Chen & Zhang v Commissioner for Act Revenue (Administrative Review)
[2014] ACAT 70
•7 November 2014
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
CHEN & ZHANG v COMMISSIONER FOR ACT REVENUE
(Administrative Review) [2014] ACAT 70
AT 5 of 2014
Catchwords: ADMINISTRATIVE REVIEW - unimproved value of land (UV) for determining rates - objection to determining UV: section 6 of the Rates Act 2004 - established principles of valuation - use of comparable land sales prior to and subsequent to relevant statutory date with adjustment for market movement for determining UV - best evidence of unimproved capital value - evidence of qualified valuer accepted in preference to lay opinions of applicant - value of improvements for insurance purposes of no assistance - method of averaging the sale price of properties unsound - effect of utility services easement in assessing UV - UV of comparable sales property adds little value - weight, if any, to be attached to value of improvements on comparable properties - hardship
Legislation:ACT Civil and Administrative Tribunal Act 2008 s. 68
Rates Act 2004 ss 6, 9, 10, 70, 73
Taxation Administration Act 1999 ss 107A and 108A
Cases:Anderson Stuart v Treleaven [2000] NSWSC 283
Commonwealth v Arklay (1951-1952) 87 CLR 159
Commonwealth v Milledge (1953) 90 CLR 157
Dexter and Minister for the Capital Territory [1979] AATA 115
Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299
Hamilton v Demgold Pty Ltd (1990) 97 ALR 481Jens Svensson & Commissioner for ACT Revenue [2010] ACAT 59
Lamb and Minister for the Capital Territory [1979] AATA 26
McCathie v The Federal Commissioner of Taxation (1944) 69 CLR 16
Trewhella and Minister for the Capital Territory [1979] AATA 108
Walsh and Minister for the Capital Territory [1979] AATA 186
Tribunal: Ms E. Symons – Presidential Member
Date of Orders: 7 November 2014
Date of Reasons for Decision: 7 November 2014
ACT CIVIL AND ADMINISTRATIVE TRIBUNAL AT 14/05
RE: YIJIANG CHEN & YIXIA ZHANG
Applicant
AND: THE COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL: Ms E. Symons - Presiding Member
DATE:7 November 2014
ORDER
The Tribunal Orders that:
1. The decision under review is confirmed.
………………………………..
Ms E. Symons - Presiding Member
REASONS FOR DECISION
Decision under Review
This is an application to the ACT Civil and Administrative Tribunal (‘the Tribunal’) for review of a decision (‘the decision’) of the Commissioner for ACT Revenue (‘the Commissioner’) made on 16 December 2013 with respect to the 1 January 2013 Unimproved Value (‘UV’) of the crown lease at Block 4 Section 28 Turner (‘the property’), being 37 Hackett Gardens, Turner and owned by the applicants.
The Commissioner originally determined the UV at $726,000 on 16 September 2013. The Applicants objected to that decision by letter dated 18 October 2013. The Commissioner disallowed the Applicants’ objection and confirmed the Valuation Notice under review.
The matter was heard on 8 September 2014. The Applicants represented themselves. Mr R. Bayliss of the ACT Government Solicitor appeared for the Commissioner. The Tribunal reserved its decision at the conclusion of the hearing.
Issues
The primary issue for consideration is whether the Commissioner has arrived at the correct UV for the Applicants’ property pursuant to section 6 of the Rates Act 2004 (‘Rates Act’).
In deciding this issue it is necessary, given the dispute between the parties, to determine[1]:
a) the correct approach to be adopted in determining the UV of the property and
b) the deductions to be made from comparable sales of the value of dwellings upon those blocks of land in order to derive the UV.
Applicable Law
[1] Respondent’s Submissions paragraph 1
Section 108A of the Taxation Administration Act 1999 (‘TAA’) provides that a taxpayer in relation to whom a reviewable decision is made may apply to the ACT Civil and Administrative Tribunal for review of the decision.
Pursuant to section 107A (1)(c) of the TAA a reviewable decision is a determination by the Commissioner of an objection by the taxpayer to a decision under a tax law that is prescribed for this section.
Pursuant to section 73(1) of the Rates Act the taxpayer can seek review by this tribunal of a determination by the commissioner of an objection to a decision mentioned in section 70.
The Commissioner’s decision made on 16 December 2013 is a reviewable decision.
Division 6.3 of the ACTCivil and Administrative Tribunal Act 2008 (‘ACAT Act’) sets out the Tribunal’s powers and the decisions that can be made in relation to applications for administrative review. Section 68 of the ACAT Act applies if the tribunal reviews a decision by an entity, and states:
68Review of decisions
(1)This section applies if the tribunal reviews a decision by an entity.
(2)The tribunal may exercise any function given by an Act to the entity for making the decision.
NoteA reference to an Act includes a reference to the statutory instruments made or in force under the Act, including regulations (see Legislation Act, s 104).
(3)The tribunal must, by order—
(a)confirm the decision; or
(b)vary the decision; or
(c)set aside the decision and—
(i)make a substitute decision; or
(ii)remit the matter that is the subject of the decision for reconsideration by the decision-maker in accordance with any direction or recommendation of the tribunal.
