COMMONWEALTH BANK OFFICERS SUPERANNUATION CORPORATION PTY LTD and VALUER GENERAL

[2015] WASAT 52

JURISDICTION     :   STATE ADMINISTRATIVE TRIBUNAL

ACT: VALUATION OF LAND ACT 1978 (WA)

CITATION:   COMMONWEALTH BANK OFFICERS SUPERANNUATION CORPORATION PTY LTD and VALUER GENERAL [2015] WASAT 52

MEMBER:   JUSTICE J C CURTHOYS (PRESIDENT)

MR D MOORE (SENIOR SESSIONAL MEMBER)

HEARD:   12 AND 13 FEBRUARY 2015

DELIVERED          :   19 MAY 2015

FILE NO/S:   DR 318 of 2013

BETWEEN:   COMMONWEALTH BANK OFFICERS SUPERANNUATION CORPORATION PTY LTD

Applicant

AND

VALUER GENERAL
Respondent

Catchwords:

Assessment of gross rental value of property as at 1 August 2009 - Review of Valuer General's dismissal of objection to assessment - Whether GST is a tax within s 4 of Valuation of Land Act 1978 (WA) - Valuer General's failure to take into account comparable properties - Inadequate evidence to support Valuer General's explanation for rejection of a comparable property in its determination

Legislation:

A New Tax System (Goods and Services Tax) Act 1999 (Cth)
Land Acquisition (Just Terms Compensation) Act 1991 (NSW), s 56
Valuation of Land Act 1916 (NSW), s 6A(1)
Valuation of Land Act 1978 (WA), s 4

Result:

Objection allowed

Summary of Tribunal's decision:

The applicant sought a review of the Valuer General's dismissal of an objection to the gross rental value of The Quadrant, William Street, as at 1 August 2009.

Two issues arose:

a)  what was the gross rental value of The Quadrant; and

b) is GST a tax within the meaning of 'taxes' in s 4 of the Valuation of Land Act 1978 (WA), such that GST should be included?

In reaching the Valuer General's determination, the Valuer General's report failed to take into account comparable properties; in particular, a comparable tenancy at Wesfarmers House, immediately across the road from The Quadrant.  The Valuer General failed to adequately explain why that comparison was rejected or to offer sufficient evidence to support its explanation.

On the first issue, the Tribunal substantially accepted the applicant's evidence of the gross rental value. 

On the second issue, the Tribunal concluded that GST is a tax within the meaning of 'taxes' within s 4 of the Valuation of Land Act 1978 (WA).

Category:    B

Representation:

Counsel:

Applicant:     Mr M Flint

Respondent:     Ms C Ide

Solicitors:

Applicant:     Flint Moharich

Respondent:     State Solicitor's Office

Case(s) referred to in decision(s):

Archon Group Pty Ltd v Valuer General [2010] NSWLEC 1131

CSR Ltd v Hornsby Shire Council (2004) 57 ATR 201; [2004] NSWSC 946

DB Rreef Funds Management Ltd v Commissioner of Taxation (2005) 218 ALR 144; [2005] FCA 509; 59 ATR 388

Orti­Tullo v Sadek [2001] NSWSC 855

Spencer v Commonwealth (1907) 5 CLR 418

Storage Equities Pty Ltd v Valuer General [2013] NSWLEC 137

REASONS FOR DECISION OF THE TRIBUNAL:   

Introduction

1On 14 June 2013, the Valuer General disallowed an objection made by the applicant (the Bank Officers) to the Valuer General's assessment of the gross rental value of Lot 123 on Diagram 12526 (1 William Street, Perth (the Property) as at 1 August 2009.  The Property is a 24 storey 'A grade' office building incorporating two levels of basement car park, ground floor foyer with a retail kiosk and office suites, mezzanine level office and 20 upper levels of office accommodation.  The Property has a Net Lettable Area (NLA) of approximately 23,327m² and includes parking for 141 vehicles. 

2The Bank Officers seek a review of the dismissal of the objection.

