Commissioner of State Revenue v Hazel Holdings Pty Ltd
[2014] WASCA 203
•4 NOVEMBER 2014
COMMISSIONER OF STATE REVENUE -v- HAZEL HOLDINGS PTY LTD [2014] WASCA 203
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WASCA 203 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:87/2013 | 4 MARCH 2014 | |
| Coram: | MARTIN CJ BUSS JA NEWNES JA | 4/11/14 | |
| 21 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| B | |||
| PDF Version |
| Parties: | COMMISSIONER OF STATE REVENUE HAZEL HOLDINGS PTY LTD |
Catchwords: | Taxation Duty on transaction involving sale of subdivided land Sale of 32 lots 'in one line' Principles of valuation for assessing dutiable value of transaction Whether lots should be valued on aggregate value if sold separately or if sold 'in one line' Calculation of duty in accordance with highest and best use of land Application of Spencer v The Commonwealth of Australia to land sold 'in one line' |
Legislation: | Duties Act 2008 (WA), s 10, s 11, s 15, s 26, s 27, s 36, s 37, s 41 State Administrative Tribunal Act 2004 (WA), s 105 Taxation Administration Act 2003 (WA), s 43A |
Case References: | Commissioner of State Revenue v Oz Minerals Ltd [2013] WASCA 239 Flotilla Nominees Pty Ltd v Western Australia Land Authority [2003] WASC 122; (2003) 27 WAR 403 Hazel Holdings Pty Ltd and Commissioner of State Revenue [2013] WASAT 93 Maori Trustee v Ministry of Works [1958] 3 All ER 336 Spencer v The Commonwealth of Australia (1907) 5 CLR 418 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : COMMISSIONER OF STATE REVENUE -v- HAZEL HOLDINGS PTY LTD [2014] WASCA 203 CORAM : MARTIN CJ
- BUSS JA
NEWNES JA
- Appellant
AND
HAZEL HOLDINGS PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : STATE ADMINISTRATIVE TRIBUNAL OF WESTERN AUSTRALIA
Coram : JUSTICE J A CHANEY (PRESIDENT)
Citation : HAZEL HOLDINGS PTY LTD and COMMISSIONER OF STATE REVENUE [2013] WASAT 93
File No : CC 146 of 2013
Catchwords:
Taxation - Duty on transaction involving sale of subdivided land - Sale of 32 lots 'in one line' - Principles of valuation for assessing dutiable value of transaction - Whether lots should be valued on aggregate value if sold separately or if sold 'in one line' - Calculation of duty in accordance with highest and best use of land - Application of Spencer v The Commonwealth of Australia to land sold 'in one line'
Legislation:
Duties Act 2008 (WA), s 10, s 11, s 15, s 26, s 27, s 36, s 37, s 41
State Administrative Tribunal Act 2004 (WA), s 105
Taxation Administration Act 2003 (WA), s 43A
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant : Mr G T W Tannin SC
Respondent : Ms P A Martino
Solicitors:
Appellant : State Solicitor for Western Australia
Respondent : P. A. Martino Barrister & Solicitor
Case(s) referred to in judgment(s):
Commissioner of State Revenue v Oz Minerals Ltd [2013] WASCA 239
Flotilla Nominees Pty Ltd v Western Australia Land Authority [2003] WASC 122; (2003) 27 WAR 403
Hazel Holdings Pty Ltd and Commissioner of State Revenue [2013] WASAT 93
Maori Trustee v Ministry of Works [1958] 3 All ER 336
Spencer v The Commonwealth of Australia (1907) 5 CLR 418
- MARTIN CJ:
Summary
1 The Commissioner of State Revenue (the Commissioner) appeals against a decision of the State Administrative Tribunal (the Tribunal) upholding an objection by Hazel Holdings Pty Ltd (Hazel Holdings) to the Commissioner's assessment of the dutiable value of land acquired by Hazel Holdings in a transaction subject to duty imposed by the Duties Act 2008 (WA) (the Act). The land acquired by Hazel Holdings in the dutiable transaction was a parcel of 32 vacant lots forming part of a residential subdivision undertaken by a company associated with Hazel Holdings in the town of Harvey. The value of each of the 32 lots, if sold separately, was agreed by the valuers appointed by the Commissioner and by Hazel Holdings. However, the valuers agreed that the land acquired by Hazel Holdings in one transaction had a value which was less than the aggregated value of the 32 separate lots because the market for those lots was slow and a purchaser of the entire parcel of lots intending to resell those lots to prospective purchasers would factor the marketing and holding costs likely to be incurred during the resale process into the price which such a purchaser would be willing to pay.
