Brown Cavallo Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 18

Date of judgement 11 January 2017 Proceeding No. 1510481 and 1610403
Judge(s) Senior Member Isenberg
Court or Tribunal New South Wales Civil and Administrative Tribunal
Legislation cited Administrative Decisions Review Act 1997

Land Tax Management Act 1956

Taxation Administration Act 1996
Catchwords REVENUE LAW – land tax - primary production exemption - dominant use – maintenance of animals – significant and substantial commercial purpose or character – purpose of profit on a continuous or repetitive basis - s 10AA Land Tax Management Act 1956
Cases cited B & L Linings Pty Ltd v Chief Commissioner of State Revenue [2008] NSWCA 187

Cornish Investments Pty Limited v Chief Commissioner of State Revenue (RD) [2013] NSWADTAP 25

Leda Manorstead v Chief Commissioner [2010] NSWSC 867

Saville v Commissioner of Land Tax (1980) 12 ATR 7

Background

During the Relevant Period, the Taxpayer owned a parcel of land in Woolgoolga (“the Woolgoolga Land”). The Land was zoned “R2 – Low Density Residential” and is 2.987 hectares in area.   The Taxpayer also owned 2 other properties (“the Glenreagh Properties”), approximately 43 km away by road.

The Woolgoolga Land was used by Tallawudjah Pty Ltd, a company through which the cattle breeding business operated, to graze beef cattle in conjunction with the Glenreagh Properties, to finish cull-for-age cows and to improve the economic value of stock. The Land was fenced, had improved pasture, stock yards, and a cattle loading facility.

From 2011 onwards, Mr George Edward Bennett managed the family farming business conducted through Tallawudjah Pty Ltd and worked part-time as an agricultural teacher.

The Statutory Framework

The key issues in the proceedings were whether in each year of the Relevant Period:

  1. The dominant use of the Woolgoolga Land was the maintenance of beef cattle for the purpose of selling them or their natural increase or bodily produce, under s.10AA(3)(b) of the LTMA (“Dominant use test”); and

  2. That use of the Land had a significant and substantial commercial purpose or character, and was engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit was actually made), under s.10AA(2) of the LTMA (“Commerciality test”).

Submissions

Dominant use test

The Taxpayer submitted that:

  1. The Woolgoolga Land was used for cattle grazing and for finishing cull-for-age cows, which were unable to be finished at the Glenreagh Properties due to the drier pasture, and in conjunction with the Glenreagh Properties, for cattle rearing;

  2. Cattle finished on the Woolgoolga Land were transported back to the Glenreagh Properties on one of the family business trucks a few days before they were to be transported to the saleyards;

  3. The Woolgoolga Land had been used to improve the condition of beef cattle for the purpose of the family cattle breeding and sale business since the acquisition of the Woolgoolga Land over 40 years ago (with the exception of one small parcel of land); and

  4. Throughout most of the Relevant Period the number of cattle on the land would have been at least 4 head, and the carrying capacity for the Land is 4 to 6 mature cows. However, there was a “hiatus period”[1] between July to September 2014 due to significant drought conditions causing a lack of pasture.

The Chief Commissioner submitted that:

  1. The Taxpayer failed to adduce evidence as to when and for how long cattle were grazed on the Woolgoolga Land during the Relevant Period, or any expert evidence as to the carrying capacity of the land;

  2. Driving time to move cattle between the Woolgoolga Land and the Glenreagh Properties is approximately 40 minutes;

  3. The invoices relied upon by the Taxpayer suggested that only 15 head of cattle were sold over the 4 Relevant Years after being grazed on the Woolgoolga property; and

  4. Due to the lack of evidence, it is not possible to say whether the dominant use of the Woolgoolga Land was to maintain cattle or whether the land was primarily unused during the Relevant Period.

The Tribunal accepted the Taxpayer’s evidence as to the carrying capacity of the Woolgoolga Land being 4 to 6 mature cows, and that there may be calves on the land from time-to-time. The Tribunal also had regard to Mr Bennett’s pasture management system and found that the dominant use of the Woolgoolga Land during the Relevant Period was the maintenance of beef cattle for the purpose of selling them or their natural increase or bodily produce.

Commerciality test

The Taxpayer submitted the following:

  1. The way in which the business was managed across the three blocks of land (including the Woolgoolga Land) was “very typical of beef production systems on the NSW north coast”.

  2. The Bennett family business provided the family with their principal source of income and lifestyle since 1975.

  3. The global financial crisis resulted in the Bennett family suffering serious losses in investments and had to take up part-time employment off-farm to rebuild assets and to minimise the debt relating to investment losses from the global financial crisis. However, Mr Bennett would spend every morning and afternoon working on the farming properties when employed, and all day when not otherwise employed.

  4. The Taxpayer was unable to furnish detailed financial records as the Taxpayer’s electronic records had been deleted by a disgruntled employee of the Taxpayer’s accountant in 2013, and the paper records had been destroyed by water damage in 2015.

  5. The use of the Woolgoolga Land should be viewed in the context of the entirety of the beef cattle business conducted by the Bennett family on the two Glenreagh Properties and on the Woolgoolga Land.

  6. The net loss for the 2014 and 2015 financial years showed improving net primary production income and the net loss was primarily due to interest costs.

  7. A return to profit is expected soon, as well as full-time farming. This was based on a “business plan” which had “already commenced operation”.

The Chief Commissioner submitted, relying on Maraya Holdings Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 23 at [89]-[90] and [106]-[107]:

  1. The financial statements and 2013 income tax return for the Bennett family’s cattle business showed that it made continuous losses before and during the Relevant Period;

  2. A number of financial statements and income tax returns were not in evidence, and both George and Carolyn Bennett maintained off-farm employment during the Relevant Period;

  3. The business plans indicate that the Woolgoolga Land would only be used for preparing cull-for-age cows for sale on an ad-hoc basis; and

  4. The Taxpayer failed to establish that the cattle use of the Woolgoolga Land satisfied the commerciality test.

The Tribunal accepted the Taxpayer’s evidence as to it being in a position to return a profit soon, and its explanation as to the lack of financial records. The Tribunal also had regard to the Taxpayer’s submission that in deciding whether the use of the Woolgoolga Land satisfied the commerciality test, it was appropriate to consider the entirety of the primary production activities (whether conducted on the Woolgoolga Land or not). Accordingly, the Tribunal found that the Taxpayer had satisfied the commerciality test for the Relevant Period.

Decision

The Tribunal determined that the Taxpayer had satisfied its onus of proving on the balance of probabilities that:

  1. The dominant use of the Land throughout the Relevant Period was to maintain beef cattle for the purpose of sale, and

  2. Throughout the Relevant Period, the Land was used for the purpose of profit on a continuous or repetitive basis and had a significant and substantial commercial purpose or character.

Consequently, Senior Member Isenberg held that the use of the Woolgoolga Land satisfied the requirements of s 10AA(2) of the LTMA, thereby qualifying for the primary production exemption for the Relevant Period.

Orders

The Chief Commissioner’s Assessments were set aside, and the Taxpayer was entitled to the primary production exemption for the Relevant Period.

Appeal

The Chief Commissioner has appealed to the Appeal Panel.

Link to decision

Brown Cavallo Pty Ltd v Chief Commissioner of State Revenue [2017] NSWCATAD 18

Footnotes

  1. ^ As defined in Saville v Commissioner of Land Tax (1980) 12 ATR 7 at 11
Last updated: 14 June 2017