ZKSM and Commissioner of Taxation (Taxation)
[2025] ARTA 1298
•11 August 2025
ZKSM and Commissioner of Taxation (Taxation) [2025] ARTA 1298 (11 August 2025)
Applicant/s: ZKSM
Respondent: Commissioner of Taxation
Tribunal Number: 2023/8826, 2023/8827, 2023/8828, 2023/8829
Tribunal:General Member M Abood
Place:Sydney
Date:11 August 2025
Decision:The Tribunal affirms the decision under review.
…………SGD…………………..
General Member M Abood
Catchwords
TAXATION – GOODS AND SERVICES TAX – margin scheme – acquisition of 99-year leases from Australian Capital Territory development authority – development lease arrangements- whether rulings GSTR 2001/6 and GSTR 2015/2 apply to bind the Commissioner – non-monetary consideration – reasonable valuation method – what was acquired for the purposes of sections 9-75 and 75-10 of A New Tax System (Goods and Services Tax) Act 1999.
Legislation
A New Tax System (Goods and Services Tax) Act 1999, ss 9-5, 9-10, 9-15, 9-40, 9-75, 11-10, 9-70, 75-1, 75-5, 75-10, 195-1
Administrative Review Tribunal Act 2024, s 105
Taxation Administration Act 1953, ss 14ZZE, 14ZZJ, 14ZZK, Schedule 1 ss 357-60, 357-70, 358-1, 359-5, 359-10, 359-15
Cases
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27
AP Group Limited v Commissioner of Taxation (2013) 214 FCR 301; [2013] FCAFC 105
Bellinz v Commissioner of Taxation (1998) 84 FCR 154
BHP Billiton Direct Reduced Iron Pty Ltd v Deputy Commissioner of Taxation [2007] FCA 1528
Brady King Pty Ltd v Commissioner of Taxation [2008] FCAFC 118
Commissioner of State Revenue (Victoria) v Lend Lease Development Pty Ltd (2014) 254 CLR 142
Commissioner of Taxation v Miley (2017) 106 ATR 779
Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180
Federal Commissioner of Taxation v Resource Capital Fund III LP (2014) 225 FCR 290
Federal Commissioner of Taxation v Ryan (2000) 201 CLR 109
Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation [2008] HCA 21
Re Trustee for the Whitby Trust v Federal Commissioner of Taxation [2017] AATA 343
Saga Holidays Ltd v FCT (2006) 156 FCR 256
Solomon Pacific Resources NL v Acacia Resources Ltd [No 2] (1996) 14 ACLC 637
Spencer v The Commonwealth (1907) 5 CLR 418
Travelex Ltd v Commissioner of Taxation [2010] HCA 33
Turner v Minister of Public Instruction (1956) 95 CLR 245
Secondary Materials
GSTR 2001/6 Goods and Services Tax: Non-monetary consideration
GSTR 2015/2 Goods and Services Tax: development lease arrangements with government agencies
Wigney, Michael, “Text, context and the interpretation of a “practical business tax”” (2011) 40 Australian Tax Review
Statement of Reasons
INTRODUCTION
The Applicant in this matter (a trustee company who engages in large scale englobo land development in the Australian Capital Territory) seeks review of an objection decision made by the Respondent, the Commissioner of Taxation, on 5 October 2023 (the Objection Decision). That decision disallowed an objection to amended assessments of net amounts of Goods and Services Tax (Amended Assessments) which had been raised by the Respondent under a notice dated 26 August 2022.
The Applicant had, first in 2015 and then again in 2017, entered into ‘development lease arrangements’ with the authorised land authority of the Australian Capital Territory whereby in exchange for an amount of money and other non-monetary consideration (being the provision of services developing each parcel of englobo land) the land authority granted to the Applicant:
i.short-term leases over the land (with the express purpose of enabling the development of that land) and,
ii.upon satisfactory completion of that development, 99-year crown leases (Long-Term Leases) over the newly subdivided residential lots which the Applicant was entitled to then on-sell to individual residential property purchasers.
When selling the Long-Term Leases over the newly subdivided vacant lots the Applicant sought to calculate its Good and Services tax liabilities for each sale by applying the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Under the margin scheme the Applicant was required to calculate its ‘margin’ on each supply of a Long-Term Lease by subtracting its acquisition costs from the sale price received in respect of each lease from the individual future homeowners.
