Dhawan v Commissioner for Act Revenue (Administrative Review)
[2024] ACAT 78
•8 October 2024
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
DHAWAN & ANOR v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2024] ACAT 78
AT 16/2024
Catchwords: ADMINISTRATIVE REVIEW – onus of proof in taxation objections – where applicants objected to assessment of unimproved value of land – valuation of land – comparable sales methodology – deductions of improvements from value of improved properties
Legislation cited: Freedom of Information Act 2016 s 30
Rates Act 2004 ss 4, 6, 8, 9, 10, 12, 13A, 14, 70, 71
Taxation Administration Act 1999 ss 7, 100, 101, 104, 107, 107A, 108A, 139
Taxation Administration Act 1953 (Cth) s 14ZZK
Subordinate
Legislation cited: Taxation Administration (Amounts Payable – Rates) Determination 2023
Cases cited:Brisbane City Council v Valuer-General (Q) [1978] HCA 40
Federal Commissioner of Taxation v Dalco [1990] HCA 3
Planet Red Pty Ltd v Commissioner of ACT Revenue [2017] ACAT 18
Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26
Rigoli v Commissioner of Taxation [2014] FCAFC 29
Spencer v Commonwealth [1907] HCA 82
Sutcliffe v Secretary, Department of Social Services [2019] FCA 1534
Tribunal: Senior Member M Hyman
Date of Orders: 8 October 2024
Date of Reasons for Decision: 8 October 2024
Date of Publication: 15 October 2024
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 16/2024
BETWEEN:
CHANDER DHAWAN
First Applicant
ANITA DHAWAN
Second Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL:Senior Member M Hyman
DATE:8 October 2024
ORDER
The Tribunal orders that:
1.The decision under review is confirmed.
…………………………………
Senior Member M Hyman
REASONS FOR DECISION
Introduction
1.Chander and Anita Dhawan (the applicants), own a house in the suburb of O’Malley (the subject property). In each of 2022 and 2023, the Commissioner for ACT Revenue (the Commissioner or the respondent) assessed the unimproved value of the land. Mr and Ms Dhawan made an objection to the assessments for both years. The Commissioner ruled that the objection to the 2022 assessment was out of time and disallowed the 2023 objection. On 16 February 2024, the applicants lodged an application seeking ACAT review of the Commissioner’s disallowance decision.
2.The matter came before the Tribunal on 29 July 2024. Mr Dhawan (the first applicant) appeared in person, representing himself; Ms Dhawan chose not to attend. The ACT Revenue Office was represented by Brodie Buckland of Counsel, instructed by Salman Tahir of the ACT Government Solicitor. Mr Dhawan did not call any witnesses or give evidence himself, relying on the documentation he had filed with the tribunal (T-documents). The respondent called Karen Hill, a valuer in the ACT Valuation Office (ACTVO), as a witness; Ms Hill gave evidence and was cross-examined by the first applicant.
3.The material available to the Tribunal included papers obtained by Mr Dhawan under Freedom of Information legislation (Exhibit A1); an International Valuation Standards Councils document on methodology, “IVS 105 Valuation Approaches and Methods” (effective 31 January 2022) (the IVS standards); an excerpt from a document prepared by the University of Technology Sydney (UTS) entitled “Performance Review of Valuation Methodologies underpinning the assessment of ACT Land Tax, Rates and Lease Variation Charge”, apparently dating from 2020-21 (the UTS report); the T-documents filed by the respondent (which included the applicants’ original application and all the material attached to it); a valuation report dated 22 July 2024 by Ms Hill (Exhibit R1); and submissions by both parties (by Mr Dhawan accompanying his application and further applications filed subsequently dated 20 May 2024 and 24 July 2024, and by the Commissioner dated 16 July 2024).
Issues
4.This matter comes before the Tribunal as an application for administrative review, but the nature of the review in this instance is affected by the provisions of the Taxation Administration Act 1999 (the TAA), as explored below. Taking this into account, the issues before the Tribunal are:
(a)whether the assessed unimproved value of the subject property notified by the Commissioner was excessive; and
(b)if so, whether the evidence allows an alternative value to be determined.
