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SUPREME COURT OF NEW SOUTH WALES ADMINISTRATIVE LAW DIVISION

BROWN v COMMISSIONER OF LAND TAX (NSW)

RATH J

5 August 1977 -

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Rath J    This is an appeal under s 35 of the Land Tax Management Act 1956 by the plaintiff against the decision of the defendant disallowing the plaintiff's objection against an assessment to land tax for the year commencing on 1 January 1975.

   Section 7 of the Land Tax Management Act 1956 provides that, subject to the provisions of the Act, land tax shall be levied and paid upon the unimproved value of all lands situated in New South Wales which are owned by taxpayers, and which are not exempt from taxation under the Act. By s 8 land tax shall be charged on land as owned at midnight on the thirty-first day of December immediately preceding the year for which the land tax is levied, that is to say, in the present case 31 December 1974. Land tax shall be payable by the owner of land upon the taxable value of all land owned by him and not exempt from taxation under the Act.

   The plaintiff's land tax return for the year 1975 disclosed that as at midnight on 31 December 1974 he owned land 279 Maguires Road, Maraylya, being a parcel of 41 acres 3 roods 30 perches, and being the whole of the land comprised in certificate of title registered volume 5946 folio 234. The land was included in Schedule A of the return. This schedule bears the heading: "Particulars of all lands owned at midnight on 31 December 1974, which are not exempt from taxation". In this schedule the parcel was entered in a column relating to "Lands used for primary production" as having an unimproved value of $68,000.

   Schedule 6 of the return provides for "Particulars of land used for primary production", and makes reference to s 9(3)(a)and (c) of the Act. The schedule has four columns, the three relevant ones being headed "Item No Sch A", "If part state area and unimproved value", and "Purpose for which used". As Schedule A requires each "distinct parcel of land" to be separately shown, the second column of Schedule 6 thus invites a division of a parcel shown in Schedule A as land used for primary production where only part of the parcel is so used. In accordance with this invitation the plaintiff wrote in the second column (in reference to the parcel 279 Maguires Road) "approximately 7½ acres", and in the third column gave the purpose of use as "poultry, pigs, horses and cows".

   The Commissioner of Land Tax, in his assessment issued on 6 February 1976, showed the taxable value of the Maguires Road parcel as $55,785. The unimproved value of $68,000 shown in the plaintiff's return was adjusted in a schedule to the assessment in the following manner:-

   

"Reduced by: UCV of that portion of item 1 exempt primary production land in terms of s 10Land Tax Management Act 1956 as follows:-

 

7.5/41.5 x $68,000 = %12,215"

   The $12,215 is then deducted from the $68,000 to arrive at the taxable value of $55,785. No question arises in the appeal as to the arithmetical accuracy of this calculation.

   The plaintiff objected to the assessment in a letter dated 16 February 1976. This letter, so far as material, reads as follows:-

   "I wish to lodge an objection against my assessment for land tax.

   …

   

"The property owned by me in Maraylya is farmed by me for my sole source of livelihood. I have 10,600 laying hens, about half my production goes to shops, the other half is delivered to the Egg Marketing Board. I also run pigs, some are sold to Riverstone meat works and Parramatta Livestock, some sold privately as weaners."

   By s 35(1) an objection shall be in writing and state fully and in detail the grounds on which the objector relies; and by s 37(1) a taxpayer, on the hearing of his appeal to the Supreme Court, shall be limited to the grounds stated in his objection. There was no submission made to the Court regarding the sufficiency of the statement of the grounds of objection.

   Since an amendment of 1969 inserted para (p)  in the exemption section (10), there have been two sets of provisions in the Act relating to land used for primary production. By s 9(2), the taxable value of all the land owned by a person is the total sum of the unimproved value of each parcel of land, less the "deduction", if any, prescribed by subs (3). Paragraph (a)and (c) of subs (3) provide respectively for a deduction from the taxable value where all the land owned by a person is used for primary production and where part only of the land owned by a person is used for primary production. In each case the deduction is total, where the unimproved value of the taxpayer's land does not exceed a certain amount. Where there is such an excess, but the value does not exceed $60,000, then, in the first case there is a reduction in the deduction proportionate to the excess; and in the second case there is a deduction which requires a calculation involving respectively the unimproved value of the part of the land used for primary production and the part of the land not used for primary production.