Sections 9 and 10 of the Rates Act (which are set out at the end of this decision) provide for the determination and annual redetermination of UVs for parcels of land in the ACT. Section 6 defines UV and states:
6Meaning of unimproved value
(1)The unimproved value of a parcel of land held under a lease from the Commonwealth is the capital amount that might be expected to have been offered on the relevant date for the lease of the parcel, assuming that—
(a)the only improvements on or to the parcel were the improvements (if any) by way of clearing, filling, grading, draining, levelling or excavating—
(i)if the Territory or Commonwealth had, before the parcel became rateable as a separate parcel, granted a development lease of land that included the parcel—made by the lessee under that lease or by the Territory or Commonwealth, or the cost of which was met by that lessee or by the Territory or Commonwealth; or
(ii)in any other case—made by the Territory or Commonwealth or the cost of which was met by the Territory or Commonwealth; and
(b)the circumstances that existed on the prescribed date also existed on the relevant date; and
(c)on the relevant date, the lease had an unexpired term of 99 years; and
(d)a nominal rent was payable under the lease for the 99 year term.
NoteRelevant date is defined in the dictionary.
(2)The unimproved value of a parcel of land held in fee simple is the capital amount that might be expected to have been offered for the parcel at a genuine sale on the relevant date on the reasonable terms and conditions that a genuine seller would require, assuming that no improvements had been made on or to the parcel.
(3)In this section:
prescribed date, for a parcel of land, means—
(a)for a determination of the unimproved value of the parcel—the date the parcel became rateable; or
(b)for an annual redetermination of the unimproved value of the parcel—the date the redetermination applies; or
(c)for a redetermination of the unimproved value of the parcel under section 11 (Redetermination—error) or section 11A (Redetermination—change of circumstances)—the date the redetermination begins to apply to the parcel.
The Applicants’ contentions
The Applicants contend[2] that:
[2] Applicants’ Statement of Facts and Contentions 8 July 2014
a)the sale prices of properties sold in Hackett Gardens, Turner have been declining since 2010 and this reflects the trend with both improved and unimproved values;
b)an increase of 5.22% in the assessed UV of the applicants’ property from 1 January 2012 to 1 January 2013 is contradictory to this decline in property values;
c)the respondent’s use of comparable sales of 23 and 25 Hackett Gardens, Turner is flawed because the sales dates are six months before 1 January 2013;
d)the respondent’s use of comparable sales of 23 and 25 Hackett Gardens, Turner, both of which have been redeveloped, is irrelevant for determining the UV of the property of working class people who want to have the right to live in Hackett Gardens in the existing houses and do not want to be squeezed out because of poverty;
e)the sale prices of comparable properties should be decreased to take into account the value of existing houses;
f)comparable property sales at 59 McCaughey Street, Turner, 63 McCaughey Street, Turner and 20 Hackett Gardens, Turner all occurred within 3 months of 1 January 2013 and are more relevant;
g)by averaging the comparable sales relied on by the applicants in (f) above, the applicants’ property’s improved value is $840,000;
h)The UV of the applicants’ property with its existing building structure is $550,639. This is achieved by deducting $100,000, for cost of renovation for wear and tear to the existing building, from the amount of the insurance cover, namely $390,000, for the applicants’ property and then deducting the remaining $290,000 from the applicants’ assessment of their property’s improved value of $840,000; and
i)as a result of the impact of the existing sewer pipe and storm water drainage easement on the applicants’ property the usable land area for building is reduced by 25% from 868 m² to 651m². This reduces the improved value by $210,000 to $630,000.
In their submissions dated 26 September 2014, the Applicants also stated:
DISPUTING POINT
1.The dispute between the Applicants and the Respondent in determining the unimproved value (UV) of the subject property boils down to the crux of justice, fairness, discrimination and double standards. It is beyond the valuation of UV itself.
· The respondent relies solely on its witness (Mr Geoff McInerney) discriminative approach,
i. which uses the sold prices of comparable sales as the reference UV of the sold properties to assess/justify the subject $726,000 UV while the sold properties keep their actual UV (substantially lower than the sold prices) determined by the Respondent at the time of sale for taxation purposes, and
ii. which artificially devaluates the improvements and consequently inflates the reference UV of the sold properties to ass/justify the subject $726,000 UV while the sold properties keep their actual UV determined by the Respondent at the time of sale for taxation purposes, which is substantially lower than that of the artificially inflated reference UV for assessing the subject UV.
The Respondent’s contentions
The respondent contends[3] that the UV of the property as at 1 January 2013 has been determined correctly, in accordance with section 6 of the Rates Act. The respondent relies on the AVO report based on comparable sales evidence.
Relevant Agreed facts
[3] Respondent’s Statement of Facts and Contentions dated 28 February 2014, paragraph 7.
