Administrative Decisions Tribunal New South Wales

• Medium Neutral Citation: Hoxede Pty Ltd as trustee of the Starr Family Trust v Chief Commissioner of State Revenue [2011] NSWADT 251
• Hearing dates: 22 September 2010, 7 December 2010 and 4 May 2011
• Decision date: 04 November 2011
• Jurisdiction: Revenue Division
• Before: J Block, Judicial member

Decision

The decision under review is affirmed

• Catchwords: Primary production exemption - rural land - dominant use test - significant and substantial purpose test- zoning
• Legislation Cited: Land Tax Management Act 1956
• Cases Cited: Cornish Group Pty Limited & Anor v Chief Commissioner of State Revenue [2009] NSWADT 191; Leda Manorstead v Chief Commissioner [2010] NSWSC 867.; Ball v Chief Commissioner of State Revenue [2010] NSWADT 114; Romano v Chief Commissioner of State Revenue [2011] NSWADT 73; A R Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286,; St Pier v Chief Commissioner of State Revenue [2002] NSWADT 112; Ryde Municipal Council v Macquarie University (1978) 139 CLR 633; Tourapark Pty Ltd v FCT (1982) 149 CLR 176; Newcastle City Council v Royal Newcastle Hospital (1958) 100 CLR 1,; Southern Estates Pty Limited v Federal Commissioner of Taxation (1967) 117 CLR 481
• Category: Principal judgment
• Parties: Hoxede Pty Ltd (Applicant); Chief Commissioner of State Revenue (Respondent)
• Representation: Counsel; H. El Hage (Respondent); A.J. Apps & Associates (Applicant); Crown Solicitor (Respondent)
• File Number(s): 106012

REasons for decision

Part A Preliminary and background

1 The decision under review in this matter is the disallowance of objections dated 2 October 2009 by the Applicant (who is sometimes in these reasons referred to as "Hoxede") against land tax assessments issued by the Respondent (who is sometimes in these reasons referred to as the Chief Commissioner") referable to the property, which comprises two lots, situated at 142 Springs Road, Spring Farm ("the Property") in respect of the 2007, 2008, and 2009 land tax years, and which are collectively referred to as the "relevant years"..

2 The Tribunal had before it the documents lodged pursuant to section 58 of the Administrative Decisions Tribunal Act 1997; it admitted into evidence a number of exhibits which are listed in clause 3 below. The matter was first heard on 22 September 2010 ('first hearing day") and when evidence was given by Mr Rodney Grice (Mr. Grice") and who is a director of the Applicant. His evidence was in the afternoon of the first hearing day nearing completion when the matter was adjourned to enable the Applicant to furnish additional evidence and including expert evidence. A further brief hearing took place on 7 December 2010 ("second hearing day"); Mr. Apps sought leave to recall Mr. Grice having regard to a considerable quantity of additional evidence furnished after the first hearing day. The Respondent sought leave to furnish evidence in response; accordingly the matter was then postponed by consent until 4 May 2011 ("third hearing day"); on the third hearing day Mr Grice was recalled and gave further evidence in chief; in addition oral evidence was given by Mr Graham Baldwin who is the Applicant's accountant and by Mr. Mark Bryant who was called as an expert by the Respondent.

3 The exhibits which were admitted are listed as follows:

Exhibit A1; witness statement by Mr. Grice dated 25 June 2010'

Exhibit A2; financial statements in respect of the Applicant for the year ending 30 June 2010;

Exhibit A3; Further witness statement by Mr. Grice dated 29 October 2010;

Exhibit A4 and Exhibit A5; witness statements by Mr. Baldwin dated 28 October 2010 and 23 November 2010;

Exhibit R1; Affidavit by Ms.Amelia Findlay;

Exhibits R2 R3 and R4; witness statements by Ms. Leanne Boyle;

Exhibit R5; report by Mr. M. Bryant

4 At the end of the third hearing day and on which date evidence was given by Messrs Grice and Baldwin on behalf of the Applicant and Mr Bryant on behalf of the Respondent (and it may be noted that Ms Findlay and Ms Boyle were not required for cross-examination) a time-table was arranged in respect of final submissions. In accordance with that time-table the Applicant was obliged to file final written submissions by 21 June 2011; the Respondent was then obliged to file final written submissions by 19 August 2011 and the Applicant was given a right of reply to be exercised by not later than 10 September 2011. It was also arranged that there would be a final hearing day on 10 October 2011. The terms "AS" and "RS: refer respectively to the Applicant's final written submissions (entitled "Applicant's Supplementary Submissions") dated 22 June 2011 and the Respondents final written submissions (entitled "Respondent's Post Hearing Submissions") dated 22 June 2011; the term "AS2 refers to the submissions by the Applicant entitled "Applicant's Reply to Respondent's Post Hearing Submissions") dated 8 September 2011. The Tribunal has drawn on the submissions for the purpose of these reasons.

5 The parties in their written submissions have largely disregarded the brief hearing which took place on the second hearing day. The transcript in respect of each of the first hearing day is referred to by reference to 1TS while the transcript for the third hearing day is referred to by reference to 2TS. (It may be noted that in respect of each hearing day the transcript commences with number 1 and so that the transcript is not numbered, as regards the hearing days, sequentially.

