FANDS (ACT) Pty Ltd v Commissioner for Act Revenue (No. 2)
[2017] ACAT 112
•22 December 2017
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
FANDS (ACT) PTY LTD v COMMISSIONER FOR ACT REVENUE (No. 2) (Administrative Review) [2017] ACAT 112
AT 16, 23, 24, 25, 26, 27/2017
Catchwords: ADMINISTRATIVE REVIEW – unimproved value of subject land – reassessment of value five years after change in purpose clause of Crown lease – appropriate valuation methodology for land in Braddon – what sales of land are comparable to subject land – role of Commissioner of ACT Revenue to determine unimproved value of land – role of Commissioner to redetermine unimproved value of land if a change of circumstances happens – role of Commissioner to reassess tax liability of taxpayer – whether Commissioner properly exercised discretionary power in reassessing tax liability for previous five years from date of redetermination – whether Commissioner’s decision should be set aside
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 ss 26, 52, 68, 89, 97, 108, 109
Land (Planing and Environment) Act 1991
Land Titles Act 1925 s 178B
Legislation Act 2007 s 84
Planning and Development Act 2007 ss 276, 277, 471
Planning and Development (Lease Variation Charge) Amendment Act 2011
Rates Act 2004 ss 6, 9, 10, 11, 11A, 12, 14, 17, Dictionary
Taxation Administration Act 1999 ss 4, 7, 9, 10, 11, 14, 74, Dictionary
Subordinate
Legislation cited: Land Titles Regulation 2015Cases cited:Boland v Yates Property Corporation Pty Ltd (1998) 74 ALR 209
Brisbane City Council v Mio Art Pty Ltd & Anor [2011] QCA 234
Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445
City Hill Pty Ltd v ACT Planning and Land Authority [2015] ACTSC 40
FANDS (ACT) Pty Ltd v Commissioner for ACT Revenue (No 1) [2017] ACAT 71
Federal Commissioner of Taxation v St Helen’s Farm (ACT) Pty Ltd (1981) 146 CLR 336
Giusida Pty Ltd v Commissioner for ACT Revenue [2016] ACTSC 275
Housing Commission of NSW v Falconer [1981] NSWLR 54
Inez Investments Pty Ltd v JL Dodd (1979) 28 The Valuer 501
James v Commissioner for ACT Revenue [2013] ACAT 32
Junstamp Pty Limited & Ors v Commissioner for ACT Revenue [2013] ACAT 50
Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295
Tribunal: President G Neate AM
Assessor J TrickettDate of Orders: 22 December 2017
Date of Reasons for Decision: 22 December 2017
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL )
AT 16, 23, 24, 25, 26, 27/2017
BETWEEN:
FANDS (ACT) PTY LTD
Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL: President G Neate AM
DATE:22 December 2017
ORDER
1.The Tribunal orders that:
1.The Commissioner’s decision relating to the objection to the 2011 redetermined unimproved value of the subject land be set aside and the objection allowed.
2.The objection decision made by the Commissioner for ACT Revenue for 2012-2013 be remitted to the Commissioner to give effect to the issue identified in relation to the average unimproved value of the subject land.
3.The Commissioner calculate the amount of any interest paid by FANDS on:
(a) the repayments made after 15 October 2016, being the sum calculated only in respect of those periodic payments;
(b) the amount incorrectly assessed for the year 2011; and
(c) the amount incorrectly assessed for the year 2012 and any subsequent year once the averaging provision of section 14 of the Rates Act 2004 is applied.
4.The parties provide the Tribunal with a draft minute of orders to give effect to the findings and conclusions set out in paragraphs [278]-[282] of these reasons for decision by 29 January 2018.
5.Each party has liberty to apply to the Tribunal on three days’ notice in order to seek clarification in relation to any of the findings and conclusions set out in paragraphs [278]-[282] of these reasons for decision.
………………………………..
President G Neate AM
REASONS FOR DECISION
Introduction
1.This case concerns challenges to the reassessment in September 2016 by the Commissioner of ACT Revenue (the Commissioner) of the unimproved value of Block 15 Section 28 in Braddon, Australian Capital Territory (the subject land) and the consequent increases in the amounts of rates, land tax, and City Centre Marketing and Improvements Levy (CCMIL) payable by FANDS (ACT) Pty Ltd (FANDS) for the years 2011 to 2016. The total amount payable was $613,614.53.
2.The subject land is located at 11 Lonsdale Street, Braddon. It has an area of 1, 254 square metres. It comes within Territory Plan 2008 zoning CZ3: Services Zone. The land is also subject to the Braddon Precinct Map and Code in the Territory Plan.
3.FANDS is a registered proprietary limited company. It purchased the Crown lease of the subject land in about mid-2002 and the transfer was registered in December that year. In 2017, FANDS sold the site to JVSJ Lonsdale Pty Ltd and NMAM Lonsdale Pty Ltd for $6,200,000. The contract was dated 10 February 2017 and the settlement was on 9 May 2017.
4.Having been advised of the reassessments of the unimproved values of the subject land for the years 2011 to 2016 and the amounts of money it owed, FANDS wrote to the Commissioner on 29 September 2016 setting out in detail its objections to each of the unimproved values from 2011 onwards.
5.In a letter dated 3 March 2017, FANDS was advised that the Commissioner disallowed its objection to his decision, and confirmed the valuation notices under review for 2011 to 2016.
6.On 28 March 2017, FANDS applied to the ACT Civil and Administrative Tribunal (the Tribunal) for a review of the decision to disallow its objection.
Orders sought
7.In its statement of facts and contentions, FANDS sought orders that:
(a)the reviewable decision of the Commissioner be set aside and substituted with the decision which gives effect to the original determinations of unimproved value for the subject land for the fiscal years from 2011 to 2016;
(b)the subsequent reassessment of rates, land tax and CCMIL be set aside and the correct assessments be issued; and
(c)any payments of rates paid by FANDS in reliance on the notices dated 6 September 2016 be remitted back to FANDS together with interest.
8.The final submissions made by FANDS to the Tribunal reiterated the orders sought set out at (a) and (b) above.
9.The Commissioner’s statement of facts and contentions sought simply that the decision under review be confirmed. The Commissioner maintained that position in his final submissions subject to two qualifications, the basis for which is apparent later in these reasons for decision:[1]
(a)set aside the decision relating to the objection of the 2011 redetermined unimproved value and substitute it with a decision that the objection be allowed; and
(b)remit to the Commissioner the objection decisions for the 2012-2013 redetermined unimproved values to give effect to the issue identified in relation to average unimproved value calculation for the subject land.
Procedural matters
[1] See paragraphs [232] to [238]
10.The hearing of the applications was unusual in two respects. First, the Tribunal was assisted by an assessor, James John Trickett.[2] Apparently, this was the first occasion when the Tribunal has conducted a hearing with an assessor, and the Commissioner made written and oral submissions concerning the role of an assessor appointed to the Tribunal.
[2] Mr Trickett is a retired lawyer and valuer. He was the Valuer-General for Queensland, then a member of the Land Court of Queensland and President of that Court
11.A detailed ruling about the role of the assessor in these proceedings was given on the morning of the first day of the hearing. At the request of counsel, the reasons for that ruling were published separately from these reasons for decision.[3]
[3] FANDS (ACT) Pty Ltd v Commissioner for ACT Revenue (No 1) [2017] ACAT 71
12.It is not necessary to repeat those reasons or set out the ruling. However, to assist an understanding of the decision and reasons in this decision, it is appropriate to note that:
(a)the assessor was appointed to provide specialist or technical advice to the Tribunal;[4]
(b)although the assessor was appointed by notifiable instrument as a member of the Tribunal,[5] and sat with me during the hearing, his role was confined to providing advice and ensuring that I comprehended the evidence given;
(c)the assessor did not make decisions in relation to the applications that are the subject of these proceedings;[6]
(d)the decision on the issues in these applications is mine and mine alone.