2 Despite all valuers being agreed that the land acquired by Hazel Holdings should be valued on the basis that it was acquired in a single transaction (as was in fact the case), the Commissioner assessed the dutiable value of the land as the aggregate sum which would have been paid by 32 separate purchasers, without allowing for any of the marketing, holding or other costs that would have to be incurred in order to procure 32 separate transactions in an orderly sale and marketing programme conducted over a lengthy period. The Tribunal set aside the Commissioner's assessment, arrived at its own assessment of the dutiable value of the land on the basis that it was bought and sold in a single transaction, and directed the Commissioner to apply that value in his assessment of duty. The Tribunal's decision was correct for the reasons which it gave, and the Commissioner's appeal against the Tribunal's decision must be dismissed.
The facts
3 With one minor exception, the Commissioner does not challenge any finding of fact made by the Tribunal. The relevant facts, as found by the Tribunal,1 follow.
4 Sky City Blue Pty Ltd (Sky City) acquired two lots of land within the Harvey townsite in February 2008. The land was purchased for the purpose of subdivision and sale as individual residential lots. The development was to be known as the Tuart Private Estate.
5 Sky City obtained the necessary approvals and the land was subdivided into 46 lots, 44 of which were residential lots ranging in size from 550 sqm to 747 sqm. Following completion of the subdivision in the latter part of 2009, Sky City marketed the lots to the public as vacant residential land. However, the market for such land was slow, and only 12 of the 44 residential lots were sold during the two years ending in the latter part of 2011. Four of those 12 lots were purchased by companies associated with two of the individuals interested in Sky City.
6 In the latter part of 2011 it was agreed that the remaining 32 residential lots would be acquired by Hazel Holdings, a company controlled by those two individuals.
7 Advice was obtained from Mr Scott Robinson, a valuer, as to the market value of the 32 lots if sold in one transaction. As a result of that advice, Hazel Holdings entered into a contract to acquire the remaining 32 lots in the Tuart Private Estate from Sky City for a price of $2,133,344 on 20 December 2011.
8 On the same day, the contract was lodged for the assessment of duty. The transaction was effected by a single contract, and by a single transfer document. The Commissioner assessed the transaction for duty on the basis that the dutiable value of the land was $3,885,000. Hazel Holdings objected to the assessment. The Commissioner disallowed the objection. Hazel Holdings appealed to the Tribunal against that decision.
9 In March 2012, Hazel Holdings entered into conditional contracts for the sale of a total of eight lots to unrelated third parties at a price which represented $120,000 per lot. The conditions were not satisfied and the sales did not proceed. In November 2012, Hazel Holdings sold 24 of the lots to an unrelated party for a total price of $1,600,000, or $66,667 per lot on average.
Relevant provisions of the Act
10 Duty is imposed on dutiable transactions by s 10 of the Act. Section 11 of the Act provides that a dutiable transaction includes a transfer of dutiable property and an agreement for the transfer of dutiable property. Section 15 of the Act provides that land in Western Australia is dutiable property.
11 By s 26 of the Act, unless otherwise provided, duty is chargeable at the general rate of duty by reference to the dutiable value of a dutiable transaction. Section 27 provides that the dutiable value of a dutiable transaction is either the consideration for the dutiable transaction or, in some circumstances, the unencumbered value of the dutiable property at the time when liability for duty on the transaction arises. One of those circumstances is the circumstance in which the unencumbered value of the property is greater than the consideration for the transaction. It is common ground that this circumstance applied to the transaction between Sky City and Hazel Holdings, because the unencumbered value of the land at the time of that transaction was greater than the consideration provided for the acquisition, and the transaction was not an arm's length transaction between unrelated parties.
12 Section 36(1) of the Act provides that the unencumbered value of property is the value of the property determined without regard to various things, including any encumbrance to which the property is subject. Section 36(4) provides:
(4) When determining the unencumbered value of property -
(a) the unencumbered value of an undivided share in the property, whether held jointly or in common, is to be ascertained by multiplying the total unencumbered value of the property by the share expressed as a fraction; and
(b) in applying the ordinary principles of valuation -
(i) it is to be assumed that a hypothetical purchaser would, when negotiating the price of property, have knowledge of all existing information relating to the property; and
(ii) no account is to be taken of any amount that a hypothetical purchaser would have to expend to reproduce, or otherwise acquire a permanent right of access to and use of, existing information relating to property;
and
(c) that is land -
(i) if the land is the subject of an agreement to transfer, any improvement made to the land at the expense of the purchaser or transferee before the date liability to duty arises on the agreement is to be taken not to have been made to the land; and
(ii) if the land is the subject of a transfer, any improvement made to the land at the expense of the transferee before the land is transferred is to be taken not to have been made to the land; and
(iii) having regard to the use of the land that would best enhance its commercial value; and
(iv) having regard to commercial advantages (such as goodwill) that -
(I) attach to the location or other aspects of the land; and
(II) would affect the price that a reasonable purchaser would be willing to pay for the land.