As its acquisition costs involved the provision of both monetary and non-monetary components (ie the provision of the ‘development services’ supplied to the ACT Government) the Applicant was required to ascertain the value of that non-monetary consideration by reference to provisions in the GST Act. It sought to do so by:
·obtaining valuations of the acquired land from a qualified valuer conducted by reference to the price of the individual Long-Term Leases as sold (or to be sold) to the individual residential purchasers; and
·then from those land values subtracting the monetary consideration paid to the ACT Government’s land authority under each development lease arrangement.
The Applicant, having ascertained what it claimed to be the value of the land development services provided to the ACT land authority, then proceeded to do 3 things. It:
(i)issued invoices (as each of a number of stages of work completed) for the now identified cost of the development services it had provided to the ACT land authority with whom it had been agreed would pay the GST component of the invoice (and who duly did);
(ii)calculated its margin on the supply of each Long-Term lease by subtracting from sale proceeds an appropriate proportion of what it now believed to be its fully identified acquisition costs; and
(iii)thereafter reported in its monthly Business Activity Statements (BAS) the margin on each supply.
The Respondent thereafter commenced an audit into the Applicant’s BAS lodged for the monthly tax periods covering 1 July 2017 until 30 June 2020 (the Relevant Period) and raised Amendments Assessments in respect of 30 monthly periods after forming the view that the Applicant had incorrectly calculated its margin for the purpose of the margin scheme under Division 75 of the GST Act in relation to the sale of the developed lots. The Amended Assessments increased the Applicant’s GST liability by $1,047,523.
In the Respondent’s view the Applicant had erred in calculating its non-monetary consideration by reference to the valuations of the acquired land which had applied, according to the Respondent, an unreasonable valuation methodology.
The Applicant objected to the Amended Assessments arguing that they should never have been raised because it was entitled to value its non-monetary consideration by reference to a professional valuation of the acquired interests in the land. In its view the valuations had deployed a methodology that was compliant with professional standards, reasonable in the circumstances and sufficiently met the legislative requirements under the GST Act.
In disallowing the objection, the Respondent maintained its view that the valuations could not be considered as “reasonable for the purposes of determining the value of” the non-monetary consideration.
The Applicant now asks the Tribunal to review the Objection Decision and make a decision in its favour pursuant to s105 of the Administrative Review Tribunal Act 2024 (ART Act) arguing that it has discharged its onus pursuant to s14ZZK of the Taxation Administration Act 1953 (TAA 1953) to show that the Amended Assessments are excessive and what they ought to have been.
For its part the Respondent has made clear that it relies on the statutory onus and puts the Applicant to proof on all matters it seeks to rely on in discharging its burden.
As will be set out further below the parties have identified the issues in slightly different ways however the principal questions for determination before the Tribunal are:
·Firstly, whether the Applicant is entitled to rely upon the valuations of land it procured in calculating the overall value of the non-monetary consideration it provided to the ACT land authority to acquire Long-Term Leases over subdivided developed lots of land for the purposes of ascertaining its margin under the GST margin scheme;
·Secondly, whether the Respondent is bound to accept the Applicant’s approach to identifying the GST Inclusive market value of the non-monetary consideration by virtue of the Applicant’s reliance on a number of Private and Public Rulings made by the Respondent; and
·Thirdly, whether Applicant was required to further apportion the value of the non-monetary consideration to account for additional amounts paid to it by the ACT Land Authority in respect of the GST components on the invoices issued in respect of the land development services.
For the reasons that follow I have answered each of those questions adversely to the Applicant’s case and in doing so, having decided that the Applicant has not discharged its onus, will affirm the decision under review.
The Applicant has made a request, as is its right, under section 14ZZE of the TAA 1953, that the hearing of this application be conducted in private. The Tribunal has therefore taken steps to provide it with a pseudonym and I have anonymised these reasons pursuant to section 14ZZJ to ensure, as far as practicable, that they are not likely to identify it.
THE MARGIN SCHEME & THE KEY STATUTORY PROVISIONS
Before turning to the facts it may be useful to set out some of the key provisions from the GST Act so far as they are relevant to the application of the margin scheme (and to the extent they are important in this case).