[4] ACT Civil and Administrative Tribunal Act 2008 s 97(3), see also ss 26, 108(1)
[5] ACT Civil and Administrative Tribunal Act 2008 ss 89, 97, 109
[6] See ACT Civil and Administrative Tribunal Act 2008 s 52(2)
13.The second, though not as unusual, feature of the hearing was that expert witnesses gave their evidence concurrently. To a large extent, the resolution of the issue about the unimproved value of the subject land at the relevant dates turns on the expert evidence of two valuers: Noel McCann (a principal of MAS Strategic Property Services Pty Ltd (MAS)) called by FANDS and Carlo King (the Managing Valuer of the ACT Valuation Office). Each is a qualified valuer with long experience, and their respective qualifications to give expert evidence were not in issue. They gave their evidence concurrently, in the sense that they sat next to each other for the duration of most of their evidence and, in addition to answering questions from the Tribunal and counsel, they took the opportunity to offer comments or observations in response to each other’s evidence.
14.That process enabled the Tribunal to obtain a clearer indication of what was agreed between the experts as well as the points of difference, and the reasons for those differences. The process might have saved hearing time. Taking evidence from the witnesses serially and separately might not have led to such a clear and comprehensive picture of the valuation evidence and might have been less complete than the form in which it is given.
Chronology of key events
15.Events between 2008 and 2016 provide the background to the current dispute. At all material times, FANDS was the lessee of the subject land.
16.On 28 March 2008, FANDS applied to the ACT Planning and Land Authority (ACTPLA) to vary the Crown lease over the subject land by adding specified uses (including “residential uses”) to the purpose clause. At that time, the permitted uses were one or more of the following:
(i)industry and industries (other than a noxious trade);
(ii)business agency;
(iii)office;
(iv)public agency;
(v)shop.
17.In a notice of decision dated 22 September 2008, a delegate of the ACTPLA approved the application. Purpose clause 1(f) was amended to read:
To use the premises only for one or more of the following purposes:
(i) industry and industries (other than a noxious trade);
(ii)business agency;
(iii)office;
(iv)public agency;
(v)shop;
(vi)residential use; and
(vii)restaurant;
PROVIDED ALWAYS THAT the combined maximum gross floor area used for supermarket or other shop selling food shall not exceed 200 square metres AND FURTHER PROVIDED ALWAYS THAT residential use shall not be permitted at the ground floor level.
18.The approval was subject to specified conditions, including conditions to be satisfied before the approval would take effect. The lessee was obliged to do all that was necessary to ensure that the Instrument of Variation giving effect to the approval was registered at the Registrar-General’s Office within 14 days of being notified that the Instrument of Variation was available for registration or within such further time as may be approved by the ACTPLA.
19.In order to register the Crown lease variation, FANDS was required to pay any change of use charge (CUC) payable in respect of the variation. The ACTPLA determined the CUC on 24 January 2011.
20.On 3 May 2011, FANDS applied to the ACAT for a review of the decision (AT 44/2011). On that application, FANDS noted that, for the purpose of the decision being reviewed, the V1 “after” value was $5,763,000 and the V2 “before” value was $5,385,000. Consequently, the added value of the Crown lease variation was $378,000 and the CUC, calculated as 75% of that amount, was $283,500.
21.Correspondence on behalf of FANDS from Steven Flannery[7] to the ACTPLA on 13 July 2011 stated that that FANDS relied on advice from Savills to the effect that, on a redevelopment basis, the “after” value of the subject land was “only marginally greater” than the “before” value to account for the “nominal increased flexibility resulting from the addition of a number of land uses.” (Exhibit W)
[7] Mr Flannery is a property valuer and advisor to FANDS. He is the husband of one of the directors of FANDS and has negotiated on behalf of FANDS
22.On 21 July 2011, the ACAT made consent orders[8] in terms of the agreement signed by FANDS and the ACTPLA to the effect that the decision of the ACTPLA was varied and the CUC for the variation of the Crown Lease for the subject land was $50,250 (instead of $283,500). It was noted that the V1 “after” value was $5,452,000 and the V2 “before” value was $5,385,000 (a difference of $67,000).
[8] FANDS (ACT) Pty Ltd v ACT Planning & Land Authority, AT 11/44
23.Mr Flannery gave oral evidence that the figures entered in the consent decision were improved values. He noted, however, that FANDS’s concern was less with the values entered than the amount of money that FANDS had to pay to obtain the use of the land.
24.On 6 October 2011, the ACTPLA applied to the Registrar-General of the Land Titles Office to register at the variation, and on 2 November 2011 the variation was registered. The main effect of the change was to add to the purpose clause the use of the premises for “residential use” and “restaurant”.
25.As a consequence of the variation registered on 2 November 2011, the premises can be used for one or more of the purposes referred to in [17]. The use of the land is subject to the provisos noted earlier, and that the Crown lessee include a minimum of 20 car spaces on site.
26.In August of each of the years from 2009 until 2016, the Commissioner issued a Valuation Notice to FANDS stating the assessed unimproved value of the subject land effective from 1 January of that year. Those assessments were as follows:
Date of notice Date of redetermination Unimproved value 1 January 2009 $2,175,000 1 January 2010 $2, 066,000 15 August 2011 1 January 2011 $1,859,000 15 August 2012 1 January 2012 $1,766,000 15 August 2013 1 January 2013 $1,678,000 18 August 2014 1 January 2014 $1,678,000 17 August 2015 1 January 2015 $1,678,000 27.On the same days, the Commissioner issued corresponding notices about rates payable in respect of the subject land by FANDS for each of the relevant financial years. Notices were also sent in relation to land tax and the CCMIL payable in respect of the subject land.
28.On 16 August 2016, the Commissioner issued a rates assessment notice for the year 1 July 2016 to 30 June 2017, based on an Average Unimproved Value (AUV) of $1,678,000, the same amount as for the immediately preceding three years.
29.Less than three weeks later, in a letter dated 6 September 2016 from an officer of the ACT Revenue Office, FANDS was advised that the subject land “had a recent change in purpose clause allowing it to be used for one or more” of the purposes listed in the letter. “This has led to an increase in the unimproved values” as at 1 January 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016. Pursuant to section 11A of the Rates Act 2004[9], the unimproved land values had been “amended.” For each of those years, the amendment had resulted in an increase in the unimproved value of the land, the amount of which was specified in the letter as follows:
[9] Section 11A of the Rates Act 2004 is quoted at [37] of these reasons for decision.
Date of redetermination Previous unimproved value Increased unimproved value 1 January 2009 $2,175,000 $4,320,000 1 January 2010 $2,066,000 $4,800,000 1 January 2011 $1,859,000 $4,800,000 1 January 2012 $1,766,000 $4,800,000 1 January 2013 $1,678,000 $4,800,000 1 January 2014 $1,678,000 $4,800,000 1 January 2015 $1,678,000 $4,800,000 1 January 2016 $1,678,000 $4,800,000 30.FANDS was also advised that the amendments had resulted in specified changes to the AUV and “corresponding adjustments to the rates charges” from 6 October 2011. The letter set out the adjusted rates and CCMIL for part of the financial year 2011-2012, and for each of the full financial years until 2016-2017. It also noted an increase in land tax for the period 6 November 2011 to 30 June 2012. Enclosed with the letter were the amounts of adjusted rates, land tax and CCMIL notices, and a notice of redetermination of unimproved values “which shows the new values for your property.”