37. Aggregation of dutiable transactions
(1) Dutiable transactions relating to separate items of dutiable property that together form, evidence, give effect to or arise from what is, substantially one arrangement are to be aggregated and treated as a single dutiable transaction.2
The proceedings in the Tribunal
14 In the Tribunal proceedings, Hazel Holdings relied upon the evidence of Mr Scott Robinson, of LMW Hegney Valuers, and to whom I have already referred. He provided a written report which was tendered in evidence. In that report he estimated the value of the land on a 'one line sale basis' which he described as an amount which:
[M]easures what a prudent purchaser would be able to afford to pay for the property, market and sell the lots at a retail price and still make a profit from the venture, whilst at the same time being sufficiently rewarded for the risk undertaken.
15 In his report, Mr Robinson assessed the value of the land on the assumption that the 32 lots could be sold over a period of two years at an average of $120,000 per lot. On that assumption he assessed the value of the land as follows:
Gross Realisation from Individual sales (inclusive of GST)
32 lots @ $120,000 per lot $3,840,000
Gross Realisation (exclusive of GST - assuming the margin scheme) $3,656,198
Less Selling, Advertising Expenses and Settlement Costs @ say 6% $230,400
Less Profit and Risk @ say 20% $570,966
Less Rates and Taxes @ say $250 per lot $8,000
Less Interest over selling period of 24 months @ say 9% $535,489
Less Stamp Duty on Acquisition $112,949
One line sale value $2,198,394
Adopt $2,200,200
16 A valuation report prepared for the Commissioner by Mr Matthew Pritchard of the Valuer-General's Office was also tendered in evidence, although Mr Pritchard did not give oral evidence. In that report Mr Pritchard observed:
The term 'one line sale' refers to a multi-lot purchase in a single transaction. It is not uncommon for a purchaser to receive a discount from the vendor for acquiring the properties in a single transfer. The discount refers not only to a bulk purchase, but may include additional costs and a risk factor for the purchaser. The amount of discount may vary, dependent on the parties involved and the type and number of properties transacted.
In the scenario presented in this stamp duty transfer, the properties form the balance of the unsold lots in a residential subdivision (Tuart Private Estate). The purchaser would not only regard the gross realisation of the individual lots, but also consider the costs involved in their acquisition, holding expenses, selling costs (including GST implications) and a suitable risk allowance for continuing the overall project. All these factors can be accounted for in a static hypothetical feasibility; typically taking the form presented in the LMW Hegney valuation. The resultant value would represent a realistic market assessment inclusive of GST.
While we have conducted a number of static feasibilities using a similar model as in the LMW Hegney valuation, utilising differing factors within the model; the overall assessment as indicated in their valuation at $2,198,394 does appear reasonable.
Answers to the questions posed in your instructing letter are as follows:
1. Is there a basis to valuing the 32 lots as a whole rather than individually? Yes, it is not uncommon for multi-lot purchases to occur in the market place and for discounts and costs to be considered by the purchaser in the selling price.
2. Is the 'one line sale' model set out in the LMW Hegney valuation an appropriate model to establish the unencumbered value for the purposes of the 'Duties Act 2008'? For calculating the value for an on-going subdivision such as the subject property; the static hypothetical feasibility model is considered appropriate.
3. Whether the values established are inclusive or exclusive of GST? Assessments as individual lots or under the static hypothetical feasibility model where the margin scheme has been applied; both scenarios include GST.
The fair market value as a 'one line sale' is estimated to be $2,198,394 as indicated in the LMW Hegney valuation.
…
• The above assessment assumes unimproved land only.
• The above assessment assumes the highest and best land use regarding the zoning.
• The above assessment has made allowances in the static hypothetical feasibility model for normal holding and selling costs assuming the property is available for sale.
17 The Commissioner also adduced evidence from Mr John Harvey of AVP Valuers. A report from Mr Harvey was tendered in evidence. In that report he estimated that the gross realisation of the 32 lots would be $3,688,000, whereas the market value of the land assessed as a transaction 'in one line' was $2,990,000. Under the former methodology, values were attributed separately to each of the 32 lots, and then aggregated.
18 In his report, after setting out what he described as the 'direct comparison' value, Mr Harvey described the 'sale in one line' approach in the following terms:
This approach is based on the assumption that all 32 vacant lots are acquired simultaneously by a single purchaser in accordance with the doctrine of Market Value. This sale represents the discount to the purchaser compared to the sum of the individual lots as at the date of valuation, after taking into consideration the prevailing market conditions as at the date of valuation.
The Market Value of the various allotments on an 'In One Line' sale basis has been assessed by way of a Residual Hypothetical re-sale approach wherein we have assumed that the lots would be purchased in one tranche and then resold at a profit. The residual approach determines a price that could be paid for the lots 'in one line' given the expected 'individual sale' values of the lots and the total cost of the re-sale project, allowing for market level profit margins and having due regard for the known characteristics of the properties and the inherent risk involved in the resale exercise.