6 On the first hearing day the Tribunal (and also the Applicant) had received written submissions by the Respondent and being submissions dated 16 September 2010 ("First Submissions). Mr Apps in answer to a question by the Tribunal advised the Tribunal that the Applicant objected to the words "if not solely" in clause 2.1 of the First Submissions but otherwise accepted the factual background contained in clauses 1.1 to 2.29 of the First Submissions.

7 Following the delivery of AS the Respondent delivered RS; clause 2 of RS under the head of "Background" reads (omitting footnotes) as follows:

Background

2.1 The Applicant does not dispute the factual background, as set out in [1.1]-[2.29] of the First Submissions, save for the words "if not solely" in [2.1]. The background in those paragraphs is reproduced below, with minor adjustments made to account for the additional evidence served (and evidence given orally) after the First Submissions were prepared.

2.2 Hoxede Pty Ltd ATF Starr Family Trust ("the Applicant" or "Hoxede") seeks a review of a decision of the Chief Commissioner of 5 August 2009 to issue an (amended) assessment requiring the payment of land tax under the Land Tax Management Act 1956 (NSW) (" LT Management Act "), in the amount of $266,966.65 ("the Assessment") for the 2007-2009 tax years, in respect of the property at 142 Springs Road, Spring Farm ("the Property").

2.3 The Property comprises two lots, Lot 23 in DP 1126247 (approximately 10.93 ha) and Lot 1 in DP 368665 (approximately 5.7 ha). The Property is 16.63 ha in total.

2.4 The Applicant claims that it is entitled to the primary production exemption under s. 10AA of the LT Management Act ("primary production exemption") for the 2007-2009 tax years.

2.5 Hoxede was incorporated in 1977. Rodney Grice and his mother, Daphne Grice, have been the directors of the company since 1992. Mr Grice is the person who has been primarily responsible for the activities undertaken by Hoxede on the Property (at least since 2006).

2.6 Hoxede became trustee of the Starr Family Trust in 1978 and has owned Lot 23 since December 1978 and Lot 1 since May 1979. Previously, Lot 1 and Lot 23 had been held, directly and indirectly, by various members of the Starr family since 1948 and 1931 respectively.

2.7 During the land tax years 1995-2006, Hoxede was assessed as being liable to pay land tax with respect to the Property.

2.8 In February 2007, Hoxede sought, and was granted, the primary production exemption for the 2007 land tax year. However, the decision was reversed when the Assessment was issued on 5 August 2009.

2.9 On 2 October 2009, Hoxede lodged 3 objections to the Assessment (one for each of the 2007, 2008 and 2009 land tax years). In each of the objections, Hoxede argued that it was entitled to the primary production exemption on the basis that it maintained cattle for the purpose of selling them or their bodily produce.

2.10 On 2 February 2010, the Chief Commissioner disallowed Hoxede's objection. The Chief Commissioner was not satisfied that (i) the dominant use of the land was that of primary production and (ii) Hoxede's activities on the Property exhibited a significant and commercial purpose or character.

2.11 Subsequently, on 4 March 2010, Hoxede filed its application for review with the Tribunal.

The Property

2.12 In his first statement, Mr Grice provides a description of the characteristics of the Property and its zoning. The following is a summary of his description, with additional references to other material where appropriate.

2.13 The Property is "landlocked" and road access is via a right of carriageway through two adjoining lots owned by A V Jennings Properties Ltd ("AV Jennings").

2.14 Integral Energy also owns land which adjoins the Property, on which an electricity substation is located. Two parallel, but separate, easements for electricity transmission lines, approximately 30.48m wide, run through Lot 23. An easement for a transmission line also runs through Lot 1.

2.15 There is a cottage on Lot 23, which has been occupied by Ms Shirley Starr (wife of Mr Grice's late uncle) since 1956 (ie, she resided in the cottage during the 2007-2009 land tax years). The cottage is located within a fenced area, which is approximately 0.4ha in size. Ms Starr does not pay any money to Hoxede for her occupation. However, she pays for the services connected to the cottage.

2.16 Contrary to what Mr Grice says in his statement, following the gazettal of Camden Local Environmental Plan No. 121 (NSW) (" LEP 121 ") in May 2004, the whole of Lot 1 and the southern part of Lot 23 were zoned "7(a) - Environmentally Sensitive Land" and the northern part of Lot 23 was zoned "Residential - 2(d)".

2.17 With effect from 20 February 2009, LEP 121 was amended by Camden Local Environmental Plan No. 152 (NSW) (" LEP 152 "). The amendments made by LEP 152 to LEP 121 were limited and not material for current purposes.

2.18 The Property is within the Springs Farm area that has been earmarked for release for urban development. Aside from A V Jennings, Cornish Group and Mirvac also own surrounding land within the Springs Farm area. The Master Plan, which is part of Camden Council's Development Control Plan 2006 , provides for the residential development of 5 "villages" within the Springs Farm area over 8 Stages. The Property is scheduled to be developed as part of Stage 6.

2.19 Mr Grice also provides a description of the use of the Property since the late 1940s. In summary, a number of activities have been carried on the Property during various periods since that time. For example, after they were acquired, Lot 23 and Lot 1 were planted with fruit trees and vines and an orchard was established. A few head of cattle were also raised on both lots. The fruit trees were removed in the 1970s. However, a small herd of cattle still grazed on the Property during 1970s and into the early 1980s.

