Molyneux and Vermeesch v Chief Commissioner of State Revenue
[2011] NSWADT 117
•26 May 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Molyneux and Vermeesch v Chief Commissioner of State Revenue [2011] NSWADT 117 Hearing dates: 22 February 2011 and 1 March 2011 Decision date: 26 May 2011 Jurisdiction: Revenue Division Before: A Verick, Judicial Member Decision: The reassessment is remitted to the respondent to: (1) make adjustments to the valuation as directed (2) make a further reassessment on the basis of the adjusted valuation and (3) remit in full the premium component of interest and the penalty tax included in the reassessment.
Catchwords: Duties Act - unencumbered market value Legislation Cited: Duties Act 1997 (NSW)
Taxation Administration Act 1996
Administrative Decisions Tribunal Act 1997
Evidence Act 1995 (NSW)Cases Cited: Spencer v Commonwealth (1907) 5 CLR 418
Maurici v Chief Commissioner of State Revenue (NSW) (2002) 212 CLR 111
McCathie and Ors v The Federal Commissioner of Taxation (1944) 69 CLR 1Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co (1901) AC 373
Commissioner of State (WA) v Nischu Pty Ltd 91 ATC 4371
Trust Co. of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21Category: Principal judgment Parties: Eve Maria Heaton Molyneux and Skye Vermeesch (applicants)
Chief Commissioner of State Revenue (respondent)Representation: C J Bevan (Counsel for the Applicants)
M Carpenter (Counsel for the Respondent)
C Deigan, CLS Legal (for the Applicants)
Crown Solicitor (for Respondent)
File Number(s): 106021
REasons for decision
The applicants seek review of a decision of the respondent to reassess the transfer of a property situated at 26 The Strand, Whale Beach ("the subject land") for stamp duty. The reassessment was issued on 25 May 2009 in respect of a transfer dated 10 December 2005.
The factual background is not in dispute.
The applicants acquired the subject land from their family trust by contract for sale dated 10 December 2005.
As the transfer was a non-arms' length transfer, the applicants obtained a valuation of the subject land from Bruce Clisdell of B & C Clisdell Consulting. The value suggested of the subject land as at the transfer date was "in the range of $2.5m - $2.75m".
The applicants accepted the valuation of $2.5m and on 15 December 2005 paid the respondent the amount of $122,990 as stamp duty.
On 5 May 2009, the respondent gave notice in writing to the applicants of the respondent's intention to investigate the transfer valuation used by the applicants.
In May 2009, the respondent obtained a valuation prepared by Andor Kabok from the Land and Property Information Valuation Services, which valued the subject land at $5.8m as on10 December 2005.
On 25 May 2009, the respondent informed the applicants that he had completed his investigation and issued the applicants a reassessment, on the basis of the valuation provided by Andor Kabok, for duty amounting to $346,490. The additional duty on reassessment was $223,500. In addition, the respondent imposed a penalty tax at the rate of 25% ($55,875) and interest at the rate of 15.75%.
On 23 July 2009, the applicants objected to the reassessment on various grounds under s 86(1)(a) of the Taxation Administration Act 1996 ("the Administration Act").
On 26 February 2010, the respondent disallowed the objection.
On 21 April 2010, the applicants filed an application for review at the tribunal pursuant to s 96 of the Administration Act.
Evidence
The documentary evidence before the tribunal included the documents produced by the respondent pursuant to s 58 of the Administrative Decisions Tribunal Act 1997 and the applicant's Tender Bundle. Essentially the relevant evidence to determine the issue were the various written valuation reports produced by the parties and as explained viva voce by the valuers at the hearing.
In chronological order, the first valuation was made by Bruce Clisdell, a registered valuer, for the applicants on 19 October 2005. In determining the fair market value of the subject property, he stated that he had "taken into account the quality of the improvements, the defects and maintenance required, the aspect, limited views, size and inherent features of the land, the location and proximity to Avalon shopping and transport centre, its beach front location, its location adjoining commercial premises, other local amenities and its comparability with other residential homes sold recently in the immediate vicinity". The most comparable sales analysed by him were:11 Rayner Rd, Whale Beach, sold in 01/2005 for $2,420,000 and 8 Watkins Rd, Avalon sold in 09/2005 for $2,425,000. In his opinion, 164 Whale Beach Road, Whale Beach sold in 06/2005 for $3,400,000 and 178 Whale Beach Road, Whale Beach sold in 05/2005 for $3,520,000 were "superior" properties. He also examined the sale of 94 Whale Beach Road, Whale Beach in 02/2005 for $1,850,000 and was of the opinion that it was an "inferior" property. He estimated the "current fair market value" of the subject property "as at the 18th October 2005, to be Two Million Five Hundred Thousand Dollars only". The applicants relied on this valuation to proceed with the relevant transaction.