The following facts were agreed:
a)the property is rateable land for the purposes of the Rates Act;
b)on 16 September 2013 the respondent determined that the UV of the property, as at 1 January 2013 was $726,000;
c)the property is a residential block which is a regular shaped and level allotment overlooking park and is located within 1.6 kilometres of the Canberra Central Business District and the O’Connor Shops;
d)there is a single dwelling on the property which is in an RZ1 - suburban zone. This is a residential zone under the Territory Plan;
e)at all relevant times the property was owned by the applicants;
f)the applicants objected to the UV determination by letter dated 18 October 2013. The applicants asserted that the UV of the property should be reduced to $550,639;
g)the respondent refused the Applicants’ objection on 16 December 2013. The respondent relied on a valuation report prepared by the Australian Valuation Office;
h)the applicants have not provided evidence from an expert witness with formal valuation qualifications to contradict the Australian Valuation Office report;
i)20 Hackett Gardens, Turner (Block 28 Section 27) sold for $891,000 in March 2013;
j)23 Hackett Gardens, Turner (Block 48 Section 28) sold for $965,000 in July 2012;
k)25 Hackett Gardens, Turner (Block 47 Section 28) sold for $965,000 in July 2012;
l)59 McCaughey Street, Turner (Block 10 Section 54) sold for $762,000 in December 2012; and
m)63 McCaughey Street, Turner (Block 8 Section 54) sold for $863,000 in November 2012.
The Hearing
Mr Chen gave evidence on behalf of the Applicants. He confirmed that the Applicants’ evidence was as set out in their Statement of Facts and Contentions filed on 8 July 2014 and in their Response filed on 8 August 2014.
The Respondent called evidence from Mr Geoff McInerney who is a Senior Valuer with the Australian Valuation Office. Mr McInerney had filed a witness statement dated 8 August 2014 to which he attached his Curriculum Vitae. The Tribunal noted his qualifications and experience. Mr McInerney’s witness statement was Exhibit R1; his Calculation of the Deduced Land Value for 63 McCaughey Street Turner was Exhibit R2 and his Calculation of the Deduced Land Value for 20 Hackett Gardens Street Turner was Exhibit R3.
With the consent of the parties at the conclusion of the hearing the Tribunal set a timetable for the provision of written submissions and reserved the decision.
Consideration
This review has arisen from the decision of the Commissioner to determine the property’s UV as at 1 January 2013 at $726,000.
Subsection 6(1)(a) - (d) of the Rates Act sets out the meaning of ‘unimproved value’. In essence, this section sets out relevant assumptions which are required to be taken into account when determining unimproved value.
In Hamilton v Demgold Pty Ltd [4] the Federal Court of Australia considered the meaning of ‘unimproved value of land’ in section 5(1) of the Rates and Land Tax Ordinance 1926[5] (RLTO). Wilcox J stated: [6]
The formula embodied in s. 5(1) - ‘the capital sum that might be expected to have been offered on the relevant date for the lease of a parcel of Land’ - is an unusual one. The explanation of that wording, no doubt is that, in s 5(1) of the Rates and Land Tax Act, the legislature was concerned only with leased Crown land. It wished to put all lessees on an equal footing, whether they were original lessees or not.
[4] (1990) 97 ALR 481
[5] s.5(1) The unimproved capital value of land (other than land held as described in sub-section (2.)of this section) is the capital sum which the fee simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bona fide seller would require assuming that the improvements (if any) thereon or appertaining thereto had not been made.
[6] At page 494
The Tribunal is satisfied that this statement is authority for the Tribunal finding that the assumptions in section 6(1)(a) - (d) of the Rates Act are designed to put landowners on an equal footing in relation to the determination of the unimproved value of the land for taxation purposes.
Both parties agreed with what the High Court said, in Commonwealth v Arklay,[7] when considering the “value” of land under the Lands Acquisition Act 1906 - 1936:
It is established that “value” in such a context means the value of the land to the owner. Where the amount by which a vendor may sell and a purchaser buy is not controlled the Court poses the hypothetical problem, the answer to which supplies this value. ... Shortly stated what is required is “an estimate of the price which would have been agreed upon in a voluntary bargain between a vendor and purchaser each willing to trade but neither of whom was so anxious to do so that he would overlook any ordinary business considerations. It is simply an analysis of what in all the relevant circumstances would be the price that a willing purchaser would have to pay a vendor willing but not anxious to sell in order to obtain the land. [Tribunal’s emphasis] Where the land has no special suitability for some business or activity carried on by the owner and has no added potential value if put to some better use, the value on a free market is usually its market value. The best evidence of this value is of comparable sales of other land either before or after the date of acquisition but this evidence is often not available. [Tribunal’s emphasis]
[7] (1951-1952) 87 CLR 159, at 169 - 170
At the hearing, and in their Statement of Facts and Contentions and their Submissions, the applicants took issue with the valuation method used by the respondent and with the respondent’s evidence.
Approach to valuation
Firstly, in their Statement of Facts and Contentions summarised in paragraph 12 above, the applicants set out their primary contentions in relation to approaching valuation.