2.20 Napean Quarries Pty Ltd ("Napean Quarries") carried out sand mining on parts of the Property between 1985 and 1999. Adjoining properties have also been mined for sand.

The cattle activities

2.21 The first statement from Mr Grice also contains information concerning the cattle activities on the Property. The following is a summary of that information, with references to additional material where appropriate.

2.22 Mr Grice states that a decision was made in the first half of 2004 to use the Property to breed and graze cattle for the purpose of selling them.

2.23 Hoxede first purchased 18 head of cattle between 1 and 14 December 2006. During that month, 1,200m of rural fencing was erected in the Property. At the time, Hoxede had also purchased irrigation equipment and a diesel pump for the Property. In 2007, a storage shed and stables were erected on the Property

2.24 The shed was put up by Mr Grice and his brother. The cost of the shed was paid for by Mr Grice's brother. For that reason, that cost is not recorded in Hoxede's financial statements.

2.25 In the period December 2007-March 2008, the paddocks were spelled of livestock, strip ploughed and seeded with Kikuyu grass.

2.26 Further work was carried out on the Property during 2009 and 2010, although a decision was made in July 2009 to limit expenditure on the land. The work included the erection of additional fencing on the Property during November-December 2009. That involved the use of electric tape fencing on some parts. Most of that additional fencing was placed along the boundaries of the Property. The remainder was erected in place of existing fencing. There are now a number of paddocks on the Property.

2.27 A water pipe was also installed and various parts of the Property were cleared from trees and undergrowth.

2.28 In addition to the 18 head of cattle purchased in December 2006, Hoxede purchased 35 head of cattle during March, June and October 2009.

2.29 3 cattle were sold in June 2008. 15 more cattle were subsequently sold in November of that year. In 2009, Hoxede sold 23 cattle. As at June 2010, there were 11 cattle on the Property.

2.30 In late 2009, Hoxede decided to acquire goats for the purposes of breeding and selling them. The company acquired 51 goats in December 2009.

Financial statements

2.31 Since 2006, Hoxede's "sole business" (at least in its capacity as trustee of the Starr Family Trust) has been the cattle activities and (from December 2009) goat activities, on the Property.

2.32 The relevant financial information concerning Hoxede's cattle activities on the Property are recorded in the Starr Family Trust financial statements and Trust Tax Returns lodged with the Australian Taxation Office for the financial years ending 30 June 2007, 2008 and 2009.

2.33 Relevantly, for each of those financial years, the following was recorded in the applicable Balance Sheet, Profit and Loss and statement and Trust Tax Return:

A 2007 : (i) liabilities of $166,467 as "Loans - beneficiaries", (ii) interest income of $1,511, (iii) expenses of $6,538 (iv) operating loss of $5,780 and (v) accumulated losses of $20,123 ;

B 2008 :(i) liabilities of $180,241 as "Loans - beneficiaries", (ii) interest income of $1,576, (iii) expenses of $13,314 (iv) operating loss of $10,710 and (v) accumulated losses of $30,833 ;

C 2009 :(i) liabilities of $204,369 as "Loans - beneficiaries", (ii) interest income of $1,299, (iii) expenses of $21,306 (iv) operating loss of $12,740 and (v) accumulated losses of $43,573 .

8 In AS 2 the Applicant, in respect of clause 2.2 of RS contended (without resiling from its contention that the Property "is exempt from Land Tax") that the valuations pursuant to which land tax had been calculated required revision. (The Tribunal notes that valuation questions as to the Property are not within the ambit of this decision). The Applicant also contended in respect of clause 2.16 of RS that there was no suggestion that the Applicant did not agree with the zonings therein described. As to clause 2.3 of RS the Applicant contended that although the losses therein referred to had in fact been incurred there was no suggestion of insolvency in respect of the Starr Family Trust of which the Applicant is the trustee. (The Tribunal does not read RS as including any such contention). AS2 does not otherwise dispute the content of clause 2 of RS.

9 The legislation which is relevant in respect of the relevant years is section 10AA of the Land Tax Management Act 1956 ("the Act" or LTMA") and which reads as follows:

10AA Exemption for land used for primary production

(1) Land that is rural land is exempt from taxation if it is land used for primary production.

(2) Land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land:

(a) has a significant and substantial commercial purpose or character, and

(b) is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made).

(3) For the purposes of this section, land used for primary production means land the dominant use of which is for:

(a) cultivation, for the purpose of selling the produce of the cultivation, or

(b) the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce, or

(c) commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals, or

(d) the keeping of bees, for the purpose of selling their honey, or

(e) a commercial plant nursery, but not a nursery at which the principal cultivation is the maintenance of plants pending their sale to the general public, or

(f) the propagation for sale of mushrooms, orchids or flowers.

(4) For the purposes of this section, land is rural land if:

(a) the land is zoned "rural", "rural residential" or "non-urban" under a planning instrument, or

(b) the land is not within a zone under a planning instrument but the Chief Commissioner is satisfied the land is rural land.

