Jones v. Commissioner of Land Tax (N.S.W.).

Judges:
Woodward J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 22 August 1980.

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Woodward J.

By summons No. 696 of 1979 the plaintiffs sought an order that an objection to the defendant's assessment of land tax for the tax year 1977 be allowed and the assessment be set aside. By summons No. 686 of 1980 a similar application was made with regard to objections to the defendant's assessment in respect of the same land for the tax years 1978 and 1979. By consent both summonses were heard together.

The plaintiffs have at all material times been the registered proprietors of land known as Green Acres at 385 Bobbin Head Road, North Turramurra. The land was purchased by them in 1972. The plaintiff became interested in racing horses in 1966 when he purchased his first horses for racing in that year. He first bought a filly for racing and then for breeding purposes in 1971. It was through his interest in racing horses that he decided with his wife to pursue the breeding of horses. He bought the property because he was interested in breeding. It was suitable to his purpose as it was reasonably large, having an approximate area of two and a half acres. When he purchased it the property already had fenced pastures and

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paddocks, feedrooms and stalls suitable for his purpose.

The first horse he used for breeding was a horse by the name of ``Silken Touch'' and this horse was served in 1977. The offspring of this horse was a filly which was born in 1978. The mare was again served in December 1978 by a horse, ``Sir Daniel'', for a service fee of $1,000. It foaled a filly from that service in late 1979. ``Silken Touch'' died on the subject property on 16 May 1980. Her two foals are retained at the subject premises and the plaintiffs intend to breed from them.

The plaintiffs' second horse to bear foal was a mare by the name of ``Silkista'' which was served in 1978. One filly was born from this service and in 1979 ``Silkista'' was served again by a horse by the name of ``Tact'' for a fee of $700.

In late 1979 the plaintiffs purchased a horse by the name of ``Misere'' and intended to race this horse with a view to breeding.

It is necessary to have horses which have raced to establish their validity as breeding stock. It is important to establish the racing capacity of horses so that a breeding programme can progress. ``Silken Touch'' had the necessary performance record before her breeding commenced.

The plaintiffs have not yet sold any of the foals of the horses that have been served. All these foals have been fillies. There are two reasons why they have not been sold, the first being their youthfulness and the second that it is usual and good breeding practice to keep all fillies in a good bloodline in order to establish a good female line.

When the property was purchased in 1972 the value of fences, feedrooms and stalls was estimated to have been about $5,000. By the end of the year 1976 the plaintiffs had expended $2,410 on repairs to the fences. For the tax year of 1977 $1,794 was spent on fodder for the horses on the property.

In his affidavit in support of the first application the plaintiff estimated that the area of the property used for raising horses was between 50 and 60 per cent of the total area.

The plaintiffs gave evidence of the movement of the various horses during the years 1977, 1978 and 1979. The first plaintiff is a medical practitioner, carrying on his practice at premises other than the subject premises. However, he does on occasion attend to patients at his home on the subject premises. The house built on the premises has an area of some 42 squares and is used for the full-time occupation of himself, his wife and children. It is equipped with garden, swimming pool and tennis court. At the completion of the evidence a close examination of it revealed that horse-breeding was carried on on the premises on what might be described as a relatively small scale. No foals had been sold although one has been booked for sale at the next yearling sales later this year. It was clear that the property was used not only for breeding but accommodating race horses and for agistment. The plaintiff had ascribed 25 per cent of the expenses relating to the property as being attributable to breeding and agistment. In his income tax return he has described his business as that of breeding and agistment. The only income he has derived from such an occupation is for agistment fees. It was submitted to me by counsel for the Commissioner that this did not show that the predominant use was breeding and moreover this left the position as to the residence out of account.

An analysis of the pattern over the years was made by Mr. Smart of counsel for the Commissioner. In 1977 ``Silken Touch'' was at the property for 84 days and ``Silkista'' for three months and two days. Part of these periods overlapped. The total period of time in relation to both horses for the year was 159 days.

During the year 1978 ``Silken Touch'' was on the premises for nine and one-quarter months and ``Silkista'' was there for 71 days. For the year 1979 ``Silkista'' was on the property for a little over six months and ``Silken Touch'' was there approximately eight months. ``Silkista'' had two foals on the property, one in 1978 and the other born on 19 October 1979. ``Silkista'' had one foal on the property and it was born on 7 September 1979.