The respondent, in making the reassessment obtained a valuation report from the Department of Lands in May 2009, prepared by Andor Kabok, a registered valuer. At the hearing a revised valuation prepared sometime later was relied upon by the respondent.
In his opinion, "having regard to all aspects of the subject site" and having analysed several sales, the "retrospective market value" of the subject property as at 10 December 2005 was $5,800,000.
Mr. Kabok in his revised report, by way of summary, indicated his opinion as to the sale of other properties he "analysed" as follows:
"Sale 1. (95 Marine Parade, Avalon $2,200,000) - Vacant land sale with superior access and views. The property is situated in an inferior location with an inferior size parcel, improvements, location and proximity to beach, Overall it is considered to be substantially inferior to the subject property.
Sale 2. (8 Rayner Road, Whale Beach $3,100,000) - is an improved sale with development approval to demolish the existing improvements and to construct a brand new dwelling. The sale comprises of a smaller size parcel with inferior topography, improvements and proximity to the beach. The property enjoys superior access and ocean views. Overall it is considered to be substantially inferior to the subject property. (Purchased in inferior market conditions)
Sale 3. 223 Whale Beach Road, Avalon $7,600,000) is situated in a similar position backing onto the council car park however enjoys superior views and access with a slightly smaller size parcel and inferior topography. The improvements are substantially superior and adjoin similar residential properties. Overall it is considered to be superior to the subject property.
Sale 4. (217 Whale Beach Road, Whale Beach $5,750,000) - Comprises of similar improvements and is situated in a similar position backing onto the council car park with superior access, views and an inferior smaller size parcel with inferior topography. Overall it is considered to be comparable to the subject property.
Sale 5. (30 The Strand, Whale Beach $9,000,000) - is situated on the subject street with similar access and position. It does however comprise of a superior size parcel with superior improvements and views. Overall it is considered to be superior to the subject property. (Purchased in inferior market conditions)"
Mr. Kabok also considered two post 2005 sales - 219 Whale Beach Road, Whale Beach - sold for $7,400,000 on 12/05/2006) - "in a similar position backing onto the council car park with inferior smaller size parcel, superior improvements and access" and 237A Whale Beach Road, Whale Beach - sold for $12,100,000 on 01/09/2006 - " situated in a similar position with superior access, improvements and size parcel".
Mr. Kabok went on conclude that -
"The most comparable properties are sales 3, 4 and 5. All these sales are situated within metres of Whale Beach and also back onto the same council car park as the subject property. Sale 3 is considered to be superior due to larger and more modern improvements. Sale 4 is considered to be the most comparable. It has superior access, comprises of similar improvements and is situated in a similar position. Although it adjoins residential properties and not a restaurant, it comprises of a smaller parcel with an inferior moderate to steeply sloping topography.
... Although the position next to the restaurant has a negative effect, it is not considered to be significant..
Given the evidence and taking into consideration factors such as location, aspect, topography, size and shape of the land it is considered that the market value of the subject property as at the 10th December 2005 was $5,800,000."
In their objection to the reassessment dated 23 July 2009, the applicants informed the respondent that "Mr. Clisdell revisited the cottage and the Whale Beach area and his notes made at the time of the original valuation, and now has prepared another report giving his reasoning as to why his original valuation of $2,500,000 is fair and reasonable". In his further report, Mr. Clisdell maintained that the two comparable properties were 11 Rayner Road, Whale Beach and 8 Watkins Road, Avalon. Mr. Clisdell also disagreed that 223 and 217 Whale Beach Road, Whale Beach were comparable properties. In his opinion they were "far superior" properties. Mr. Clisdell also emphasised that the "existence of the Kiosk adjoining the southern boundary with the resultant noise, vermin attraction & odours was a significant negative factor" in his determination.
As part of the objection two other statements as to the value of the subject property, one from Sotheby's and the other one from Pontons were also forwarded to the respondent.
In a letter dated 20 July 2009, to one of the applicants, Jane Ashton representing Sotheby's International Realty provided the following advice:
"It seems evident that the main basis of valuation is by way of comparison with two sales being:
1. 217 Whale Beach Road $5,800,000
2. 223 Whale Beach Road $7,800,000
From my searches these two sales are the only sales over $3.5 million during 2004 and to October 2005, when the market was very strong.