Part B. The zoning issue

10 There is no doubt as to the fact that the Property was not rural land as defined in section 10AA(4) of the Act during the relevant years. The relevant zoning is described in clauses 2.16, 2.17, and 2.18 of RS quoted previously in these reasons; that zoning precludes any contention by the Applicant as to the fact that the Property was rural land within section 10AA(4) of the Act.

11 The Applicant had conceded that the Property was not rural land for the purposes of section 10AA of the Act. However in AS the Applicant belatedly contended that the Chief Commissioner should have been satisfied under section 10AA(4)(b) of the Act, that the Property was in fact rural land. That argument was not raised previously and ran counter to previous submissions and concessions by the Applicant. Mr Apps in fact conceded as much on the first hearing day. See in particular, but not only, 1TS 3; lines 3 to 5: as follows:

BLOCK: Now for you, Mr Apps, is it accepted that the two parcels of land which together are described as the property are not rural land as defined. APPS: That's accepted. That's because of the rating situation, yes

12 The zoning issue can be disposed of quite simply; section 10AA(4) (b) of the Act is not relevant. That provision requires the Chief Commissioner to determine that land is rural land only if the land is not within a zone under a planning instrument. As the Applicant has conceded (and see clause 8D of AS) one part of the Property was zoned industrial and the other part was zoned environmentally sensitive. It follows that the Property was during the relevant years within a zone under a planning instrument and accordingly the power in section 10AA (4) (b) of the Act was never available.

13 It follows that the Applicant's contention that the Chief Commissioner has the power to determine that the Property was rural land is without foundation.

Part C The issues to be decided by the Tribunal

14 In consequence of the fact that the Property was not rural land the Applicant is entitled to the primary production exemption during the relevant years, only if in respect of each of the relevant years, and in each case and on 31 December preceding its commencement, the following questions can be answered in the affirmative:

(1) Was the dominant use of the land for the maintenance of cattle for the purpose of selling them or their natural increase or bodily produce? (This question is referred to in this decision as the "dominant use" issue.)

(2) Did the use of the land for the cattle activities have a significant and substantial commercial purpose or character? Was the Applicant engaged in the cattle activities for the purpose of profit on a continuous or repetitive basis (whether or not a profit was actually made)? (These questions are referred to in this decision as the "significant and substantial purpose" issue.)

The Tribunal refers in particular in this context to Cornish Group Pty Limited & Anor v Chief Commissioner of State Revenue [2009] NSWADT 191 at [26].

Part D The oral evidence before the Tribunal; an overview.

15 Mr. Grice gave evidence at considerable length both on the first hearing day and again on the third hearing day and after leave to recall him was granted. Mr Grice is one of four brothers all of whom had, during the relevant years other full-time occupations; Mr. Grice was a builder; two of his brothers were miners and the other brother (Colin) was an engineer. Mr Grice was the only one of the brothers to give evidence. He said that he attended at the Property on alternate days and that his brother Colin attended on other days. (Mr Colin Grice did not give evidence). Mr Grice was cross-examined at some considerable length as to the financial accounts of the Applicant in respect of the relevant years. It is fair to say that his evidence as regards the accounts was characterised by a failure to either understand or explain them.

16 Mr. Baldwin was, during the relevant years, the accountant to the trust of which the Applicant was the trustee. His evidence was that he prepared the accounts but did not audit them, in accordance with information provided to him. It was not originally intended that Mr. Baldwin would be called as a witness. That he was called arose from a perceived need for expert evidence. His evidence as regards economic feasibility related to periods after the relevant years and was therefore irrelevant. This aspect will be referred to again later in these reasons.

17 Mr. Bryant who gave evidence on behalf of the Respondent. He dealt in his report and his oral evidence with the feasibility or significant and substantial purpose aspect during the relevant years.

18 It may be noted in this context that the Respondent objected to much of what is referred to in RS as the New Evidence and which may be categorised in broad terms as the evidence as to financial feasibility in years after the relevant years on the basis that it was not relevant; there were also an objection on the basis that some of the New Evidence was hearsay. Those objections were dealt with on the basis that it was safest to allow the New Evidence and at the end of the hearing to consider the weight to be attributed to it. Evidence as to the Applicant's intentions and actions after the expiry of the relevant years was indeed irrelevant and no weight can be attributed to it. The Tribunal considers furthermore that the hearsay evidence was of a vague and inconsequential nature and that it too should be accorded no weight.

Part E. The significant and substantial purpose test

19 For this purpose of this part it is necessary, but only by way of hypothesis to assume that the Applicant during the relevant years satisfied the dominant purpose test; It is not in fact clear that the Applicant did in fact satisfy that test but this assumption on a preliminary basis only is necessary since without it the significant and substantial purpose test is not relevant. This is so because of the meaning to be attributed to "land used for primary production" in section 10AA(3) of the Act.

20 The Applicant purchased 18 cattle in December 2006; none were sold and accordingly no income was generated until three were slaughtered for the benefit of the Grice family (and I refer to the extended Grice family as a whole) in June 2008. The evidence was that an amount of $2000 was reflected as consideration for the three cattle so slaughtered but it would seem that this amount was a book entry and not a payment in cash. (See 2TS 31 and 32). The purchase of the 18 cattle originally purchased was funded from accumulated sandmining royalties derived by the Applicant in the past and retained, together with interest on those monies.

