SUPREME COURT OF VICTORIA

ABBOTT v COMMISSIONER OF LAND TAX (VIC)

lush j

20-22 November, 7 December 1978 -

Lush J By two notices of assessment dated 5 July 1977 and one dated 29 November 1976 the Commissioner of Land Tax assessed the appellant Margaret Rose Abbott to land tax for the years 1974, 1975 and 1976 respectively. She gave notices of objection dated 2 September 1977 in respect of the years 1974 and 1975, and a notice dated 2 February 1977 in respect of the year 1976. All these objections were disallowed, and pursuant to appropriate requests by the appellant they have been referred as appeals to this court.

The basic issues between the parties are, in the case of the years 1974 and 1975, whether the land on which the tax was assessed was land used for primary production within the meaning of Land Tax Act 1958 s 9(1)(h)-"Land comprising one parcel which is wholly or partly within the metropolitan area (within the meaning of the Town and Country Planning Act 1961) none of which is within an urban zone and which is land used for primary production", and in the case of the year 1976, whether the land was within the meaning of clause (ha) of the same

subs

"Land comprised in one parcel which is wholly or partly within the metropolitan area (within the meaning of the Town and Country Planning Act 1961) and which is wholly or partly within an urban zone under a planning scheme in force under the Town and Country Planning Act 1961 and which is used solely or primarily by the owner for the business of primary production if:-

(i) the owner of the land is normally engaged in a substantially full-time capacity in the business of primary production of the type carried on on the land or in the case of a proprietary company the principal business of the company is primary production of a type carried on on the land; and

(ii) the owner is a natural person …"

The appellant's contention is that in the first two years covered by the assessments the land was within the exemption conferred by s 9(1)(h), and in the year 1976 was within the exemption conferred by s 9(1)(ha) .

It is common ground that the land assessed was at all material times within the metropolitan area as defined in the Town and Country Planning Act 1961. It is also common ground that by the combined operation of s 9(1A)and (1B) and appropriate declarations and schemes part of the land was brought within an urban zone on 13 August 1975, and was within such a zone at noon on 31 December 1975, the time relevant to the 1976 assessment. (See Land Tax Acts 8).

The definition of "parcel" in s 3 of the Act is relevant to all three notices of assessment, and is in these terms:-

"Parcel in relation to land means lands which are contiguous or which are separated only by a road or railway or other similar area across or around which movement is reasonably possible and which are owned by the same person."

The definition in the same section of "land or lands used for primary production", which is relevant to the assessments in respect of 1974 and 1975 is in the following terms:-

"Land or lands used for primary production means land or lands used primarily for: (a) …; (b) the maintenance of animals or poultry thereon for the purpose of selling them or their natural increase or bodily produce; (c) …; or (d) …"

The definition of "business of primary production", also in s 3, is relevant to the notice of assessment for the year 1976. That definition reads:-

"Business of primary production means the business of: (a) …; (b) maintaining animals or poultry for the purpose of selling them or their natural increase or bodily produce; (c) …; or (d) …"

In comparing the exemption conferred by s 9(1)(h) with that conferred by s 9(1)(ha), explained as they are by relevant definitions in s 3, it will be observed that the adverb "primarily", in the definition of lands used for primary production is differently placed from the adverbs "solely or primarily" in para (ha). It will also be seen that para (h) in conjunction with its relevant definition does not require that the land should be used in one of the defined fashions by the owner, whereas under para (ha), the essence of the exemption is that the land should be appropriately used by the owner, and then only subject to the conditions of sub paras (i)and (ii).

The land in question is an area of 209 acres at Warrandyte. It is comprised of land in three certificates of title, but the three title areas are contiguous. The appellant is the registered proprietor in all three certificates, and while it was not admitted that the land constituted a parcel, the contrary was not argued and the conclusion that it constitutes a parcel is, in view of the definition of that word, which I have quoted, inescapable.

It has been in the appellant's family for a long time, although the date of acquisition did not appear. The appellant's father operated it as a dairy farm. The appellant's mother was his second wife. He died at the age of 78, leaving the land to his wife for life with remainder to the appellant. The appellant was at the date of his death aged 10. She and her mother managed to carry on the dairy farm. It must be an understatement to say that this cannot have been easy. In 1960 she married. During the 1960s her mother surrendered her life interest and she became the owner in fee. In 1971 her mother died. On 1 October 1973 she leased 83 acres of the property to a golf club. The rent was substantial. A variation agreement was executed on 1 November 1975, and in the result the rent reserved was $13,000 in the first year, rising to $30,000 for the third, fourth, fifth and sixth years.