Secondly, in Mr Chen’s evidence and in their Submissions lodged 26 September 2014, the applicants submitted [8] that, in looking at the comparable sales for 23 and 25 Hackett Gardens Turner and 59 and 63 McCaughey Street Turner the respondent put the land owners on an unequal footing when determining UV for taxation purposes by using the unfair and discriminatory valuation method of relying on the sale prices for these properties “while the sold properties keep their actual lower UV determined by the Respondent at the time of sale for taxation purposes.”[9]
[8] Applicants’ Submissions [2] a. - e.
[9] Applicants’ Submissions [8]
The Tribunal will consider each of the Applicants’ contentions.
Falling property prices in Turner over the last few years
The applicants submitted that an increase of 5.22% in their assessed UV as at 1 January 2013 contradicted the decline in both improved and unimproved values in Hackett Gardens, Turner since 2010. Attachment 4 of their Response lodged on 22 August 2014 was an extract dated 19 August 2014 from the website for the business allhomes.com.au. The extract relates to Median Sales Prices for Turner which showed graphs for ‘Median Property Price’, ‘Median Non-Unit Price’ and ‘Median Unit Price’ from 2000 to 2014. The applicants relied on the ‘Median Property Price’ (which combined both ‘Median Non-Unit’ price and ‘Median Unit’ price) as evidence showing a gradual decline in Turner property prices since 2010.
Mr McInerney drew the Tribunal’s attention to the fact, and the Tribunal noted, that the applicants’ property was a house or “non-unit” and that the Turner ‘Median Non-Unit’ price showed a steady increase in price since 2010. Attachments 6, 7 and 8 to the Applicants’ Response, which were the allhomes UV statements for 59 and 63 McCaughey Street, Turner and 23 Hackett Gardens, Turner relied on by the applicants as comparable sales, also showed that the UV for each property had increased since 2009.
Mr McInerney’s evidence was that while an oversupply of recently developed residential unit complexes in Turner since 2010 had caused a slight decrease in the price for residential units, the price for single dwelling sites, such as the applicants’ property, had increased.
The applicants then sought to rely solely on property sales within Hackett Gardens, namely 19, 20, 23 and 25 Hackett Gardens, between 2010 and 2013 as
the hard evidence of all the sales in Hackett Gardens Turner from 2010 to 2013...showing ‘Median Non-Unit Price’ in Hackett Gardens decreasing trend in this time period.[10].
Notwithstanding that, the applicants also sought to rely on the comparable sales of two properties at 59 and 63 McCaughey Street Turner. They submitted that:
The witness’s (Mr McInerney) argument on a specific that there is increase in ‘sold properties in Turner of Median Non Unit (single dwelling sites) properties’ is nothing but picking and choosing irrelevant specific to back his own subjective argument. If insisting on a specific for relevance, the sale evidence of Median Non-Unit Price in Hackett Gardens must be used to reflect the Median Non-Unit Price trend in Hackett Gardens rather than Turner in general. It is downward.[11]
[10] Applicants’ Response to Respondent’s Submissions at [23]
[11] Applicants’ Response to Respondent’s Submissions at [23]
The two properties at 59 and 63 McCaughey Street, Turner nominated by the applicants were considered by Mr McInerney as comparable sales properties. The Tribunal does not agree with the applicants’ submission that Mr McInerney was picking and choosing properties to back his own subjective argument.
The Tribunal accepts Mr McInerney’s unchallenged expert evidence in relation to the interpretation of the allhomes documentation provided by the Applicants and is satisfied, and finds, that there has been a steady increase in the price of single dwelling house sites in Turner since 2010. Accordingly, the Tribunal rejects the applicants’ submission set out in paragraphs 12 (a) and (b) above.
The use of properties sold 6 months before statutory valuation date as comparable sales,
and
Whether the use of comparable property sales which occurred within 3 months of 1 January 2013 are more relevant
Notwithstanding that the applicants had sought to rely on 20, 23 and 25 Hackett Gardens as the only comparable sales, they subsequently challenged the respondents’ use of 23 and 25 Hackett Gardens as comparable sales to establish a UV for the subject land because these sales occurred in July 2012, some six months before the statutory date of valuation, 1 January 2013.
Mr McInerney gave evidence that sales in July 2012 could be reliably used as comparable sales in determining UV on 1 January 2013 provided that adjustment is made for market movement if necessary. He said he had taken this into account in his assessment and there had not been such market movement. His evidence was unchallenged.
The Tribunal notes that the High Court, per Williams J, stated in McCathie v The Federal Commissioner of Taxation[12]:
Valuations must be calculated in the light of circumstances which existed on the material date, in this case 30 June 1939, but subsequent events can be taken into account in order to determine the proper weight to attach to such circumstances. Subsequent sales are just as admissible in evidence as prior sales, provided that in all the circumstances they are comparable.
[12] (1944) 69 CLR 16
The Tribunal is satisfied, and finds, that evidence of prior and subsequent sales is admissible in evidence and it accepts Mr McInerney’s evidence that he had considered market movement adjustment to ensure that the comparable sales were indeed ‘comparable’. For these reasons the Tribunal rejects the applicants’ submissions in paragraphs 12 (c) and (f) above.