It was further disclosed that in his income tax returns the first plaintiff attributed 87½% of the residential premises to personal use and 12½% to professional use.

At first the plaintiff attributed to primary production the use of a little over 50% of the

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land but this was subsequently increased to approximately 60%. The variation, according to the plaintiff, was because of a more accurate type of measuring and inclusion of land at the front of the property which became available by reason of a movable fence. This was based on an area figure and ignored use.

The first-named plaintiff was examined and cross-examined at length and in my view answered all questions put to him truthfully. He made no effort to prevaricate at all. It was pointed out that the foals have remained on the property since the birth of each of them.

The evidence given by the plaintiff as to the advantages of racing fillies before breeding from them and establishing a performance of successful runs was supported by evidence from John Robert Park, a studmaster and grazier from Tamworth, and I accept his evidence without question.

The relevant interpretation given by the Land Tax Management Act, 1956 sec. 3 to ``land used for primary production is that it 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.'' Section 9 provides that land tax shall be payable by the owner of land upon the taxable value of all the land owned by him and not exempt from taxation under the Act. Section 10 then sets out the land which shall be exempt from taxation under the Act. The provisions relevant to this matter are those set out in subsec. (1)(p) and (u). Clause (p) provides:

``With respect to taxation leviable or payable in respect of the year commencing on the first day of January one thousand nine hundred and seventyfour or any succeeding year, land used for primary production.''

To this there are certain exceptions but they are not relevant. Because of the definition contained in the Act of the words ``land used for primary production'' they must be read in the circumstances as land used primarily for primary production and can, in the circumstances, relate only to the breeding of horses but not to racing or agistment of horses. It is to be noted that the section refers to land ``used'' and not land which is being prepared for use for the particular purpose.

In
Abbott v. Commr. of Land Tax (Vic.), (1978) 9 A.T.R. 728 Lush J. held in construing a similar provision in the Victorian Act that the word ``primarily'' is related to the whole of the parcel and it is from that point of view that the matter must be considered. The predominant use must be of such a degree that that use can be attributed as the character of the parcel as a whole. The subjective attitude of the owner was not relevant and the farming activities in the particular circumstances could not be classified as constituting the primary use of the property. In one sense, the land used for primary production was merely the residual part after the land used for the golf course had been set aside for that purpose.

Lush J. dealt with a number of authorities and at p. 732 said:

``In making a decision in the present case, I derive most help, among the authorities, from the observations of Helsham, C.J. (in Equity), 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.''

In my view it cannot be said that the predominant use of the subject property was for primary production within the meaning of the Act.

Subsection (1) and (u) exempt a parcel of land exceeding 2,100 square metres in area but not exceeding two hectares in area where -

• (i) paragraph (r)(ii) would apply to the land if it did not exceed 2,100 square metres in area; and

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• (ii) subdivision of the land is, immediately before the commencement of that year, prevented by a planning scheme authorised by or under an Act.

It was conceded that subdivision of the land had been relevantly prevented.

Paragraph (r)(ii) exempted from land tax:

``A parcel of residential land not exceeding 2,100 square metres in area that is used and occupied as his principal place of residence, and for no other purpose, by the owner of the land or, where there are joint owners, as his principal place of residence and for no other purpose, by any one or more of them, unless there were on the land, within the period of six months that last preceded the commencement of that year, two or more occupied flats.''

I would interpret that paragraph as requiring firstly that the area was used and occupied as the taxpayer's principal place of residence and secondly that it was used for no other purpose.

Section 10(1D) provides that in para. (r) ``residential land'' means land that is used and occupied for residential purposes and for no other purpose, that use and occupation being use and occupation of a building that is designed, constructed or adapted for residential purposes. There are certain exclusions which are not relevant. In my opinion the land in question cannot be said to be exempt as a residence which is used and occupied as his principal place of residence and is not used and occupied for any other purpose by the owner.

The plaintiff is not entitled to the orders sought in either summons and I dismiss those summonses and order the plaintiffs to pay the defendant's costs.