   By s 10 certain lands are exempted from taxation under the Act. These include the land described in para (p) , which (as amended in 1970) reads as follows:-

   

"(p) with respect to taxation leviable or payable in respect of the year commencing on the first day of January, one thousand nine hundred and seventy four or any succeeding year, land used for primary production, not being-

 

(a) land owned by a company;

 

(b) land owned by or on behalf of a company of which a mortgagee or person by way of security for money is in possession;

 

(c) land held by a trustee for or on behalf of a company; or

 

(d) land in respect of which a company is jointly assessed with any other person."

   The plaintiff, as at midnight on 31 December 1974 owned other land in respect of which no claim for deduction or exemption was made. This other land had a value in excess of $60,000, so that the provision for deduction in s 9(3)(a)and (c) would for this (if for no other reason) not be applicable. The question in this appeal accordingly is whether the exemption in s 10(1)(p) is applicable to the Maraylya land, in whole or in part. Subparagraphs (a) to (d) of para (p) do not apply, so that the problem becomes the meaning and application to the circumstances of the case of the expression "land used for primary production". The Commissioner conceded that part of the Maraylya land was so used, but said that this part was only the "approximately 7½ acres" referred to in the return. The plaintiff contended that all the Maraylya land was so used; and alternatively that a greater part than 7½ acres was so used. The plaintiff also contended that the Commissioner could not, in respect of a single parcel of land, treat one part of it as falling within the exemption and another part outside of it.

   The expression "land used for primary production" is defined in s 3, and that definition, so far as relevant, is as follows:-

   

" 'Land used for primary production' means land used primarily for - (b) the maintenance of animals or poultry thereon for the purpose of selling them or their natural increase or bodily produce."

   I shall now examine the evidence relating to the use of the Maraylya land. The question was whether this land, or part of it, was exempt from taxation, as land used for primary production, at midnight on 31 December 1974. The greater part of the land was and is zoned "Non-Urban Zone 1(c) Rural (25 acre minimum)" under the Shire of Baulkham Hills Planning Scheme. Permissible uses (some requiring consent) are agriculture, country dwellings, forestry, rural industries, home industries, offensive or hazardous industries, and extractive industries. Prohibited uses include other industries, commercial premises, and dwelling houses other than country dwellings. There was a suspension of the Planning Scheme in respect of part of the land so as to permit the erection of a second dwelling on the land. The plaintiff acquired the land in February 1973, and moved with his family into occupation of the house on the land in July 1973.

   Prior to his acquisition of the land the plaintiff carried on business as a poultry farmer in partnership with his father at Rouse Hill, and some activities of the partnership appear to have been carried on there until about April 1975. In November 1973 the hens were sold, and in about July 1973 the plaintiff purchased 11,000 hens to stock the Maraylya property. A fowlshed was constructed on the land in early 1973 at a cost of about $47,000. The plaintiff has gradually improved the property, and has spent an additional $30,000 on the purchase of stock, the purchase of an additional hen quota and hens, clearing and improving the land and running it.

   It appears from the plaintiff's income tax returns for the years 1974 and 1975 that poultry farming has been the principal business activity on the land. But he commenced farrowing and rearing pigs on the land in June 1973, and this activity has gradually increased, particularly since his acquisition of a stud boar in May 1975. In 1974 the extent of the pig-raising activity had been one litter from one of two sows brought over from the Rouse Hill property. He has, in 1973, 1974 and since that time, repaired existing pig pens and erected new pens. The income tax returns indicate that for the years ending June 1974 and June 1975 the activity was a minor one. An even more minor activity in those years was the keeping of cattle on the property. In July 1973 he took two cows there with a view to breeding cattle and selling them as vealers. They occupied a fenced area of about 5 acres, which the plaintiff planted with grass and clover early in 1974. But the land is very poor quality country, and in about January 1976 the cattle were sold as it was apparent that the area cleared and planted would not support cattle in dry weather. As to the horses referred to in the return, no claim was made that these were maintained for any of the purposes set out in the definition of "land used for primary production". Similarly, with reference to the fruit trees on the land, there was no claim that these fell within a part of that definition dealing with cultivation for sale.

