Burns v Eurobodalla Shire Council
[2006] NSWLEC 677
•02/11/2006
Land and Environment Court
of New South Wales
CITATION: Burns v Eurobodalla Shire Council [2006] NSWLEC 677 PARTIES: APPLICANT:
RESPONDENT:
Colin Harold Burns
Eurobodalla Shire CouncilFILE NUMBER(S): 30045 of 2006 CORAM: Lloyd J KEY ISSUES: Compulsory Acquisition of Land :- amount of compensation – special value – capital gains tax – roll-over exemption – whether constitutes special value LEGISLATION CITED: Land Acquisition (Just Terms) Compensation Act 1991 ss 55(b), 57 CASES CITED: Boland v Yates Property Corp Pty Ltd (1999) 167 ALR 575;
Chong v Fairfield Municipal Council (1968) 16 LGRA 407;
Commissioner of Succession Duties v Executor Trustee and Agency Co of South Australia (Clifford's case) (1947) 74 CLR 358;
Green & Anor v Roads and Traffic Authority of New South Wales, NSWLEC, Talbot J, 29 August 1995, unreported;
L R Beilharz Investments Pty Limited v The Darling Harbour Authority, NSWLEC, Bignold J, 23 April 1991, unreported;
Prince Alfred Park Reserve Trust as Trustee of the Prince Alfred Park v State Rail Authority of New South Wales (1997) 96 LGERA 75;
Russellan Pty Ltd v RTA (1992) 75 LGRA 263DATES OF HEARING: 30/08/2006
DATE OF JUDGMENT:
11/02/2006LEGAL REPRESENTATIVES: APPLICANT:
J A Strati (solicitor)
SOLICITORS:
Avendra Singh Strati & KamRESPONDENT:
M E McMahon (solicitor)
SOLICITORS:
M E McMahon & Associates
JUDGMENT:
IN THE LAND AND
ENVIRONMENT COURT
OF NEW SOUTH WALES
Lloyd J
Thursday, 2 November 2006
LEC No. 30045 of 2006
JUDGMENTCOLIN HAROLD BURNS v EUROBODALLA SHIRE COUNCIL [2006] NSWLEC 677
1 HIS HONOUR: The question for determination is the amount of compensation to which the applicant, Mr Colin Harold Burns, is entitled as a consequence of the compulsory acquisition by the respondent council of his land at Moruya.
2 The land comprises two adjoining allotments known as Nos. 88 and 90 Murray Street, having areas of 784 square metres and 866 square metres respectively. The land was acquired by notice of compulsory acquisition on 23 September 2005.
3 The council offered as compensation the sum of $270,000, comprising market value of $255,000 plus $15,000 for disturbance. The applicant, however, claims $418,000, made up as follows:
Market value $360,000
Disturbance $15,000
Special value $43,000
Market value
4 It can be seen that the parties agree on the claim for disturbance. As to market value, each party has relied upon the evidence of a valuer – Mr J Langford for the applicant and Mr A Hopcroft for the council.
5 Both valuers gave evidence concurrently. As a result of this process the difference in their respective approaches was narrowed to two areas: -
(ii) whether one particular comparable sale was a reliable indicator of the value of the acquired land.
(i) the amount that should be allowed for filling the land to take account of its susceptibility to flooding;
6 As to (i) the subject land is vacant and is subject to Moruya Valley Floodplan Development Control Plan, being within the 1 in 100 year flood area. The council requires a minimum habitable floor level of 5.2 metres AHD (Australian Height Datum) with appropriate ground levels of 1.8 to 2.5 metres AHD. This would lend itself a two-storey dwelling having habitable rooms on the upper floor with garaging under. Even with this kind of structure there would be a need for 450 to 500 mm of filling on the land itself.
7 It is here that the valuers part company. The council’s valuer, Mr Hopcroft, has allowed an adjustment for the cost of filing the whole site to avoid ponding; and the cost of purchasing and compacting the fill would be about $27,500 per lot, although if the fill could be obtained for nothing this could reduce to about $10,000 per lot. The applicant’s valuer, Mr Langford, says that it would not be necessary to fill the whole of the site, but only the building area and some of its surrounds at a cost which he estimates at about $6,500 to $9,000 per lot.
8 In compensation cases doubts are resolved in favour of a more generous estimate to the disposed landowner: Commissioner of Succession Duties v Executor Trustee and Agency Co of South Australia (Clifford’s case) (1947) 74 CLR 358. Accordingly I prefer the opinion of Mr Langford and make an adjustment of $6,500 per lot for the necessary filling.