We are unaware of any recent sales of portfolios comprising residential allotments being sold 'in one line'. Empirical evidence does however suggest that where such projects have been acquired in a single tranche they have typically been acquired at a discount rate to the 'individual sale' value and the properties.
The residual cash flow exercise allows for the following inputs:
• Acquisition costs, including Stamp Duty and legal, on the initial acquisition;
• Holding costs, such as land tax, water rates, council rates;
• Selling costs, including agents fees and marketing costs, associated with the 'on sale' of the lots;
• Profit and risk margin to account for the market risk in undertaking the exercise.
19 In his report, Mr Harvey described the way in which he applied this methodology by deducting various costs and allowances for profit and risk from his estimation of the gross realisation value (exclusive of GST) so as to produce an 'in one line' value of $2,990,000. He observed that this reflected a reduction of 18.9% when compared to the gross realisation of individual lot values.
20 In accordance with its usual practice, the Tribunal directed the valuers to confer and to produce a joint statement of the matters upon which they were agreed and, to the extent that they disagreed, a statement of their respective positions. In that statement, Mr Harvey and Mr Robinson agreed upon the value of each of the 32 individual lots, if sold separately, with and without GST. The aggregate of those values was $3,835,000 including GST, or $3,651,653 exclusive of GST.
21 In the joint statement, Mr Robinson reiterated the 'one line sale' calculation which I have set out above and suggested that a value of $2,200,000 be adopted. He went on:
[T]his represents a discount of some 42.71% on the assessed gross realisation of $3,840,000. I am aware of other 'one line sale' transactions in the Peel Region that have generally analysed to around 40% discount on the retail gross realisation values.
The end result of this cash flow calculation is in my view a realistic guide as to the market value of the subject lots on a 'one line sale['] basis. This calculation measures what a prudent purchaser would be able to afford to pay for the property, market and sell the lots at a retail price and includes an allowance for a commercially realistic risk weighted return for the buyer reflecting the prevailing soft market conditions for vacant residential land in this location.
As further evidence, we are aware 24 lots of the 32 lots in the subject estate have again been on sold in an arm's length transaction at a 'one line sale' price of $1,600,000 representing $66,667 per lot or a discount on the above tabulated values of 43.86%.
22 In the joint statement of valuers Mr Harvey provided a revised calculation of a 'one line sale' value, in which he made various adjustments to his earlier calculation, with the result that he assessed the value of the land on that basis at $2,800,000. Following that calculation, in the statement he asserted:
My assessment of a sale in one line represents a wholesale discount of 23%. My approach has been to establish what a willing buyer would pay for these lots and a willing seller would sell the lots for in their current developed state with underground services, sealed bitumen roads, and boundary fencing situated within a well-established rural town, located 50 kilometres from the City of Bunbury, approximately 70 kilometres from the City of Mandurah and with good access to the new Forrest Highway connecting Perth to the Southwest.
From my verbal inquiries to real-estate professionals, it appears that the sale in one line calculation is frequently provided by valuers to lending institutes in order to advise them of their minimum level of risk if a developer defaults. I have also been informed that there is evidence of sales in one line transaction occurring where a discount of up to 40% has been applied. Given this percentage of discounting allowed by certain developers it would tend to indicate that in my opinion these transactions were possibly sold under distressed sale condition not within the framework of a willing buyer willing seller concept of market value. This would be especially evident, in my opinion, if the sale price of the lots were less than that of the original development cost.
In general terms a sale in one line for the initial development of the subdivision calculates the Gross Realisation of a project and makes allowances for factors such as demolition and development costs, selling and legal fees, element of profit and risk associated with the project, holding costs, stamp duty, GST and in some cases an allowance for public open space. In addition a sale in one line often takes into account a perceived discount a prudent investor would expect, given the purchase of multiple lots and in consideration of the above-mentioned factors.
My approach has therefore been to establish what the Market Value of a sale in one line would be in keeping with The Australian Property Institute and the International Valuation Standards Committee definition of Market Value:
'The estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion'
…
In keeping with this definition of market value I have assessed the sale in one line at $2,800,000 exclusive of GST assuming the margin scheme.
23 During his oral evidence, Mr Harvey confirmed that the approach which he had taken to the 'sale in one line' method of valuation was to start with an estimate of the price that could be realised by the sale of the individual lots and then apply a discount 'that would really greatly depend on the risk and all other components'.3
The Tribunal's reasons
24 In the Reasons the Tribunal set out the facts and referred to the evidence which I have summarised above. After referring to the relevant provisions of the Act, the Tribunal concluded that those provisions made it clear that the ordinary principles of valuation are to be applied to the assessment of unencumbered value, and in that context enunciated the well-known principles in that regard from Spencer v The Commonwealth of Australia.4 The Tribunal then observed:
The valuers who gave evidence agreed that the 'sale in one line approach' satisfied the test of the price that a willing buyer and a willing seller at arms length and acting knowledgably, prudently, and without compulsion (essentially the Spencer Test) where there is a sale of multiple lots intended to be sold for their highest and best use, in this case residential purposes. The respondent contends, however, that it is necessary to determine the unencumbered value of each lot at the time of the transaction in order to determine the dutiable value.
