Triston Pty Ltd atf The Ghantous Family Trust v Chief Commissioner of State Revenue [2017] NSWCATAD 100

Date of judgement 31 March 2017 Proceeding No. 1610022
Judge(s) Senior Member S Frost
Court or Tribunal New South Wales Civil and Administrative Tribunal
Legislation cited Land Tax Management Act 1956, s 10AA
Catchwords STATE TAXES – land tax – land used for primary production – maintenance of animals – nursery activities – dominant use of land – significant and substantial commercial purpose or character – purpose of profit on a continuous or repetitive basis
Cases cited Ashleigh Developments Pty Ltd v Chief Commissioner of State Revenue (RD) [2012] NSWADTAP 25

Lease A Leaf Property Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADTAP 41; (2011) 85 ATR 273

Leda Manorstead Pty Ltd v Chief Commissioner of State Revenue [2010] NSWSC 867

Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23

Background

Triston Pty Ltd (“the Taxpayer”) objected to the assessments for the 2011 to 2015 land tax years on the grounds that the property assessed was used for primary production and therefore exempt under ss. 10AA(3)(b), 10AA(3)(e) and 10AA(3)(f) of the Land Tax Management Act 1956 (“the Act”).

The property has a total area of approximately 3.75 hectares and was fenced into 6 usable areas, consisting of five paddocks on the low-lying areas and a nursery on the higher ground. Each lot has dual zoning, ‘rural landscape’ (“RU2”) and ‘low density residential (“R2”) with around 95% of the property within the RU2 zone.

The nursery was well established but the activities were fairly modest. The majority of the plants on the property were very mature and were not newly cultivated or newly propagated. The lower lying area of the property up to 2011 was used for the maintenance of horses. In 2011 following the theft of three horses, all horses were removed from the property.

For the 2012 - 2015 tax years the only physical activity undertaken on the property was the nursery activity, which was undertaken on no more than 5% of the property’s entire area.

The Legislation

The tests for satisfaction of the primary production exemption specified in s.10AA depend on whether the land is rural land or not.

Land that is rural land

If the land is rural land, then the exemption is available if the land is ‘land used for primary production’: s.10AA(1) of the LTM Act.

The expression ‘land used for primary production’ is defined in s.10AA(3) as ‘land the dominant use of which is for’ any of the activities specified in that subsection.

Land that is not rural land

If land is not rural land, then in addition to meeting the dominant use test, the use of the land must satisfy commerciality tests specified in s.10AA(2), namely, the use of the land must:

  1. have a significant and substantial commercial purpose or character; and

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

Taxpayer’s submissions

In relation to the dominant use test, the Taxpayer relied on the activities specified in paragraphs (b), (e) and (f) of s.10AA(3), namely:

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

  1. 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

  2. the propagation for sale of mushrooms, orchids or flowers.

The Taxpayer claimed that the activities were undertaken with a view to profit.

Decision

  1. Dominant use test

    In considering the use of the property for the 2011 tax year, Senior Member Frost held that the maintenance of horses on the lower portion of the land, accounting for over 95% of the property’s areas, was sufficient to characterise the property as land the dominant use of which is for an exempt activity: (Para 49).

    For the 2012-2015 tax years, Senior Member Frost found that there was no propagation of plants conducted on the property. As such the nursery was held not to be a ‘commercial plant nursery’ as judicially considered in the case of Lease A Leaf Property Pty Ltd v Chief Commissioner of State Revenue [2011] NSWADTAP 41. Senior Member Frost concluded that the property did not have a dominant use at all for those tax years due to the nursery’s de minimis or insignificant use of the total area of the property: (Paras 33& 34).

  2. Commerciality tests

    Senior Member Frost found that because each lot within the property carried dual zoning, the land could not be characterised as rural land. This was because s.10AA(4) which defines “rural land” suggests only a single rural zoning covering the entire parcel will satisfy the definition. As such, the use of the land must satisfy the commerciality tests in s.10AA(2).

    Senior Member Frost applied the guidance provided by Gzell J in Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 408 to conclude that paragraph (a) of s.10AA(2) was not satisfied: (Para 49).

    Senior Member Frost stated that the activity of the Taxpayer in maintaining horses on the property was not an undertaking of a serious or weighty kind, and could not be regarded as anything other than a ‘sideline’. He held that the maintenance of between four to six horses on the 3.75 hectare property was not a use of the land that had a significant and substantial commercial purpose: (Para 49).

    Senior Member Frost indicated that the Taxpayer’s statement that the activities conducted on the land were for the purpose of profit “…did not make it so”. He noted that the fact of making losses did not necessarily undermine the Taxpayer’s claim, but stated that:

    “Nevertheless a continuous pattern of a lack of profit may cause a decision-maker to question such a claim, and may indicate a level of indifference as to the financial performance of the activity and, instead, a realisation that the losses might at least to some extent be subsidised by the land tax exemption being sought”: (Para 51).

    Senior Member Frost concluded that he was:

    ‘…not satisfied that the applicant’s use of the land is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made). Paragraph (b) of s 10AA(2) is therefore not satisfied’: (para 52).

Link to decision

Triston Pty Ltd atf The Ghantous Family Trust v Chief Commissioner of State Revenue [2017] NSWCATAD 100

Last updated: 3 May 2017