21 In 2009, more than 2 years after the original 18 cattle were purchased the Applicant purchased a further 35 cattle. Again accumulated and retained sandmining royalties were utilised. As set out previously 3 cattle were slaughtered in June 2008 for the benefit of the family. In 2009 the Applicant sold 23 cattle. As at June 2010 (after the expiry of the relevant years) there were 11 cattle on the Property and there were also a small number of goats.

22 Mr Grice has three brothers, and as set out previously, all four brothers had full-time occupations during the relevant years. He said in evidence that at one stage the services of a bull were procured but this endeavour was not successful and no calves were bred and notwithstanding evidence that the cattle were acquired for beef and not dairy purposes. The arrangement involving a bull was if short duration and the unsuccessful bull was not replaced. His evidence included a statement to the effect that some use had to be made of the Property and that the brothers had an original farming background,

23 The Property is to a considerable extent wooded and in such manner that a considerable part of it cannot be used as pasture; Mr. Grice said that the cattle could use the wooded areas for shade. Mrs Starr (who is the aunt of the late uncle of the brothers) occupied a cottage on the Property and did not pay rent although on occasion she paid rates on behalf of the Applicant.

24 During each of the relevant years the Applicant incurred losses; see clauses 2.31, 2.32 and 2.33 of RS quoted previously in these reasons. The losses reflected are not in the opinion of the Tribunal such that they can be regarded as an accurate depiction of the actual losses. A storage shed was provided by one of the brothers and by way of gift in the sense that it is not reflected in the accounts. Although according to Mr. Grice services were provided by him and Colin and by wives and other family members (although the precise nature of what services were provided and when was not in evidence) none of those services was compensated for by way of remuneration. Remuneration on an arms-length basis would obviously have increased the losses. The evidence indicates that even without a full accounting for expenses the losses increased from year to year; expenses were met to the extent that they were not funded by Mrs Starr out of accumulated sandmining royalties.

25 There was never at any time during the relevant years and in respect of the cattle activities a written business plan; Mr. Grice spoke of a mental plan but there was no clear evidence as to when it was formulated or what it was. There was also no expert report in respect of the relevant years. (2TS36 55;56).

26 The absence of any kind of plan in respect of cattle for the relevant years suggests that during the relevant years nothing in the form of a business activity was in fact taking place. The evidence before the Tribunal was that during one extended period there were no cattle on the Property and that the land was being 'spelled". In fact and towards the end of 2009 the cattle activity was effectively abandoned in favour of goats which were first purchased in December 2009, and in other words at the end of the relevant years and after the taxing point in respect of the 2009 year.

27 As I have said, the evidence before the Tribunal by Mr Grice was that the brothers had a farming background and that something had to be done with the Property. His evidence indicated in clear terms that the cattle activity was during the relevant years sporadic and haphazard. Again as set out previously the evidence of Mr Grice as regards the accounts indicated that he did not understand them the abandonment in large part of cattle at the end of the relevant years is significant. Exhibits A3 and A4 are largely concerned with what the Respondent has referred to in RS as New Evidence.

28 It is clear that an intention as to the use of the Property is just that, an intention, and in no way to be treated as a use; that term relates to actual and not contemplated use.

29 As to whether the New Evidence should have been excluded or rather taken into evidence but given little weight, is a question which is academic since the effect is much the same. The Tribunal emphasises that for the purposes of this matter it is concerned with what occurred during the relevant years and not the years which followed. It is clear enough that during the relevant years the cattle activities were not conducted in a fashion which could be described as indicative of a commercial venture and its abandonment at the end of the relevant years tends to confirm that there was, during the relevant years, no prospect of its becoming successful. The New Evidence insofar as it relates to periods after the relevant years and insofar as it consists of hearsay cannot (as I have said) be accorded any weight.

30 The cattle activities during the relevant years were not such that it is possible to describe them as having a significant and substantial commercial purpose or character. The activities were conducted on a small scale and during a period not conducted at all. . The evidence by Nr, Grice as to assistance by other family members was not supported by any evidence by any of them.

31 The Respondent has in RS likened the cattle activities to a hobby and that contention appears to the Tribunal to have merit. The losses increased, as I have said, from one relevant year to the next and would have been higher if all relevant costs and expenses had been taken into account. Sand mining royalties derived years before were used to fund what purchases occurred. The activity as a whole was neither viable nor self-sustaining.

32 Mr Bryant gave evidence as to the increases in losses. He was not challenged as to any substantive aspect of that evidence.

33 There was no written business or breeding plan and there was no expert evidence to support a view that the cattle activity was capable of becoming feasible. The evidence as to a mental business plan cannot be accepted; the fact that it cannot be taken seriously arises in particular from the fact that Exhibit A1 makes no mention at all of any such plan.