As the Full Federal Court explained in Brady King Pty Ltd v Commissioner of Taxation [2008] FCAFC 118 at [7]-[9] (Brady King) the margin scheme was introduced to “ameliorate what might otherwise be the unfair operation of the GST Act on some forms of business activity”. As noted in that case, the margin scheme is generally directed towards property developers (on an opt-in basis) who may suffer degrees of unfairness under the general GST scheme. Such unfairness may arise, say for example, where one becomes subject to GST on the full value of a supply of an interest in real property but may lose entitlements to input tax credits when purchasing property from private owners who are not registered for GST.
In the ordinary course a taxable supply would attract the Goods and Services Tax (GST) at the rate of 10% of the value of whatever was being supplied[1]. However, under the ‘margin scheme’ provided for by Division 75 of the GST Act a taxpayer involved in the supply of various forms of real property interests, having agreed with the supply’s recipient that the margin scheme is to apply, is entitled to limit their liability to 1/11th of the margin. The margin being the difference between the consideration received in respect of the supply and the consideration spent in acquiring the subject of the supply.
[1] S 9-70 of the GST Act
The margin scheme provisions are contained within Division 75 and, as section 75-1 explains, allow a taxpayer to “use a margin scheme to bring within the GST system your taxable supplies of freehold interests in land, of stratum units and of long-term leases”.
Section 75-5 of the GST Act identifies the types of taxable supplies that the margin scheme may be applied to and the need for a written agreement between contracting parties to enable its use:
75‑5 Applying the margin scheme
(1)The *margin scheme applies in working out the amount of GST on a *taxable supply of *real property that you make by:
(a)selling a freehold interest in land; or
(b)selling a *stratum unit; or
(c)granting or selling a *long‑term lease;
if you and the *recipient of the supply have agreed in writing that the margin scheme is to apply.
…….
Section 75-10 then provides how the margin is to be calculated and the applicable rate of GST to be applied:
75‑10 The amount of GST on taxable supplies
(1)If a *taxable supply of *real property is under the *margin scheme, the amount of GST on the supply is 1/11 of the *margin for the supply.
(2)Subject to subsection (3) and section 75‑11, the margin for the supply is the amount by which the *consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.
….
The terms “supply”, “taxable supply”, “acquisition” and “consideration” are each defined within s195-1[2]:
[2] albeit each are affected by other provisions as noted in s195-1.
195-1 Dictionary
In this Act, except so far as the contrary intention appears:
….
Acquisition has the meaning given by section 11-10
Consideration, for the supply or acquisition, means any consideration within the meaning given by sections 9-15 and 9-17, in connection with the supply or acquisition.
…..
Supply has the meaning given by section 9-10
Taxable supply has the meaning given by sections 9-5, 78-50, 84-5 and 105-5
The meaning of “Supply”, “taxable supply” and “consideration” in the context of the GST Act are then further explained by the following provisions (which I reproduce to the extent each has some bearing upon this case):
9‑5 Taxable supplies
You make a taxable supply if:
(a)you make the supply for *consideration; and
(b)the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c)the supply is *connected with the indirect tax zone; and
(d)you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST‑free or *input taxed.
….
9-10 Meaning of supply
(1)A supply is any form of supply whatsoever.
(2)…..
….
9-15 Consideration
(1)Consideration includes:
(a)any payment, or any act or forbearance, in connection with a supply of anything; and
(b)any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
(2)It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.
….
11-10 Meaning of Acquisition
(1)An acquisition is any form of acquisition whatsoever.
(2)…..
….
Section 9-75 then provides for the basis upon which a taxable supply is to be valued:
9‑75The value of taxable supplies
(1)The value of a *taxable supply is as follows:
where:
price is the sum of:
(a)so far as the *consideration for the supply is consideration expressed as an amount of *money—the amount (without any discount for the amount of GST (if any) payable on the supply); and
(b)so far as the consideration is not consideration expressed as an amount of money—the *GST inclusive market value of that consideration.
….
In most circumstances, assuming that the taxable supply is conducted on an arm’s length basis, it’s value will simply be the amount of money provided in exchange for the supply however the section also provides for how one ought value consideration that takes non-monetary form. In those circumstances, as is clear from s 9-75(1)(b) the value the non-monetary component is to be calculated by reference to its “GST Inclusive market value”.