31.Rates payable in relation to the subject land, as originally assessed and as revised are set out in the following table.
Financial year Original assessment Adjusted assessment in 2016 2011-12 $23,948.89 $22,258.92[10] 2012-13 $55,248.50 $87,563.19 2013-14 $67,965.85 $122,536.62 2014-15 $76,212.63 $149,543.03 2015-16 $85,129.21 $164,107.54 2016-17 $90,517.64 $175,389.96 [10] For period 6 November 2011 to 30 June 2012
32.On 6 September 2016, FANDS was also advised that:
(a)as a consequence of the section 11A adjusted rates it was to pay $546,009.30 by 15 December 2016;
(b)as a consequence of section 11A adjustment to land tax for the period 6 October 2011 to 31 December 2011, and for the years 2012 and 2013, it was to pay $30,462.19 by 15 October 2016;
(c)as a result of section 11A adjustments to CCMIL from 6 October 2011 to 30 June 2012 and for the next five financial years (to 30 June 2017) it was to pay $37,143.04 by 15 October 2016.
33.There followed correspondence between FANDS and the Commissioner in which, in summary:
(a)by letter dated 29 September 2016 sent by email on 4 October 2016, FANDS objected to the redetermination of the unimproved value for the subject land;
(b)on 18 October 2016, FANDS wrote to the Commissioner requesting an extension of time to pay the debt and a waiver of the interest component;
(c)on 21 October 2016, the Commissioner wrote to FANDS agreeing to interim payment arrangements for six months pending the outcome of the objection, but noting that interest would continue to accrue on the outstanding balance for the account;
(d)on 3 March 2017, the Commissioner disallowed the objection by FANDS;
(e)on 28 March 2017, FANDS applied to the Tribunal for a review of the Commissioner’s decision.
The issues
34.The parties agreed from the outset that there were essentially two issues in this case involving:
(a)assessments of the unimproved value of the subject land at the relevant dates; and
(b)the exercise of the Commissioner’s discretion in reassessing the unimproved value of the subject land and adjusting the amounts of rates, land tax and CCMIL payable in relation to the subject land for each of the relevant years.
Unimproved value of the subject land at relevant dates
35.To resolve the first issue it is necessary to consider the statutory provisions about the unimproved value of parcels of rateable land in the ACT, and the expert and documentary evidence about the unimproved values of the subject land in the relevant years.
Statutory provisions about unimproved value
36.The Rates Act 2004 contains a detailed scheme for determinations and redeterminations of the unimproved value of parcels of rateable land. The relevant sections:
(a)require the Commissioner to determine the unimproved value of a parcel of land that becomes rateable, with the first determination for a financial year being as at 1 January in the immediately preceding financial year (section 9);
(b)require the Commissioner, as soon as practicable after 1 January thereafter, to redetermine the unimproved value of the parcel of land as at that date for the financial year immediately following the date (section 10);
(c)enable the Commissioner to redetermine the unimproved value of a parcel if an error was made in relation to a determination of the unimproved value of that parcel as at 1 January in a particular year (section 11);
(d)require the Commissioner to record particulars of each determination of the unimproved value of a parcel of land and to give written notice of that amount to the owner (section 12);
(e)provide that rates are imposed on rateable land using a formula that adopts a fixed charge plus a percentage rate of the AUV for the preceding three years for the relevant site (section 14); and
(f)require that an assessment notice for the rates payable for a year for a parcel of land must state a date for payment of the rates (which payment date must not be a date earlier than four weeks after the date of the notice) and that rates are payable on that date (section 17).
37.Section 11A of the Rates Act 2004 is integral to the resolution of issues in these matters as it provides for a possible redetermination of the unimproved value of a parcel of land where a ‘change of circumstances’ affects the unimproved value of that land.
11A Redetermination—change of circumstances
(1) This section applies if a change of circumstances happens in relation to a parcel of land that affects the unimproved value of the land.
(2) The commissioner may redetermine the unimproved value of the parcel as at a date if the unimproved value as at that date is used in calculating the average unimproved value of the land for the year in which the change of circumstances happens.
(3) The commissioner may also redetermine the unimproved value of the parcel as at a later date if a determination of the unimproved value as at that date did not take the change of circumstances into account.
(4) A redetermination under subsection (2) applies to the parcel for the period—
(a)beginning on the day the change of circumstances happened; and
(b)ending on 30 June in the next calendar year.
(5) A redetermination under subsection (3) applies to the parcel for the period—
(a)beginning on 1 July in the calendar year when the redetermination is made; and
(b)ending on 30 June in the next calendar year.
Example—s (4)
On 1 September 2009, Mungo obtained development approval for an authorised use of Mungo’s parcel of land (the change of circumstances) that increases the unimproved value of the parcel. Before the change of circumstances, the commissioner determined the unimproved value of the land as at 1 January 2007 as $260 000, 1 January 2008 as $280 000 and 1 January 2009 as $300 000.
The average unimproved value (the original AUV) of the land for the year beginning 1 July 2009 was calculated as—
($260 000 + $280 000 + $300 000)/3=$280 000
After the change of circumstances, the commissioner redetermined the unimproved value of the land as at 1 January 2007 as $320 000, 1 January 2008 as $340 000 and 1 January 2009 as $360 000.
The average unimproved value (the recalculated AUV) of the land was recalculated as:
($320 000 + $340 000 + $360 000)/3=$340 000
The original AUV applies for the period starting on 1 July 2009 and ending on 31 August 2009, and the recalculated AUV applies for the period starting on 1 September 2009 and ending on 30 June 2010.
NoteAn example is part of the Act, is not exhaustive and may extend, but does not limit, the meaning of the provision in which it appears (see Legislation Act, s 126 and s 132).
38.The key concept underpinning the operation of the scheme is the ‘unimproved value’ of land. Section 6 of the Rates Act provides, in part:
Meaning of unimproved value
(1) The unimproved value of a parcel of land held under a lease from the Commonwealth is the capital amount that might be expected to have been offered on a date (the base date), for the lease of the parcel, assuming that—
(a)the only improvements on or to the parcel were the improvements (if any) by way of clearing, filling, grading, draining, levelling or excavating—
(i)if the Territory or Commonwealth had, before the parcel became rateable as a separate parcel, granted a development lease of land that included the parcel—made by the lessee under that lease or by the Territory or Commonwealth, or the cost of which was met by that lessee or by the Territory or Commonwealth; or
(ii)in any other case—made by the Territory or Commonwealth or the cost of which was met by the Territory or Commonwealth; and
(b)the circumstances that existed on the prescribed date also existed on the base date; and
(c)on the base date, the lease had an unexpired term of 99 years; and
(d)a nominal rent was payable under the lease for the 99 year term.
39.At the heart of the dispute in the present case are differences in expert opinions of Mr King and Mr McCann about the unimproved value of the subject land for each of the years from 2011 to 2016. Those differences are the product of alternative methodologies for assessing the unimproved value of land, and the selection and analysis of sales of comparable parcels of land in Braddon during those years.