34 Mr Bryant said in his evidence that the cattle activity did not have a significant and substantial commercial purpose or character. That evidence was not contradicted and the criticism of Mr. Bryant's evidence in AS cannot be accepted as tenable. The Tribunal approves clause 4.69 of RS (which constitutes the Respondent's response to that criticism) as follows;

In response to some of the more detailed criticisms by the Applicant, the Chief Commissioner makes the following submissions:

(a) It was entirely proper for Mr Bryant not to provide an opinion as to whether the cattle activities were engaged in for the purpose of profit on a continuous or repetitive basis because the question of the Applicant's subjective purpose was outside the province of his expertise: T2, 104.33-35. Mr Bryant made it clear in his report that he could not opine on the question of purpose: Exhibit R5, at [23] and [74]; cf. AS, at [8F.5] and [8F.12];

(b) The criticism (at AS, [8F.5.2], [8F.11] and [8F.13]) that, in [75] of his report, Mr Bryant does not mention that, under s. 10AA(2), profit does not have to be made, is potentially misleading. Mr Bryant is aware of that aspect of s. 10AA(2) and mentions it on multiple occasions in his report at [6], [20] and [24];

(c) The criticism (at AS, [8F.6]) that Mr Bryant did not "analyse" the meaning of "commercial", "purpose" or "character" by "normal language" is feeble. Mr Bryant's evidence is that he attributed to those words their "normal meaning": T2, 105.38-106.11. In his report, Mr Bryant explains that his answer to the second question (in section D of his report) follows on from the analysis in the previous section and provides two reasons for his conclusion that the cattle activities did not have a significant and substantial purpose or character. It was open for the Applicant to file expert evidence in response, but it did not do so;

(d) It is not to the point that Mr Bryant was not provided with Exhibit A1: cf. AS, at [8F.3.2], [8F.8] and [8F.10]. Mr Bryant was provided with, inter alia , copies of the financial statements Hoxede relies on in these proceedings (see Exhibit R5, Appendix B) and asked to give his opinion having regard to those statements (and other financial information). It is not (nor could it be) suggested that Mr Bryant relied on incorrect financial statements or incorrect financial information. Further and in any event, Mr Bryant was provided with the letter of objection lodged by Hoxede, the annexure to which contains information which is substantially the same as that set out in the relevant parts of Exhibit A1 (see pp 39-52 of the s. 58 documents and T2, 116.37-117.18);

(e) It is not for Mr Bryant to speculate about the "feasibility" of selling the Property: cf . AS, at [8F.9]-[8F.10]. The Applicant's criticism that he didn't do so misses the point. At [80]-[85] of his report, Mr Bryant relied on the value of the land (ie, $3.5m) as determined by the Valuer-General for the 2007 tax year (set out in the Assessment). On any view, that is a proper approach in the circumstances. In the absence of any expert evidence to the contrary, the Applicant simply cannot contend that the value of the Property is less than the $3.5m calculated by the Valuer-General. Again, the Applicant had the opportunity to serve valuation evidence but did not do so;

(f) The apparent suggestion, at [8F.11] of the Applicant's Submissions, that Mr Bryant is unfamiliar with farming businesses is apt to mislead. Mr Bryant's evidence is that he has experience with analysing the financial affairs of small businesses and has dealt with "the accounts and businesses" of "small-time famers" in "half a dozen cases" over the last two or three years: T2, 106.5-37.

35 In Cornish , the company which held the lease over the subject land ("Collins") commenced with 65 head of cattle in 2004 and came to own 125 head of cattle by 2009. Its cattle operation included a breeding programme. Although revenues were generated from cattle sales, the cattle operation was run at an annual loss over a 4 year period (the amount of which also increased from year to year). Verick JM found that Collins' cattle operation did not have a significant and substantial commercial purpose or character. Verick JM concluded as follows (at [57]):

57 The Cattle Plan was also in relation to the cattle activities on both the Cobbity Property and the Land. It was not clear what profits were expected from the cattle operations on the Land. Cattle operations on the Land only commenced when the sand and soil extraction work ceased on the Land in 2005. Without the profits from their turf, sand and soil extraction and composting businesses, the cattle operations could not have been continued. There were losses in the relevant Tax Years and the cattle operations, viewed independently from Collins' other business activities, were certainly on a small scale and against the leasing costs of the Land and the losses incurred in the operations they could hardly be described as "significant and substantial".

36 The Tribunal agrees with the decision in Cornish; this case is similar in important respects (although the case for the Applicant would appear to weaker than the case for the taxpayer in Cornish) and it follows that the Applicant cannot satisfy the Tribunal that the cattle activities during the relevant years passed the significant and substantial purpose test.

37 It is of course clear that this decision relates only to the relevant years and to no other period. It is possible that the Applicant may be able to satisfy the relevant tests in subsequent years; this will of course depend on the circumstances which at any given time are applicable.

38 In simple terms, the evidence reveals that, for the purposes of the relevant years, the cattle activities on the Property were very much confined and "on the minimal side": 2TS, 76.35-38. In Mr Bryant's words, they were "a tiny cattle...operation": Although some revenue was generated from the sale of the cattle during those years, on the Applicant's own figures, by 30 June 2009, it had accumulated losses of $43,573 in connection with its activities on the Property, and as set out previously the Tribunal considers that the real loss was greater.

39 Mr Grice's evidence is that during the relevant years he worked as a licensed builder in partnership with another builder. They had been in partnership since 1979 and during those land tax years he and his partner undertook subcontracting work for various builders and building work generally. The income he earned from his building work was his primary income. This was supplemented by income his wife earned from her part-time job at Coles: 2TS, 49.11-53.5. Further, his brothers Trevor and Steve derived their primary incomes from full time coal mining jobs. His brother Colin ran an engineering business: 2TS, 53.29-54.10.