The issues

3Two issues arise:

a)what was the gross rental value of the Property as at 1 August 2009; and

b)is the Commonwealth Goods and Services Tax (GST) levied under A New Tax System(Goods and Services Tax) Act 1999 (Cth) (the GST Act) a tax within the meaning of 'taxes' within s 4 of the Valuation of Land Act 1978 (WA) (the Valuation Act)?

The gross rental value of the property

4The relevant date of valuation is 1 August 2009.

5Both parties tendered experts' reports and both experts gave verbal evidence.

6The classic definition of market value is derived from Spencer v Commonwealth (1907) 5 CLR 418 (Spencer).  Spencer defines the market value as '… the amount that would have been paid for the land if it has been sold at that time by a willing but not anxious seller to a willing but not anxious buyer ...'.

7Both experts applied Spencer principles in reaching their valuations.  There was no dispute between the parties as to the applicable principles.  The dispute centres on the application of those principles.

The Bank Officers' position

8Mr Grant Jackson gave evidence on behalf of the Bank Officers.  His reports were:

•a witness statement dated 5 May 2014 (Exhibit 4); and

•a responsive witness statement dated 13 May 2014 (Exhibit 6).

9Mr Jackson has assessed the gross rental value of the Property as at 1 August 2009 at $16,755,611 exclusive of GST and $18,431,172 inclusive of GST.

10Mr Jackson classes the Property as low rise (Levels 1 ­ 10) and high rise (Levels 11 ­ 20).  This aspect is significant when assessing high rise buildings, in that the building level impacts upon view quality and therefore rental value.  Generally, the higher the level, the higher the rental. 

11A summary of Mr Jackson's evidence of comparable tenancies from page 24 of his witness statement is provided at Annexure A.

12The comparable tenancies range in size between 433m² and 6,902m² of tenancy area expressed as NLA.

13In his oral evidence, Mr Jackson noted that little weight could be placed on the two tenancies at 235 St Georges Terrace, Perth, i.e. the Macquarie tenancy and the KPMG tenancy.  This leaves seven tenancies which range in rental between $580/m² per annum to $714/m² per annum Gross Effective.

14In his assessment of the low rise rent, Mr Jackson primarily relied on:

•Wesfarmers House ­ 40 The Esplanade;

•Quayside on Mill ­ 1 Mill Street; and

•AMP House ­ 140 St Georges Terrace.

15In his assessment of the high rise rent, Mr Jackson primarily relied on:

•Exchange Plaza ­ Level 16, 2 The Esplanade;

•AMP House ­ Level 21, 140 St Georges Terrace; and

•AMP House ­ Level 28, 140 St Georges Terrace.

16Mr Jackson's detailed calculations are shown at paragraph 76 of his report.

17Mr Jackson has concluded from his evidence that low rise rental value of between $523/m² per annum and $627/m² per annum is applicable.  For the high rise he has assessed a range of between $661/m² per annum and $731/m² per annum.

18At paragraph 66 of his report, Mr Jackson provided his assessment of individual tenancies within the Property.  Despite the above conclusion, he has assessed rents of $585/m² and $670/m² for the low rise and $650/m² and $700/m² for the high rise.  His assessments for the high rise appear low, relative to the evidence range that he has summarised.

The Valuer General's position

19Mr Wayne Culverwell gave evidence on behalf of the Valuer General.  His reports were:

•a witness statement dated 10 April 2014 (Exhibit 3); and

•a responsive witness statement dated 5 May 2014 (Exhibit 5).

20Mr Culverwell has assessed the gross rental value of the Property, as at 1 August 2009, at $18,336,818 exclusive of GST and $20,170,500 inclusive of GST. 

21A summary of Mr Culverwell's evidence of comparable tenancies from page 4 of his witness statement is provided at Annexure B.

22Mr Culverwell's comparable tenancies include five that are small in size, being 210m² or less.  The remaining four tenancies vary from 556m² to 1291m² (over two floors).  The NLA of the individual floors in the Property is about 1,100m² per floor.  Small tenancy areas offer limited comparability to the Property.

23Rental rates analysed vary between $575/m² and $600/m² for the smaller tenancy area and $590/m² and $902/m² for the larger tenancy areas. Mr Culverwell's evidence was that rental rates are influenced by building level and aspect.

