In brief - "Dominant use" assessment requires inquiry into current tangible and physical deployment and its purpose
The New South Wales Court of Appeal in Chief Commissioner of State Revenue v Metricon Qld Pty Ltd  NSWCA 11
has held that a property developer is entitled to the "primary production" land tax exemption even though the land was acquired with a view to future residential development and subdivision.
The approach adopted by the Court evidences that in determining whether the "primary production" exemption applies, it is necessary to consider the current tangible and physical deployment of the land and not the purpose of acquisition.
Metricon buys land for future subdivision and sale, in the interim used for cattle grazing and residential lease in parts
Metricon Qld Pty Ltd (Metricon) acquired a number of parcels of land in Terranora in the Tweed Valley in 2008 and 2009 for approximately $60 million for the purposes of future development by subdivision and sale.
Between 2009 and 2013, Metricon took steps to obtain the required development approvals. However, no construction works were carried out and, at all material times, the land was used for the maintenance of cattle for the purpose of selling them or their natural increase or bodily produce under an agistment agreement with local farmers and graziers. In addition, certain areas of the land were also leased for residential purposes.
Land tax assessments were issued to Metricon for the land for five land tax years from 2009.
Land tax exemption applies for land used for primary production, which includes maintenance of animals
of the Land Tax Management Act 1956 (NSW)
(Act) provides that land that is not rural land is exempt from taxation if it is land used for primary production and that use of the land:
- has a significant and substantial commercial purpose or character; and
- is engaged in for the purpose of profit on a continuous or repetitive basis (whether or not a profit is actually made).
Land used for primary production means land the dominant use of which is for:
- cultivation, for the purpose of selling the produce of the cultivation; or
- the maintenance of animals (including birds), whether wild or domesticated, for the purpose of selling them or their natural increase or bodily produce; or
- commercial fishing (including preparation for that fishing and the storage or preparation of fish or fishing gear) or the commercial farming of fish, molluscs, crustaceans or other aquatic animals; or
- the keeping of bees, for the purpose of selling their honey; or
- 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
- the propagation for sale of mushrooms, orchids or flowers.
Supreme Court satisfied that dominant use was for primary production
At first instance, the Court found in favour of Metricon on the basis that the mere holding of land by Metricon for future residential development and claiming tax deductions for borrowing costs and loss of value was not a current use of the land.
The Court noted that the interpretation of "use" was not confined to a physical use, but must be a current use of the land and not acts taken, or benefits derived, in respect of a future intended use.
In particular, the work undertaken by Metricon as part of its development was only a use of the land insofar as the land was physically used in carrying out those activities to obtain the requisite development approvals. All other work and expenses incurred attributed to a future intended use of the land.
On the above reasoning, the Court was satisfied that the dominant use of the subject land (other than one parcel which was used as a residential rental property) for the relevant tax years was for primary production which outweighed the competing use of "land banking" or "land development".
Chief Commissioner of State Revenue's appeal dismissed by Court of Appeal
The Chief Commissioner of State Revenue brought an appeal against the decision of the Supreme Court which raised the following issues:
- whether an intangible use (e.g. uses of land banking and land development) is relevant for the purposes of the primary production exemption
- whether, in respect of three parcels, a residential use predominated over the primary production use of cattle grazing, and
- if an intangible use is relevant, that use when aggregated with the residential use, predominated over the primary production use
In considering the concept of "use", the Court determined that there is a distinction between the purpose for which land is acquired and the purpose for which it is currently being devoted to use. This means that an assessment of the "dominant use" requires an inquiry into the current tangible and physical deployment and its purpose, not the purpose of acquisition, the intention or identity of the parties who use the land.
Metricon's holding of land, although accompanied by a present intention to subdivide and sell at a future point in time, was not the source of a present benefit or advantage and did not constitute a use for the purposes of section 10AA(3) of the Act. Despite incurring expenses on planning residential development of the land, those activities did not amount to a "use" of the land as there was "no deployment of the land in pursuance of a purpose of obtaining present benefit and advantage from it." (At .) At that point in time, the benefit and advantage of such activities were only projected or anticipated.
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