activity should be understood to be a relevant "use" of land.
Leda Manorstead establishes that commercial land development can be a relevant dominant "use" of land within the meaning of s 10AA(3) notwithstanding that construction of a development has commenced on the site but is not complete.
The second critical case for the purposes of determining the correct construction of s 10AA(3) is the decision of the Court of Appeal in Metricon and the case from which the appeal was heard: Metricon Qld Pty Ltd v Chief Commissioner of State Revenue (No 2) [2016] NSWSC 332; (2016) 102 ATR 781.
Metricon was a land developer. It acquired land for the purpose of future residential development. It was common ground that the land was, at all material times, used for the maintenance of cattle for the purpose of selling them or their natural increase or bodily produce. The Chief Commissioner disputed characterisation of that use as the "dominant use" of the land on the footing that it was outweighed by a competing use compendiously described as "land banking" or "land development".
It was submitted that that form of "use" was manifested by steps taken by Metricon pursuant to a plan of development and realisation by subdivision and subsequent sale in the course of its business as a property developer. Relevantly, the Chief Commissioner contended that a competing use was that the lands formed part of the stock in trade constituting the "land bank" of Metricon and were held for the purpose, when the time was appropriate, of being developed, subdivided and resold for profit in the course of the commercial land development business of Metricon. The Chief Commissioner further contended that for the relevant land tax years the lands were used for commercial land development where Metricon incurred ongoing expenses in connection with the development of the land which exceeded the financial outlay and financial return from primary production (Metricon Qld Pty Ltd v Chief Commissioner of State Revenue (No 2) at [20]).
At first instance, White J concluded that the comparison required by s 10AA(3) of a primary production use with other uses was not confined to a comparison with other physical uses. On appeal, Barrett AJA (with whom Macfarlan and Ward JJA agreed) disagreed. The Court of Appeal held that for the purposes of s 10AA(1) of the Land Tax Management Act only a competing physical use of the land is to be taken into account in determining whether or not the primary production use was dominant. On appeal Barrett AJA said about the identification of "use":
"[46] Examination of 'activities undertaken upon the land in question' is thus central to identification of 'use', according to the commonly understood meaning of the expression; and, as Allsop P pointed out in the Leda Manorstead case, the inquiry is not limited to activities producing beneficial or commercial return. Furthermore, past activity may be indicative of present use even if the activity is for the time being not continuing. This is because the absence of activity on the land at a given time may be part of a scheme of calculated and continuing utilisation that stems from past activity and remains in course of implementation without discernible activity at the time in question. [Rainn Pty Ltd v Commissioner of State Revenue [2016] VSCA 338 at [34]-[36] citing Saville v Commissioner of Land Tax [1980] 12 ATR 7.]"
If the "dominant use", being the present physical use, of relevant land is "for" one of the activities enumerated in paras (a) to (f) of s 10AA(3), the land will answer the description of land "used for primary production" and thereby satisfy that aspect of the conditions for statutory exemption under s 10AA as a whole: Metricon at [48].
Where the whole of the relevant land is used, the inquiry required by s 10AA(3) is whether that land is used "for" any of the activities or purposes listed in paras (a) to (f) and, if so, whether it is also used "for" an activity or purpose not within those paragraphs. Where the evidence discloses that the land is used both "for" a purpose within paras (a) to (f) and "for" a purpose not within those paragraphs, it is necessary to weigh the respective uses against one another in order to ascertain which is the "dominant use".
As I have said, in expressing that view, I do not intend to suggest that "use" in the s 10AA sense does not sometimes include inactivity. As explained in Rainn Pty Ltd v Commissioner of State Revenue [2016] VSCA 338 at [35], land which is, for the time being, left fallow as part of a crop rotation cycle is "used" for agriculture despite the current absence of active agricultural activity on it.
Critically, for present purposes, Barrett AJA concluded about purpose:
"[59] Purpose is a concept necessarily at work in s 10AA(3). Each of the six activities in paras (a) to (f) has a purpose or objective of commercial gain. There is a distinction, however, between the purpose for which land is acquired, on the one hand, and the purpose for which it is currently being devoted to use, on the other. This point is particularly important when considering any competing use under s 10AA(3). The purpose of acquisition may or may not correspond with the purpose of current use. Land acquired specifically for the sowing of crops may be put to either that use or some other use, such as cattle grazing or residential subdivision development. The inquiry directed by s 10AA(3) is as to current tangible and physical deployment and its purpose, not the purpose of acquisition.
[60] Little is likely to turn on subjective purpose or intention. The question is not what an owner, lessee or other person able to do so decides is to happen in relation to the land. The task is, rather, to determine whether, as an objective matter, the things that that person causes to happen - no doubt in pursuance of the person's purpose or intention - constitute 'use' and, if so, whether (and to what extent) that 'use' is a use described in paras (a) to (f) of s 10AA(3). Relevant purposes and intentions are principally those already executed, although the complexion of things already done may be coloured by whatever the relevant purpose or intention envisages for the future."