40 These matters, and the various other related matter discussed above, support a finding that the cattle activities were in the nature of a hobby farm: cf. AS, at [7.15]. As Mr Grice himself indicated, the cattle activities were undertaken because of an "interest in farming": 2TS, 75. 32-43. the monies earned from sandmining royalties provided the means by which that interest could be fulfilled.

Part F; The dominant use test

41 I have previously in these reasons assumed by way of hypothesis that the cattle operation constituted the dominant use of the Property. Having found that the Applicant did not satisfy the significant and substantial purposes test it is not strictly necessary for me to come to a firm conclusion as to this aspect since even if that use was dominant the Applicant cannot succeed. I deal with this issue however for the sake of completeness.

42 The meaning of the term "use" and the expression "dominant use" were considered by Gzell J in Leda Manorstead v Chief Commissioner [2010] NSWSC 867 They were also considered by the Tribunal in Cornish, Ball v Chief Commissioner of State Revenue [2010] NSWADT 114 and Romano v Chief Commissioner of State Revenue [2011] NSWADT 73

43 The authorities indicate that the principles are as follows::

(1) Although the term "use" is broad, it refers to actual use, not contemplated or intended use. Mere intention to use is not enough: A R Thomason v Chief Executive, Department of Lands (1994-1995) 15 QLCR 286, at 293 Ball, at [43]; St Pier v Chief Commissioner of State Revenue [2002] NSWADT 112;

(2) "Use" extends to indirect, non-physical or intangible use, such as leasing: Ryde Municipal Council v Macquarie University (1978) 139 CLR 633;

(3) An owner of land "uses" that land if he or she makes it available for use by others: Tourapark Pty Ltd v FCT (1982) 149 CLR 176, at 181;

(4) Land may still be "used" even if there is no activity on every part of the land, where retaining the land in its unimproved state is relevant to a particular purpose: Newcastle City Council v Royal Newcastle Hospital (1958) 100 CLR 1, at 4;

(5) However, worked carried out to prepare the land to be used for primary production does not of itself constitute use of the land for primary production: Southern Estates Pty Limited v Federal Commissioner of Taxation (1967) 117 CLR 481, at 488.

44 "Dominant use" connotes ruling, prevailing, or most influential. The reference in the Act to a dominant use presupposes that land may be used for more than one purpose and requires a determination of which use of the land is the main, chief or paramount use: Leda, at [69]; FCT v Spotless Services Pty Ltd (1996) 186 CLR 404, at 416. See also McClelland v Goulburn City Council (1976) 35 LGRA 1 in relation to "mainly used";

45 What constitutes "dominant use" is a question of fact and degree. It is to be determined as an objective matter of impression: Leda, at [70]; Sonter v Commissioner of Land Tax (NSW) (1976) 7 ATR 30, at 35; Hope v Bathurst City Council (No 2) (1983) 52 LGRA 79 ("Hope"), at 84, Romano , at [40];

46 Generally, a court will consider such matters as the amount of land actually used for any purpose, the nature and extent and intensity of the various uses of the land, the extent to which land is used for purposes which are unrelated to each other, and the time and labour and resources spent in using the land for each purpose. When undertaking this exercise, one cannot ignore the conclusion that an objective observer would reach in viewing the land as a whole: A R Thomason, at 303; Greenville Pty Limited v Commissioner of Land Tax NSW (1977) 7 ATR 278 at 280;

47 In order for a use of the land to constitute the "dominant use", it is necessary not only that the use prevail over any competing use but also that it be sufficiently substantial to prevail over the proposition that the land is primarily to be regarded as unused land: Saville v Commissioner of Land Tax (1980) 12 ATR 7, at 10;

48 It is generally not sufficient to inquire whether some difference can be discerned between the uses to justify classing one as the main use or predominant use. The predominance must be of such a degree as to impart a character to the parcel as a whole: Abbott v Commissioner of Land Tax (1978) 38 LGRA 417, at 422-423

49 Income is a relevant consideration in determining the question of "dominant use". However, it should not be relied on as the primary determinant: A R Thomason , at 304.

50 As at 31 December 2006, Hoxede had not sold any cattle, and therefore, had not earned any income from the cattle activities. However, at that time, there were 18 head of cattle on the Property. Further, by that stage, fencing had been erected on the Property and some irrigation equipment had been installed on the land. On that basis, subject to the question of dominant use, the Chief Commissioner accepts that the Applicant was engaged in primary production activities on the Property, within section. 10AA(3)(a) of the Act, as at 31 December 2006 (and continued to engage in primary production as at 31 December 2007 and 2008).