24In response to a proposition put by Mr Jackson, Mr Culverwell accepted that smaller tenancy size was a detriment to comparability.  Mr Culverwell explained that he selected those smaller tenancies as they are in buildings close to the subject and therefore best reflected the location attribute. The evidence was also close in date to the relevant date of valuation and this aspect removed any question as to market movement prior to and around the relevant date of valuation.

The state of the market

25There was conflicting evidence put in relation to the state of the market.

26Mr Jackson gave evidence as to the state of the rental market at paragraphs 54 ­ 57 of his witness statement (Exhibit 4):

54. … [T]he Global Financial Crisis had a significant impact on the Australian economy.  This was most evident between 2008 and 2009 whereby unemployment increased to its highest level since October 2003 and inflation decreased from 4.50% to 1.40%. The Reserve Bank of Australia lowered the official cash rate by 4.25% which was considered necessary to avoid the economy falling into recession.

55.In respect of the [Property Council of Australia] data, between July 2008 and July 2009 the total vacancy for the prime market increased from 0.22% to 9.00%. In the 12 months prior to July 2009 the prime market recorded negative net absorption of 157,567 square metres with 96,575 square metres of supply withdrawn from the market. The supply reduction occurred as a result of the reclassification of a number of buildings from 'A Grade' to 'B Grade'.  The entire Perth CBD market also experienced negative net absorption during this period.

56.It is apparent from the PCA and economic data outlined above that at the relevant date of valuation the impact of the Global Financial Crisis was being felt in the Australian economy and Perth CBD commercial property market.

57.The PCA data shows that the demand for 'Premium Grade' and 'A Grade' office fell significantly in the first half of 2009.  Prudent lessees were cognisant of weakening market conditions and adopted a conservative mindset when entering into leasing negotiations.  As a result the level of incentive required to induce prospective tenants increased which acted as a catalyst for Gross Effective Rents to decrease.

27Mr Culverwell did not accept Mr Jackson's evidence on this point.  His opinion was that the market was stable (Exhibit 6, paragraphs 5 ­ 8).

28The Property Council of Australia data analysed and supplied by Mr Jackson clearly demonstrates a changed and deteriorated office leasing market at the relevant date of valuation.  We accept Mr Jackson's evidence as to the state of the rental market

The competing arguments

29The Bank Officers submitted that the rental evidence of Mr Jackson was more reliable because his evidence of larger size tenancy areas and more approximate dates offered the greatest comparability

30The Valuer General submitted that, whilst Mr Culverwell's rental evidence was mostly of smaller areas, it reflected that there had not been a decline in rental values at the relevant date and that The Quadrant building is a better building than much of Mr Jackson's comparable evidence.

The market rental evidence

31The decision in this matter ultimately hinges on the market rental evidence.

Wesfarmers House

32Wesfarmers House is:

a)in close proximity, on the corner across William Street from the Property;

b)dated in August 2009, close in time to 1 August 2009 for the Property; and

c)of a similar area, 913m² compared to approximately 1,100m² per floor for the Property.

33Mr Jackson gave evidence that the Santos tenancy at Wesfarmers House, 40 The Esplanade, was a comparable tenancy (Exhibit 4, page 15).  He noted that the tenant was provided with a four month rent free period and that the lessee was required to upgrade the wet areas. 

34Mr Culverwell dealt with the rent free period and the upgrade at paragraph 9 of his responsive witness statement (Exhibit 5).  He stated that he believed that the four months' rent free period from the commencement date was to allow the tenant to complete those works.  He stated that it is therefore difficult to quantify any rental advantage to the tenant as the tenant would not be able to use that area throughout the period of those works.  Mr Culverwell was not convinced it was appropriate to treat it as a rent free period and therefore found it a somewhat problematic rent analysis for comparison purposes.

35Mr Culverwell did not use the Wesfarmers House evidence (T:40; 45).

36Mr Culverwell's rejection of the Wesfarmers building as a comparative property was based, at least in part, on a conversation he had with the property manager (T:48 - 49).  Mr Culverwell accepts that he did not have documentation to support what the property manager told him (T:49).  That evidence cannot be relied upon.

