Skinner v Chief Commissioner of State Revenue  NSWCATAD 66
|Date of judgement||16 May 2014||Proceeding No.||201302392|
|Judge(s)||Professor GD Walker, Senior Member|
|Court or Tribunal||NSW Civil and Administrative Tribunal|
|Legislation cited||Civil and Administrative Tribunal Act 2013
Land Tax Management Act 1956, s.10AA
Land Tax Act 1956, s.6
|Catchwords||Land tax – exemption – primary production – dominant use – commerciality test – breeding horses|
|Cases cited||Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue (CCSR)  NSWADTAP 25;
FCT v Smorgon (1977) 16 ALR 721;
Hope v Bathurst City Council (No 2) (1984) 52 LGRA 79;
Leda Manorstead Pty Ltd v CCSR (2010) 79 NSWLR 724, (2011) 85 ATR 775;
Maraya Holdings Pty Ltd v CCSR  NSWSC 23;
Saville v Commissioner of Land Tax (1980) 12 ATR 7
The Taxpayers sought a review of a decision of the Chief Commissioner that 2 parcels of land were liable for land tax. The taxpayers claimed that the land was exempt primary production land under s.10AA of the Land Tax Management Act (“LTMA”).
The Tribunal accepted that 1 parcel was exempt because it was zoned “rural and was used for a dominant purpose of primary production, namely for horse-breeding for the purpose of selling foals. However the Tribunal found that the other parcel was liable for land tax because part of the land was not rural land, and the horse breeding activities were not substantial, nor were they carried on for the purpose of profit on a continuous or repetitive basis.
The Tribunal rejected the Taxpayer’s claim that the Iolanthe property was entitled to a separate threshold under s.6 of the Land Tax Act (Land tax liability in respect of flood liable land) because the Taxpayers adduced no evidence to establish that the Iolanthe property was unsuitable for the erection of a building due to flooding.
The Taxpayers, Ronald and Carolyn Skinner, sought review of a decision of the Chief Commissioner to assess them as liable for land tax for the 2008 to 2013 land tax years in respect of a property at Iolanthe St, South Grafton (“Iolanthe property”) and 233 Lawrence Rd, Great Marlow (“Lawrence Rd property”) (collectively, “the Land”).
The Taxpayers sought an exemption from land tax under s.10AA of the Land Tax Management Act 1956 (NSW) (“LTMA”), on the basis that the Land was used for primary production, namely the maintenance of horses for the purpose of selling them or their natural increase.
The Lawrence Rd property was zoned rural. Part of the Iolanthe property was zoned “rural” and part was zoned “Infrastructure”. The Chief Commissioner submitted that Iolanthe property was not “rural land” for the purposes of s.10AA(4) of the LTMA, as the land was not exclusively zoned rural.
The Taxpayers, in submissions dated 5 November 2013 and 9 April 2014 and in oral evidence given during the course of the hearing by Mr Skinner and his accountant, Mr Max Elphick, maintained that the Land was used for the maintenance of horses since September 2007, for the purpose of breeding. The Taxpayers’ evidence included claims that:
the Taxpayers’ horse breeding business is registered for GST;
from 2008 the Taxpayers erected stables and fencing on the Land to accommodate brood mares;
The Taxpayers had always intended to use the Land to breed horses and the Land was, according to Mr Elphick’s evidence, solely used, and according to Mr Skinner’s evidence, mainly used for maintaining brood mares (at times up to 2 of the horses were racehorses that were being spelled);
No yearlings had ever been sold by the Taxpayers in respect of the horse breeding enterprise. Only two of the eighteen foals that were born during the relevant tax years lived beyond two years. The remaining foals all died or had to be destroyed due to a series of misfortunes;
In 2011, five or six mares were sold by the Taxpayers.
The Taxpayers also submitted that the Land was “flood liable land” for the purposes of s.6 of the Land Tax Act 1956, and each parcel was therefore entitled to a separate tax-free threshold.