It follows that I am bound to conclude, as in any event I would have concluded, that each of the six activities in paras (a) to (f) has a purpose or objective of commercial gain. It also follows that that I am bound to conclude in addressing the statutory question posed by s 10AA(3)(b), that little is likely to turn on subjective purpose or intention.
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.
As I have said, I am not satisfied that any of the relevant physical activities on the land during the tax years were steps taken to establish what the plaintiff described as the "Yindarra Park dressage facility". The plaintiff's suggested characterisation was contrary to the conclusions that I have drawn from the evidence, particularly at [47] and [64]-[70] above. Accepting for present purposes that construction takes its character from the intended outcome of that construction, the intended outcome of that construction was the creation of facilities for horses as part of a luxury country residence to be built for the Young family. This conclusion provides a sufficient basis to reject the plaintiff's claim.
My principal reason for rejecting the plaintiff's case (for all of the parcels of land in both land tax years), however, is that I am not satisfied that it was established that the dominant use of the land during each of the tax years was for the maintenance of horses for the purpose of selling them or their natural increase or bodily produce.
Depending on the surrounding circumstances, the maintenance of horses on land leads to at least two possible conclusions. Horses, like other animals, may be maintained on land for the purpose of sale (including sale of their progeny). Unlike many other animals, horses may also be maintained on land for purely recreational purposes. There is no necessary conclusion that horses are maintained on land for the purposes of sale. That must be established by proof. I am not satisfied that the necessary conclusion was established here.
The question is not what Mr Young now asserts to be the "purpose" of maintenance of animals on the land during the tax years. The task is, rather, to determine whether, as an objective matter, the dominant use of land during the tax years was that described in s 10AA(3)(b).
As I have found, I am not satisfied that horses were being maintained on the land during the land tax years for the purpose of sale. No sales of horses, purchases of horses, breeding of horses or births of horses occurred on the land during the tax years. The only limited training on the property occurred in the last three months of the two year tax period, when The Last Emperor was brought onto the property. The objective evidence tends strongly in favour of the conclusion that the horses were being maintained on the land during those years for recreational or lifestyle reasons. In any event, I am not satisfied that horses were being maintained on the land during the land tax years for the purpose of sale.
At least five of the six horses were acquired before Mr Young became interested in the dressage industry and all were acquired during the period when he owned the Richmond polo property upon which horses were maintained for a recreational purpose. On any view, three of the five horses maintained on the land for the majority of the tax years, Champagne and Roses, Diamonds and Roses and Surprise formed no part of any asserted "Yindarra Park dressage facility" and were not maintained for sale. Mr Young's suggestion in cross-examination that he could have used Champagne and Roses and Diamonds and Roses as surrogate mares was not in either of his affidavits and I reject it as inherently implausible. Only one horse, The Last Emperor, was trained in dressage during the tax years. The Last Emperor was not maintained on the land until the last three months of the tax years. My Precious Jewel was not used for breeding during the tax years and was not so used between 2013 and when she gave birth to Esquire, on 14 August 2019. Aber Kadebra was not trained in dressage during the relevant tax years.
Objectively viewed, the land was stocked with horses which were unsuitable and untested for any business of breeding and selling dressage horses. From the perspective of the relevant land tax years, Mr Young's stated aspiration of one day breeding and selling elite dressage horses from the land is objectively unlikely. It is not a conclusion I would draw.
Objectively, the stables being constructed were for "private equestrian training" only, as the relevant development consent authority had been assured. Mr Young's "Business Plan" and the "Yindarra Park website" were only created in about March 2018 in response to the Chief Commissioner's request as part of the present tax dispute. Those documents do not provide a reliable guide to the purpose of maintenance of horses on the land.
Further objective indications that the dominant purpose of the use of the land during the tax years was not for the purpose of selling horses or their progeny were:
1. the plaintiff did not on the evidence before me prepare any financial reports relating to horse activities on the land;
2. the plaintiff did not put into evidence any financial information or tax returns in respect of the horse activities on the land;
3. the plaintiff did not put into evidence any registration for GST in respect of his horse activities on the land.
If the purpose of maintaining horses on the land for sale was the sale of those horses or their progeny there would be evidence about the ownership of the horses, the costs of maintaining the horses, and other financial information and plans about the asserted "Yindarra Park dressage facility". The plaintiff (or whoever owned the horses) would have kept and relied upon financial plans and information about horse activities on the land. No such evidence was tendered.
Finally, as I have explained at [47]-[50] above, I am not satisfied that Mr Young's dominant purpose (subjectively ascertained) in maintaining horses on the land was "selling them or their natural increase or bodily produce". In any event, as Barrett AJA held in Metricon, "little is likely to turn on subjective purpose or intention".
If it is not already clear, I also reject the plaintiff's alternative submission that I should conclude that the objective purpose of maintaining the horses on the land was for the purpose of selling them or their natural increase or bodily produce "because [the horses] are increasing in value by their nature". There was no evidence to support this proposition (about dressage horses in general or these horses in particular) and I reject it.
Accordingly, I conclude that the plaintiff has not proven that the land was "land used for primary production" during the tax years. The land was not exempt from land tax under s10AA(1) of the Act.