37The fact that Mr Culverwell rejected the Wesfarmers House tenancy when it is so directly comparable casts doubt on his overall approach to his valuation of the Property.

38Mr Jackson's analysed rent of $580/m² gross effectively points to a lower assessment of gross rental value than that assessed by Mr Culverwell, who had ignored this evidence.

39The Wesfarmers House tenancy provides a good comparison and we accept Mr Jackson's evidence that it is relevant and comparable.

Australia Place

40The Valuer General also pointed to Mr Culverwell's evidence of the Apache tenancy in Australia Place.  That large tenancy area of 1,073m² reflected $600/m² net and $787/m² gross plus GST.  At Level 10, this tenancy was reported as having partial river views.

41The experts could not agree as to whether this evidence was influenced by an incentive provided to the tenant.  Mr Jackson indicated that an incentive payment adjusts the effective rent to below the $787/m² as analysed by Mr Culverwell.  The Apache tenancy in Australia Place is possibly influenced by incentives and therefore may be unreliable.

30 The Esplanade

42Mr Culverwell cited another large tenancy area at 30 The Esplanade ­ Kinetic.  Much debate ensued on the comparability of this evidence as it was reported by Mr Jackson that the tenancy may also have included Level 2 and this area was not included in the Valuer General's analysis.  The question remained unresolved.  It is thus difficult for the Tribunal to rely on this piece of evidence as being comparable.

43The Kinetic tenancy in 30 The Esplanade may have been incorrectly analysed by Mr Culverwell due to evidence put that additional floor space formed part of this tenancy area that was not included in his analysis.

Exchange Plaza

44The Valuer General's remaining evidence of a large area is that of Azure at Exchange Plaza.  This space is at Level 34 of that building and there is a real question of direct comparability.  Level 34 will offer more height and superior aspect to that obtained from the Property.  The relocation of this tenant within the building from Level 33 and the rent free financial benefit supplied to the tenant also puts a question mark over the analysis and comparability of the Azure evidence. 

45Exchange Plaza is a superior grade building.  Exchange Plaza is classified as a 'Premium' Grade building whereas the Property is classified as an 'A' Grade building, with 'Premium' Grade being superior to 'A' Grade.

Mr Culverwell's smaller tenancies

46The rental evidence of Mr Culverwell is mostly of smaller areas that offer reduced or limited comparability.  The larger area evidence submitted by Mr Culverwell is also unreliable for reasons previously discussed.

Increase in Mr Jackson's assessment

47Mr Jackson reviewed the most relevant evidence, including:

•the GRD tenancy at $622/m² per annum gross;

•the Servcorp tenancy at $714/m² per annum gross;

•the Mitsui tenancy at $731/m² per annum gross and

•the Santos tenancy at $580/m² per annum gross; and

•all plus GST.

48It is also apparent that the assessment of Mr Jackson contains an element of conservatism that distorts his conclusion to a low assessment.  This is particularly so for the high rise component, Levels 11 ­ 20 of the Property.

49It is concluded that at the high rise levels of the building, being Level 11 and above, the rental assessment of Mr Jackson be increased by a rate of $25/m².  The rental evidence of the Servcorp and Mitsui tenancies, in particular, reflects and supports this conclusion.

50Levels 11 to 20 inclusive are calculated to have an area of 10,470m². Applying an additional rental assessment of $25/m² to this floor area evinces a sum of $261,750.

51The addition of $261,750 to the gross rental value assessment of Mr Jackson of $16,755,611 results in an assessed gross rental value of $17,017,361 plus GST which equates to $18,719,097 inclusive of GST.

Gross rental value

52We have concluded that the rental evidence submitted by Mr Jackson offers the best comparability with the Property on the criteria of comparable size floors and comparability of date proximate to the relevant date of valuation.

53We accept Mr Jackson's evidence as to the gross rental value, save as adjusted above.