In my view, the respondent's contention ignores the true nature of the transaction. It is the dutiable transaction which attracts duty. The dutiable transaction in this case was an agreement to transfer dutiable property, namely 32 lots of land. The effect of the transaction was that it enabled the disposal by the seller, in one transaction to a single purchaser and on one day, of a parcel of land made up of 32 lots. The evidence of Mr Jasper, and of the valuers, which I accept, was that sales of lots over the preceding years had been particularly slow, and there was no reason to expect the rate of sales to improve. The respondent contends that sales could have been achieved by a reduction in price, but that submission is, at least to a degree, speculative, and the evidence before the Tribunal does not enable any assessment to be made as to whether or not, having regard to selling expenses and holding costs, any greater value might be achieved for the individual lots on some sort of fire sale basis. It was not disputed by the Commissioner, and was supported by the evidence of the valuers, that no purchaser of 32 lots would pay $3,835,000 for those lots at the relevant time in the market which subsisted at that time.
The question can be approached by looking at how the vendor might assess the value of the asset which it held at the relevant date. That value would not be assessed by simply looking at the likely selling price of the 32 lots individually and aggregating those figures. That is because the vendor would necessarily bring to account the fact that, in order to sell the lots, marketing costs would be incurred, there would inevitably be holding costs (as indeed in this case there were) by way of interest and outgoings on the land, and that in order to achieve sales, discounts from the anticipated prices for the lots may need to be given. It follows that a prudent vendor, willing but not anxious to sell, would agree to a price which represents a discount from the gross receipts from sale of the land, in order to recover the value of the asset it holds. On the other side of the transaction, a purchaser would inevitably bring to account the deductions identified in the sale in one line calculations of the valuers, to ascertain the price which it was willing to pay for the lots.
There were not, in this case, 32 individual dutiable transactions. There was a single transaction for the sale of 32 lots. The true character of that transaction cannot be ignored in assessing the dutiable value of the land, namely the 32 lots sold together, that was the subject of the dutiable transaction.5
25 It is important to note that within the passage I have set out there are significant findings of fact which have not been challenged by the Commissioner. Those facts include:
• Sales of individual lots had been particularly slow and there was no reason to expect the rate of sales to improve.
• There was no evidence which would establish that greater value might have been achieved 'on some sort of fire sale basis'.
• No purchaser of 32 lots would pay $3,835,000 for those lots at the relevant time.
• A prudent vendor, willing but not anxious to sell, would agree to a price which represents a discount from the gross receipts from the sale of the land.
• A purchaser would inevitably bring to account the deductions identified in the sale on one line calculations in assessing the price which it was willing to pay for the lots.
26 As will be seen, these unchallenged findings of fact provide a complete answer to the Commissioner's contentions.
27 The Tribunal then addressed a submission advanced by the Commissioner in reliance upon the decision of Pullin J in Flotilla Nominees Pty Ltd v Western Australia Land Authority.6The Tribunal gave its reasons for distinguishing that case, which was concerned with the value of five lots of land compulsorily acquired. In that context, Pullin J addressed the question of value by asking whether it had to be assumed that all separate properties were being sold at one time to one purchaser at a discounted rate or whether there was a hypothetical separate transaction in relation to each lot. In that context Pullin J observed that it would be a strange result if the entity acquiring the land compulsorily were able to pay a lower price to a single landowner because it was resuming five lots of land from a single entity rather than five different entities.
28 The Tribunal distinguished the observations in Flotilla Nominees on the basis that the context in which Pullin J reached his conclusion in relation to the proper method of valuation, was critical to his decision. The valuation that was being conducted was for the purposes of assessing compensation after a forced resumption of land. In those circumstances, the Tribunal noted it was 'not surprising' that Pullin J did not assume that there was a hypothetical single purchaser of five lots, and value the land on a discounted basis. In fact Pullin J explicitly referred to the context in which the valuation exercise was being undertaken, and compared the value per hectare which had been attributed to the five lots at issue, to the value per hectare attributed to a single lot owned by another entity that was also being resumed. Pullin J noted that:
It would be a very strange result if the defendant were able to pay a lower rate per hectare to the plaintiff because it had five lots of land resumed, and to pay a higher rate in relation to the [other] land (if it is comparable) because [its owners] only had one lot resumed.7
29 Accordingly, the Tribunal distinguished the observations of Pullin J, given that context, and determined that in this instance, the task was to value the land the subject of the dutiable transaction with reference to the actual transaction which occurred. The Tribunal confirmed that:
There is no cause to employ assumptions as to whether there is a single purchaser or multiple purchasers. The transaction involves a single purchaser purchasing 32 lots of land. The valuers were agreed that no single purchaser of 32 lots of land would pay the aggregate of the price of each lot which might be obtainable from purchasers of single lots.