The legislative framework
5.A source of revenue for the ACT Government is the rates that property owners pay on land. Rates are raised under the Rates Act 2004 (the Rates Act) in conjunction with provisions of the TAA. The unimproved value of a parcel of land held under crown lease is the expected sale value of that land where the only improvements are the grading, levelling, draining and other basic works necessary to ready the land for development.[1] Apart from certain public uses, and some other uses not presently relevant, all land is rateable, except for land that is unleased and unoccupied.[2] When it first becomes rateable, land is valued for a financial year as at 1 January in the preceding financial year[3] and its value is then redetermined each 1 January for the financial year to follow.[4]
[1] Rates Act s 6
[2] Rates Act s 8
[3] Rates Act s 9
[4] Rates Act s 10
6.The TAA allows the Commissioner to make an assessment of the tax liability of a taxpayer, and this assessment may include an assessment of the value of anything that affects that liability.[5] The Commissioner must give written notice of the assessed unimproved value of a parcel of land to the owner.[6] Rates are imposed under the Rates Act: each parcel of rateable land is charged rates calculated according to the formula FC + (AUV x P), where FC is a fixed charge, AUV is the average unimproved value of the land, and P is a percentage figure.[7] In this formula, FC and P are values determined by the Minister under the TAA, which allows the Minister to determine rates and methods by which tax liability is determined.[8] The value of FC is a fixed amount in dollars for residential land; the value of P is set progressively, that is, the percentage is set at a higher figure for land with a higher unimproved value.[9] The average unimproved value (AUV) of a parcel of land is the average of the unimproved values determined over the five previous years (adjustments are made when the land has been rateable for less than five years).[10]
[5] TAA s 7
[6] Rates Act s 12(2)
[7] Rates Act s 14
[8] TAA s 139
[9] Taxation Administration (Amounts Payable – Rates) Determination 2023
[10] Rates Act s 13A
7.Both the Rates Act and the TAA allow taxpayers to object to decisions affecting their tax liability. Section 70 of the Rates Act provides for objections to a number of different decisions that may be taken under that Act, but a note to the section explains that objections to assessments (including, by implication, assessments of the unimproved value of a parcel of land) are made under the TAA. The TAA allows a taxpayer who is dissatisfied with an assessment to object to the assessment.[11] Where a taxpayer objects to the valuation on which a tax assessment is based, the objection must be lodged within 60 days, or such longer period as the Minister determines;[12] the usual discretion given to the Commissioner to extend that deadline is not available for objections to the unimproved value of land.[13]
[11] TAA s 100(1)(a)
[12] Rates Act s 71(2)
[13] Rates Act s 71(4)
8.The Commissioner must consider an objection and either allow it (in whole or in part) or disallow it.[14] An assessment is an internally reviewable decision,[15] and the Commissioner’s determination of the objection on internal review is itself a reviewable decision,[16] which means that a taxpayer may apply to the ACAT for review of the Commissioner’s internal review decision.[17] Section 101(3) of the TAA provides that the burden of showing that an objection should be sustained lies with the taxpayer making the objection.
The evidence
[14] TAA s 104
[15] TAA s 107(a)
[16] TAA s 107A(1)(a)
[17] TAA s 108A
9.The facts in this matter are not in dispute, with the exception of the central fact, namely the unimproved value of the subject property.
10.On 18 July 2023, the ACT Revenue Office sent the applicants an Annual Rates Assessment Notice[18] and an accompanying Valuation Notice.[19] The Valuation Notice determined the unimproved value of the subject property at 1 January 2023 to be $1,598,000. On 15 September 2023, the applicants objected to the unimproved value, as set at 1 January 2023.[20] After the objection was acknowledged by the ACT Revenue Office on 18 September 2023,[21] the first applicant clarified that he objected to both the 2022 and 2023 unimproved valuations.[22] The Revenue Office responded on 18 September 2023, pointing out that the time for lodgement of an objection to the 2022 valuation had lapsed.[23]
[18] T-document 8 (T-8), pages 58–59
[19] T-9, page 60
[20] T-3, pages 32–37
[21] T-4, pages 38–40
[22] T-5, page 41
[23] T-6, page 44
11.On 19 January 2024, the ACT Revenue Office sent the applicants a response to their objection.[24] The response, identified as a decision reviewable by this Tribunal, disallowed the objection. Attached to the response was a brief review of the 1 January 2023 valuation by the ACT Valuation Office, confirming the unimproved value of the subject property, providing comments on the applicants’ objection and listing four reasonably recently sold properties in O’Malley, used for the purposes of comparison with the subject property.[25] The applicants lodged an application for review by this Tribunal on 16 February 2024.[26]
[24] T-7, pages 47–57
[25] T-7a, pages 52–57
[26] T-1, pages 1–28
12.Mr Dhawan filed a number of documents for the purposes of this review. Some of this evidence was challenged by the respondent, and some arrived in a form that made it difficult or impossible to use. Mr Dhawan sought material under freedom of information (FOI) legislation, lodging an application under section 30 of the Freedom of Information Act 2016 on 20 January 2024, seeking from the Chief Ministry, Treasurer and Economic Development Directorate, information identified as follows:
1. Details of factors considered in making the decision and rationale of the decision.
2. Copies of internal communication, memoranda, or note exchanges within the Revenue office in respect to this decision.
3. Copy of the complete valuation report of [address redacted] and any other studies used for this decision.
4. Copy of any legal advice provided with this decision.
5. Copies of policies, guidelines, or procedures followed by the Revenue Office in making such decisions.
13.The material obtained through the FOI application is Exhibit A1 and consists of two bundles. The first bundle, numbering 83 pages (the applicant’s first FOI bundle), had been largely redacted so that on most pages, nothing remained that could be read. As the first applicant did not rely on that material, or draw my attention to any of it, I have accordingly paid it no further attention. In the second bundle, numbering 35 pages (the applicant’s second FOI bundle), the first applicant did draw my attention to some of the entries, and I deal with that material below. The final part of the document, however, (pages 31-35) is again quite heavily redacted. The respondent objected to the admission of this material on the grounds of relevance, and the first applicant accepted that the material in those pages was of no use to him; accordingly, I have disregarded those pages.
14.Mr Dhawan also filed a report by a construction company into flooding at the subject property in January 2024.[27] As I understand it, the intention was to demonstrate the risk of flooding to the property, and in doing so, support a lower valuation. The respondent objected to the report on the grounds of relevance. Ms Hill noted in her evidence that the subject property was not in a flood zone, and accordingly she did not factor flood risk into her valuation. From the report, it seems that the flooding in January 2024 was the result of an extreme weather event and imperfect weatherproofing of the property at the time; this should lead to improved weatherproofing rather than writing down the value of the property. And in any case, the propensity of the house to suffer water ingress from heavy rain events relates to the improved rather than the unimproved value of the property. I have disregarded the report.
[27] Report of White Wolf Constructions Pty Ltd filed 20 May 2024
15.The respondent also objected to admission of the UTS report on the grounds that it was out of date, having been prepared in 2020-21. I deal with the report and its application to the valuation of the subject property later in this decision.
16.Mr Dhawan commissioned a report from a private valuer (Duotax Property Valuers). The valuation report, (the Duotax report) (dated 14 February 2024, but valuing the property as at 1 January 2023), arrived at an unimproved value of $1,300,000 for the subject property. The respondent objected to the admission of the report, on the grounds that it would be unfair to admit it: first, because the report had been provided to the ACT Revenue Office in the context of the objections process, but had not been filed in the tribunal process, and that, accordingly, the respondent and its witnesses was not prepared to deal with the report; and second, because the valuer was not available as a witness and therefore could not be cross-examined.
17.I ruled against the respondent’s attempt to exclude the Duotax report. The first applicant is self-represented, not legally trained, and unlikely to be conscious of the difference between the filing of documents in the objections process and with the tribunal. In any case, the respondent was aware of the document and could not therefore claim to have been surprised by it. The respondent’s second objection, that the valuer is not available to give evidence and be cross-examined, is, however, well founded. The appropriate response is for me to consider carefully the weight that might be accorded the report. Having ruled at the hearing, therefore, that the Duotax report should not be excluded from the proceedings, I have subsequently realised that Mr Buckland was inaccurate in his characterisation of the report. It was filed as an attachment to the application to the tribunal made by Mr and Ms Dhawan; that is, it was always filed as part of the tribunal proceedings, rather than as part of the objections process.
18.There are several concerns relating to the Duotax report and to the purposes to which it might be put. These are explored later in this decision.
19.Once I had ruled that the Duotax report should not be excluded, the respondent called Ms Karen Hill, a valuer at the ACTVO, as a witness. Ms Hill had undertaken a reappraisal of the value of the subject property, and her report (the new valuation report) was tendered and taken into evidence.