Evidence about the unimproved value of the subject land: valuation methodology
Applicant’s valuation methodology
40.It is appropriate to highlight three aspects of Mr McCann’s methodology. First, for each of the years in question, he sought to place himself in the position of a valuer making a valuation for that year, using relevant sales information that would have been available at that time. The analyses were made separately for each consecutive year, rather than retrospectively in light of subsequent sales.
41.Second, Mr McCann analysed comparable sales to a rate per square metre based on site area rather than a rate per square metre of Gross Floor Area (GFA). The principal features were site area and price, the purpose clause of each lease and improvements (including physical buildings) on each site and their relevance to the income generating capacity of those parcels, as well as amounts for CUC or Lease Variation Charge (LVC) as appropriate.
42.Third, he rejected the GFA comparison as a basis of valuation. Although he conceded that he had adopted the GFA approach in giving evidence in the Junstamp case[11] in 2013, he said that he had since changed his mind. In his opinion, the GFA approach is no longer appropriate in the Braddon precinct, as many developments were able to achieve plot ratios greater than 3:1 site area. That greater potential would be the highest and best use which a prudent purchaser would have in mind, and accordingly the site area approach was more appropriate.
Respondent’s valuation methodology
[11] Junstamp Pty Ltd and Ors v Commissioner for ACT Revenue [2013] ACAT 50
43.Mr King stated that he had considered sales with varying degrees of comparability to the subject property and relied on the direct comparison valuation method which he considered to be the most appropriate valuation methodology. More specifically, Mr King stated that he had:
(a)assessed the value of the subject property as a vacant parcel of land, ready for development;
(b)reviewed the Crown lease purpose clause and understood that the lease allows commercial and residential uses and that residential use above the ground floor at the first floor is unusual in Braddon;
(c)considered the development rights conferred under the Territory Plan and adopted the view that, without formal planning advice to the contrary, a maximum 3:1 plot ratio would be allowed where at least 1:1 is residential use;
(d)analysed the comparable sales evidence back to vacant land value and made adjustments in order to compare and contrast the sales with the subject property; he also included the recently confirmed sale of the subject property and the pending sale of 34-36 Mort Street, Braddon, neither of which were considered by McCann for reasons explained later;
(e)adopted the direct comparison method in order to derive unimproved value by comparing the GFA that could be achieved on each of the sale properties with the GFA that could be achieved on the subject land.
44.In arriving at the GFA for the sales and the subject land, Mr King conceded that some developers were achieving plot ratios greater than 3:1. In his opinion, they were the exceptions and were not always achieved. Accordingly, he preferred to make comparisons on the basis of the GFA of 3:1 that could be achieved with certainty.
45.When analysing the sales, Mr King did not take into account amounts for CUCs and LVCs.
Submissions about the unimproved value of subject land
46.FANDS submits that the site area analysis methodology should be preferred to the GFA methodology because:
(a)Mr McCann relied on sales of similar blocks of good, flat land which are governed by the same planning requirements, and chose the site area approach to compare sales, letting the market determine the price for each lease (which price would be influenced by the estimate the purchaser made of the GFA); and
(b)the GFA is not a reliable guide to the value of Braddon properties.
47.Although FANDS acknowledges that the amount of GFA that a lessee can achieve will affect the value of the lease, FANDS submits that:
(a)the principal leases used as comparable sales did not contain maximum GFA clauses;
(b)the Territory Plan does not impose a mandatory plot ratio, but only provides a maximum building envelope;
(c)the Territory Plan contains a rule with a non-mandatory plot ratio of 3:1, but that rule has been exceeded; and
(d)purchasers would purchase leases without knowing the exact amount of GFA they could obtain, but with their own estimates of what they thought the GFA was likely to be for those leases within the building development and by reference to relevant sections in the Territory Plan. On that basis, FANDS submits that, in the particular circumstances of the Braddon precinct, the site area approach is a better measure of value.
48.The Commissioner’s submissions focus on different components of the two valuers’ methodology, in particular references to the value of improvements, GFA, and CVCs and LVCs.
49.Value of improvements: The definition of ‘unimproved value’ in section 6 of the Rates Act 2004 requires that the value of all improvements (other than those expressly listed) be excluded from the valuation. They are generally structural improvements that add value to the land. In his analysis of sales, Mr McCann drew attention to the income stream generated from the use of improvements on some of the sale land. He reasoned that the improvements add value, and that value should be deducted. The Commissioner criticised that approach on the basis that:
(a)it focuses on what individual purchasers were doing with individual blocks and what they took into account when they paid the price for each block, rather than on the overall picture of the Braddon precinct from time to time;
(b)purchasers were paying for the highest and best potential use of the land (that is, commercial use on the ground and first floors, and residential use above), and the fact that owners were using their blocks for lesser purposes is almost entirely irrelevant;
(c)section 6 of the Rates Act 2004 and the relevant authorities point to a hypothetical prudent purchaser who will pay for the highest and best use of the property. Sales evidence demonstrates the state of the market. The assumption is that purchasers in this market will be motivated by their willingness to buy for the highest and best use available. Even if an individual purchaser intends to use the property for other than the highest and best use, the price they pay on an arm’s length transaction in an open market will be dictated by the price other purchasers are prepared to pay for that highest and best use;
(d)there is almost always a delay between purchasing a site and being able to realise its redevelopment opportunities (for example, due to delays in the design and approval process, delay in obtaining finance or, in the case of developers who have multiple blocks, delays related to serial or staged developments);
(e)the income stream from current buildings is serendipitous and temporary, and not the highest and best use of those blocks.
50.Accordingly, the Commissioner submits, the Tribunal should for the most part ignore the value of improvements on the blocks used as comparable sales.
51.Counsel for FANDS took issue with that analysis on the basis that a purchaser who outbid others will use the land for its own purposes, not necessarily to redevelop it for its highest and best use. In cases where the owner holds the property in order to realise its development potential at a later date, there will be some value in the improvements.
52.GFA: As senior counsel for the Commissioner noted, whether the GFA or site area method of analysis is used, some adjustments have to be made, especially when comparing parcels in different streets with different zoning (for example CZ2 and CZ3) and hence different constraints on the development of individual parcels (for example, in relation to permitted height).
53.The Commissioner submits that the GFA method has merit in the Braddon precinct because it can differentiate between the different outcomes available on different blocks. He notes that the higher plot ratios achieved on some parcels might be a consequence of the different zonings and the qualitative measure available on some parcels under Figure 3 of the Braddon Precinct Code. The GFA is what a developer is entitled to use. If they can achieve more than that, it is to their advantage. But the GFA is the reliable measure of what can be achieved for each block. Having certainty about the minimum allowed gives a value greater confidence in comparing different blocks.
54.The Commissioner’s submissions criticise Mr McCann’s approach on the basis that, in summary:
(a)although some purchasers have been able to obtain a plot ratio greater than 3:1 in the CZ3 zone in Braddon, plot ratios in excess of 3:1 do not seem to be happening consistently across that zone;
(b)even if purchasers have been able to obtain a greater plot ratio, that does not mean that a GFA analysis was less preferable, given that different blocks have different potential and some adjustments must be made in the sales analysis for that fact (otherwise one is not comparing like with like).