GST

54Section 4 the Valuation Act provides:

gross rental value of land means the gross annual rental that the land might reasonably be expected to realize if let on a tenancy from year to year upon condition that the landlord were liable for all rates, taxes and other charges thereon and the insurance and other outgoings necessary to maintain the value of the land …

55The Valuer General submits that 'taxes' for the purposes of calculating the gross rental value of a property under the Valuation Act includes GST. The Bank Officers submit to the contrary. On the face of it, it is difficult to see why the GST is not a tax for the purpose of the Valuation Act.

56An outline of the operation of the GST Act is summarised by Sackville J in DB Rreef Funds Management Ltd v Commissioner of Taxation(2005) 218 ALR 144; [2005] FCA 509; 59 ATR 388 at [22] ­ [27]:

[22]GST is payable, relevantly, on 'taxable supplies':  s 7-1(1).  A person must pay the GST on any taxable supply made by that person:  s 9-40.  Entitlements to input tax credits arise on 'creditable acquisitions':  s 7-1(2).

[23]Amounts of GST and amounts of input tax credits are set off against each other to produce a net amount for a tax period:  s 7-5. Every entity that is registered, or required to be registered, has tax periods applying to it:  ss 7-10, 23-5.  The tax periods may be quarterly or monthly, depending on the circumstances:  ss 27-5, 27­10, 27-15.  The net amount for a tax period is the amount that the entity must pay to the Commonwealth, or the Commonwealth to the entity, in respect of the period: s 7-15.

[24]A registered person makes a taxable supply if he or she makes the supply for consideration and the supply is made in the course of an enterprise that is carried on:  s 9-5.  However, the supply is not a taxable supply to the extent that it is GST-free: s 9-5.  A supply is 'GST-free' if, inter alia, it is GST-free under a provision of another Act:  s 9-30(1).  This of course includes the GST Transition Act.

[25]The term 'supply' includes a grant of an interest in real property:  s 9-10(d).  The amount of GST on a taxable supply is 10% of the value of the taxable supply:  ss 9-70, 9-75.  Section 9-75 specifies a formula for calculating the value of a taxable supply.  The formula requires the gross price payable on the supply (without any discount for GST payable on the supply) to be multiplied by 10/11. The product of this formula plus 10% of the amount so derived, equals the price.

[26]A person is entitled to the input tax credit for any 'creditable acquisition' he or she makes: s 11-20.  Generally speaking, the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired: s 11-25.

[27]A registered person makes a 'creditable acquisition' if that person acquires anything for a 'creditable purpose', the supply of the thing to the person is a taxable supply, and the person provides consideration for the supply:  s 11-5.  An 'acquisition' is defined to mean any form of acquisition and includes the acceptance of a grant of an interest in real property:  s 11-10(1), (2)(d).  Subject to certain exceptions, a thing is acquired for a 'creditable purpose' to the extent that it is acquired in carrying on an enterprise:  s 11­15(1).  Thus a person acquiring something for consumption does not acquire it for a creditable purpose.

Relevant authorities

57No Western Australian cases have considered whether the term 'taxes' in s 4 of the Valuation Act includes GST.

58In Storage Equities Pty Ltd v Valuer General [2013] NSWLEC 137 (Storage Equities), the New South Wales Land and Environment Court considered whether the land value of two properties should include GST.

59Section 6A(1) of the Valuation of Land Act 1916 (NSW) (the NSW Valuation Act) relevantly provided:

The land value of land is the capital sum which the fee-simple of the land might be expected to realise 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, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made.

60Storage Equities considered the sale value of the land rather than the gross rental value. However, the significance of the case is that it considered the meaning of 'to realise' which appears both in s 4 of the Valuation Act and s 6A(1) of the NSW Valuation Act

61The applicant in Storage Equities argued, inter alia, that the term 'to realise' in s 6A(1) of the NSW Valuation Act is the net amount received by the vendor, or in other words the sum that the vendor could 'bank' on completion of the transaction. The argument was made that the vendor was no more than a collector of GST on behalf of the Australian Tax Office (ATO), and that the GST component of the sale does not represent value to the vendor. Further, it was argued that if the purchaser is registered for GST, and entitled to an input tax credit, the purchase price is not a cost to the purchaser (see[26] ­ [28] of Storage Equities).