20.The new valuation report, dated 22 July 2024, sets out the essential parameters of the subject property (location, section and block numbers, zoning, surrounding area, approximate shape and contour of the block, when acquired as a vacant block, price of acquisition). The valuation methodology to be applied is identified as direct comparison, and eight comparable sales are identified for comparison purposes. Four of these sales are of improved properties in O’Malley (i.e. completed houses) and four are of vacant land, all from other suburbs. Each of the eight sales is analysed further for the purposes of comparison. The following two tables set out, in a slightly abbreviated fashion, the four comparable sales in O’Malley, and the four sales from elsewhere. Against the parameters below, the subject property has a site area of 2,038 square metres, and has been given an unimproved value of $1.598 M, meaning a value per square metre of $784.
Sales in O’Malley
Address
Sale price
Contract date
Site area (m2)
Unimproved value
Value per m2
Appraisal
13 Timbara Crescent
$3.35 M
29/10/22
2,634
$1.878 M
$713
Superior
17 Ngunawal Drive
$2.675 M
15/8/22
2,024
$1.51 M
$746
Slightly inferior
10 Pindari Crescent
$2.36 M
5/3/22
1,604
$1.58 M
$985
Comparable
2 Karawatha Place
$2.6 M
5/3/22
1,881
$1.417 M
$753
Inferior
Sales of vacant land
Suburb
Sale Price
Contract date
Site area (m2)
Unimproved value
Value per m2 ($)
Appraisal
Red Hill
$1.15 M
13/7/22
327
$1.1 M
3,364
Small block, good location
Garran
$1.375 M
7/5/21
858
$1.375 M
1,603
Inferior
Chapman
$1.6 M
9/12/21
1,705
$1.63 M
956
Comparable
Farrer
$1.3 M
10/11/22
923
$1.3 M
1,408
Inferior
21.Not all of the vacant land was sold on the same basis. All the blocks were zoned as residential land, but that in Red Hill was high density residential, and the Garran and Farrer blocks were approved for dual occupancy (a dual occupancy development was undertaken at Farrer but a single residence at Garran).
22.In oral evidence, Ms Hill explained the methodology for deriving the unimproved value of the subject property (a more abbreviated account of this process is included in the comments on the grounds of objection dated 31 October 2023, made by a Senior Valuer from the ACTVO, G McInerny).[28] The comparative sales were used to derive an unimproved value for each block used for comparison, and the unimproved value of the subject property was then determined by the process of comparison. In order to derive the unimproved value for the comparison blocks, in each case the value of the improvements was calculated and then the result was deducted from the improved value established by the sale price. The value of the improvements to each block was calculated using a standard method, which starts from the size of the house, and takes account of other factors such as the materials used, the number of storeys, the age, the fit-out, and the general quality of the build. This method allowed a value for the house to be arrived at, and that value was supplemented by calculations of the value of garaging, balconies, and landscaping, paving and fencing. The total figure for improvements was then subtracted from the sale price to derive the unimproved value, and the value per square metre was derived by dividing the unimproved value by the site area.[29]
[28] T-1, page 12
[29] Transcript of proceedings, 29 July 2024, pages 39-42
23.Ms Hill explained that the value per square metre is heavily influenced by the size of the block. Where the blocks are very large, the part of the block where the house or residence will sit, usually near the front of the block, will have the highest value, and there will be what Ms Hill described as “diminishing returns” from the rest of the land. This means that for larger blocks, the value per square metre will be less than for smaller blocks that are otherwise similar.[30]
[30] Transcript of proceedings, 29 July 2024, page 26
24.Ms Hill stated that the values arrived at for the subject property — both the unimproved value and the value per square metre — were conservative, that is, they were at the lower end of the range that might be produced for the subject property through the application of valuation principles.[31]
The arguments of the parties
[31] Transcript of proceedings, 29 July 2024, pages 28-30
25.Mr Dhawan initially took action because he felt that the unimproved value he had been given was incommensurate with the values assigned to nearby properties. After the Commissioner’s staff pointed out (citing case law from this Tribunal and from the Commonwealth’s Administrative Appeals Tribunal) that comparison with other properties was a poor and inappropriate way of establishing whether or not the unimproved value had been derived accurately, he changed the basis of his case. He argued that the valuation methodology was not transparent; that the method actually used by the ACTVO was inconsistent with sections 9 and 10 of the Rates Act; and that the unimproved value of $1,300,000 for the subject property, arrived at in the Duotax Report, should be preferred.