55.By contrast, the Commissioner submits that:
(a)the variable plot ratios being achieved support Mr King’s approach because, as he explained, in order to conduct evaluation using comparable sales one needs a degree of certainty or consistency of outcome while still allowing for the different extent of the development opportunity presented by the blocks in question (hence he used a GFA analysis because the extent of the opportunity is different on different blocks notably the comparison between CZ2 zoning on Torrens Street and CZ3 zoning on Mort and Lonsdale Streets);
(b)Mr King relied on what was certain (Rule 15 in the Braddon Precincts Code which definitely allowed a plot ratio of 3:1) even if some blocks were able to take advantage of Criterion 15 to obtain a slightly higher ratio;
(c)Mr King’s approach led to certainty and consistency, while being necessarily conservative, and provided a reliable way of comparing one block with another, taking account of different opportunities on different blocks with a degree of certainty not available with Mr McCann’s analysis.
56.The Commissioner’s submission also:
(a)notes that Mr McCann’s analysis of one sale in the present case (27 Lonsdale Street) is significantly different from his analysis as set out in the decision of a differently constituted Tribunal in the Junstamp case[12]; and
(b)suggests that Mr McCann’s evidence in the present case did not justify such a significant difference of approach. (The extent to which reference should be made to other proceedings before differently constituted Tribunals is discussed later in these reasons.)[13]
[12] See Junstamp Pty Ltd and Ors v Commissioner for ACT Revenue [2013] ACAT 50 at [85]
[13] See [78] to [80]
57.CUCs and LVCs: The Commissioner notes that Mr King had not taken CUCs and LVCs into account when analysing the sales because they were difficult to estimate in advance and hence were difficult to justify as being definitive of the amount the purchaser had expected to pay. Mr King explained that the amount of CUC or LVC would be a matter of opinion in relation to a particular sale at the date of sale, and the original intention of the developer could be different by the time the application for the variation of a Crown lease had been approved. The Commissioner submits that if some amount for those charges should be included in the amount paid, it follows that Mr King had understated the value of the blocks. That approach worked to the benefit of the ratepayer while providing more precision and certainty in an inexact process. For those reasons, the Commissioner submits that the Tribunal should prefer the approach taken by Mr King.
Consideration of key factors in assessing the unimproved value of subject land
58.Any assessment of the unimproved value of the subject land for each of the relevant years involves selection of sales of parcels of land that are sufficiently comparable to the subject land, and an analysis of those sales using appropriate valuation methodology.
59.The valuation expert witnesses, Mr McCann and Mr King, provided reports and gave oral evidence to the Tribunal. Both are very experienced valuers. They endeavoured to assist the Tribunal, and they did so.
60.The valuers largely agreed with one another on the factual background and that the most appropriate valuation method was by direct comparison with comparable sales.
61.The differences between them concerning the unimproved value of the subject land stemmed largely from the different valuation approaches that each adopted in the selection and analysis of the sales. Both agreed that eight sales of properties occurred in the area between August 2008 and August 2014, although they disagreed about the degree of comparability of some sales and the method of analysis of each sale. They acknowledged that two sales occurred in 2017 but disagreed about the relevance of those sales to these proceedings.
62.Both generally agreed that the sale properties were purchased with the intention of development. Some owners proceeded to development without delay, while others held the parcels for some years while income was derived from existing improvements.
63.The post-sale use of the land affected the approach which each valuer adopted in analysing individual sales. Mr McCann was of the opinion that, although the longer term intention of purchasers was for redevelopment, in many instances the property was purchased as an investment property in order to derive income from existing improvements in the short to medium term and then to redevelop when the time was right, or sell to a developer for capital gain. That opinion determined his approach to the analysis of those sales. If development did not proceed immediately, he concluded that the improvements on the land added value and the added value should be deducted in the analysis of the sale to arrive at the unimproved value of that parcel of land.
64.On the other hand, Mr King was of the opinion that the intention of individual purchasers was irrelevant. All sales were for redevelopment, and that was the highest and best use of each site. The timing of any development depended on a variety of circumstances. But the correct test was what the hypothetical prudent purchaser would pay for the highest and best use of the property.
65.It was common ground that, in order to develop each site to its highest and best mixed use development, it would be necessary for each purchaser to seek a variation of the purpose clause in the Crown lease. Depending on when the variation occurred, that would involve the payment of a CUC or LVC. The question for a valuer (and for the Tribunal in this case) is whether the amount of such a charge should be taken into account in determining the unimproved value of each parcel of land.
66.Mr McCann was of the opinion that, as each purchaser would be aware that such payment was required, the sale price in each case should be adjusted by adding the estimated CUC before analysis.
67.Mr King disagreed. In his view, because the extent of the charge would depend upon the type of development applied for in each case, it was difficult to forecast the amount of the charge in advance of any application. When analysing each sale, he disregarded any such charge. Mr King agreed that by not adding an amount for LVC when analysing the value of each property, his estimates were sometimes less than those calculated by Mr McCann. He said that his figure was “conservative” and agreed that, as a consequence, if his valuations were accepted by the Tribunal the ratepayers would pay less than they might otherwise.
68.As noted above, the valuers also disagreed as to the method of comparison of each analysed sale price. Mr McCann compared them on a site value basis and Mr King compared the GFA for each parcel.
69.The outcome of the different approaches to the assessment of the unimproved value of the subject land for each year is summarised below:
Year Mr King’s assessment Mr McCann’s assessment Percentage (%) difference 2011 $4,800,000 $3,876,000 20% 2012 $4,800,000 $3,876,000 20% 2013 $4,800,000 $3,876,000 20% 2014 $4,800,000 $4,389,000 9% 2015 $4,800,000 $4,390,000 9% 2016 $4,800,000 $4,389,000 9%
70.When assessing the most appropriate approach to ascertain the unimproved value of the subject land for each year, it is worth noting judicial authority for the proposition that there is no one method of valuation and there is no legal principle that requires any particular method to be rejected or preferred.[14]
[14] Giusida Pty Ltd v Commissioner for ACT Revenue [2016] ACTSC 275 at [109] citing City Hall Pty Ltd v ACT Planning and Land Authority [2015] ACTSC 40 at [69]-[71]; Boland v Yates Property Corporation Pty Ltd (1998) 74 ALJR 289, 267; Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445, 456-7 at [17]
71.In light of the sales evidence (informed by a view of the sale parcels) and the expert opinion evidence, I have concluded that the most appropriate approach to ascertaining the unimproved value of the subject land for each year is on the basis that:
(a)all properties relevant to the decision in these proceedings[15] were purchased for development purposes, rather than for the purpose of obtaining investment income;
(b)although some improvements were retained for a period before demolition and redevelopment, a hypothetical prudent purchaser would consider that the highest and best use of each parcel is for mixed commercial and residential use;
(c)the timing of development depended (or depends) on the circumstances of individual purchasers and is not relevant to this exercise; and
(d)any income from retained improvements did (or does) no more than offset holding costs and the CUC or LVC which must be incurred to change the purpose clause in each Crown lease so that the highest and best use of the land can be achieved.
[15] The sales relied on and not relied on are discussed at [88] to [164]
72.I accept that a developer could or would need to pay a CUC or LVC to achieve the highest and best use of a parcel of land in Braddon. Consequently, a prudent purchaser would know that there would be such a charge. However, I am not satisfied that the amount of such a CUC or LVC could be predicted with sufficient certainty at the time of purchase so that it would affect the sale price to an identifiable extent. The uncertainty in predicting the amount of CUC or LVC is well illustrated by the amount of CUC paid in relation to the variation of the purpose clause in the Crown lease of the subject land pursuant to Development Application 200801732. As noted earlier, the CUC was originally set at $283,500 but was reduced to $50,250 in an order of the Tribunal made by consent of the parties on 21 July 2011. In some cases, the purchaser will change the proposed use of the land from what was anticipated at the date of purchase. In other cases, it will be some years after purchase when a lease variation occurs. Those factors will effect the LVC. Consequently, I am not satisfied that estimates of CUCs or LVCs made years before they might be incurred or actual amounts determined years after purchase, should be included in the analysis of sales of comparable parcels of land.