   In his affidavit the plaintiff said that at all times since prior to December 1974 the following portions of the land have been used specifically for the following purposes:-

Area	Purpose
about one acre	houses
about 7½ acres	fowl shed, pig runs, pig yard and fruit trees
about five acres	portion planted with grasses and clover

   Cross-examination of the plaintiff was directed to suggested inconsistencies between the account of his activities in his affidavit, on the one hand, and in his return and letters to the Commissioner on the other hand. I was satisfied that the plaintiff was a truthful witness, and that his affidavit was in substance correct.

   There were two dams on the property when it was acquired by the plaintiff, one being near the Maguires Road frontage and the other at the rear of the property. The plaintiff has installed extensive pipelines from these dams to the pig pens, the fowlshed, a supply tank and the houses. These pipes were put down early in 1974. The dam at the rear is a large one of 2,500,000 gallon capacity and occupies about ½ acre. The water from it is used as drinking water for the fowls and for spraying the roof of the fowlshed to keep it cool. There are roads from this dam to the fowlshed and pig pens. From a sketch of the land it appears that the rear half of the land is (apart from the dam, pipes and road) undeveloped, and covered with trees and scrub. However, a substantial part of this land is a catchment area for the large dam.

   There is also an area of about four acres enclosed by an electric fence which has at various times been used for running pigs, but it is not clear on the evidence whether this area was used before the end of 1974. Manure from the hens is spread over an area of about five acres, apparently with a view to the ultimate improvement of the area.

   To summarize, as at the end of 1974 there was a substantial business of poultry farming being carried on; a small start had been made towards cattle raising; and some significant progress had been made in the pig-raising business. Later on the cattle activity was abandoned, but the pig raising has increased. Apart from the areas occupied by the dams, roads and pipelines, some 17 acres were occupied by houses, fowlshed, pig runs, pig yards, fruit trees, grazing land and improved pastures. Apart from the fruit tree area (which does not appear to be of significance) the whole of this 17 acres would appear to fall, at that time, in the definition of land used for primary production. This 17 acres includes the 7½ acres referred to in the return (and accepted by the Commissioner as so used) together with other land used in conjunction with it (principally for grazing). In addition the land occupied by the dams, pipelines and roads qualifies as land used for primary production on the same basis. The balance of the property was unused, except in so far as part of it was a water catchment area. It is not possible on the evidence to determine whether this unused balance was more or less than half of the land. It was approximately one half; but in so far as there is any burden on the plaintiff of proving that more than half of the land was actually used for primary production, as distinct from being unused scrub land, he has failed to discharge the onus.

   Thus, if the definition of "land used for primary production" means that the plaintiff must show that more than half of the land is so used, then in this sense he has failed to do so. As I understand the argument, neither party contended that the word "primarily" in the definition had this effect. The argument for the Commissioner was that the land should be divided into that part which was used and that part which was not used; only the former part was put to the test of the definition; the latter part, on his approach, did not qualify. When this argument is analysed, it means that the word "primarily" would relate only to a comparison of intensity of divergent uses on the same piece of land. The argument for the plaintiff was, as I understood it, that the word "primarily" permitted the rural activity on one part of the land to be weighed against the non-use of another part. The argument was that where some 17 acres were used for the designated rural purposes, and the balance of about 24 acres was not used, and not readily capable of any rural use, the whole parcel of land should be regarded as land used for primary production within the meaning of the definition. This argument for the plaintiff is in my view correct, both in its approach, and on the facts of the present case. One central aspect of this case is the dam at the rear of the land, and its function in the rural enterprise. If the Commissioner's approach was correct, it would still be a consequence that this dam and the land used for the pipelines should be included in the exempt land. This would immediately make unreal any division of the land physically into an exempt portion and a non-exempt portion.