Value of existing houses/improvements on comparable sales properties at date of sale
The applicants argued that the sale price of comparable properties should be decreased to take into account the value of the existing houses on these properties at the date of sale. It is the applicants’ case that although the houses on 23 and 25 Hackett Gardens, Turner and 59 McCaughey Street, Turner had been knocked down, they still had some value. The houses on 20 Hackett Gardens and 63 McCaughey Street still exist.
Mr Chen said in evidence that the house on 20 Hackett Gardens, Turner was worth “between $200,000 and $300,000 for the existing style of the house.”
Mr McInerney said in evidence that the existing house on 20 Hackett Gardens, Turner “adds little value.” He had undertaken an analysis of this house, as he was required to assume the land was vacant pursuant to the Rates Act. He had allowed 10% of the sale price for improvements, being $81,000, as it was a very small, old house.
Mr McInerney opined that the purchasers of 23 and 25 Hackett Gardens, Turner would not have attributed a value to the houses on these properties as they were bulldozed shortly after purchase. He said that the houses on 23 and 25 Hackett Gardens and 59 McCaughey Street, Turner at the time of sale, added little, if any, value to those blocks. If a value were to be given to these houses at the time of sale and deducted from the sale price, it would not markedly affect the UV of those blocks or the subject block.
Mr McInerney added that the cost of demolition of the three houses and improvements on 23 and 25 Hackett Gardens and 59 McCaughey Street, Turner properties may need to be added to the sale price to determine the UV.
Mr McInerney allowed $125,000 for the improvements at 63 McCaughey Street, Turner and assessed the UV at $788,000[13]. He allowed $81,000 for improvements at 20 Hackett Gardens, Turner and assessed its UV at $810,000.[14] His detailed calculations and analyses are set out in Exhibits R2 and R3.
[13] Exhibit R2
[14] Exhibit R3
The Tribunal is satisfied that the respondent has valued the remaining improvements on the comparable properties and deducted the value from the sales price in order to determine the properties’ UV.
However, it is clear, at least for the property at 20 Hackett Gardens, Turner that the applicants and the respondent have reached quite different valuations for the improvements on that property. It is, therefore, appropriate that at this stage of the consideration the Tribunal consider the available evidence of the valuation expertise of the witnesses, Mr Chen and Mr McInerney.
Valuation expertise of the witnesses
In their Submissions, the applicants reiterated that, while they do not have formal tertiary education on valuing houses or land -
the applicants have gained experience and expertise in valuing houses or land through self-education, practice and interest...both applicants are very highly educated with the highest degrees of PhD in physics and medicine, have been educated and worked in elite universities and organizations in USA, Australia and China across three continents, two of which are No. 1 and 2 economies in the world, and are multi-skilled and quite capable of performing various functions and duties including valuing houses or land, in addition to their own particular field expertise.[15]
[15] Applicants’ Submissions at [7]
The applicants also submitted that the respondent acknowledged the applicants’ qualifications and experience in valuing houses or land in accepting the two comparable sales they relied upon in McCaughey Street, Turner as well as the applicants’ including a $50,000 location adjustment when comparing these properties with their property in Hackett Gardens.
Notwithstanding the applicants’ significant other educational achievements, they did not provide the Tribunal with any evidence showing that either of them hold formal professional valuation qualifications. When considering their expertise or experience in assessing the value of houses such as those on the comparable properties which have since been demolished, the Tribunal noted that the applicants’ referred to their experience from self education, practice and interest.
In contrast, Mr McInerney is a Certified Practising Valuer, a Registered Valuer No 2213 without limitation since September 1981 and an Associate Member of the Australian Property Institute since 1982. His work history, valuation experience and expertise in valuations of real property including residential, commercial, industrial, rural and specialised properties, assessment of compensation for compulsory acquisition purposes and his experience as an expert witness in the Land and Environment Court was unchallenged. It is both credible and impressive.
The AAT in Trewhella and Minister for the Capital Territory[16] said:
The applicant himself is not a professional valuer and he did not adduce any evidence from anyone qualified as such. This is a situation which has quite often arisen before the Tribunal in Australian Capital Territory rating cases. It has been said by the Tribunal in a number of cases that opinions of lay applicants upon matters requiring professional qualifications and experience can carry little if any weight when opposed to opinions expressed by a qualified expert. (See for example Firth and the Minister for the Capital Territory (No 78/5073) and Boyle, Boyd and Liu and the Minister for the Capital Territory (Nos. 78/5072, 5077 and 5078).[17]
[16] No 5112/78
[17] No 5112/78
For these reasons, the Tribunal had no hesitation in preferring Mr McInerney’s evidence to that of the applicants in relation to assessing the value of houses and their effect upon the UV of the blocks on which they stand or have stood. Accordingly, the Tribunal rejects the applicants’ submission set out in paragraph 12 (e) above.