I have inspected all three properties and find that your property does not compare to the other two for the following reasons:
1. Your cottage has no view.
2. The other two properties are approx. 50-60 feet above the beach level, and thus have commanding views.
3. The other two properties have good access from Whale Beach Road as well as access to the beach.
4. Your property unfortunately is directly next to the Whale Beach restaurant, which in my view has an impact negatively on the ambience of your cottage."
Pontons, a property advisory and valuation services firm provided the applicants with "a professional critique" of the valuation report prepared by the Department of Lands. Pontons were not instructed to undertake or provide their opinion as to the retrospective valuation of the subject property as at 10 December 2005. Pontons agreed, "with many of the points raised by the Department of Lands Valuer" but having considered the sales of 217 and 223 Whale Beach Road, Whale Beach they were of the opinion that the subject property "warrants a lower underlying land value component". Pontons also noted that the valuer had not taken into consideration "a substantial Norfolk Island Pine tree ... located to the front north east corner of the subject allotment" which "substantially restrict view corridors at the subject in a north, east and south direction, which many of the comparable are not subjected to such restricted views and natural light".
On 16 August 2010, the applicants filed an affidavit sworn by Wayne Wotton, a Licensed Valuer. Attached to the affidavit was his valuation report for the subject property. In forming his views he considered two sales in Newport and five sales in Whale Beach. In relation to five sales in Whale Beach, which he considered were "properties with more panoramic views and elevated", he stated that these sales "achieved prices from $3,100,000 to $4,550,000". But that the "sales with less panoramic views were the 2 sales in Beach Road Newport where the prices of $3,600,000 to $4,000,000 was achieved". And he concluded as follows:
"60. I have formed the view from these sales that an important factor is being in a waterfront or waterfront reserve position and the views afforded from the property. 26 The Strand achieves limited water views as it is not in an elevated position. Also, 26 The Strand does not have a waterfront or a waterfront reserve position but fronts onto a busy, public car park.
61. I consider an adjustment for the limited views and busy car park, together with the noisy adjoining restaurant were warranted; in my views these factors would be detrimental to the property and would act as a deterrent for buyers.
62. I considered a price for the property would be in the order of $2,750,000 to $3,000,000. This level of price reflects on the proximity of the property to Whale Beach, the limited views, but also reflects the adjacent caf/restaurant and the public car park."
The respondent also obtained a review of the above "considered valuations/valuation critiques" from Mr. Michael Davidson, Valuation Manager Metropolitan and Registered Valuer attached to the Department of Lands. In his statement dated 14 December 2009, he concluded that he "would place more reliance on the report of the Lands Department then that of B and C Clisdell Consulting, primarily due to the analysis and application of sales" and that the "report of Clisdell Consulting contained inaccurate sales analysis whilst the Lands report analysis appears more accurate". He agreed "with the Lands report that the closest comparable sale is 217 Whale Beach Road". He also in his conclusions stated that the "Lands Department report should have provided more commentary on the affectation of trees on both the subject and sale properties" and that the "Lands report should have addressed the issue of the adjoining Kiosk".
The three valuers were examined and cross-examined as a panel.
Issues
The issues for determination, as correctly set out by counsel for the applicant in his written submissions, are:
1 Whether the unencumbered value of the subject land on 10 December exceeded the $2.5m agreed consideration for its sale, such that the dutiable value for stamp duty purposes is to be determined under s. 21(1)(b) of the Duties Act (unencumbered value) rather than under s. 21(1)(a) (consideration for the dutiable transaction)? (Question 1)
2 If the answer to Question 1 is "yes", whether the unencumbered value of the subject land on 10 December 2005 was: (i) $2.85m, as contended by the applicants (in the altenative); or $5.8m as contended by the respondent; or some other value? (Question 2)
3 Depending on the answer to Question 2 and its consequent effect on the assessment of additional stamp duty on the sale dated 10 December 2005, whether the respondent's assessment of penalty tax and additional tax should be set aside: (i) altogether; or (ii) partly, by being substituted with a lesser assessment? (Question 3)
Relevant Statutory Provisions of the Duties Act
Duty is imposed under s 8 on certain transactions concerning dutiable property and, relevantly, includes under s 8(1)(b)(i) "an agreement for the sale of dutiable property".
"Dutiable property" is defined in s 11 and includes "land in New South Wales" (s 11(1)(a)).
A liability for duty arises under s 12 when a transfer of dutiable property occurs and, if the transfer of dutiable property is effected by a written instrument, liability arises when the instrument is first executed.
Under s 19, duty is charged on the dutiable value of dutiable property subject to the dutiable transaction at the relevant rate set out in Part 3.