26.The Commissioner’s argument is in essence that the applicants have failed to meet the requirements of section 101(3) of the TAA: they have not discharged the onus of showing that the unimproved value sent to them with their rates notice was excessive, and unless they have done so, they cannot succeed. The Commissioner supplemented this central argument with contentions that valuation principles had been appropriately and accurately applied to derive the unimproved value of the subject property; and that the value so derived was conservative (i.e. at the low end of the range), whether considered as a value for the subject property as a whole or as measured in dollars per square metre of land.
Consideration
27.Rates are a form of tax. The Dictionary to the TAA defines tax to include any amount paid or payable to the Commissioner under a tax law, and the Rates Act is listed in the TAA as a tax law.[32] The Commissioner is empowered under section 7 of the TAA to assess tax obligations, and did so in issuing a rates notice to the applicants. The applicants made an objection to the assessment under section 100 of the TAA and the Commissioner considered the objection and disallowed it under section 104 of that Act. That determination was a reviewable decision,[33] and the applicants applied to this tribunal for review under section 108A of the TAA. I am satisfied that I have jurisdiction to decide the application.
[32] Rates Act s 4
[33] TAA s 107A
28.The value of land has been a frequent focus in case law, with one of the earliest Australian judicial statements occurring in Spencer v Commonwealth:[34]
…the test of value of land is to be determined … by inquiring [“]What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell[?”]…
[34] [1907] HCA 82 (Griffiths CJ), page 432
29.Valuation of land can be used for many purposes, and administrative review of a decision relying on a valuation will normally proceed in the usual fashion to seek the correct or preferable outcome, based on the available evidence.[35] But where the valuation is the basis for an assessment of tax liability, other considerations may apply. In the present matter, the Commissioner laid a great deal of emphasis on the operation of section 101(3) of the TAA, and for good reason. The effect of that provision is to put a sizeable hurdle in the path of every applicant seeking to challenge a taxation assessment. Similar provisions exist in taxation-related legislation in other jurisdictions, and, in particular, the Taxation Administration Act 1953 (Cth) includes at section 14ZZK a provision in similar terms.
[35] See for example Sutcliffe v Secretary, Department of Social Services [2019] FCA 1534
30.There is a body of case law dealing with these provisions, and in a case cited by the Commissioner, Planet Red Pty Ltd v Commissioner of ACT Revenue,[36] Presidential Member McCarthy analysed at length the relevant case law. His conclusions may be briefly summarised along the following lines:
(a)Valuation is a practice surrounded by uncertainties, in which settled principles are applied to derive values of assets from information that is itself necessarily incomplete and imperfect.
(b)It follows that two valuations based on the same information could arrive at different outcomes; the judgment that a valuer brings to a valuation is subjective and can lead to conclusions on which reasonable minds might differ.
(c)When an asset is valued for taxation purposes, the primary obligation of a Tribunal reviewing a valuation decision is to determine whether the value of the asset has been determined wrongly (i.e. the value assigned to the asset is too high); the Tribunal can reach that conclusion by arriving at a determination of the asset’s value, but must be careful not to lose focus on its primary task (at [20]–[26], citing Rawson Finances Pty Ltd v Commissioner of Taxation[37] (per Jagot J) and Rigoli v Commissioner of Taxation).[38]
[36] [2017] ACAT 18 (Planet Red)
[37] [2013] FCAFC 26
[38] [2014] FCAFC 29 at [26]
31.In the present matter, the ACTVO has used the valuation methodology known variously as “direct comparison”[39] or “comparable sales”,[40] in which a value is arrived at by extrapolating from sales of assets that are comparable to the subject asset. This is the methodology most usually applied in valuations of real property. In this instance, four properties in O’Malley, sold at dates reasonably close to the base date for the valuation (1 January 2023) were used. Unimproved valuations were derived for each of the four properties by subtracting the value of improvements, and each unimproved value was then converted into a value per square metre. From this, a value per square metre for the subject property was extrapolated, and the unimproved value for the property calculated by multiplying the value per square metre by the area of the subject property. As I understand the methodology, the values of the vacant blocks were then used to check that the unimproved value arrived at was within the range expected.