Hardship on the Applicants
The applicants contended that the respondent’s use of 23 and 25 Hackett Gardens, Turner, as comparable sales, was irrelevant for determining the UV of their property, as these properties had been redeveloped. In their statement of Facts and Contentions[18] the applicants stated:
Not every property owner who wants to live in Hackett Gardens can afford the lavish lifestyle of redevelopment for their own living or investment profit. Genuine and normal residents, who want to live at Hackett Gardens, rely on the improved value of the existing houses, as in our case. Due to job reasons, we cannot live at Canberra, but decide not to sell our property as we plan to return to Canberra and have a place to live. If we sold it, we cannot afford to buy the property when we return to live in Hackett Gardens. While not living in Canberra, we have to pay rent in the place we live. Therefore, we rent our property out to cover our own rental payment. With the current inflated unimproved value, we cannot afford to pay rate and land tax, which amounts to $13,020 per year, in addition to significant expense for repair and maintenance. The Australian Valuation Office’s arguments to artificially inflate land values of Hackett Gardens that fit for individual investors or wealthy class of people are pushing working class of residents out of Hackett Gardens, and are unethical and irresponsible.
[18] At page 3, point II
This contention appears to be based on hardship grounds. Hardship has been considered by the predecessor to this tribunal in the Australian Capital Territory, the ACT Administrative Appeals Tribunal (the AAAT), in Dexter and Minister for the Capital Territory.[19] There the AAAT said[20]:
With respect to the remaining ground, namely, hardship, whilst recognising that there may be difficulties facing the applicants, hardship is not a matter which the Tribunal can take cognizance in determining the unimproved value of the land in accordance with the provisions of the Rates Ordinance: see Re O’Brien and the Minister for the Capital Territory (No 78/5050). Any relief to which the applicants may be entitled in this regard is outside the jurisdiction of this Tribunal.
[19] [1979] AATA 115.
[20] At pages 5,6
For these reasons, the Tribunal cannot take cognizance of these matters in determining the UV of the property in accordance with the provisions of the Rates Act.
It is appropriate, at this stage, that the Tribunal refer to the applicants’ statement in the conclusions in their submissions[21] that:
The difference in the subject UV between the parties does not arise from valuation approach, experience, expertise and qualifications. It is beyond the valuation itself. It is about justice and fairness of a universal law of humankind and whether this law is observed. If this universal law is followed in the current specific case to treat everyone on the land equally without discrimination, there will be no difference in arriving at the subject UV.
[21] Applicants’ Submissions 26 September 2014 at [45]
The statement by the AAAT in Dexter and Minister for the Capital Territory set out above equally applies to the applicants’ submissions in the previous paragraph. These, too, are matters that the Tribunal cannot take cognizance of in determining the UV of property in accordance with the provisions of the Rates Act. Accordingly, the Tribunal rejects the applicants’ submission set out in paragraph 12 (d) above.
Averaging Sales of comparable sales properties
In paragraph 12 (g) above, the applicants contended that by averaging the comparable sales of 59 McCaughey Street, 63 McCaughey Street and 20 Hackett Gardens, which all occurred within three months of 1 January 2013 and according to the applicants were more relevant comparable sales, the improved value of their property is $840,639. The applicants then, using their own valuation technique, deducted their valuation of the improvements on these properties, to ascertain the UV of these properties.
Mr McInerney said that the applicants’ approach of averaging the three sales of 59 McCaughey Street, Turner, 63 McCaughey Street, Turner and 20 Hackett Gardens, Turner in order to determine the improved value of the applicants’ property and to then attempt to derive a UV by deducting amounts said to be the value of the houses on those properties, was contrary to proper valuation practice and principle.[22]
[22] Respondent’s Submissions at [18]
The respondent submitted[23] and the Tribunal notes, that courts have held that adopting a method of averaging the sale of properties which may have numerous differing elements in order to value land is unsound. In McCathie v Federal Commissioner of Taxation [24] Williams J of the High Court said:
I will venture to repeat what I said in somewhat analogous circumstances in the recent case of Daandine Pastoral Co. Pty. Ltd. v. Commissioner of Land Tax [(1943) 7 The Valuer 299], where a valuer for the Crown had averaged the sales of five properties alleged to be in some respects comparable to the land to be valued in order to assist him to place a value on that land:—"This method of averaging is to my mind unsound. The prices obtained at comparable sales should not be aggregated and averaged, especially when the prices obtained on sales of small areas are dealt with in this way in order to obtain the value per acre of a large area. The only safe course is to compare each sale with the subject land separately.”
[23] Respondent’s Submissions at [19]
[24] (1944) 69 CLR 1 [15]; Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299
In The Commonwealth v Milledge[25] the High Court considered an appeal from a trial judge who had averaged the six expert valuations of land. These valuations differed widely, not only in result but in approach and choice of material. Dixon CJ and Kitto J stated[26]:
... it must be rarely, if ever, that a process of averaging sale prices can be anything but fallacious.
...
We think that a valuation made on this basis ought not to be sustained. Even if all the witnesses had used the same material as one another, and had approached the problem in the same way, the average of the values that they respectively reached would most likely be a figure which each of them would consider to be wrong. But what is worse is that it would be a figure not arrived at by the application by the court of the established principles of valuation. These objections apply here, with the addition that the differences between the valuers in point of materials and approach made an averaging process a source of error mathematically as well as legally.