Dairy farming ceased in 1973. It seems by that time to have been financially unsatisfactory in that in return for the work expended it provided only subsistence, if that, and apparently relevant government authorities required that much of the equipment should be replaced, a requirement compliance with which would have been expensive. Accordingly, dairy farming was replaced by the raising of vealers. This activity was carried on on the 126 acres not leased to the golf club and on two areas at Templestowe totalling about 150 acres, which were leased in about 1968. Also used was a leased area of about 40 acres close to the subject land, also held since about 1968.

Such was the chronological history of changes affecting the land. The appellant and her husband gave evidence about these matters and about the working of the property. There are unsatisfactory aspects of that evidence, and a great deal of additional and more precise information must have been available if it had been desired to produce it. On the other hand, it was not contradicted and was, I think appropriately, challenged on broad rather than detailed issues.

The appellant described herself as having worked in the open and as having left accountancy and business administration to others. For someone who has made a living on the land, her ignorance of these aspects of the affairs of the farm was surprising, but I found her an impressive person and an impressive witness and essentially I accept her evidence except in some areas of evaluation and opinion. I was not so confident of the candour of some passages in her husband's evidence.

I find the following facts in addition to those which I have already set out. The whole of the subject property was genuinely operated as a dairy farm until 1973. The golf course was built in 1972-3 with no definite plan to lease it, but when an opportunity to lease it as a whole arose it was taken. The building and leasing were undertaken because of the need to supplement the family income from the farm, and against the appellant's inclination and desire.

The land leased to the golf club was the most developed part of the property, enjoying the greater part of the river frontage and consisting of more fertile land on the whole than the remainder and having a greater carrying capacity because it was relatively free of stony outcrops, less hilly and less subject to drying out. The retained portion of the land, however, cannot be described as unsuitable for grazing.

The operation of raising vealers was a genuine and substantial activity conducted on the retained Warrandyte land and the Templestowe lands in the relevant years, and the retained Warrandyte land was genuinely and substantially used in that activity. The use was not colourable. The gross returns of the operation were small, of the order of $4000, and the gross profit was of the order of $3000. The net result was a loss shown in tax returns and, I have no doubt, an actual loss. I use this last expression only because the figures placed before me do not, as I understand them, distinguish in all respects between expenses related to the land leased to the golf club and those relating to the retained land.

To the appellant, the running of the farm was in the material years, and is, apart possibly from her family, the central activity of her life. She devotes most of her days to it, averaging about 38 hours a week working with the stock and on matters affecting them. Her husband has adopted this style of life and would choose if he had a choice to continue with it. These observations apply equally to the relevant years of tax and to the present time. There were and are also ties binding the appellant to this particular land.

Upon these findings I turn to the question whether the land was in the years 1974 and 1975 used primarily for the maintenance of animals thereon etc, and in the year 1976 used solely or primarily for the business of primary production.

I make two general observations. First, what must satisfy these descriptions is the parcel of land, in this case the 209 acres as a whole. Secondly, what is to be examined is the use of the land, and not the subjective attitude of the owner or other persons towards the land or the activities carried on on it. In the present case, I have no doubt that to the appellant the use of the retained land for farming is the only use of the land which is of importance, the golf club lease being an unwelcome development accepted only because it was necessary to enable the real use to continue. Her attitude of mind in this respect, however, is not relevant to the decision which I have to make.

"Primary" is defined in the Shorter Oxford Dictionary as meaning "of the first importance, principal, chief." The word has been used in other legislation and counsel referred me to decisions under the Land Tax Management Act (NSW) 1956, the language of which, for the purposes of this case, is not distinguishable.

In Sonter v Comr of Land Tax (NSW) (1976) 7 ATR 30 the taxpayer used the subject property for breeding and selling cattle, horses and hounds. On it he also conducted a riding school, for the purposes of which the horses kept for breeding were used. The riding school was the most productive source of income. Rath J said that all the uses were substantial and that the "financial gain from the various activities is some indication of the comparative intensity of the activities. The economics of various aspects of the business conducted on land do not necessarily reflect the comparative extent of the use of the land" (at 34). Later, at 35, he said "The word 'primarily' as applied to the case, means that those uses are to be weighed and evaluated. There is no particular touchstone that can be used; all circumstances bearing on the degree, extent and intensity of the uses as land uses are to be considered. The question is one of fact and degree, and one to be approached on a broad, commonsense basis." It will be seen that this case dealt with concurrent uses of the land and part of the stock.

In Greenville Pty Ltd v Comr of Land Tax (NSW) (1977) 7 ATR 278, an area of 160 acres used as a golf course went out of use on 22 December and on 23 December 1½ acres were ploughed and sown with pumpkin seed. The owner contended (as was necessary under the NSW Act) that the land was used for primary production at midnight on 31 December. Helsham CJ said at 280 that the test to be applied was objective, and in applying it "one must adopt a broad approach and a commonsense one. It would probably not be sufficient to look merely at the financial return from the cultivation; the fact that there was none would not of itself warrant a finding that the land was not used primarily for cultivation, nor would the existence of a more rewarding cottage industry carried on by the owner on the land at the same time. Likewise the quantity of produce of the cultivation taken from the land would not of itself be a determinant of its primary use. The matter will be one of degree in each case. To claim an exemption under the Act the owner must be able to point to an activity being conducted on the land that will give the land the character of being mainly used for that activity, or that will enable a person having to decide the matter to say that the land is, in substance and looked at as a whole, being used for an activity that gives rise to an exemption."