Section 21 defines what is the "dutiable vale" of dutiable property. Relevantly, s 21(1) provides - the "dutiable value" of dutiable property that is the subject to a dutiable transaction is the greater of: (a) the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration or the value of a non-monetary consideration), and (b) the encumbered value of the dutiable property.
The "unencumbered value" of dutiable property, as set out in s 23, is the value of the property determined without regard to any encumbrance.
Submissions
It was submitted by the applicants' counsel that there were two alternative bases on which this matter could be disposed of.
The applicants' "principal case" was: "having regard to the range of values for the subject land as at 10 December 2005 placed on it by their original valuer, Mr Bruce Clisdell - $2.5m to $2.75m - and allowing for the inexact nature of valuation of property as a science, it cannot be said that there is such a departure from the market value of the land at the transfer date as to justify a valuation of the dutiable value of the subject land for assessment purposes under s. 21(1)(b) rather than s. 21(1)(a) of the Duties Act." It was argued that "there is insufficient evidence to conclude that the unencumbered value is indeed greater than the agreed consideration of $2.5m in order to engage s. 21(1)(b) as the assessment valuation method rather than s. 21(1)(a) of the Duties Act."
The applicants' "alternative case" was, if the dutiable value is to be determined under s 21(1)(a), "Mr Wotton's valuation of $2.85m is the true unencumbered value of the subject land" for a number of reasons.
Firstly, it was submitted, Mr Wotton's "valuation methodology is consistent with the principles of land valuation enunciated in Spencer v Cth (1907) 5 CLR 418 at 432.B as refined recently by the High Court in Maurici v CCSR (NSW) (2002) 212 CLR 111 at [14]-[18]" and that "Mr Wotton relied on only truly comparable sales".
Secondly it was argued that, "Mr Wotton's valuation is corroborated by Mr Clisdell's valuation which nominates a value range of $2.5m-$2.75m".
Counsel's third and fourth reasons were directed at Mr Kabok's valuation. It was submitted that Mr Kabok's valuation adopted an "erroneous approach" by only considering "an 'unduly selective' group of comparable sales to assess market value" and Mr Kabok's "valuation also fell into error by making no discount on sale price of 30 The Strand, Whale Beach of $9.0m for the fact that it was 'over the top' price paid by an over-willing purchaser to a vendor to secure a sale 'at any price'".
Fifthly, it was submitted that Mr Kabok "failed to have regard to physical features of the subject land which make it a wholly incomparable property to those used as comparable sales", In particular, "Mr Kabok ... failed to have regard to the fact that the subject land: (a) has no ocean view; (b) is very low land; (c) adjoins Whale Beach car park which is between the subject land and the ocean; (d) is a small block (narrower than adjoining blocks); (e) has a large protected Norfolk Island pine tree between it and the ocean which will always block its ocean views regardless of how the land is developed; (f) adjoins a large restaurant (the only one at Whale Beach) with its attendant noise, food odours from kitchen exhaust fans, restaurant toilet odours, and noisy in early morning for industrial garbage collection and wine/beer bottle recycling; (g) is unsuitable for development of a high rise modern residence due to its narrowness, proximity to the restaurant and permanently blocked views from the Norfolk Island pine and (h) lacks privacy".
Mr. Bevan, counsel for the applicants, advanced four other reasons which were essentially directed at what he saw as errors in Mr. Kabok's valuation - (1) Mr. Kabok (and the respondent) took into account 217 The Strand, Whale Beach "as a comparable sale" "notwithstanding that the property is a 3 storey home situated 65 feet up a cliff with panoramic ocean views, private access to Whale Beach, having a rear service road to its double garage and driveway and with no adjoining car park or restaurant problem"; (2) Mr. Kabok "ignored the correct comparable sales identified in the objection ... which show values within the range of values put on the subject land by Messrs Clisdell and Wotton"; (3) Mr. Kabok "erroneously allowed 10% GST in his valuation"; and (4) Mr. Kabok "failed to give any weight or due weight ... to the location of the subject property ... its detrimental land features ... and lack of views ... all of which are mandatory requirements for a Department of Land valuation".
Finally, it was submitted that valuation reports of Messrs Clisdell and Wotton "are expert opinion evidence to be accorded the weight any expert's opinion is to be accorded as a body of specialised knowledge that the Tribunal does not possess within the meaning of s. 79 of the Evidence Act 1995 (NSW)" and that, on the other hand, Mr. Kabok's "valuation is no more than a business record of the respondent which the respondent relied upon to make his assessment of stamp duty and to determine the objection against the assessment which is admissible in evidence as an exception to the hearsay rule pursuant to s. 69 of the Evidence Act because of its status as a business record of a party".