9 As to (ii), the parties’ valuers have relied on several sales of comparable properties within Moruya. One sale, in particular, is out of line with the other sales, and if included in the analysis produces a resulting figure which is noticeably higher than if one disregards it. This is the sale of No. 135 Vulcan Street, which occurred on 25 May 2004 – some 14 months before the date of compulsory acquisition - and for a sum of $175,000. The land at 135 Vulcan Street also comprises a larger than normal residential lot compared with the subject allotments and the other sales in the area. Moreover, the other sales which are indicative of value are more proximate to the date of compulsory acquisition as well as being closer in size to each of the acquired allotments.
10 I am thus inclined to agree with Mr Hopcroft’s opinion that this sale is “out of line” with the other sales which demonstrate a more consistent pattern. The sales of properties other than No. 135 Vulcan Street are a more reliable indicator of value. In my view a prudent hypothetical purchaser possessing a knowledge of all matters affecting the value of the land would not have regard to the sale of No. 135 Vulcan Street, and neither do I.
11 It follows that I adopt generally Mr Langford’s assessment, he having made the lower adjustment for filling, but ignoring the effect of the sale of No. 135 Vulcan Street. This results in a market value of about $154,500 for each allotment, representing a total market value of $309,000 for the acquired land.
Special value
12 According to the affidavit of the applicant, Mr C H Burns, it was his intention to retain the property as an asset for his retirement. Specifically, he intended to build a detached dwelling on each allotment, live in one and rent the other with the further intention of later selling the rented property for retirement income. Having purchased the property before 1985, it was exempt from capital gains tax. He acknowledges in his affidavit that there are provisions in the relevant legislation that allow for a capital gains tax exemption to rollover a property in compulsory acquisition cases provided that the replacement property is vacant land which has a value no greater than 120% of the acquired property. He states that he has been unable to find “one property” with similar attributes in Moruya. Accordingly, Mr Burns makes a claim for special value for his potential liability to capital gains tax on the replacement investment property, being a liability which would not arise if the compulsory acquisition had not occurred.
13 Although Mr Burns has been unable to find one property with similar attributes, I note that his intention of living in one property and having the other as an investment suggests that there is no need for the two properties to be contiguous. He does not say that it is not possible to purchase two separate, but not contiguous, replacement properties in Moruya, each with similar attributes to the acquired land.
14 Mr Burns’ accountant, Mr D C Shedden of Shedden & Green Pty Ltd, has obtained a private ruling from the Australian Taxation office regarding the capital gains tax implications of the compulsory acquisition. This ruling makes it explicit that the applicant is entitled to purchase a replacement asset which will not be subject to capital gains tax on its eventual sale. The ruling stipulates such a property must be purchased within a reasonable time and be no more than 120% of the market value of the compulsorily acquired property. Moreover, the ruling allows the applicant until 30 June 2007 to purchase a replacement property which will be benefited by the capital gains tax exemption. This would seem to be ample time in which to secure an appropriate replacement property (or two non-contiguous replacement properties as the case may be).
15 This would appear to answer the question as to whether the applicant should be compensated for capital gains tax as: as long as a replacement property is purchased within a reasonable time, none will be incurred. However, before disposing of this issue I should give brief consideration to the question of whether capital gains tax could in any event constitute “special value”, as is contended by the applicant.
16 Section 55(b) of the Land Acquisition (Just Terms Compensation) Act 1991 (“the Just Terms Act”) provides that in determining the amount of compensation to which a person is entitled, regard must be had to any special value of the land to the person on the date of its acquisition. Special value is defined in s 57 of the Just Terms Act as follows:
special value of land means the financial value of any advantage, in addition to market value, to the person entitled to compensation which is incidental to the person’s use of the land.
17 The applicant contends that the financial advantage of an exemption from capital gains tax, as the land was acquired before September 1985, is incidental to the use of the land as an investment for retirement purposes.
18 The applicant relies upon the description of “special value” by Callinan J in Boland v Yates Property Corp Pty Ltd (1999) 167 ALR 575 at 654:
The special value of land is its value to the owner over and above its market value. It arises in circumstances in which there is a conjunction of some special factor relating to the land and a capacity on the part of the owner exclusively or perhaps almost exclusively to exploit it. … There will in practice be few cases in which a property does have a special value for a particular owner. Obviously neither sentiment nor a long attachment to it will suffice. The special quality must be a quality that has an economic significance to the owner.