Brown v Comr of Land Tax (NSW) (1977) 7 ATR 642 was another decision by Rath J, in which he held exempt as used for primary production an area of 41 acres of which 7½ acres were used for a fowl shed running many thousand hens, pig-pens and a pig yard. About another 5 acres were sown with grass and clover. There was a dam with a capacity of 2.5 million gallons, the water from which was used for the poultry and stock and for cooling the shed. Most of the rest of the land was scrub, and acted as a catchment area for the dam. It was unsuitable for other use.

In Longford Investments Pty Ltd v Comr of Land Tax (NSW) (1978) 8 ATR 656, Sheppard J refused exemption to the owner in respect of 69 acres of land of which 2½ acres were used for fruit production and packing sheds, the fruit producing negligible returns. About one-third of the property could not be directly used for primary production. There was evidence of investigations and plans for primary production on the usable area. His Honour followed the Greenville case, holding that the fact that part of land was used for primary production and the rest unused did not necessarily mean that land was primarily used for that purpose.

Some cases under the English Rating and Valuation (Apportionment) Act 1928 were also cited. It is sufficient to say that those cases - Moon v London County Council [1931] AC 151 (reported in the Court of Appeal in [1931] 1 KB 385) and Toogood & Sons Ltd v Green [1932] AC 663 - treat the expression "primarily used" as describing the main as distinct from a subsidiary use.

Some Australian cases dealing with legislation in other than taxation fields were also cited.

Upon the basis of these authorities, Mr Ormiston and Mr Fricke for the appellant submitted that the claims for exemption were to be determined as a question of fact and degree, to be approached on a commonsense basis; and that the test was whether the exempt use was the main or principal use. In applying the test one had regard to the areas devoted to various uses, the intensity of the use, its continuity, and the capabilities of the land for other use. Financial comparisons between the results of various uses were relevant only as an indication of intensity. They argued that here three-fifths of the land was used for primary production, and was genuinely and fully, even if unprofitably, so used.

Mr TH Smith for the Commissioner argued that exemption was only granted if the exempt use was predominant, and that it was not enough merely to show some discernible preponderance. He argued that the difference in areas devoted to the two uses was not significant; that it was more significant that the golf course occupied what could be described as the better part of the land; and that it was a fair inference that more money and effort had gone into the creation of the golf course than the rest of the farm. The disparity in income from the two uses was significant.

In making a decision in the present case, I derive most help, among the authorities, from the observations of Helsham CJ in the Greenville case, notwithstanding the dissimilarity of the facts. In construing the word "primarily" in its application to a case where a parcel of land is divided into two parts, one of which is devoted to an exempt use and one not, it must be remembered that the question is whether the whole of the parcel is primarily used for the exempt purpose. In my opinion, it is not sufficient to inquire whether some difference can be discerned between the uses to justify classifying one as the main use or predominant use. The predominance must be of such a degree as to impart a character to the parcel as a whole. In this respect, Mr Smith's submission was in my view correct. Further, it is the uses of the land which have to be considered, not the reasons in the mind of the owner for adopting or permitting those uses. For instance, as I have said, the appellant in the present case regards the golf course as a subordinate adjunct to the farm, and from her point of view she is right. That, however, does not provide the basis on which the case is to be solved.

In the end, the only factor in the case which tells relevantly in the appellant's favour is the difference in areas. I am not able to make anything of a comparison of the "intensity" of the two uses in the present case. Much of the appellant's evidence was directed to showing that the farming activities were genuine. This I have accepted, but there is no evidence upon which I could say, assuming it to be relevant, that less work was done on the golf course. The fact is that there are two substantial activities side by side, each appropriately conducted. That the golf course was split off from the farm seems to be immaterial; of some significance is the fact that the land needed for the golf course in terms of position and area was allotted to it and the farming land is in some sense residual.

My opinion accordingly is that the farming activities in the relevant years could not be classed as predominant and were incapable of imparting to the whole parcel the necessary character.

This conclusion makes it unnecessary to consider the additional questions arising in relation to the 1976 assessment, namely whether the business of primary production was shown to have been carried on by the appellant as distinct from her husband, and that she was engaged in a substantially full-time capacity in the business of primary production of the type carried on on the land. I record that had it been appropriate I would have made the necessary findings of fact in the appellant's favour.

The appeals constituted by the referral of the objections are dismissed.