On 16 September 2021, the NSW Supreme Court, Court of Appeal held that a taxpayer, who owned land, was exempt from NSW land tax, based on the ‘primary production’ tests – in circumstances where there were there were a number of different uses, by different persons, one of which included agistment, with the ‘commerciality’ and ‘profit’ tests set against a background of little profit after paying meagre remuneration.
See below for further details.
The Facts were these:
- The respondent company owned land which was assessed for land tax by the Chief Commissioner of State Revenue for the calendar years 2014 to 2016.
- During those years the land was informally divided into two parts.
- On the east side, Mr Ron McIntosh and his son conducted a beef cattle operation, and Mr Jim Head ran a cattle grazing business.
- On the west side, Mr Ian McIntosh grazed his own cattle and agisted the cattle of third parties, including a nearby dairy farmer.
- The respondent claimed that the land was exempt from land tax as land used for primary production.
The Civil and Administrative Tribunal set aside those land tax assessments on the basis that the land was exempt from land tax under Land Tax Management Act 1956 (NSW), s10AA. That exemption applied if the dominant use of the land was for primary production within the meaning of s 10AA(3), and that use had a significant and substantial commercial purpose or character (s10AA(2)(a)), and was engaged in for the purpose of profit (s 10AA(2)(b)).
The Commissioner was unsuccessful in its appeal to the Appeal Panel of the Tribunal, and seeks leave to appeal to this Court. That appeal is limited to questions of law.
The issues in the application were:
- Where land is used for primary production activities by independent users, whether it is permissible to aggregate those uses for the purposes of determining whether the “dominant use” of the land is for primary production (s10AA(3)), and that the use of the land satisfies the commerciality and purpose of profit tests (s10AA(2)).
- Whether the Tribunal erred in finding that Mr Richard McIntosh’s cattle operation on the land had a significant commercial purpose by considering its role as part of his broader farming business conducted on other parcels of land.
- Whether the Tribunal erred in finding that the agistment of cattle on Mr Ian McIntosh’s land was a primary production activity as defined in s10AA(3)(b) of the Act, namely as a use of the land for the maintenance of animals for the purpose of selling them or their produce.
- Whether, in determining whether the commerciality and purpose of profit tests were satisfied, the Tribunal took into account that the farming operations generated little profit, did not bear the costs of holding the land, and provided meagre remuneration for the labour involved.
The Court (Meagher JA, Payne and White JJA agreeing) held, granting leave in part and dismissed the appeal:
As to issue (i) – Permissible to ‘aggregate’ uses by independent persons? (Yes)
Section 10AA(3) lists a number of activities in pars (a) to (f) that constitute primary production activities. On its proper construction, s 10AA(3) requires all activities that fall within those paras to be considered in determining whether the dominant use of the land is for primary production: at [12]-[20] (Meagher JA), [51] (Payne JA), [52] (White JA). Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2011] NSWCA 366; (2011) 85 ATR 775; Chief Commissioner of State Revenue v Metricon Qld Pty Ltd [2017] NSWCA 11; (2017) 105 ATR 11; Young v Chief Commissioner of State Revenue [2020] NSWSC 330; considered.
Where the dominant use of the land consists of primary production activities conducted independently by a number of users, in determining whether the commerciality and purpose of profit tests are satisfied that use is to be assessed as a whole and taking into account those independent uses. Neither of those tests requires a single subjective purpose be identified: at [21]-[22] (Meagher JA), [51] (Payne JA), [52] (White JA). Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23; (2013) 88 ATR 379; Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 89; Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678; (2014) 98 ATR 545 considered.
As to issue (ii) – ‘commerciality’ test – activity within the context of the wider business? (Yes)
In determining whether a primary production use of land satisfies the commerciality test, it is permissible to consider that use within the context of any wider business activity of which it forms part. The Tribunal’s conclusion that Mr Richard McIntosh’s cattle grazing operation on the land had a substantial commercial character did not raise any question of law: at [27]-[32] (Meagher JA), [51] (Payne JA), [52] (White JA). Vartuli v Chief Commissioner of State Revenue [2014] NSWSC 678; (2014) 98 ATR 545; Leppington Pastoral Co Pty Ltd v Chief Commissioner of State Revenue [2017] NSWSC 9; (2017) 104 ATR 820 considered.
As to issue (iii) – ‘agistment’ involves continuing to ‘maintain’ livestock for sale? (Yes)
The Tribunal found that the dairy farmer who agisted his cattle on the land continued to maintain them. There was no error of law in making that finding as it was supported by evidence. Furthermore, s 10AA(3)(b) is satisfied if the land is being used to maintain livestock. The identity of the person or persons doing that “maintenance” is not relevant: at [35]-[40] (Meagher JA), [51] (Payne JA), [52] (White JA).
As to issue (iv) – ‘commerciality’ & ‘profit’ tests – despite little profit and meagre remuneration? (Yes)
The Tribunal considered each of the matters referred to in relation to this ground, and the Appeal Panel correctly dealt with an argument to the contrary. This ground accordingly raises no question of law: at [43]-[48] (Meagher JA), [51] (Payne JA), [52] (White JA).
(Chief Commissioner of State Revenue v McIntosh Bros Pty Ltd (in liq) [2021] NSWCA 221, NSW Court of Appeal, Meagher, Payne and White JJA, 16 September 2021.)
[Austlii – Head Note] [LTN 180, 17/9/21]