[25] (1953) 90 CLR 157
[26] At page 161
In Anderson Stuart v Treleaven[27], which concerned an appeal from a decision of the Strata Titles Board in relation to the re-allocation of unit entitlements of a property in Double Bay, the NSW Supreme Court considered, among other things, the respective values of the lots and referred to the ‘accepted principles of valuation’. Santow J’s comments in that case are equally applicable to determining the market value of the subject property in this case. He said[28] -
I am satisfied that the Board did not ‘have regard to the respective values of the lots’. ... Averaging the two valuations, neither judged satisfactory, without any evidence that such an average would result in an accurate valuation of each of the lots, could not be said to ‘have regard to the respective values of the lots’.
[27] [2000] NSWSC 283, 49 NSWLR 88
[28] At page 109, at 100
Following the above authorities, the Tribunal finds that the process of averaging without any credible evidence that such an average would result in an accurate valuation does not comply with the established principles of valuation.
Further, the Tribunal accepts Mr McInerney’s expert evidence that the correct approach to valuing the subject land is to compare each comparable sale with the subject land separately. For the above reasons, the Tribunal rejects the applicants’ submission that the prices obtained at comparable sales should be aggregated and averaged.
Assessing UV of the subject land based on the applicants’ insurance coverage
The applicants contended that the correct UV of their property was $550,639. As a starting point, they relied on the highest improved value for their property based on their valuation method of averaging three comparable sales, $840,639 (refer paragraph 57 above) which method of valuation the Tribunal has rejected. The applicants then calculated that it would cost $100,000 to renovate the wear and tear on their house which they proposed deducting from their house insurance coverage of $390,000. By deducting $290,000 from $840,639 the applicants arrived at a figure of $550,639 for their property’s UV.
The applicants did not provide any corroborative evidence of the insurance cover they relied on, or any evidence to enable the Tribunal to determine whether it was the result of a valuation or how that cover had been determined.
Mr McInerney said that the amount of insurance cover on improvements on the subject property is not an appropriate or reliable guide to the value of the land for determining UV.
The Tribunal notes the respondent’s submission[29] that Mr McInerney’s evidence in this regard is supported by authority. In 1979 the AAAT considered the use of insurance cover in three cases: Trewhella and Minister for the Capital Territory[30], Lamb and Minister for the Capital Territory[31] and Walsh and Minister for the Capital Territory[32] and found that it provided no reliable guide to the value of land for the purposes of the Rates Ordinance.
[29] Respondent’s Submission 16 September 2014 at [24] - [26]
[30] [1979]AATA 108 “However the evidence does not reveal the extent of the cover provided nor the identity or qualifications (if any) of the person who arrived at this sum for insurance purposes. Accordingly the amount of the insurance cover on the improvement upon the subject land can provide no reliable guide to the value of the land for the purposes of the Rates Ordinance.”
[31] [1979] AATA 26 “As to the calculations which the applicant made upon the insured value of his improvements, it must be said that this analysis cannot be adopted in my opinion. As was indicated by Mr Topp the basis of the insurance valuations adopted by Defence Service Homes needs to be known before this figure can be used in any way, and there are grave difficulties in approaching the problem by aggregating a suspect valuation, or at all events a valuation the basis of which is not fully known, with the challenged unimproved value, so as to arrive at the sought out valuation.”
[32] [1979] AATA 186 “The insurance cover is not stated to be the result of any valuation.” That Tribunal then adopted the above statements in Lamb and the Minister for the Capital Territory.
Having considered the evidence, submissions and authorities, the Tribunal rejects the applicants’ assessment of the UV for their property at $550,639 relying on the insured cover for their improvements as this method is unsupported by the evidence, unreliable and contrary to principle and authority[33]. Accordingly, the Tribunal rejects the applicants’ submission set out in paragraph 12 (h) above.
Utility Service Easements and reduction of useable land
[33] Respondent’s Submissions 16 September 2014 at [27]
The applicants contended (in paragraph 12(i) above) that in assessing their UV the respondent had not factored in the effect of the utility service easement for sewer and stormwater on their property which made 25% of their property unusable or unable to be built upon. They pointed out that their neighbours were able to build their houses to the boundaries of the applicants’ property, which they could not do because of the easement. They alleged this reduced their property’s improved value from $840,639 to $630,500.
Mr Chen said that he had not made any enquiry about building over the easement. He thought it would be expensive.
Mr McInerney’s evidence was that he and the AVO had taken the utility services easement into account when assessing the UV of the property at $726,000. He said if the easement was not located on the applicants’ property the UV would be assessed at least $780,000 or higher[34].
[34] Mr Geoff McInerney Witness Statement at [31]
Mr McInerney said[35] it was possible to relocate easements elsewhere in properties and to build over service pipelines or conduits within easements provided appropriate protective measures are undertaken. He gave evidence to the Tribunal of his expertise and experience in assessing such costs and estimated the cost of building over the easement on the applicants’ property to be approximately $20,000.
[35] Mr Geoff McInerney Witness Statement at [27], [28]
However, in their Submissions[36], the applicants stated:
“Mr McInerney’s cost estimation to build over the easement assuming its approval is misleading and flawed. The Applicants already contacted ACT Planning and Land Authority and were advised that the development application over the easement will not be approved.”