GST Inclusive market value” is defined at section 195-1 as follows:
"GST inclusive market value" of:
(a)* consideration in connection with a supply; or
(b)a thing, or a supply or acquisition of a thing;
means the market value of the consideration or thing, without any discount for any amount of GST or * luxury car tax payable on the supply.
(Emphasis added
One more preliminary matter before we move on, I understand it to be accepted by both sides that where a transaction occurs at arms’ length it can be assumed that the value of the things being exchanged will generally be equal[3]. I do not understand either party from resiling from such a principle not least because it underpins the basis upon which each have attempted to ascertain the value of the Development Services (that is, by reference to the acquired land value less monetary consideration provided).
BACKGROUND & FACTS
[3] See for eg Solomon Pacific Resources NL v Acacia Resources Ltd [No 2] (1996) 14 ACLC 637 at 684
The Land Developments
In March 2015 the Australian Capital Territory Land Development Authority published an Information Memorandum (IM) seeking expressions of interest from private sector entities to participate in the development of a new suburb (which for the purpose of these reasons I will refer to as “Greenfield”) to be created on the outskirts of Canberra upon what was then mostly englobo land.
It is of historical consequence only that on 1 July 2017 the Australian Capital Territory Land Development Authority was replaced by the Australian Capital Territory Suburban Land Agency (the SLA). As a matter of simplicity I will refer to that organisation as the SLA irrespective of which iteration it was at the time.
From materials before the Tribunal, it appears that the IM was published at a time when broader attempts were being made by the ACT government to increase supply of serviced residential land within the ACT through its Indicative Land Release Program (ILRP). Under the ILRP the ACT Government had sought to create a number of new suburbs, and this endeavour was being pursued in a range of ways which included undertaking its own developments from start to finish, entering into joint ventures with established developers or through the direct sale of englobo land to privateer developers under ‘development lease arrangements’.
The IM encouraged tenders from private entities with appropriate expertise and foreshadowed excellent opportunities for those entities to either purchase land outright, enter into joint ventures with the government or to propose some other approach for the SLA’s consideration.
The IM covered two tracts of land which I will refer to as Greenfield 1A and 1B, the first of which, at that time, had an approved development application with the second development application being well advanced. Greenfield 1A was, at the time of the IM, undergoing development works which were expected to be completed by June 2016 and was to be sold as “377 Crown leases for single dwelling housing” whereas Greenfield 1B was constituted by 90 hectares of unimproved englobo land[4]. Across the two stages it was anticipated that the development would yield a “local centre, a school and approximately 2,000 residential dwellings of varying types”.
[4] Save for 1 small component which housed a telecommunications tower.
Additionally, the IM went on to state that the buyer of Greenfield 1B, having undertaken its development, may be offered the first opportunity to negotiate with the SLA for the purchase of future development stages in Greenfield as and when they became available.
In June and July 2015 the SLA commissioned valuations in relation to Greenfield 1A & 1B from each of Knight Frank Valuations Canberra and Capital Valuers which were undertaken by certified practising valuers. Each were provided with a copy of the IM to which were attached a proposed form of holding lease and deed of agreement (in a form similar to that the Applicant ultimately contractually entered into). Each valuer was then requested to provide a “current market valuation on the subject englobo site”.
From the executive summary in the Knight Frank Valuation dated 15 June 2015 (the 2015 KF Valuation) it explained that:
·The interest to be valued was the “Proposed Development Rights interest in Greenfield Stages 1A and 1 B”;
·The purpose of the valuation was “for potential sales purposes”.
·the basis of the valuation was “Market value subject to proposed planning regulations and development deeds”; and
·the valuation methodology was “Development Feasibility analysis and Direct Comparison Approach”.
The 2015 KF Valuation arrived at a valuation for the whole of Stages 1A and 1B of $212,750,000 and in doing so adopted a primary and secondary valuation method – the primary being the ‘hypothetical development approach’ which assessed gross realisation on an “as if complete” basis before deducting risk, profit and other elements. The secondary method involved a ‘direct comparison method’ however, according to the valuer this could only be applied to stage 1B as there were no comparator ‘in one line’ sales of completed subdivisions to form such a comparison.