The Chief Commissioner submitted that the Taxpayers had not discharged the onus of proving that the dominant use of the Land was the maintenance of horses for the purpose of selling them or their natural increase. They had not established how many horses were on the Land, and on which property, the carrying capacity of the Land or the manner in which other horse breeding businesses are usually conducted. The Chief Commissioner submitted that, to the extent that the evidence demonstrated that horses were maintained on the Land, the financial records indicated that the dominant use of the Land was for the purpose of maintaining race horses.
In respect of the commerciality test in s.10AA(2) of the LTMA (if it applied to the Iolanthe property), the Chief Commissioner submitted that the Taxpayers could not satisfy either limb of the test in s.10AA(2), as there was no evidence the horse breeding activity was run on a commercial basis. The only revenue recorded in respect of any breeding business was the sale of five or six mares in 2011 when the breeding activity ceased, there was no business plan in respect of the breeding activity and significant losses had been sustained in respect of the horse breeding activities.
The Statutory Framework
The primary production exemption is contained in s.10AA of the LTMA.
S.10AA(1) provides that “rural” land is exempt from taxation if it is land which is used for primary production, as defined in s.10AA(3).
For the relevant tax years, s.10AA(4) provided that land is “rural” land if the land is zoned rural, rural residential or non-urban under a planning instrument.
S.10AA(3)(b) provides that land is “used” for primary production if (relevantly) the dominant use of the land is the maintenance of animals for the purpose of selling them or their natural increase or bodily produce.
S.10AA(2) provides that land that is not “rural” land is exempt from taxation if the dominant use of the land is primary production and that use of the land:
has a significant and substantial commercial purpose or character; and
is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made).
In respect of the Lawrence Rd property, Senior Member Walker accepted the evidence of Mr Skinner and Mr Elphick that it was the intention of the Taxpayers to use the Lawrence Rd property for the purpose of horse breeding. Senior Member Walker found that it was implicit in the evidence in (unsworn) letters or statutory declarations of Mr Swan, the caretaker of the Lawrence Rd property, Mr Liyou, a Grafton equine vet, and Mr Ritchie, the owner of Minimurra Stud, that the horse-breeding activities on the Lawrence Rd property were being conducted in the usual way for such a business. The Taxpayers’ the evidence that the Lawrence Rd property was not rented and that it was well adapted to horse breeding but unsuitable to spell racehorses was accepted by Senior Member Walker, who found that the dominant use of the Lawrence Rd property was horse breeding for the purpose of selling foals. Accordingly, Senior Member Walker found that the Lawrence Rd property was entitled to the primary production exemption for the relevant tax years.
In respect of the Iolanthe property, Senior Member Walker found that, for the purposes of s.10AA(4), the Iolanthe property was not rural land, as 12 per cent of the Iolanthe property was zoned Infrastructure. Accordingly, the commerciality test applied to the Iolanthe property.
Senior Member Walker found that, for the reasons given in respect of the Lawrence Rd property, the dominant use of the Iolanthe property was horse breeding. In respect of the commerciality test, Senior Member Walker found that the Taxpayers had not demonstrated that the horse breeding business satisfied the test of being conducted for a significant and substantial purpose, for the purpose of profit on a continuous or repetitive basis. This conclusion was evidenced by factors such as:
the lack of profitability (which could be attributed to the Taxpayers’ misfortunes in respect of few surviving foals);
all costs and losses being combined with racing expenses in the financial statements;
poor record keeping;
lack of insurance; and
failure to account for dead foals as a loss in the financial statements.
Senior Member Walker concluded that the horse breeding business on the Iolanthe property was not a substantial commercial venture engaged in for the purpose of profit on a continuous or repetitive basis.
Senior Member Walker found that the Iolanthe property was not “flood liable land” under s.6 of the Land Tax Act 1956 because the Taxpayers adduced no evidence to establish that the Iolanthe property was unsuitable for the erection of a building due to flooding.
The Tribunal made orders as follows:
The Chief Commissioner’s decision in relation to the Lawrence Road property is set aside.
The Chief Commissioner’s decision in relation to the Iolanthe property is affirmed.