73.Because several developments in the Braddon precinct have been able to achieve plot ratios at or near 4:1, it can no longer be said that a plot ratio of 3:1 is the highest and best achievable use. Consequently, it is not appropriate to rely on a GFA based on 3:1 simply because there is certainty that it can be achieved, as the appropriate valuation method.
74.Two other issues require mention at this stage. First, the other key difference between the valuers is that Mr King assigned the same unimproved value for each relevant year while Mr McCann assigned one value for the years 2011 to 2013 and a higher value for the years 2014 to 2016.
75.Mr McCann explained that the global financial crisis had a greater impact in the market in the early years of the period being considered in these proceedings. The sale of 28 Mort Street in 2010 started to confirm in his mind that there was a trend, but he did not adopt that for a couple of years until sales of 32 Mort Street and 16 Lonsdale Street in 2013 when he felt that there was evidence for the change in the market. During the three years between 2010 and 2013 there were no sales. Mr McCann attributed this to such things as the introduction in July 2011 of the LVC which was of concern to developers because of its uncertain impact on developer margins. Also, in July 2012, remission for environmental remediation was introduced. About 2013 and 2014 “a lot of activity” was stimulated, and, in his opinion, by the time of the 2014 valuation “there was no argument that the market had been confirmed.”
76.Mr King applied the same unimproved value for each of the relevant years because, when he analysed sales using the GFA method, he did not see a trend either way over the period from 2008 to 2014. He looked at 2017 sales to establish whether there was any change for commercial sites from 2014 onwards. Although the exercise was to provide valuations from 2011 to 2016, previous valuations from 2009 were provided which, in his opinion, “indicated pretty much a consistent value of unimproved land across the entire period of review.”
77.That issue can only be decided after the sales evidence is considered.
78.Second, at various stages in their evidence, valuers cited or were referred to earlier decisions of differently constituted Tribunals about the analysed unimproved value of some parcels of land in Braddon that were also considered in these proceedings. The issue is to what extent, if any, the Tribunal as presently constituted could or should have regard to those parts of those decisions.
79.In Giusida Pty Ltd v Commissioner for ACT Revenue, Refshauge ACJ stated that there is “no doubt that a valuation, and, indeed, no mathematical part of a valuation, will ordinarily be any kind of precedent.”[16] His Honour quoted the following statement of Mason J in Federal Commissioner of Taxation v St Helen’s Farm (ACT) Pty Ltd:[17]
I should make the comment that too much attention is given both by valuers and judges to what has been said by courts in other cases on matters of fact and discretionary judgment, not being matters of law. Essentially valuations are estimations involving findings of fact and discretionary judgment made on the evidence given in the individual case and by reference to the circumstances of that case. To apply slavishly the approach taken by a judge in another case, to apply the same discount or capitalization rate that he applied, as if that rate had the force of a general rule, is to attribute to them the force that should be confined to propositions of the law.
[16] Giusida Pty Ltd v Commissioner for ACT Revenue [2016] ACTSC 275 at [96]
[17] Federal Commissioner of Taxation v St Helen’s Farm (ACT) Pty Ltd (1981) 146 CLR 336, 338
80.In the present case it was apparent that some questions asked of valuers about specific valuations in previous cases were directed to establishing whether they maintained the approach they adopted previously or had changed their view about the particular property and, if so, why they had done so. That line of questioning was appropriate. Beyond that, the relevance or otherwise of the sale properties to the determination of the unimproved value of the subject land at the relevant dates has to be decided by reference to evidence given in these proceedings. Accordingly, little reference will be made to earlier decisions of the Tribunal about the value of particular parcels of land.
81.On the basis outlined above, I turn to consider the sales evidence to which the parties referred in support of their contentions about the unimproved value of the subject land at the relevant dates.
Evidence about the unimproved vale of the subject land: sales evidence
82.Of the eight sales between 2008 and 2014 analysed by both valuers, two are situated in Lonsdale Street (as is the subject land), three in Mort Street and three in Torrens Street. The valuers also referred to two sales in 2017, including the sale of the subject land.
83.As Mr McCann wrote in the MAS report:
We contend that the best market evidence to determine the Unimproved Value (UV) of a site, in accordance with Section 6 of the Rates Act, is to analyse sales of similar vacant sites of a similar value range, with similar development potential. Noting that it is difficult to obtain exact like with like.
The Braddon precinct redevelopment site sales, although relevant, are more difficult to analyse due to likely conflicting opinion on issues such as Crown Lease variation costs, demolition costs and Lease payouts from existing tenants and the added value of improvements. (Exhibit F page 7)
84.Both valuers agreed that the fewer adjustments one has to make to comparable sales, the more confidence one can have in them. When asked to identify the sales on which they relied, or to which they gave most weight:
(a)Mr McCann described the Mort Street properties as the “most consistent in value,” and “less complicated” and “cleaner” in analysis than the two sales in Lonsdale Street. He suggested that “nobody really knows” what effect the desire of the adjoining owner had on the sale price of 27 Lonsdale Street, and he and Mr King could argue about the added value of improvements to 16 Lonsdale Street. He did not rely on the Torrens Street sales.
(b)Mr King said that he had always maintained that the sale of the subject property was the best sale, but he otherwise agreed with Mr McCann that the Mort Street sales seemed to be “a lot more consistent.” The Mort Street properties provided “very good lower indicators in terms of aggregate price for the subject property.” He would then look at the Lonsdale Street sales and a qualified sale of 43 to 45 Torrens Street (only because it had the residential component).
85.Mr McCann also noted that his evidence referred to 2009 and 2010 because that was relevant to the smoothing or averaging of rating valuations for 2011. However he seemed to suggest that he had some reservations about his valuation of 2009 in light of later sales, particularly in Mort Street.
86.It is appropriate to consider the sales evidence in the following sequence:
(a)the Torrens Street sales;
(b)the 2017 sales; and
(c)the remaining five sales between 2008 and 2014.
Torrens Street sales
87.The valuers referred to three sales in Torrens Street:
(a)5-7 Torrens Street, Blocks 8 and 11 Section 29, sold in June 2009;
(b)43-45 Torrens Street, Block 23 Section 21, sold in March 2010; and
(c)43-45 Torrens Street, Block 23 Section 21, sold in March 2011.
For the reasons set out below, I have not relied on those sales in considering the unimproved value of the subject land at the relevant dates.
88.Torrens Street sale 1, 5-7 Torrens Street: Blocks 8 and 11 Section 29, zoned CZ2, were sold for $4,100,000 in June 2009. They have an area of 2,390 square metres (almost twice the size of the subject land), restricted GFA and maximum building height of two levels.
89.Mr McCann had regard to this sale but had not relied on it. He noted that the improvements (comprising a brick and tile office building) are producing rent and add value to the land. He allowed $2,100,000 for improvements on the site, adjusting the sale price to an unimproved values of $2,000,000.