From the executive summary in the Capital Valuers Valuation dated 3 July 2015 (the 2015 Capital Valuers Valuation) it explained that:
·The interest to be valued was the “Greenfield Stages 1A and 1 B”;
·The purpose of the valuation was to “determine the Market Value of the subject property to assist in setting a Reserve Price for the sale by restricted tender closing 9 July 2015”;
The 2015 Capital Valuers Valuation arrived at a valuation for the whole of Stages 1A and 1B of $210,000,000 and in doing so explained that:
The valuations are assessments of the right to purchase, plan, develop and market the subject land in accordance with the Deed of Agreement and receive a commercial return for the risks of undertaking the exercise. It is therefore a traditional englobo development site land valuation.
Not dissimilar to the 2015 KF Valuation the 2015 Capital Valuers Valuation undertook a valuation method which involved a gross realisation appraisal before deducting all development expenses (which included a 20% profit and risk factor).
By early July 2015 the Applicant had submitted an expression of interest to the SLA seeking to purchase Greenfield 1A and purchase and undertake the development of Greenfield 1B.
The Applicant was successful in respect of the tender and on 16 September 2015 entered into a ‘Development Lease Arrangement’ (DLA) with the SLA to acquire Blocks 5 & 6 of the identified land which comprised the significant rump of Greenfield 1B. The Contract for sale (the 2015 Contract) which the parties entered into annexed a range of documents which included a specimen holding lease and a Deed of Agreement. At a high level the ‘deal’ between the contracting parties required:
·The Applicant to:
(i)pay the SLA an amount of $125,600,000; and
(ii)develop the land in the manner anticipated and agreed under the deed by conducting the work identified in an annexure to the deed in accordance (which was to with provide a range of Development Services which would (in accordance with the deed) include attending to the design, construction and installation of roads, paths, sewers, landscaping and other essential services;
and
·the SLA to provide to the Applicant:
(i)short-term “Holding Leases” over Blocks 5 & 6; and
(ii)Long-Term Leases over subdivided lots situated on those blocks (granted consequentially to the completion of various development steps and works which were required to be undertaken by the Applicant); and
The 2015 Contract also provided at:
·clause 25.3 that “The parties consider that the supply of the Land is a GST-free supply pursuant to section 38-445 of the GST Act.”; and
·clause 34.1 that “Subject to clause 34.3, the Seller agrees that it may offer the Buyer the first opportunity to negotiate for the purchase of Future [Greenfield] Land which the Seller may offer for sale to the Buyer prior to 31 March 2016”.
The annexed Deed of Agreement (the Deed) contained a number of recitals which made it clear that the land was owned by the Commonwealth of Australia and that the Authority (being the SLA) may, on its behalf, “grant, dispose of, acquire, hold and administer leasehold estates in Territory Land”. It also expressly stated that “The Authority and the Developer have agreed that an estate will be developed on the Land in the manner contemplated by this Deed and the Holding Lease”.
Clause 2.1 of the Deed provided that “Upon compliance with the requirements of the Holding Lease and the Deed, the Authority will grant one or more Consequent Leases to the Developer under the Planning and Development Act 2007 (ACT), the Holding Lease being progressively surrendered for that purpose”.
The Deed also sought to make clear both the extent to which the completion of the development work required under the Deed of Agreement operated as a condition precedent to the issuance of the Long-Term Leases and that the risk in respect of their undertaking and completion nestled firmly with the Applicant rather than the SLA. Under the heading “Estate Development” clause 4.1.1 provided that:
The Developer shall, at its own cost and in accordance with the requirements of this Deed and the Holding Lease, undertake the design, construction and completion of the Works listed in Annexure Al, to the satisfaction of the Estate Manager.
Notwithstanding any approvals, endorsements, consents, comments or certificates made, given or issued by the Territory to the Developer in respect of design, there shall be no waiver or diminution of the continuing responsibilities of the Developer in respect of the efficiency and sufficiency of design.
To the extent that they are incidental and can be reasonably inferred as necessary for the full and proper compliance with the requirements of the Deed, the Developer shall at its own cost do all things and supply all materials.