62Accordingly, the applicant argued that the sum 'realised' in s 6A(1) is the net amount received by the vendor (i.e. after it has forwarded the GST to the ATO).  Craig J rejected this argument at [41] in StorageEquities, stating:

I do not accept this submission.  The phrase 'to realise', when read in context of the statutory expression found in s 6A(1), should not be given the restricted meaning which the Company attributes to it.  The verb 'realise' is defined in the Macquarie Dictionary (Online Edition) as meaning 'to convert into cash or money'.  I consider that to be an appropriate meaning of the verb as used in the subsection (cf House of Peace Pty Ltd v Bankstown City Council [2000] NSWCA 44 ; 48 NSWLR 498 at [25] ­ [29]). It would appear to reflect the intended purpose of the subsection. So understood, the determination of value is to be made as if the land was converted to cash or money by reason of the hypothetical sale contemplated by the section. The land, so converted, necessarily reflects that sum of money that secures the entitlement of the purchaser to a transfer of title. The amount paid by the purchaser is the sum 'realised' by the vendor on the transaction regardless of any component of that sum that the vendor may be liable to pay as a consequence of receiving it.

63The same argument is appropriate in respect of an assessment of gross rental value under the Valuation Act. The key phrase is 'to realise'. It is appropriate to assess the gross rental value on the basis of the amount that a lessee must pay, in order to rent the property, regardless of any component of that sum that a lessee must forward to the ATO.

64In respect of that argument, the Bank Officers argued that it was necessary for a valuer to 'interrogate' sales transactions.  In effect, the applicant argued that the valuation would turn, in part, on the net cost exclusive of actual of GST paid.  This would turn on the identity and tax status of the purchaser and vendor for GST purposes (i.e. whether or not they are liable to pay GST.)

65In Storage Equities at [45] Craig J said:

… In a transaction involving a purchaser who is not registered for GST, that purchaser derives no 'benefit' or credit for whatever component of the purchase price may be sought by the vendor to account for a GST liability. The price agreed, so far as the purchaser is concerned, is that amount which must be paid in order to obtain a transfer of title. That amount is the purchaser's 'net liability' and is evidence of the land's value to that purchaser. Yet, if the argument of the Company is correct, the price received by the vendor in that same transaction must have deducted from it the amount of the vendor's GST liability in order to determine 'value' in the hands of the vendor. As a consequence, there is one 'value' from the perspective of the vendor and a different 'value' from the perspective of the purchaser. Such a consequence is not consistent with the text or context of s 6A(1) of the Valuation Act. Unity of 'value' is only achieved if the capital sum realised is the sum required to be paid by the purchaser to the vendor to secure a transfer of title.

66Craig J found that the hypothetical sale to be assumed for the purposes of s 6A(1) of the NSW Valuation Act is not a sale by the person or entity who happens to own the land on the date upon which the value is to be assessed, nor does it require an assumption that the vendor will necessarily have any of the characteristics that attract a liability for GST (Storage Equities [46]).

67In determining the gross rental value by reference to comparable sale transactions, no adjustment should be made to those transactions on account of any GST liability of the vendor (Storage Equities [48]).

68In a sense, the only value realised from a rental property is the rent exclusive of taxes and outgoings.  Ultimately, all taxes, including for example, rates, have to be paid to the authority that levies the tax.  Similarly, in the case of outgoings, the outgoings have to be paid to a utility, public or private.  It can be seen therefore that 'gross rental value' is a very wide concept.  There is no basis for concluding that GST has a different characteristic to any other tax or to outgoings

69In Orti­Tullo v Sadek [2001] NSWSC 855, the plaintiffs challenged a determination by a valuer of the current rent of commercial premises. The question that arose in this case was whether the value assessed the current market rent including GST (at [20]). A determination had been made, but it was not clear from that determination whether GST was included in the determination. Although this case concerns a different point, what the Court stated at [33] is instructive:

As lessors and lessees with different taxation circumstances participate in the market, the taxation status of any particular market participant is not usually relevant to a determination of market value.  On proper principles the incidence of GST could well have some relation to the valuer's task.  If in a comparable transaction the parties agreed that the lessor was to pass on to the lessee the full increment of GST the rent treated as comparable rent in a valuation exercise would be the sum of the rent and the GST which the lessee agreed to bear, and for a lease where there was no separate treatment of GST, determination of the market rent would have regard to the totals which lessees agreed to pay in comparable lease agreements.  The valuer may have done this: there is no evidence that he did not.  GST, which on 1 August 2000 had recently come into effect, is an ordinary market consideration of the kind which a prudent lessor or lessee would not overlook, such as was referred to in the classic statement of the valuation task in Spencer v Commonwealth (1907) 5 CLR 418 at 441 (Isaacs J). The commercial market in leases can be taken to have been informed about the operation of GST and to have reflected the influence of that operation on market behaviour. It does not in any way follow however that both prudent parties would see it as appropriate to increase what would otherwise have been their agreed rent by 10%. The answer does not lie in speculation about the likely response of hypothetical persons but in market events.

Consideration of the GST issues in other cases

70The position in Storage Equities is consistent with other NSW cases dealing with GST in the context of valuation.  CSR Ltd v Hornsby Shire Council (2004) 57 ATR 201; [2004] NSWSC 946 (CSR Ltd) dealt with a valuation under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) which required the valuer to set the market value. 'Market value' was defined in s 56 of that Act as '… the amount that would have been paid for the land if it has been sold at that time by a willing but not anxious seller to a willing but not anxious buyer …', which is the classic definition of market value derived from Spencer.  Gzell J in CSRLtd observed:

[15]… [I]t is unnecessary for me to determine whether there was a separate GST component in the determination of market value.  In my view there was not.  As the Valuer-General said, the market place has adjusted to the imposition of GST and imbedded it in the market value of land.  The test of the price that a willing purchaser would have had to pay to a vendor not unwilling, but not anxious to sell in Spencer v Commonwealth (1907) 5 CLR 418 was been enshrined in the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), s 56(1). If the vendor must pay GST on the consideration for sale, that impost will be included in the price the purchaser would have pay. Thus the market value of the land was $25,000,000 and not $22,700,000 plus GST.

[16]In Pebruk Nominees Pty Ltd v Woolworths (Victoria) Pty Ltd (2003) 54 ATR 156 at 160-161; 2003 ATC 4932 at 4935, Blow J in contrasting the Australian GST system with comparable systems overseas said that the Australian GST was in the same category as British VAT and New Zealand GST. In effect, it provided that the price paid by a consumer comprised 2 components ­ the value of a taxable supply, and the GST on that taxable supply. I regard that passage as but a description of the structure of the impost and not authority for the proposition that market value is less than the GST inclusive price paid for a supply in the open market. If his Honour did intend to state that conclusion then, with respect, I disagree. If the market commands a payment of $550 to purchase a video recorder at $500 plus $50 GST, I am of the view that the market value of the video recorder is $550.

71See also Parker AC of the NSW Land Environment Court in Archon Group Pty Ltd v Valuer General [2010] NSWLEC 1131 at [16].

Should GST be included?

72The decision in Storage Equities, that GST should be included, is persuasive authority and should be followed.

73The meaning of 'gross rental value' for the purposes of the Valuation Act ought to follow the reasoning in Storage Equities. There is nothing in the Valuation Act which suggests any legal or policy reasons why the position in Western Australia should be different from that in New South Wales.

74The 'gross rental' of land under the Valuation Act includes any GST which the lessor may be liable to pay.

Conclusion

75The gross rental value for The Quadrant, 1 William Street, Perth, as at the relevant date of 1 August 2009, is determined to be $18,719,097 inclusive of GST.

Orders

1.The applicant's objection is allowed.

2.The gross rental value for The Quadrant, 1 William Street, Perth, as at the relevant date of 1 August 2009, is determined to be $18,719,097 inclusive of GST.

I certify that this and the preceding [75] paragraphs comprise the reasons for decision of the State Administrative Tribunal.