[36] Applicants’ Submissions at page 7
The applicants did not provide any evidence from ACT Planning and Land Authority in support of their statement. In contrast, the Tribunal had evidence of Mr McInerney’s expertise and experience, referred to above. His evidence was unchallenged and credible.
The Tribunal is satisfied that the respondent has already taken the presence of the utility easement into account in determining the UV of the applicants’ property at $726,000. The Tribunal rejects the applicants’ contention in paragraph 12(i) above.
Using the unimproved valuations of comparable sales properties as opposed to their sales price
The applicants contended, in paragraph 13 above, that the respondent should be using the actual UV as at 1 January 2013 for each of the comparable sales properties as opposed to their actual sales prices when assessing the UV of the subject property. The applicants described[37] this approach as a free market approach using the actual UV of each comparable sale without averaging as opposed to the ‘sold price’ which results in an artificially inflated UV.
[37] Applicants’ Submissions at [16], [18]
By using this method they submitted that the UV of their property would be less than the $726,000 assessed by the respondent as the sales prices for the comparable properties exceeded their UV by between $85,000 and $122,000.
The applicants submitted [38] that, in looking at the comparable sales for 23 and 25 Hackett Gardens, Turner and 59 and 63 McCaughey Street, Turner the respondent used the unfair and discriminative valuation method of relying on the sale prices for these properties “while the new owner keeps its actual lower UV .... assessed by the Respondent at the time of sale for taxation purposes.”
[38] Applicants’ Submissions [2] a. - e.
The applicants variously described using the sale price as “an artificially inflated reference”[39] and “the unfair and discriminative starting base and assumption in the valuation”[40] and “putting landowners on an unequal footing.”[41]
[39] Applicants’ Submissions [2]e.
[40] Applicants’ Submissions [3]
[41] Applicants’ Submissions at [8]
Mr McInerney said that valuations did not adopt an approach comparing unimproved valuations of other properties because these valuations could, for example, be contested or out of line.
The use of other properties’ UV as a relevant consideration in determining unimproved valuations has been considered and rejected by the Tribunal in an earlier decision of Chowdhury v Commissioner for ACT Revenue.[42]
[42] [2014] ACT 15
The Tribunal is satisfied that the unimproved value of comparable sales properties is not a relevant consideration in determining unimproved valuations. To the extent that the Applicants relied on this ground to support an alternative unimproved value, the Applicants are not successful.
Conclusion
The Tribunal is satisfied, for the reasons set out above, that the valuation methodology adopted or proposed by the applicants was flawed, wrong in principle and led to error.
Mr McInerney had read the report prepared by Mr Ross Stevens of the AVO and dated 29 November 2013. He agreed[43] with the conclusions and statement in that report and adopted the opinions as his own.
[43] Mr Geoff McInerney Witness Statement 8 August 2014 at [5]
It was clear from this report and Mr McInerney’s evidence that the AVO adopted the approach of this Tribunal[44] and other Courts in determining the subject property’s UV for rating purposes by comparing sales of properties with similar land use near the relevant date, 1 January 2013, analysing those sales for comparison purposes and making appropriate deductions for the added value of improvements.
[44] Jens Svensson & Commissioner for ACT Revenue (Administrative Review) [2010] ACAT 59
Taking all these matters into account and having considered all of the documents, the evidence and oral and written submissions, the Tribunal concludes that the correct UV for the Applicant’s property was $726,000 at 1 January 2013. This UV was arrived at by the AVO following the procedure in section 6 of the Rates Act and ascertaining the property’s market value in accordance with the test in Commonwealth v Arklay.
The Applicants will, understandably, be disappointed with this decision. However, in the absence of any contradictory expert professional valuation evidence supporting their application and for the reasons set out above the Tribunal has decided to confirm the decision under review.
………………………………..
Ms E. Symons – Presidential Member
Legislation
First determination of unimproved value
(1)This section applies if a parcel of land becomes rateable on or after a relevant date (the 1st relevant date).
(2)The commissioner must—
(a)determine the unimproved value of the parcel of land as at the 1st relevant date; and
(b)if necessary, redetermine the unimproved value of the parcel as at each relevant date after the first relevant date when it was not determined.
(3)A determination under subsection (2) (a) applies to a parcel of land for the period—
(a)beginning on 1 July in the calendar year in which the relevant date falls; and
(b)ending on 30 June in the next calendar year.
(4)A redetermination under subsection (2) (b) for a parcel of land applies to the parcel for the period—
(a)beginning on 1 July in the calendar year in which the relevant date as at which the redetermination is made falls; and
(b)ending on 30 June in the next calendar year.
Annual redeterminations
(1)As soon as practicable after each 1 January, the commissioner must redetermine the unimproved value, as at that date, of each parcel of land rateable on that date.
(2)An annual redetermination of the unimproved value of a parcel of land applies to the parcel for the period—
(a)beginning on 1 July in the calendar year in which the relevant date when the redetermination is made falls; and
(b)ending on 30 June in the next calendar year.
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