The respondent's case was put quite simply by Ms M Carpenter, his counsel - "in this non-arm's length transaction between related parties, the unencumbered value of the dutiable property is greater than the consideration for the dutiable transaction" and that the "evidence, based on comparable sales, is that the unencumbered value of the dutiable property is $5.8 million".
In her submissions, Ms Carpenter first dealt with the cross examination of Mr. Kabok and the various criticisms made by counsel for the respondent about his valuation approach. It was submitted that Mr. Kabok undertook further work to incorporate "more information in the report" and that "the second valuation re-enforced his evidence that the amended report does no more than address his valuation in greater detail".
It was submitted that Mr. Kabok's evidence was that "in respect of 30 The Strand, Whale Beach" he did not "think the sale is out-of-line and he had other evidence to suggest that the sale was in-line". In rejecting the suggestion made by the applicants that Mr. Kabok had "used an 'unduly selective' group of comparable sales", it was submitted that "Mr Kabok has relied upon comparable sales that are in proximity to the subject site, proximity to the beach, sales that back or front the same council carpark as the subject site, and near in time to the transfer date of the dutiable property".
In relation to the submission by the applicants that "the Tribunal place less weight on the valuation of Mr Kabok because his valuation "is no more than a business record of the respondent", the respondent's response was as follows:
"47. That submission can be quickly dismissed. For the purpose of these proceedings, Mr Kabok read and agreed to be bound by the requirements for expert witness conduct. His evidence was that he had re-read his valuation report and that he stood by the report and the conclusions therein.
48. Counsel for the applicants cross-examined Mr Kabok on the expert code of conduct.
49. The respondent submits that at the time of the preparation of the valuation for objection purposes there was no requirement for Mr Kabok to comply with the obligations of an expert witness. Despite the fact that there was no requirement, Mr Kabok's evidence was, in essence, that he was aware of the obligations and would be able to support his valuation should the matter proceed to a hearing.
50. At paragraph [31] (e) of the applicants' written submissions, the applicants attempt to denigrate Mr Kabok for his 'provisional associate membership' as opposed to Messrs Clisdell and Wotton who are 'full members'.
51. Counsel for the applicant cross-examined Mr Kabok on his qualification in-so-far-as Mr Kabok was a provisional associate member of the Australian Property Institute ('API') at the time of signing his reports.
52. Mr Kabok made the point that he was a registered valuer and that allowed him to value the property. The respondent submits that nothing turns on Mr Kabok's membership of the API and it is irrelevant. The relevant fact is that Mr Kabok is a registered valuer.
53. The applicants' criticism of Mr Kabok's valuation was considered (along with the applicants' Clisdell valuations and two critiques from Pontons and Sotheby's) by Michael Davidson, Valuation Manager Metropolitan, Department of Lands, who is a registered valuer. Mr Davidson concluded that he was satisfied that the Kabok valuation was correct." (References to exhibits and transcript omitted)
Counsel for the respondent then proceeded to deal with the various valuation reports produced and relied upon by the applicants.
The Pontons report, it was submitted, should be given no weight because its author or authors have not been identified in the report nor produced at the hearing. The Pontons report merely examined Mr Kabok's first report and not his final report. It also did not review any of the Clisdell reports and did not in its final conclusion suggest any alternative valuation other than agreeing "with many of the points raised by the Department of Lands Valuer in arriving at their assessment" and suggesting "further specific related information ... in regard to the sales at 223 Whale Beach Road, Whale Beach and 217 Whale Beach Road, Whale Beach" which supported "a lower underlying land value component".
It was submitted that "the Sotheby's document should be given no weight" and is of no assistance to the Tribunal because the writer was not an expert witnesses and did not "proffer a valuation".
In relation to the valuation reports prepared by Mr Clisdell, it was submitted "that the Tribunal should attach little or no weight ... because Mr Clisdell has not met the requirements for an expert witness" and in any case "Mr Clisdel's evidence does not support a valuation of $2.5 million" for a number of reasons. It was drawn to the attention of the Tribunal that, in his 2004 report, Mr Clisdell had included 30 The Strand, Whale Beach at a valuation of $1.8 million "and commented it was comparable/inferior to the subject site" but in cross-examination he was not able to provides details of the features "that made 30 The Strand, Whale Beach comparable/inferior". It was further submitted that "when it was found to be $9 million" paid for the property Mr Clisdell took the view that it was not a comparable property. In his cross-examination, Mr Clisdell agreed that the home at No 30 is "worth a lot" and that it "probably cost $3 odd million to build".