___________________________________

JUSTICE J C CURTHOYS, PRESIDENT

Annexure A:

Address	Tenant	Level	NLA	LCD	Gross Incentive	Gross Effective $/m²
'Wesfarmers House' 40 The Esplanade	Santos	Level 1	913m²	Aug­09	2.49%	$580
'Quayside on the Mill' 1 Mill Street	Kelly Services	Part 1 & 2	460m²	Dec­09	16.96%	$619
'AMP House' 140 St Georges Terrace	GRD Minproc	Level 2­3 & 14	3,124m²	Oct­09	12.05%	$622
235 St Georges Terrace	Macquarie	Part 5, 3­4	5,593m²	Feb­09	9.30%	$538
235 St Georges Terrace	KPMG	Part 5, 6­8	6,902m²	Feb­09	9.99%	$523
'The Quadrant' 1 William Street	MGI	Level 7	1,097m²	Nov­09	15.93%	$627
'Exchange Plaza' 2 The Esplanade	Mitsui and Co	Level 16	1,020m²	Oct­09	14.95%	$731
'AMP House' 140 St Georges Terrace	PPB	Level 21	433m²	Nov­09	13.27%	$661
'AMP House' 140 St Georges Terrace	Servcorp	Level 28	1,101m²	Feb­09	15.18%	$714

Annexure B

Property	Tenant	Floor	Area	Lease Comm	Term	Effective Net Rent	Approx O/Gs	Gross Effective /m² Plus GST	Overall Comparison of Evidence to Subject	Comments
Australia Place	Apache	10	1073m²	1/12/2010	4yrs	$600	$115/m²	$787	Not as good	New letting to ingoing tenant with no incentive, well after date of valuation, adjoining building inferior quality accommodation. Now vacant, inferior quality accommodation to the subject partial river views to the south east.
Australia Place	Stellar Recruit-ment	1	556m²	15/04/2010	6yrs	$590	$115/m²	$776	Not as good	New letting to ingoing tenant with $74,277.75 incentive (analysed at $25/m²) up front payment after date of valuation, adjoining building inferior quality accommodation low level no views.
Ernst & Young	MMI	Pt 1	145m²	1/08/2010	3yrs	$595	$130/m²	$798	Not as good	New letting to ingoing tenant. Opposite subject in poorer more remote location, no on site parking, no views, consider inferior standard of accommodation, low level river glimpses significantly obstructed by Convention Centre.
30 The Esplanade	Kinetic	8&9	1291m²	1/12/2008	6yrs	$675	$117/m²	$871	Not as good	New letting to ingoing tenant. Information obtained from CBRE valuation on Ernst & Young building provided by M3, confirmed by office records, older style building renovated and extended in 1990 considered inferior location and inferior standard of accommodation, access to lift lobby off Howard St.
28 The Esplanade	Kogas Aust	11	210m²	1/03/2010	5yrs	$600	$130/m²	$803	Not as good	New letting to ingoing tenant, no incentives confirmed Anne Tindale BGC 13/9/2013, inferior location, considered inferior accommodation good river views.
28 The Esplanade	Posco Aust	9	110m²	1/10/2010	2yrs	$600	$130/m²	$803	Not as good	New letting to ingoing tenant, no incentives confirmed Anne Tindale BGC 13/9/2013, inferior location, considered inferior accommodation
28 The Esplanade	Delta Capital	3	87m²	1/08/2009	3yrs	$575	$130/m²	$776	Not as good	New letting no incentives confirmed Anne Tindale BGC 13/9/2013, inferior location, considered inferior accommodation.
28 The Esplanade	Mars P/L	3	152m²	1/01/2010	5yrs	$585	130/m²	$787	Not as good	New letting no incentives confirmed Anne Tindale BGC 13/9/2013, inferior location, considered inferior accommodation
Exchange Plaza	Azure Capital	34	1091m²	1/07/2009	10yrs	$902	$145/m²	$1,152	Better	New letting tenant came from floor 33, $206,000 rent free shows $23/m² - previous tenants Aust Wealth Management Ltd (797m²) and Adelaide Bank Ltd (240m²).  Not quite as well located building, upper floors (above 20 floors) better accommodation good southerly river views.