In my view the appropriate valuation method for present purposes is the 'sale in one line' method of valuation.8
30 The Tribunal also gave its reasons for rejecting a submission by the Commissioner to the effect that valuing the land using the 'sale in one line' methodology was equivalent to valuing the land by reference to a distressed sale. As the Tribunal pointed out, neither Mr Harvey nor Mr Robinson assumed any forced or distressed sale for the purposes of their calculation of the value to be derived by the 'sale in one line' methodology.
31 The Tribunal then gave its reasons for preferring the estimate of value provided by Mr Robinson of $2,200,000, to that provided by Mr Harvey (of $2,800,000). As will be seen, the Commissioner does not challenge that aspect of the Tribunal's reasons.
The grounds of appeal
32 Appeals from the Tribunal pursuant to the Taxation Administration Act 2003 (WA) are of a broader ambit and a somewhat different character to those brought pursuant to the generic provisions contained in s 105 of the State Administrative Tribunal Act 2004 (WA). Appeals from a decision of the Tribunal in connection with a revenue assessment or decision can be brought without leave of the court on a question of law, or a question of fact, or both.9 Such an appeal is by way of rehearing.10 By contrast, appeals to this court brought pursuant to s 105 of the State Administrative Tribunal Act can only be brought with leave, and can only be brought on questions of law.11
33 There are three grounds of appeal. Each is said to be underpinned by the fundamental proposition that the Tribunal erred by adopting the 'sale in one line' method of valuation and instead should have valued the land by reference to the aggregate sum which could have been achieved by the separate sale of all 32 lots without reduction for the costs inevitably incurred achieving the sale of those lots to 32 separate purchasers. The Commissioner contends that such an approach to valuation is required by the ordinary principles of valuation enunciated in Spencer'sCase and 'having regard to the use of the land that would best enhance its commercial value', both of which are required by s 36 of the Act.
34 There is a short answer to the Commissioner's fundamental proposition. It is essentially the answer given by the Tribunal. The dutiable transaction was a single transaction by which Sky City sold a parcel of land to Hazel Holdings. The question that has to be determined is the dutiable value of that parcel of land. Ordinary principles of valuation (Spencer'sCase) require that question to be answered by reference to the price at which a willing but not anxious vendor would have sold the land to a willing but not anxious purchaser on the assumption that both are cognisant of all relevant information pertaining to the land. That price is to be assessed having regard to the use of the land that would best enhance its commercial value (its highest and best use).
35 The Tribunal found, consistently with the uncontradicted evidence of the valuers, that the market for the sale of individual lots was slow and that the lots could not have been sold separately without marketing and other costs, including holding costs over the period required to achieve 32 separate sales being incurred. Consistently with that evidence, the Tribunal found as a fact that no purchaser of the land comprising the entire parcel of 32 lots would pay a price equal to the aggregate price which could be achieved if the lots were sold separately, over time, to separate purchasers.
36 It follows from the uncontested facts found by the Tribunal that the use of the land that would best enhance its commercial value was the derivation of profit by selling the land as vacant land to be used for residential purposes. All of the valuers agreed that willing but not anxious parties to a transaction for the sale and purchase of the land for that purpose would derive the price which they were willing to pay or accept by applying a margin for risk and profit to the net revenue to be derived from the separate sale of the lots after deducting the various costs associated with the achievement of those sales, including marketing and holding costs. That price is derived by the 'sale in one line' methodology endorsed by each of the valuers.
37 Put another way, on the facts found by the Tribunal, no willing but not anxious purchaser would ever have paid $3,835,000 for the land which Sky City sold to Hazel Holdings, nor would any vendor ever have been able to achieve that amount for the sale of the land because that price could only be achieved by selling individual lots to 32 separate purchasers, which would have incurred significant risk and substantial cost. So, the dutiable value of the land assessed by the Commissioner was not a value which would ever have been paid by a purchaser, or which could ever have been achieved by a vendor at the time liability for duty on the transaction arose.12 On the facts found by the Tribunal, a vendor could only have achieved the aggregate to be derived from the separate sale of 32 lots over a period of approximately two years after the dutiable transaction and then only by incurring significant additional costs.
38 Although these considerations provide a complete answer to propositions which underpin all grounds of appeal, for the sake of completeness it is appropriate to address each individual ground.
Ground 1
39 Ground 1 asserts:
1. The Tribunal erred in law in that by adopting the 'sale in one line' method of valuation, the Tribunal valued the land on the assumption that the circumstances of the transaction itself represented the highest and best use of the land without objectively considering the highest and best use from the perspective of the hypothetical vendor and purchaser as required by s 36 of the Duties Act 2008 (WA) and Spencer v The Commonwealth[.]