Counsel also drew attention to the following other "errors" in Mr Clisdell's reports. It was submitted that Mr Clisdell relied on "sales that are not beach-front properties"; his viva voce evidence that more relevant to the views from the property "the proximity of the restaurant in terms of privacy was a critical part of his decision" for a lower valuation was not supported by the evidence; his comments in the third report that the owners of 30 The Strand, "would not sell the property in the current market for 'anything like' the amount paid in 2004" is contrary to the test, which requires the valuer "to look at the market as it was at the date of the transfer of the dutiable property, that is 10 December 2005"; there is "a flaw in Mr Clisdell's analysis of 217 Whale Beach Road, Whale Beach which he includes in his third report (18/7/2009) as a sale not considered to be comparable" because he took "into account the 'far superior improvements' and the photographs are taken in 2009 but the evidence is that the existing improvements have been constructed subsequent to the sale as the dated improvements were demolished"; and his reference to "cashed-up buyers" in sales as not comparable ignores Mr Kabok's evidence "that that is the market and that you cannot simply disregard sales because a cashed-up purchaser purchased that property".
Next, the respondent submitted that there were "errors" in Mr Wotton's report. He had in his report "used coastline sales and no beach-front properties" and Mr Wotton had also considered two properties (Sales 6 and 7), which "are some 6.5km south of the subject property" and "are not relevantly comparable to the subject property". In relation to sales 1 to 5 of the Wotton valuation, it was submitted that whilst "these sales enjoy a waterfront or waterfront reserve position and many with excellent views, none of these properties enjoy a position adjacent to or opposite the Whale Beach" and this "is a significant distinguishing feature between these properties and the subject property".
In contrast, it was submitted that the "important point about the Kabok valuation is the comparability of sales" and that, in particular, sales 3, 4 and 5 of the Kabok valuation "are close to the subject property, situated within metres of Whale Beach and back onto, or front, the same Council carpark as the subject property". It was also submitted by the respondent that "Sale 4 (217 Whale Beach Road, Whale Beach) of the Kabok valuation is considered to be the most comparable", it had "similar improvements to the subject site and situated in a similar position", although "it adjoins residential properties and not a restaurant, it comprises of a smaller parcel with an inferior moderate to steeply sloping topography and the access to the beach is not as good as the subject site" and the "sale represents land value because the cottage was demolished after sale". It was submitted that "there is no way, as a matter of logic that the constraints on the subject property as contended by the applicants" were "so severe or so significant" to justify "a valuation to be less than that of 217 Whale Beach Road, Whale Beach". It was also pointed out that "Mr Kabok considered two sales in 2006 that demonstrate the market evidence" - "sale at 219 Whale Beach Road, Whale Beach (sold 12/5/2006 for $7,400,000) and 237A Whale Beach Road, Whale Beach (sold 1/9/2006 for $12,100,000)".
In relation to the restaurant adjacent to the subject property, it was pointed out that "Mr Wotton agreed in cross-examination that a good design could alleviate the presence of the restaurant although not eliminate it". It was drawn to the attention of the tribunal, that Mr Wotton also, in cross-examination, agreed with the following:
"103. Mr Wotton agreed in cross-examination that a redesign of the proposed dwelling on the subject site could take advantage of some views. He said a new building over multi-levels would achieve superior views that what's available on the site at the moment.
104. Mr Wotton agreed that it would be an underdevelopment of the property to build a modern single-storey residence on the subject site.
105. Mr Wotton agreed in cross-examination that construction costs would be greater with a sloping block.
106. The respondent submits that the level nature of the subject property is a positive feature.
107. Mr Wotton agreed in cross-examination that the applicants could make an application to Council to trim a certain amount of the tree (Norfolk Island Pine)."
Finally, in relation to the Wotton valuation it was submitted -
"112. The Wotton valuation has analysed sales data to reflect an average value (p 11). There is a line of authority in respect of the principle against averaging of valuations: McCathie and Ors v The Federal Commissioner of Taxation (1944) 69 CLR 1 at 15 per Williams J.):
I will venture to repeat what I said in somewhat analogous circumstances in the recent case of Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax, where the valuer for the Crown had averaged the sales of five properties alleged to be in some respects comparable to the land to be valued in order to assist him to place a value on that land: - This method of averaging is to my mind unsound. The prices obtained at comparable sales should not be aggregated and averaged, especially when the prices obtained on sales of small areas are dealt with in this way in order to obtain the value per acre of a large area. The only safe course is to compare each sale with the subject land separately."