90.Mr McCann noted that, in response to ACT Planning criteria, the Torrens Street blocks generally have the opportunity for residential development with a maximum plot ratio of 2:1 (building area: land area). By comparison, blocks in Lonsdale Street and Mort Street generally have the opportunity for higher density commercial and residential development with a plot ratio of 3:1, and development applications in Lonsdale and Mort Streets have achieved GFA plot ratios close to 4:1 (Exhibit F page 4). There is no retail on the ground floor of the sale property.
91.Mr King considered this sale to be irrelevant for the purpose of deriving an unimproved values for the subject land. The sale land is subject to different zoning. Although the purpose clause allows residential use, it has a restricted GFA and a maximum building height of two levels. Further, he observed that restricted GFA and building heights are common in the leases of properties along this part of Torrens Street but are less common within CZ3 zoned areas of Braddon. The Torrens Street properties are therefore less likely to be repurposed to include residential use without planning approval of a significantly increased GFA yield.
92.In his oral evidence, Mr King accepted that a value of $2,600,000 for the improvements at the relevant time was a “reasonable figure” and that the improvements were likely to remain on the property for a lengthy period rather than be demolished.
93.It is clear from the inspection and the expert evidence that this sale land is not comparable to the subject land. The main differences are the substantial long term developments on the subject land and hence the high proportion of value of the improvements in the sale price, the different zoning, the lower GFA and the height restrictions on development, and the general amenity and aspect of Torrens Street as compared with Lonsdale and Mort Streets.
94.Torrens Street sale 2, 43-45 Torrens Street: Block 23 Section 21, zoned CZ2, was sold in two transactions from separate vendors for $5,000,000 in March 2010. The total area is 2,293 square metres, about 80 per cent larger than the subject land. The parcel has restricted GFA and limited residential use
95.Mr McCann noted in relation to the consolidation of the two blocks in 2009, that the sales of 43 Torrens Street analyses at $1,567 per square metre of the site area, or 56 per cent of the sale price paid for 45 Torrens Street (at $2,797 per square metre). That block is a corner site with a long axis to Girrawheen Street, overlooking Haigh Park. Also, the vendor of 45 Torrens Street required a premium to sell because the site had been redeveloped with a two level walk up brick and tile office building in the 1990s. However, both prices were paid in full expectation of a change of use and greater GFA.
96.Mr McCann considered the sale to be high by reference to the amount paid for 5-7 Torrens Street. When it was sold it had the maximum GFA in the Crown Leases, and it was “full of expectation of variation.” He described the sale as “high” and “out of line” and he had not used it, but included it because it is a sale on which the Valuation Office relies. Mr McCann added $505,000 to the sale price ($100,000 for demolition costs and $405,000 for the CUC).
97.Mr King noted that the GFA for the site was less, which made a comparison with the Lonsdale Street sites difficult. He also noted that, although there were reasonable quality improvements on the two properties, the developer had opted to demolish them. Consequently, Mr King added $100,000 for demolition costs.
98.Although the valuers have allowed the same amount for demolition of improvements, there are sufficient zoning and other differences between these parcels and blocks in Lonsdale and Mort Streets to make these Torrens Street sales an unreliable guide to the unimproved value of the subject land.
99.Torrens Street sale 3, 43-45 Torrens Street: The total redevelopment site of 43 and 45 Torrens Street was sold in March 2011 for $6,450,000, with the vendor retaining a share in the development. It was not a sale which could be considered to be an arms-length transaction.
100.Mr McCann analysed the price to an average of $2,100 per square metre of site area. However, when comparing the sale prices of the other Torrens Street property with the sale of these two blocks Mr McCann concluded that the sale of 43-45 Torrens Street was “high and out of line.” He also considered it “completely and utterly too high” when compared with the prices paid for 28 Mort Street and 40 Mort Street.
101.Mr McCann did not rely on the second sale because it was to related parties.
102.Mr King noted that the purpose clause included residential to the first level and some commercial use. He placed “some reliance” on the sale because it gave him a line on the price for which he would expect that residential mixed purpose sites in that area would sell. In that respect it was pertinent to consider the sale in relation to the valuation of the subject property, although the sale and subject properties are zoned differently. He noted, however, that Junstamp had indicated the need to exercise caution because the vendor retained a share in the property after sale.[18]
[18] Junstamp Pty Ltd and Ors v Commissioner for ACT Revenue [2013] ACAT 50 at [82], [86]
103.In addition to the matters highlighted in [98] the distinguishing features of the consolidated block and the fact that vendor retained a share in the development mean that the sale property does not provide a reliable basis for determining the unimproved value of the subject land.
2017 sales
104.The parties referred to two further sales:
(a)the sale of the subject land in February 2017 for $6,200,000; and
(b)the sale of 34-36 Mort Street in June 2017 for $11,500,000.
105.Subject land, 11 Lonsdale Street: In his written report,[19] Mr King expressed the view that the sale of the subject property provides the best evidence of its value,[20] and the fact that a property is improved with structures should not disqualify the sale from an analysis to derive underlying land value. In his oral evidence, Mr King described the sale of the subject property as “pretty close to compelling” and one that was weighted more significantly than the other sales.
264.Although section 11(1) of the Taxation Administration Act 1999 states that the Commissioner may make an assessment (and, presumably, a reassessment) of the tax liability of a taxpayer ‘on the information that the Commissioner has from any source at any time the assessment is made’, FANDS could not rely on the diligence of the Commissioner or valuers at the ACTVO to check every change to each Crown lease in the ACT, or the possibility of an individual officer who has actual knowledge of a particular change will as soon as practicable place that information before the Commissioner.
265.I am not satisfied that there is evidence to establish that in late 2011 the Commissioner had, or should be deemed to have had, knowledge of the registration of the variation to the Crown lease. Despite suggestions that at least one officer of the ATO and then the ACTVO (Mr McInerney) was, or might have been, involved or associated with actions taken in relation to the variation of the Crown lease and the resolution of the associated CUC issue, there was no evidence to demonstrate that he informed the Commissioner of those matters. The only precise evidence is the email exchange on 26 August 2016 after Mr McInerney had received information by email about the application to vary the Crown lease to include residential use in 2011. As noted earlier, Mr McInerney did not give evidence in the hearing of these matters.
266.In any case, as it happens, because the variation occurred when a CUC was made in a process that commenced before the ACTPLA was exercising a delegation from the Commissioner, the Commissioner could not be taken to have been aware of the change.
267.Although the Commissioner is obliged by section 10 of the Rates Act 2004 to redetermine annually the unimproved value of each parcel of rateable land, the evidence clearly demonstrated the magnitude of that task (in terms of the number of leases to be valued) and the limited resources devoted to the task (in terms of the number of ACTVO valuers allocated to it). The evidence about:
(a)the different periods between the Variation of Lease of the subject land made in 2004 and then in 2011, and the subsequent redeterminations of its unimproved value; and
(b)the apparently different approach to redetermination of three other blocks in the Braddon precinct following variations to their leases before the variation of the Crown lease of the subject land (as noted in [255]),
illustrates the somewhat episodic and unpredictable nature of aspects of the redetermination process.
268.In summary, it is apparent that redeterminations of the unimproved value of a particular parcel will be made when the Commissioner becomes aware of a ‘change of circumstances’ of that parcel, or as part of a revaluation to reflect changes in the market for land in an area. In other words, the Commissioner usually attempts to satisfy the statutory obligation by broad scale revaluations and only focuses on individual leases in certain circumstances.