[39] New valuation report at [22]
[40] Planet Red at [34]–[36]
32.It is clearly a challenge for the determination of unimproved value that the number of sales of vacant blocks in otherwise densely settled parts of the city is very low. The four sales used by the ACTVO come from disparate parts of Canberra (South Canberra, Weston Creek, and two in Woden Valley). The sizes of the blocks are mostly very much smaller than the subject property. One of the blocks is tiny and differently zoned, and two were sold as dual occupancy (although only a single dwelling was built on the Garran block, it seems likely that the price paid for the vacant block would reflect the potential for dual occupancy). There must be a question whether the four vacant blocks — presumably the only examples that can reasonably be drawn on — are genuinely comparable to the subject property, to a degree that can be relied on for valuation purposes. Of the four blocks, only that in Chapman seems to me to be sufficiently comparable to the subject property that it can be useful in the valuation exercise.
33.The methodology set out above is that used by the ACTVO in conducting a review of the unimproved value of the subject property, in the context of the applicants’ objection and its determination by this Tribunal.[41] A process of that resource intensity could not be used for every annual redetermination required under section 10 of the Rates Act. An email to the applicants, dated 18 September 2023, from a C Chetcuti in the Objections unit of the ACT Revenue Office,[42] provided an explanation of the method for annual revaluations of property, as follows:
A mass appraisal benchmarking method is used in the revaluation of single residential properties. This method requires that a benchmark property is selected from a group of properties (called a submarket group) that are similar in location, type and use. Using comparable sales, the unimproved land of the benchmark property is revalued and a percentage change in value is established. This percentage is applied to the existing unimproved values of all properties within the submarket group resulting in new unimproved values. There are generally several submarket groups in a suburb and most rateable residential properties have been revalued using this valuation approach.
[41] T-1 pages 11–14; new valuation report
[42] T-4, page 38
34.It is clear, then, that the valuation dated 18 July 2023, sent to the applicants with their rates notice,[43] was arrived at by the revaluation methodology set out as quoted immediately above, and the revaluation conducted for the objection was done not to establish an unimproved value anew, but rather to ensure that the revalued figure sent to the applicants had been within the sort of parameters that can be expected of the valuation process.
[43] T-8, page 60
35.Turning then to the case put by Mr Dhawan, although he has pointed, reasonably enough, to some limitations of the way in which unimproved values are determined, it appears to me that he has not provided any basis on which I could conclude that the valuation arrived at by the Commissioner is excessive, or otherwise clearly wrong (noting that some leeway needs to be allowed for the inherent uncertainties in the valuation process).
36.Mr Dhawan’s arguments are frequently reasonable but do not substantially help his case. He pointed out that the extent of the slope on his block had meant that he had had to spend a large amount ($210,000) on excavating and levelling the block before building his house, and that this was not reflected in the unimproved value.[44] But section 6 of the Rates Act provides that the unimproved value of a parcel of land is its value after “clearing, filling, grading, draining, levelling or excavating” has taken place, so any costs of that process are implied in the unimproved value. He further pointed to the requirement that houses comply with building envelope requirements imposed by the ACT Government;[45] it is not clear to me, however, how that has an effect on the unimproved value or the valuation process. Mr Dhawan points to two separate developments on the boundaries of adjoining properties — a retaining wall that he says obscures the view in one direction, and a badminton court — and contends that these affect the value of the property, as prospective purchasers might be discouraged by them.[46] But although these might affect the value of the improved property — the land together with the house and other improvements — I cannot see that they have any impact on the unimproved value.
[44] T-1, page 16
[45] T-1, page 16
[46] T-1, page 16
37.Mr Dhawan criticises the way in which the value of the subject property was arrived at. The 2022 valuation, at $1,522,000, represented a 46% increase on the previous year; the value for 2023 was then arrived at by applying a 5% increase, itself a standard figure that took no account of the specifics of the subject property or the dynamics of the property market. The unimproved value so determined could therefore not be relied on as an accurate reflection of the true market value of the land.[47] Mr Dhawan criticises the valuation process for not being transparent, and contends that the base value arrived at for the subject property is inflated. I think Mr Dhawan has a fair point about the transparency of the valuation process, but his criticisms do not lead me to conclude that the valuation figures are manifestly wrong. It is plain that it would not be possible for every property in the ACT to be valued by a thorough valuation process starting from scratch each year; the need to manage the process within sensible resource allocations means that various different and more manageable methodologies need to be used, and additional checks and occasional, more thorough reviews, can be used to ensure that the process has not gone off the rails.