40 As developed in argument, the essence of this ground is the proposition that s 36 of the Act requires the value of the land the subject of the dutiable transaction to be assessed as the aggregate value to be derived from the sale of 32 lots to separate purchasers as a consequence of the combined application of the ordinary principles of valuation and the requirement that the land be valued by reference to its highest and best use. The proposition thus depends upon the proper construction and effect of s 36 of the Act, viewed in the context of the Act as a whole.
41 A number of general observations may be made with respect to s 36. First, subject to any specific provisions contained within the section or elsewhere in the Act, property is to be valued by 'applying the ordinary principles of valuation' which, in the case of land, incorporates the principles enunciated in Spencer'sCase. Second, the hypothetical purchaser to be contemplated for the purposes of the ordinary principles of valuation is to be assumed to have knowledge of all existing information relating to the property including, for example, the costs likely to be incurred in and risks associated with putting the land to its highest and best use. Third, the parties to the hypothetical transaction contemplated for the purposes of applying the ordinary principles of valuation are to have regard to the use of the land that would best enhance its commercial value, or, in conventional valuation terminology, would derive the price to be paid for the land on the assumption that the land will be put to its highest and best use, irrespective of its current use.
42 Considerable reliance was placed upon this latter aspect of s 36 in the Commissioner's submissions in support of the first ground of appeal. That reliance was misconceived. The principles of valuation (and law) which have developed around the notion of the highest and best use of land, and which can be taken to be incorporated into the assessment of value under the Act by s 36(4)(c)(iii) are relevant when the assessment of value is affected by an assumption on the part of the hypothetical vendor and purchaser as to which of two or more alternative uses the land will be put.
43 In this case there was no issue as to the use to which the land acquired by Hazel Holdings was to be put. It had been subdivided into lots suitable for sale as vacant residential land. There was no suggestion that the land could or should be put to any other use, or that its value could be enhanced by the land being put to some other use. Accordingly, this aspect of s 36 had no practical application to the issues before the Tribunal, and has no relevance to the issues before the court.
44 The Commissioner's misconception is evident in his submission that the highest and best use of the land was for sale as individual lots, sold separately. That proposition was not in doubt. However, because, as a matter of fact, there was no market for the sale of 32 lots to separate purchasers at the time when the liability to duty arose, the use identified by the Commissioner as the highest and best use at the time of the dutiable transaction was the use to which the land would be put by the hypothetical purchaser over the years following its acquisition - namely, the use of reselling the land in separate lots to separate purchasers. The valuers agreed that a purchaser proposing to put the land to such a use would bring to account the costs inevitably incurred in holding and marketing the land over the period required to achieve 32 sales, together with the risks associated with that course, as would the vendor of the land when deciding whether to sell the land or retain it for that purpose. So the Commissioner's assertion as to the highest and best use to which the land would in fact be put reinforces the decision of the Tribunal.
45 The Commissioner also placed reliance upon the observations of Pullin J in Flotilla Nominees.13 However, those observations were correctly distinguished by the Tribunal for the reasons which it gave. But there are additional reasons why those observations must be distinguished.
46 First, in Flotilla Nominees, Pullin J relied upon the following passage from Maori Trustee v Ministry of Works:14
If the area of land taken, for instance, is so large as to be capable of building development in the hands of separate purchasers operating in different sections of the total area more than one hypothetical purchaser could be imagined; but for the purposes of valuation the result would seem to be immaterial. The value of the whole in the open market for building development would seem to be equivalent to the sum of the values of the various parts if sold separately for the same purpose … A similar situation might exist if there had to be assumed a sale of six houses by a willing owner-seller in the open market. He could hardly be expected to sell them in a single lot to one purchaser for less than he could realise by selling them separately to six purchasers.
47 However, those observations assume a market in which the land could be sold separately to six purchasers. In the present case the evidence established that there was no market capable of absorbing 32 sales to 32 separate purchasers within any reasonable time of the dutiable transaction and established that such sales could only be achieved by incurring substantial additional cost. So, in this case the evidence established that a hypothetical vendor would be willing to sell the land in a single lot to one purchaser for less than the aggregate revenue to be derived from the sale of the lots to 32 separate purchasers in order to avoid the costs necessarily incurred in achieving such sales.
48 Second, Pullin J also relied upon observations made in Spencer'sCase to the effect that value is not to be assessed by reference to a peremptory or forced sale on a specified date, and discounted the evidence of one of the valuers in that case because it assumed a forced sale contrary to those principles.15 However, those principles have no application to the present case, where the value of the land was to be assessed for the purposes of the imposition of duty on the dutiable transaction. Each of the valuers eschewed any suggestion that value should be assessed as if the transaction was forced although, as I have noted, Mr Harvey suggested that the discount from aggregate value which was the consequence of Mr Robinson's valuation was too high, and more akin to a circumstance of forced sale.16
49 Third, in Flotilla Nominees, Pullin J's observations were made in the course of explaining his conclusion that the value of each lot compulsorily acquired was to be assessed ignoring the effect of a hypothetical sale of the other acquired lots on the same day. No question of that kind arises in this case. In this case the question is much simpler. The question is: what is the value of the land which was the subject of the dutiable transaction? That question was properly addressed by the Tribunal.