   The same result may be arrived at by a different approach to the construction of the Act. The Commissioner's approach involves treating a single parcel of land, valued as such, as divisible for the purposes of the Act into exempt and non-exempt portions. Having so subdivided the land, it becomes necessary to ascertain an unimproved value for the non-exempt portion. I was not referred to any power of valuation vested in the Commissioner. By s 14 the Commissioner shall from the returns and from any other information in his possession cause an assessment to be made of the taxable value of the land owned by a taxpayer and of the land tax payable thereon. But s 54 of the Act defines what, for the purposes of the Act, the unimproved value of land "means"; and no such determination by the Commissioner is there included. By that section the unimproved value means such value as determined by the relevant valuation authority, who in this case is the Valuer-General under the Valuation of Land Act 1916. There is simply no power in the Commissioner to carry out the arithmetical exercise shown in the adjustment schedule to the assessment. In argument counsel for the Commissioner attempted to find a way out of this impasse (the presence of which he frankly admitted) by referring to the power of this Court on appeal to make such order as it thinks fit (s 37(4)). This seems to me to be an argument of last resort. On this argument the Commissioner's assessment of value has in itself no effect, but that of the Court has. It is of interest, at least, to note that the rating exemption section in the Local Government Act 1919 (s 132) expressly provides that the rating appeal court may determine the value of part of the land assessed to rates, where it determines that part only of the land is ratable ( s 132(5)). But there is no such provision in the Land Tax Management Act. That no such valuation determination is intended to be made under the Land Tax Management Act, either by the Commissioner, or the Supreme Court on appeal, is indicated by s 35(2), which provides that no objection shall be made to the Commissioner under the Act "in respect of so much of the assessment as relates to the valuation of the land shown therein if such valuation is the unimproved value of such land" under the Act. The reason is of course that the valuation made by a competent authority for the purposes of s 54 is subject to objection under the statute relating to that authority.

   I have felt some concern as to the construction of sub para (d)(ii) of s 54(1). Under that subparagraph the unimproved value means, where immediately before the first day of the year for which land tax is being levied the land has no unimproved value by reason "of the inclusion of the land in one valuation with other land", the unimproved value as determined by the appropriate valuing authority upon a request in that behalf. The Commissioner did not make any such request in this case, and did not seek in any way to rely on this provision in the appeal to this Court. In my view, if s 10 (in particular para (p)), does contemplate the subdivision of parcels into exempt and non-exempt land, then it is this provision of s 54 which must be employed to find the value of the non-exempt portion. The Commissioner determined the unimproved value of the portion he found non-exempt by taking an acreage proportion of the total unimproved value; but obviously this calculation is not a "valuation" in any meaningful sense of that word.

   Though I have had some doubt about the matter, I have finally concluded that the parties are correct in their view that s 54(1)(d)(ii) is not intended to provide valuations of non-exempt portions of singly valued parcels. The subparagraph is capable of a simpler interpretation as applying, for example, to a valuation of a parcel subdivided and passing into different ownership before the relevant date. It would I think be unsound in principle to use an ancillary provision such as s 54(1)(d)(ii) to construe in a fundamental aspect the exemption section of the Act. The Valuation of Land Act 1916 deals with the valuation of parcels, and it is that valuation which the Land Tax Management Act uses, in the case of lands valued under the former Act, for the determination of taxable value. The taxing Act expressly refers to the unimproved value of each "parcel" ( s 9(2)). It is interesting, and I think instructive, to note that in cases where the exemption section bases exemption in part on area, there is a provision for a reduction of unimproved value where the area is excessive in a proportion based on area, not on respective values (s 10(1)(r) , (u) ; subs (4)).

   Thus, if this reasoning is correct, the question, whether the land was used for primary production, should be asked of the whole parcel of land at Maraylya. Was it, regarded as a whole, used primarily for the maintenance of animals or poultry thereon for the purpose of selling them or their natural increase or bodily produce? Some of the land may not have been used for this or any other purpose, and indeed less than half of the land was proved to have been so used. But the definition permits regard to be had not only to the area of use, but also to the intensity of rural use, the presence or absence of competing uses, and the capabilities of the land for use. Having regard to all these factors, I am of the opinion that, as at midnight on 31 December 1974 all the Maraylya land was land used primarily for one or more of the designated purposes in para (b) of the definition of "land used for primary production". It follows that in my view the whole of the Maraylya land was exempt by virtue of para (p) of s 10(1).

   I have some reservation as to whether the summons asks for the appropriate order, and I propose to direct the plaintiff to bring in short minutes of orders. As at present advised I am of the view that the Commissioner should pay the plaintiff's costs, but I shall hear argument on this point if the parties so wish.

Short Minutes

17 August 1977

  1  I declare that at midnight on 31 December 1974 all of the plaintiff's land at 279 Maguires Road, Maraylya, being the whole of the land comprised in Certificate of Title Volume 5946 Folio 234 was land used for primary production and exempt from land tax by virtue of s 10(1)(p) of the Land Tax Management Act 1956.

  2  I vary the assessment of land tax issued to the plaintiff on 6 February 1975 (No 39838) from $2022.30 to $871.00.

  3  Defendant to pay plaintiff's costs.