[47] Applicants’ submission of 20 May 2024, pages 1-3
38.In this instance, the valuation referred to by Mr McInerny and the more thorough valuation undertaken by Ms Hill have arrived at a figure for the subject property that is within the parameters established by the more abbreviated processes that had been used to that point. In these processes, aggregate market data might be used, and there would be limited opportunity to consider the particular market-related factors applying to any one property. As I understand it, this does not have a material effect on the outcome: once essential considerations such as location, block size, block contour, and views are taken into account, other market-specific factors are likely to relate to the developed rather than the undeveloped property.
39.In written submissions dated 24 June 2024 and tendered at the hearing, Mr Dhawan put forward the following arguments:
(a)The Commissioner misapplied sections 9 and 10 of the Rates Act by deriving the 2023 value of the subject land from the value assigned in the previous year. What those sections mandate is that an initial value be established, and then that a new value be established in each succeeding year, with the value on 1 January each year being the value for the financial year starting six months later. The Rates Act does not require that the new value each year be derived from the value established the preceding year.
(b)The use of a 5% standard increase to arrive at the 2023 value is inconsistent with the ACT Revenue Office’s website, which specifies that the features specific to the block being valued should be taken into account.
(c)The failure to take into account the unique aspects of the subject property put the respondent at odds with the approach to valuation set out in the IVS standards, which require that necessary adjustments are made for each subject asset being valued. In Brisbane City Council v Valuer-General (Q),[48] the High Court noted that the value of land subject to flooding should have its value adjusted accordingly. In the valuation by Karen Hill, 13 Timbara Crescent in O’Malley (one of the blocks used for comparison) was valued at $713 per square metre, and assessed as “superior overall” to the subject property – yet, the subject property has a valuation per square metre of $784, a valuation that therefore must be too high.
(d)In the UTS report, significant problems were found with the ACTVO’s valuation methodology. In the circumstances, ACTVO’s valuations cannot be relied on.
[48] [1978] HCA 40
40.I do not believe these points assist Mr Dhawan. Taking each in turn:
(a)Mr Dhawan is right in pointing out that sections 9 and 10 of the Rates Act do not mandate that each year’s valuation must be derived from that in the preceding year. But section 10 merely requires that a new value be set each year; it does not prescribe how that annual revaluation should be done. The derivation of each year’s value from the previous year’s, if it is done with appropriate checks and re-examinations, should be reasonably robust. More to the point, Mr Dhawan’s comment does not provide any evidence that the value arrived at for his block of land is incorrect — and that is a test he must meet if he is to succeed.
(b)I have already addressed Mr Dhawan’s second point. The specific features Mr Dhawan wishes to see taken into account relate to the developed rather than the undeveloped block.
(c)Valuations of the kind done by Ms Hill take into account essential aspects of the block being valued, such as size, location, contour and aspect; they do not take into account features specific to the developed block. Ms Hill’s valuation arrived at a value that was in line with the value derived by the percentage increase based on assessment of a representative property in a submarket group for O’Malley, or a relevant part of O’Malley. Ms Hill identified the subject property as not falling within a flood zone, and for that reason I regard the High Court case cited by Mr Dhawan as having no bearing on this matter. As for the rating and value of 13 Timbara Crescent, the difference is explained by block size. As Ms Hill explained, a larger block has the effect of diluting the value per square metre. The block at 13 Timbara Crescent is 2,634 m2, whereas the subject block is 2,038 m2. This gives the Timbara Crescent block a lower value per square metre – but the block’s unimproved value is $1,878,000, reflecting both its superiority as a block and its larger size. The block assessed as most closely comparable to the subject property, at 10 Pindari Crescent, has an unimproved value of $1,580,000 (very similar to that of the subject block) but, because its area is much lower, at 1,604 m2, its value per square metre is much higher, at $985/m2.
(d)The UTS report made some trenchant comments on the ACTVO valuation methodology — comments which may have been warranted; but comments made three years ago on general aspects of valuation at that time do not allow me to draw conclusions now, about the reliability of a particular valuation. Apart from the distinction between the general conclusions drawn by the report and the specific application of methodologies in the valuation of the particular property the subject of the present matter, I also have the difficulty that I do not know what response the ACTVO made to the report and what changes may have occurred in the period since it was submitted.