Reasons
The ultimate dispute between the parties was whether the amount for which the subject property might have reasonably be sold in the open market as at 15 December 2005 exceeded the consideration paid by the applicants for the transfer. The consideration paid was $2.5m and the issue was whether, in terms of s 21 of the Duties Act, the "unencumbered value" of the subject property exceeded that amount.
No criterion to determine unencumbered value of land is prescribed in the Duties Act. Reliance is usually placed on the approach suggested by the High Court (Griffith CJ, Barton and Isaacs JJ.) in Spencer v Commonwealth (1907) 5 CLR 418 in considering a claim for compensation for land taken by the Commonwealth under a compulsory acquisition order for public purposes.
The principal judgment was handed by Griffith CJ. In his Honour's "judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but 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?'"
His Honour, however, went on to warn that: "It is no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversed with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have to offer for the land to induce such a willing vendor to sell it, or, in other words to inquire at what point a desirous purchaser and a not unwilling vendor would come together."
A similar warning was given by Isaacs J as to the inexact nature of the valuation process by citing what the Privy Council said in Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co (1901) AC 373 at p.391 -
"It is quite true that in all valuations, judicial or other, there must be room for inferences and inclinations of opinion which, being more or less conjectural, are difficult to reduce to exact reasoning or explain to others. Everyone who has gone through the process is aware of this lack of demonstrative proof in his own mind, and knows that every expert witness called before him has had his own set of conjectures, of more of less weight according to his experience and personal sagacity. In such an inquiry as the present, relating to subjects abounding with uncertainties on which there is little experience, there is more than ordinary room for such guesswork; and it would be very unfair to require an exact exposition of reasons for the conclusions arrived at."
And Isaacs J added the following further guidance as to the way the valuation approach should be taken. His Honour said that all "circumstances subsequently are to be ignored" and "whether land becomes more or less valuable afterwards is immaterial". He went on to say that the facts existing on the date of the transaction "are the only relevant facts", and "the all important fact on that day is the opinion regarding the fair price of the land, which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purposes for which it was adopted" and stated the full test as follows -
"To arrive at the value at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property."
More recently, Wallace J in Commissioner of State Taxation (WA) v Nischu Pty Ltd 91 ATC 4371 at 4383 said that the "test in Spencer involves consideration of a hypothetical transaction between persons conversant with the subject at the relevant time". Essentially, it is necessary to look at sales of like properties at the relevant time in like circumstances and having regard to all surrounding circumstances on the date of the actual transaction.
But the Tribunal is mindful that, ultimately, a valuation is merely an opinion and, as correctly pointed out by counsel for the applicants, allowance has to be made "for the inexact nature of valuation of property as a science".
In this matter there were at least five different valuations before the tribunal.
Two, the Pontons and Sotheby's, can be dealt with in a fairly summary manner. They were not valuations because neither of them suggested what valuation ought to be given to the subject property. However, I have noted their useful observations of the subject property and their views as to the valuation adopted by the respondent.
The conclusions reached by both Mr. Clisdell and Mr. Wotton on the basis of the sales considered were beyond challenge. But unfortunately their conclusions were based on sales that fall outside the categories of sales envisaged by the Spencer test as being helpful to determine the hypothetical market value of the subject property.
I think the test requires the valuation to be based on like properties in like circumstances. Where there are differences, necessary adjustments would have to be made to arrive at a reasonable market value. I accept that the exercise does not require an exact amount to be determined and thus is not free from some estimate that may be necessary to be made where an adjustment is required.
In Mr. Clisdell's case, as submitted by the respondent, he "used sales that are not beach-front properties". Mr. Wotton has also used sales that in my opinion do not qualify as "comparable sales". The two Newport properties are some 6.5km from the subject property and the five Whale Beach sales are of properties located on an elevated position and are not beachfront properties. They are not located adjacent to or opposite Whale Beach like the subject property.
In my opinion, Mr. Kabok identified what could be described as comparable sales, in particular, the sale of 217 Whale Beach Road. But the difficulty with his valuation is that his valuation process was somewhat hindered by lack of actual viewing of the subject property and assessing the views and surrounding effects first hand. His evidence was that he stood somewhere in the council car park and made the necessary observations.
The tribunal is also troubled by the absence of hard evidence as to the actual impact of the business premises next to the subject property and the lone pine tree opposite the subject property. Whilst Mr. Kabok mentions the restaurant "has a negative effect" but not being "significant" in his report, he has not properly and fully assessed the extent the noise or smell pollution from that source affected the sale of the subject property. In the case of the pine tree he has not really given any consideration in his valuation report.