19 I note in particular that Callinan J points out that special value will only rarely be held to exist.
20 Interestingly, the applicant also relies on the decision of Talbot J Green & Anor v Roads and Traffic Authority of New South Wales (NSWLEC, 29 August 1995, unreported) to support the proposition that care should be taken in drawing on earlier authority to determine the meaning of a legislative provision which is subsequently introduced as an exhaustive code.
21 The applicant contends that authorities on the issue of whether capital gains tax comes under the head of “special value” which were decided before the Just Terms Act came into force on 1 January 1992 should, therefore, be disregarded as the present legislative scheme is intended to embody an exhaustive code. However, earlier in his judgment Talbot J also stated that “[t]he definition of special value in s 57 in some respects reflects the concept of special value developed at common law”. This would appear, on the contrary, to support the relevance of the previous authorities in construing the principle of “special value”.
22 In L R Beilharz Investments Pty Limited v The Darling Harbour Authority, (NSWLEC, 23 April 1991, unreported), Bignold J considered whether capital gains tax constituted “special value”. That case included a claim for the loss of a tax exemption. As in the present case, in Beilharz the land had been purchased by the dispossessed owner prior to the introduction of capital gains tax on 20 September 1985 and the disposal of the land would have been exempt from the tax. In both that case and the present case the land was compulsorily acquired after the introduction of capital gains tax, so that any replacement property purchased would normally be subject to the payment of capital gains tax on its future disposal. In Beilharz however, the “roll-over” benefit where the replacement asset will be treated as pre-capital gains tax had expired due to the lengthy negotiations between the parties. Nonetheless, Bignold J found that capital gains tax was not recoverable as “special value”. His Honour applied Chong v Fairfield Municipal Council (1968) 16 LGRA 407 holding that, as it is an income tax, capital gains tax is something personal to the landholder as a taxpayer and is therefore not related to the land itself so as to constitute “special value”.
23 The decision of Bignold J was applied by Pearlman J in Russellan Pty Ltd v Roads and Traffic Authority (1992) 75 LGRA 263. Again land purchased pre-capital gains tax was compulsory acquired after the introduction of capital gains tax. Her Honour held that capital gains tax was not to be included in the concept of “special value”.
24 Pearlman J again considered the question of capital gains tax in the calculation of compensation for compulsorily acquired land in Prince Alfred Park Reserve Trust as Trustee of the Prince Alfred Park v State Rail Authority of New South Wales (1997) 96 LGERA 75. In that case the land was acquired following the coming into force of the Just Terms Act. A claim was made under s 59(f) of that Act which is to compensate “any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition”.
25 Pearlman J found that capital gains tax cannot be categorised as a financial cost relating to the actual use of the land. Her reasoning mirrored that of Bignold J in Beilharz, viewing capital gains tax as an income tax and a personal liability of the taxpayer unrelated to the actual use of the land. Her Honour referred to Russellan, in which the land had been compulsorily acquired before the Just Terms Act came into force and found the same principle to apply as for a common law claim for “special value”.
26 Although the decision of Pearlman J in Prince Alfred Park case turned upon whether s 59 of the Just Terms Act supported a claim for capital gains tax, the principle is the same in relation to whether capital gains tax arises under the special value head of s 57 of the Act.
Conclusion and orders
27 The authorities make clear that capital gains tax is not special value which is incidental to the applicant’s use of the land. Rather, it is rightly characterised as a personal liability of the applicant and akin to income tax. It is a future benefit/detriment, which is too intangible to be attached to the usage of the land. Moreover, it is a roll-over benefit that will accrue to the present applicant upon the eventual sale of the replacement asset providing that he purchases it within a reasonable time. In the present case the applicant has until 30 June 2007 to acquire a replacement property; and since one of the two allotments was intended to be an investment property, there is no need for the replacement property to comprise contiguous allotments.
28 I thus reject the applicant’s claim to compensation in respect of future capital gains tax under s 55(b) of the Just Terms Act.
29 The final orders of the Court are:
(1) The compensation for the compulsory acquisition of Nos. 88 and 90 Murray Street, Moruya, also known as lots 7 and 8 in deposited plan No. 37973, Parish of Moruya, is determined as follows:
- Market value $309,00
Disturbance $15,000
TOTAL $324,000
(2) The question of costs is reserved.
(3) The exhibits may be returned.
I hereby certify that the preceding 29 paragraphs are a true copy of the reasons for judgment herein of the Honourable Mr Justice D H Lloyd.
Dated: 2 November 2006Associate
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