41.In his final submissions at the hearing, Mr Dhawan reiterated some of the above points. He also pointed to what he termed “inconsistencies” in the ACTVO’s application of valuation methodology, for example, Mr McInerny’s comments on two of the comparison properties (13 Timbara Crescent and 10 Pindari Crescent) were different from the perspective adopted by Ms Hill. Mr McInerny assessed the first as “[s]lightly larger block, inferior building topography” and the second as “[s]maller block, inferior building land”. Ms Hill’s comments were, respectively, “[l]arger sized block with superior views. Overall superior”, and “[s]maller sized block with superior views. Overall comparable”. To my mind, these differences simply illustrate the subjective element that appears in every valuation; here, one valuer assigns more weight to building topography while the other assigns more weight to views from the block. I note that both arrived at a valuation outcome within the same parameters.
42.It should be clear from the above that Mr Dhawan has failed to meet the burden laid on him by section 101(3) of the TAA; he has not shown that the unimproved value given to the subject property was clearly excessive. He has pointed to various aspects of the valuation methodology or its application in this case to support contentions that the determination of the unimproved value of the subject property was flawed. But such contentions, even if made out — and I do not believe that they were — do not meet the test set by section 101(3) of the TAA. In Federal Commissioner of Taxation v Dalco,[49] Brennan J commented on this point as follows:
… the ultimate question for the court … is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong. The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.
[49] [1990] HCA 3 at [8]
43.The comments above by Brennan J were made in the context of an appeal but are applicable equally to tribunal review. Mr Dhawan has not discharged the burden laid on him; even if one were to accept his criticisms of the ACTVO methodology (which I have not), he would need to do more — he would need to show that the methodology was not only wrong but inevitably, or in his particular case, would lead to an excessive unimproved value. This he has not done.
44.Having arrived at this conclusion, I am not obliged to consider any alternative valuation. Mr Dhawan has proposed that the unimproved value of the subject property should be set at $1,300,000, the valuation made in the Duotax report.
45.For the purposes of completeness, I have given some consideration to that report. I find that it presents a number of concerns and is an unsatisfactory basis for deciding the proper valuation of the subject property. Leaving aside the disclaimer that the report does not meet the practice standards for court or mortgage purposes,[50] the report also presents other challenges. Four sales are advanced for comparison purposes (three of them also appearing in the ACTVO valuation) and it appears that the block considered most similar to the subject property is then used to assign, essentially, the same value per square metre to the subject property. But the block so used, at 22 Pindari Crescent (a block not drawn on by the ACTVO), is very large, at 2,912 square metres (versus 2,038 for the subject property), which means that its value per square metre is considerably affected by the dilution effect of a large area on which no house is constructed (referred to by Ms Hill as “diminishing returns”). This surely means that to assign essentially the same value per square metre to the subject property ($639 for 22 Pindari Crescent, versus $640 for the subject property) will lead to an undervalue for the latter. For this reason alone, the value assigned to the subject property by the Duotax report cannot, in my view, be relied on.
[50] T-1, page 25
46.Further, there is absolutely no transparency about the methodology for calculating the value of improvements; it is not even clear that the valuer (who apparently is resident elsewhere) travelled to Canberra to carry out the valuation. Finally, the valuer who did the Duotax valuation was not available to give evidence, which means that his evidence, including his report, could not be tested in cross-examination. Taking all these matters together, even if Mr Dhawan had met the onus of demonstrating that the ACTVO valuation is excessive, I do not believe that I could make use of the Duotax report to arrive at an alternative valuation for the subject property.
47.Once again, Mr Dhawan having failed to meet the onus, I do not have any need to comment on the ACTVO methodology or its application to the subject property. Perhaps it is worth noting that in my engagement with the evidence, I have not noticed any plain errors. The developed properties used for valuation are in the same area as the subject property and were sold at dates not too far removed from the base date of 1 January 2023. The valuation methodologies used appear to be those appropriate in the circumstances. I do not find Mr Buckland’s contention that the unimproved value determined for the applicants’ property was conservative to be compelling; but nor does it appear to me that the value was wrong, or excessive, or out of kilter with reasonable expectations.
48.No error in the decision under review having been demonstrated, that decision is confirmed.
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Senior Member M Hyman
Date(s) of hearing: 29 July 2024 First Applicant: In person Second Applicant No appearance Counsel for the Respondent: Mr B Buckland, Solicitors for the Respondent: Mr S Tahir, ACT Government Solicitor
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