269.As senior counsel for the Commissioner noted, the Rates Act 2004 does not prescribe the process that the Commissioner is to follow when determining the unimproved value of each parcel of land. When section 10 is read alongside section 11A (and section 11), it is open to the Commissioner to employ a bulk process for valuing leasehold parcels, while dealing separately with individual leases when the Commissioner becomes aware of changes in circumstances (or errors). Those factors arguably emphasise the onus on the ratepayer under the Taxation AdministrationAct 1999 to inform the Commissioner of the ‘change of circumstances’ in relation to their lease.
270.It might be possible to adopt procedures which introduce more rigour and predictability into the system, so that the Commissioner is notified promptly of lease variations that might affect the unimproved value of individual parcels of land. However, the absence of such procedures cannot determine the outcome in this case.
271.The fact remains that, whatever the reason, the Commissioner did not become actually aware of the ‘change of circumstances’ until 2016. Having been informed of that change, he moved quickly to ensure that a revaluation of the subject land was made.
272.The real question is whether, in those circumstances, it was appropriate for the Commissioner to issue revised rates, land tax and CCMIL assessments for each year in which the revised lease purpose clause operated.
273.The sections of the Rates Act 2004 quoted earlier make it clear that the Commissioner has an obligation to determine the unimproved value of each parcel of rateable land for each financial year and may redetermine the unimproved value of a parcel of land if a change of circumstances affects the unimproved value of that land. The Taxation Administration Act 1999 sets out the scheme under which the Commissioner reassesses the consequent change in tax liability.
274.Ideally the Commissioner would act as soon as practicable after a change in circumstances has occurred. That did not occur in the present case. However, the fact that section 9 of the Taxation Administration Act 1999 provides that the Commissioner cannot backdate these changes for more than five years, other than in limited circumstances, indicates that the legislature was aware that there might be a delay of some years between a significant ‘change in circumstances’ in relation to parcels of rateable land and a consequential reassessment of tax liability.
275.It is undoubtedly inconvenient and unsettling for a lessee to be advised of changes of the magnitude of those in this case years after the ‘change of circumstances’ occurs. I accept that FANDS probably experienced difficulties with budgeting, cash flow and financing, as well as business continuity, as a consequence of the delay in the revaluation and reassessment of rates, land tax and CCMIL. However, FANDS should have expected a change to its tax liability at some stage. The valuation evidence given by Mr McCann is a clear indication that FANDS would have known that the change in the Crown lease purpose clause had a significant effect on the value of the subject land and hence the rates, land tax and CCMIL payable in relation to it.
276.I am not satisfied that the actions taken by the Commissioner targeted FANDS to the exclusion of other lessees in the Braddon area. The evidence has not established that FANDS was treated differently or unfairly in all circumstances.
277.Accordingly, although it would have been preferable for the Commissioner to have acted much sooner after the change in the purpose clauses in the Crown lease for the subject land, the Commissioner should not be prevented from reassessing the rates, land tax and CCMIL payable in relation to the subject land for the period allowed by the section 9 of the Taxation Administration Act 1999.
Findings and conclusions
278.For the reasons set out above, the Tribunal finds that:
(a)the unimproved value of the subject land for the year 2011 was $4,300,000; and
(b)the unimproved value of the subject land for the years 2012 to 2016 was $4,800,000.
279.The Tribunal also finds that the Commissioner was entitled to exercise discretionary power in relation to the reassessments of rates, land tax and the CCMIL for the years 2012, 2013, 2014, 2015 and 2016.
280.However, having regard to:
(a)the amounts of money that the Commissioner assessed were owed by FANDS for each of the years between 2011 and 2016;
(b)the particular financial circumstances confronted by FANDS in obtaining the money to pay the amounts said to be owed by the date nominated by the Commissioner;
(c)the Commissioner’s requirement that FANDS pay additional interest as part of the repayment schedule; and
(d)the fact that the Commissioner incorrectly made a reassessment for 2011,
the Tribunal finds that the Commissioner must repay FANDS:
(a)the amount incorrectly determined to be owed for 2011 and any subsequent year as a consequence of the application of the averaging provision of section 14 of the Rates Act 2004; and
(b)any amount paid by FANDS as interest on:
(i) the repayments made after 15 October 2016, being the sums calculated in respect of those periodic payments; and
(ii) the amount incorrectly assessed for the year 2011,
(iii) the amount incorrectly assessed for the year 2012 and any subsequent year once the averaging provision is applied,
but not the amount of interest owed on the amounts correctly assessed for the subsequent years.
281.Given the operation of section 9(3)(a)(ii) of the Taxation Administration Act 1999 in the circumstances of this case, the Commissioner appropriately submitted that the Tribunal should set aside the decision relating to the objection to the 2011 redetermined unimproved value and substitute it with the decision that the objection be allowed.
282.It follows from the preceding findings that, in accordance with section 68(3) of the ACAT Act, the Tribunal should:
(a)set aside the Commissioner’s decision relating to the objection to the 2011 redetermined unimproved value of the subject land and substitute a decision that the objection be allowed;
(b)remit to the Commissioner the objection decision for 2012-2013 to give effect to the issue identified in relation to the average unimproved value of the subject land;
(c)confirm the Commissioner’s decisions for subsequent years; and
(d)set aside the Commissioner’s decision in relation to some payments of interest by FANDS as noted in [280].
283.Consequently, it is not appropriate for the Tribunal to make final orders at this stage but:
(a)to remit to the Commissioner not only the objection decision for 2012-2013 but also the calculation of the amounts of interest repayable in relation to the items listed in [280]; and
(b)to direct the parties to prepare a draft minute of orders to give effect to the Tribunal’s findings.
Orders
284.The Tribunal orders that:
1.The Commissioner’s decision relating to the objection to the 2011 redetermined unimproved value of the subject land be set aside and the objection allowed.
2.The objection decision made by the Commissioner for ACT Revenue for 2012-2013 be remitted to the Commissioner to give effect to the issue identified in relation to the average unimproved value of the subject land.
3.The Commissioner calculate the amount of any interest paid by FANDS on:
(a) the repayments made after 15 October 2016, being the sum calculated only in respect of those periodic payments;
(b) the amount incorrectly assessed for the year 2011; and
(c) the amount incorrectly assessed for the year 2012 and any subsequent year once the averaging provision of section 14 of the Rates Act 2004 is applied.
4.The parties provide the Tribunal with a draft minute of orders to give effect to the findings and conclusions set out in paragraphs [278]-[282] of these reasons for decision by 29 January 2018.
5.Each party has liberty to apply to the Tribunal on three days’ notice in order to seek clarification in relation to any of the findings and conclusions set out in paragraphs [278]-[282] of these reasons for decision.
………………………………..
President G Neate AM
HEARING DETAILS
FILE NUMBER:
16, 23, 24, 25, 26, 27/2017
PARTIES, APPLICANT:
FANDS (ACT) Pty Ltd
PARTIES, RESPONDENT:
Commissioner for ACT Revenue
COUNSEL APPEARING, APPLICANT
Mr P Walker SC and Ms A Irving
COUNSEL APPEARING, RESPONDENT
Mr C Erskine SC and Ms K Katavic
SOLICITORS FOR APPLICANT
Trinity Law
SOLICITORS FOR RESPONDENT
ACT Government Solicitor
TRIBUNAL MEMBERS:
President G Neate AM
Assessor J Trickett
DATES OF HEARING:
12, 13, 14 September 2017
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