51 However, the Chief Commissioner contends that the Applicant has not discharged its onus of establishing that the cattle activities constituted the dominant use of the Property as at each of 31 December 2006, 2007 and 2008. As at each of those taxing dates, there were at least three uses of the land within the Property: (i) the electricity transmission lines use, (ii) the residential use of the cottage and (iii) the cattle activities .As for (i), the annotations on the map at Attachment A to Mr Grice's first statement (Exhibit A1) indicate that the total area taken up by the two transmission line easements is 2.676 ha. In relation to (ii), Mr Grice's evidence is that the cottage and surrounding area which is fenced in comprise approximately 0.4ha. As for (iii), the map in Attachment D to Exhibit A1 shows the internal fencing and improvements on the Property were largely confined to an area located on the northern parts of Lot 1 and Lot 23, which seems to comprise approximately 30-40% of the Property ("cattle activities area"). The portion of the Property located in the southern part, closest to the Nepean River, is densely filled with trees and shrubs. That area ("southern area") comprises approximately 60% of Lot 1 and 30%-35% of Lot 23 (T1, 43.37-44.22). The area on the very northern part of Lot 23, which includes the portion of land identified in the map in Attachment D to Mr Grice's first statement as the "sand mined area" ("the sand mining area"), comprises approximately 10%-15% of the Property: T1, 43.33-35. Taking into account the nature, scale and intensity of the 3 different uses of the Property, as at 31 December 2006, 2007 and 2008, the cattle activities may not have been on a scale or a level of intensity which would have conveyed to an objective observer that the land was predominantly used for the cattle activities. As at each of the relevant taxing dates, the primary production activities were carried out on a relatively small scale. As apparent from the map at Attachment D to Exhibit A1 and the evidence referred to above, the southern area, full of dense trees and shrubs, together with the sand mining area and cottage area, made up between 50%-60% of the Property. Although Mr Grice gave evidence that the cattle "grazed" over the whole of the Lot 1 and Lot 23, the cattle activities area, where the paddocks, sheds and troughs are located, took up no more than 40% of the Property.

52 The cottage has been occupied by Ms Starr since 1956. Although the cattle activities were carried on the Property during the relevant years (and in previous years), it is possible that they were secondary to the occupation of the cottage on the land. During the relevant land tax years Mr Grice (and his family) did not live on the Property. Further, he was in partnership in a building business throughout those years. His attendance at the Property was on a part-time basis and subject to his commitments to his building business and (presumably) his family commitments.

53 Some parallels may be drawn with the decision in Hope, where Perrignon J was concerned with whether 15.55 acres of land within the City of Bathurst should be rated as "rural land" under the Local Government Act 1919 (NSW). Approximately 12.54 acres were used for grazing. An additional 0.27 acres contained workshop, storage and access areas, the use of which was attributable to the grazing activity. The grazing activity generated revenue, but accumulated ongoing losses. Mr Hope and his wife lived in a house on the property and he carried on his practice as a consulting engineer from the house. Perrignon J was not satisfied that the land was "mainly" used for the business of grazing. His Honour said (at 84):

I think that the proper approach to the question is to consider all the evidence relating to the uses to which the land is put and if upon such a consideration it appears that the land is mainly used for one or more of the businesses or industries specified then is it "rural land". Such an approach calls for the weighing of the evidence relating to the various uses to which the land is put, including, but not being limited to, the nature and intensity of such uses, the physical areas over which they extend, and the time and labour spent in conducting them. If it can be said, weighing the uses which would bring the land within the definition of "rural land" against the other uses to which the land is put, that the former uses constitute the main or the major use of the land, or, what I think is the same thing, that the land is mainly devoted to such uses, it is "rural land"...

54 On an objective view, it may be arguable that the cattle activities did not impart to the Property the characteristic of being a land predominantly used for primary production: Abbott, at 422-423. At any one point during the relevant years, there was a relatively small number of cattle only on the Property. The cattle activities were largely concentrated in the cattle activities area, which took up 30%-40% of the Property. The farming equipment, sheds and cattle crush loading ramps were all located within that area. Concomitantly, the cattle activities generated little income and were run consistently at a loss (the amount of which increased over the 2007-2009 financial years): see, further, A R Thomason, at 304. Having regard to those matters, the competing residential use, electricity transmission lines use and the sand mining area, the cattle activities may not have been of a scale, degree and intensity which was capable of imparting a characteristic to the Property, looked at as a whole, of being land predominantly used for primary production: Greenville, at 280.

55 Had the cattle activity been organised and commercial (and in other words not haphazard and sporadic) there is no doubt in my mind as to the fact that it would have been the dominant purpose, However it was not and the likening of it to something akin to hobby farming appears to me to be apt.. The Applicant contends that it was the dominant purpose but Mrs. Starr might have a different view. At the end of the day it is not necessary for me to come to a firm conclusion as to this aspect.

Part G Summary and Conclusion

56 This is a case where the significant and substantial purpose test required in all the circumstances expert evidence as to its satisfaction. The only evidence provided by the Applicant was that of Mr. Baldwin who is the accountant to the Applicant; leaving aside the question of whether or not it can be said that Mr Baldwin was in fact an expert, his evidence related in this context to the feasibility of the goat activities and which were hardly relevant in respect of the relevant years. The evidence of Mr. Bryant by contrast was very much to the point and in the view of the Tribunal must be accepted. The Applicant's criticism of the evidence of Mr Bryant cannot be sustained but in any event the onus was on the Applicant to produce evidence as to the satisfaction of the significant and substantial purpose test and it did not do so.

57 Having come to the conclusion that the Applicant did not satisfy the significant and substantial purpose test it is not necessary for me to come to a firm conclusion as to the dominant purpose test.

58 Accordingly the decision under review must be affirmed.

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Amendments

02 February 2012 - amended medium neutral citation
Amended paragraphs: coversheet

Decision last updated: 02 February 2012