Mr. Davidson, Valuation Manager attached to the Department of Lands in his review of the valuations, expressed similar concerns. He was of the opinion that Mr. Kabok should have "provided more commentary on the affectation of trees on both the subject and sale properties" and "should have addressed the issue of adjoining Kiosk".
In these circumstances, I think it is only appropriate and fair that I should remit the valuation issue to the respondent to make proper adjustments in respect of the impact of the kiosk/restaurant next door and the pine tree. In carrying out further assessment of any impact, the valuer may need the assistance of appropriate expertise and relevant local government authorities to determine their real impact. Further, the assessment has to be made retrospectively as at 10 December 2005.
Interest and Penalty Tax
The matter that remains is the imposition of interest under s 21 of the Administration Act and penalty tax pursuant to s 26 of the Administration Act.
Section 21(1) in Part 5 of the Administration Act provides that if a "tax default" occurs, the taxpayer is liable to pay interest on the amount of tax unpaid calculated on a daily basis from the end of the last day when the payment was due until the day upon which the outstanding tax is paid. In this matter, the failure by the applicants to pay the full duty on the transfer as reassessed was a "tax default" in terms of the definition of "tax default" found in s 3 of the Administration Act. The term "tax" is defined in s 3 of the Administration Act to include any duty payable under a taxation law.
The applicable interest rate consists of a variable market rate component and a premium rate component. The market rate component fluctuates and is connected to an external rate, the Reserve Bank's Accepted Bill rate. The premium rate component is fixed by s 22(3) of the Administration Act at 8 per cent.
In Trust Co of Australia v Chief Commissioner of State Revenue [2002] NSWADT 21 at [24-28] I explained the operation of the interest and penalty tax provisions as follows:
"24 The interest regime found in the TA Act is essentially designed to promote compliance of the relevant taxation laws. The interest regime also promotes equity between the taxpayers who meet their taxation obligations on time and taxpayers who do not meet such obligations as and when required by law. In addition it compensates the state for loss of use of funds.
25 The market rate component would reflect the use by the party in question of the relevant amount of money on one hand, and the lack of use of the relevant funds by the state on the other. But the fixed premium rate component is a rate imposed by way of a penalty for the 'tax default' in question. A premium rate of interest is imposed where a 'tax default' is a result of some culpable conduct on the part of the taxpayer. The Chief Commissioner can also impose a penalty tax under s 26 of the TA Act in cases where more serious tax defaults occur due to deliberate conduct of taxpayers.
26 Different considerations should apply when applications for remission of market rate or premium rate interest are determined by the Chief Commissioner. In considering applications, the Chief Commissioner, of course, needs to take into account all the facts of each individual case.
27 In cases where an amount of interest is imposed by the application of the market rate, only exceptional circumstances would justify any remission. The narrow category of circumstances would include cases where the 'tax default' is entirely due to a fault of the Chief Commissioner. Other circumstances would include situations completely out of the control of the taxpayer, such as postal strikes, serious illness of the taxpayer and natural disasters (bush fires, floods and earthquakes)
28 On the other hand, a wider range of circumstances would be available to justify a remission of the premium rate interest."
The respondent's case for the imposition of interest at both market and premium rates and the penalty tax was essentially that the "provision of the Clisdell valuation to support the contended $2.5 million was ... a failure to fully disclose all relevant facts". The applicants' counsel in his written submissions argued that a "valuation dispute is self-evidently not a dispute about underlying facts" and what "is in dispute is the opinions of the parties' valuers on the application of those facts to the applicants' case and their resulting opinions on market value".
In relation to the market rate imposed, no special circumstances were before the Tribunal to remit the interest payable. However, in relation to both the premium interest component and the penalty tax, I agree with counsel for the applicants that clearly the respondent erred in taking the view that there was non-disclosure of the facts in this matter. In addition, there was no evidence before the tribunal that there was any arrangement or scheme that the applicants had entered into by obtaining the Clisdell valuation to support a lower assessment on the transfer.
There was no evidence that the applicants failed to take reasonable care or intentionally disregarded the law. On the contrary, the applicants sought an independent valuation before proceeding with the transfer.
When all facts and circumstances, including the long delay that occurred before the respondent's investigation leading to the reassessment, are taken into account I think this is a proper case where the premium component of the interest should be remitted in full under s 25 of the Administration Act and the penalty tax remitted in full under s 33 of the Act.
Order
The reassessment is remitted to the respondent to: (1) make adjustments to the valuation as directed (2) make a further reassessment on the basis of the adjusted valuation and (3) remit in full the premium component of interest and the penalty tax included in the reassessment.
I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal.
Registrar
Decision last updated: 26 May 2011
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