50 Ground 1 must be dismissed.
Ground 2
51 Ground 2 asserts that:
The Tribunal erred in law by having regard to circumstances personal to the vendor in determining the highest and best use of the land.
52 This ground is also misconceived. It relies upon the observations made by the Tribunal at [29] of its reasons, which I have set out above. The Commissioner submits that the marketing costs and holding costs which would be incurred by a vendor choosing to retain the land for the purpose of selling the lots to separate purchasers, as opposed to selling the land in a single line to one purchaser, were factors personal to Sky City, and must be excluded from the considerations which a hypothetical vendor and hypothetical purchaser would bring to bear when arriving at the price at which a sale would take place.
53 This proposition is simply wrong. In the portion of the Tribunal's reasons to which reference is made in support of this ground it is clear that the Tribunal is referring to any hypothetical vendor, and the marketing and holding costs which would necessarily be incurred by such a vendor if the land was to be retained for sale to 32 separate purchasers, and is not referring merely to Sky City. Plainly such costs would be incurred by any vendor and are quite unrelated to the identity of the particular vendor - in this case, Sky City.
Ground 3
54 Ground 3 asserts:
The Tribunal erred in fact and in law in finding that '[t]he valuers who gave evidence agreed that the "sale in one line approach" satisfied the test of the price that a willing buyer and a willing seller at arm's length and acting knowledgeably, prudently, and without compulsion (essentially the Spencer Test) where there is a sale of multiple lots intended to be sold for their highest and best use, in this case residential purposes'.
55 This ground incorporates the first portion of the Tribunal's reasons which I have set out above. The Commissioner submits that the Tribunal erred because the assertions made by Mr Harvey in the joint statement of the valuers, and which I have set out above17 reveal that he did not agree that the 'sale in one line' methodology was consistent with the principles in Spencer'sCase. However, that proposition is plainly wrong. In that portion of the valuers' joint statement, Mr Harvey clearly and expressly states that his assessment of value on the basis of a 'sale in one line' corresponded with the definition of market value contained in a publication of the Australian Property Institute which paraphrases the principles in Spencer'sCase. Mr Harvey's reference to a discount of up to 40% applying in conditions of a distressed sale is plainly a reference to the assumptions made by Mr Robinson for the purposes of applying the 'sale in one line' approach. It is not a criticism of the methodology generally, but rather is a criticism of the result of the application of the methodology by Mr Robinson. It is clear from Mr Harvey's evidence as a whole that he adopted and embraced the 'sale in one line' approach
because he considered it to be entirely consistent with conventional principles of valuation.
56 In support of this ground, the Commissioner also asserted that the approach taken by Mr Robinson did not accord with ordinary valuation principles or the requirement to assume the land is put to its highest and best use. However, it is impossible to see any basis for those contentions. As I have noted, in his written report, Mr Robinson described the methodology as identifying the amount which a prudent purchaser would be able to afford to pay for the property, entirely consistently with established principles of valuation. Further, the Commissioner's reference to the highest and best use of the land in this context is misconceived, for the reasons I have already given in relation to ground 1.
57 Ground 3 must be dismissed.
Conclusion
58 The Commissioner's appeal against the Tribunal's decision must be dismissed.
59 BUSS JA: I agree with Martin CJ.
60 NEWNES JA: I agree with Martin CJ.
1Hazel Holdings Pty Ltd and Commissioner of State Revenue [2013] WASAT 93 (Reasons).
2 See also s 41 of the Act, which prevents the double charging of duty on multiple dutiable transactions which effectively constitute one transaction.
3 Ts 41.
4Spencer v The Commonwealth of Australia (1907) 5 CLR 418 (Spencer'sCase).
5 Reasons [27] - [30].
6Flotilla Nominees Pty Ltd v Western Australia Land Authority [2003] WASC 122; (2003) 27 WAR 403.
7Flotilla [37].
8 Reasons [32]-[33].
9Taxation Administration Act, s 43A.
10Commissioner of State Revenue v Oz Minerals Ltd [2013] WASCA 239 [88] - [90] (Buss JA, Newnes and Murphy JJA agreeing).
11 Except for a particular class of cases in the vocational regulation jurisdiction of the Tribunal.
12 Which is the relevant time for the assessment of unencumbered value - see s 27(b) of the Act.
13Flotilla Nominees Pty Ltd v Western Australia Land Authority (2003) 27 WAR 403.
14 [1958] 3 All ER 336, 340.
15Flotilla Nominees [38].
16 The Tribunal's rejection of that assertion has not been challenged in this appeal.
17 At [22].
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