An additional contract on similar terms was entered into that same day for Block 7 which was a portion of land that lay adjacent to Project 1 and which housed a telephone communications tower. This additional contract required a monetary stake of $100,000 with the intention being that this block would be consolidated into the broader project involving Blocks 5 & 6 once the telecommunications tower was relocated elsewhere within Project 1. One difference between Block 7 and Blocks 5 & 6 was that it was acknowledged between the parties that this block contained an ‘improvement’ and its sale was therefore a taxable supply subject to GST.
On 12 September 2016 the Applicant sought advice from its current lawyers PWC in relation to the application of GST law to the transactions with the SLA. In its letter of advice dated 6 December 2016 (the PWC Advice) PWC advised the applicant that:
·the arrangement was a development lease arrangement as described in the public tax ruling GSTR 2015/2,
·whilst the ruling did not specifically address arrangements involving the ACT Government, they considered that the principles set out in GSTR 2015/2 applied to arrangements in the ACT;
·that if they wanted “absolute certainty about the Commissioner’s view they should consider seeking confirmation by requesting a private binding ruling” and
·“the market value of the development works should be determined using a fair and reasonable method, such as by reference to the value of the land sold under the Consequent Lease. This is assumed to be equal to the selling price specified in each Contract of Sale entered into with an end purchaser on the basis that settlement under a Contract of Sale between [the Applicant] and an end purchaser is expected to occur contemporaneously with the issuance of the relevant Consequent Lease by the Territory”.
On 24 January 2017 the Applicant applied to the Respondent for a ruling pursuant to section 359-10 of Schedule 1 of the TAA 1953 which sought to establish:
· Firstly, whether the ‘development services’ provided within a scheme consistent with what was required under the 2015 Contract (the Scheme) constituted a ‘taxable supply’; and
· Secondly, whether those development services were non-monetary consideration for the Applicant’s acquisition of the land.
On 27 February 2017 the Respondent ruled that the answer to each proposition above was ‘yes’. In its reasons (which do not form part of the ruling) the Respondent acknowledged that the arrangement described in the Scheme was a ‘development lease arrangement’ of the type described in a public ruling GSTR 2015/2 – Goods and services tax: development lease arrangement with government agencies (GSTR 2015/2). Whilst the public ruling did not specifically address ACT government development lease arrangements which provided for the granting of initial holding leases “some of the principles outlined in the Ruling may also apply to those arrangements and this is the case in your situation”.
The Respondent explained that the Applicant’s provision of development services was a taxable supply having met each requisite element contained within s 9-5 of the GST Act including that those services were provided for consideration. Moreover, the provision of the Development Services constituted non-monetary consideration for the supply of the land given the nexus of each to the other in the context of the overall arrangement.
The 2017 Development Lease Arrangement
At some point before February 2017 the SLA, having extended the time under which clause 34 in the 2015 Contract was to operate, opened up negotiations with the Applicant about the acquisition of Greenfield 2. Greenfield 2 was a tract of englobo land adjacent to Greenfield 1B of some 170 hectares in size which was being readied for development.
As part of the negotiation process the SLA commissioned valuations in relation to Greenfield 2 from each of Knight Frank Valuations Canberra and JLL. The SLA requested that each valuer provide a “current market valuation” for the purpose of considering and pricing a sale of the land. In response each valuer provided a report dated 13 February 2017 in accordance with instructions to provide valuations on 3 bases:
(i)“As Is – Englobo Land Value” (GST exclusive);
(ii)“As If Complete” Gross Realisation Value (GST Inclusive); and
(iii)“As Is – Land Value” as at August 2008 (GST exclusive);
In response JLL produced valuations amounts of $110 million and $376.73 million in relation to (i) and (ii) above whereas Knight Frank arrived at $125 million and $397 million respectively.
On 10 February 2017 the Applicant wrote to the SLA making an initial offer to purchase the Greenfield “Stage 2 Holding Lease“. By 23 June 2017 the Applicant and the SLA had entered into a further Development Lease Arrangement for the sale of Blocks 11,12 & 13 which comprised Greenfield 2 (the 2017 Contract). Importantly, it is the land acquired under this 2017 Contract for Greenfield 2 which is central to these proceedings and the Relevant Period.
In much the same way as the 2015 Contract for Greenfield 1A & 1B had, the 2017 Contract also annexed a holding lease and a Deed of Agreement in substantially similarly terms and required:
·the SLA to provide to the Applicant:
(i)holding leases over Blocks 11, 12 & 13
(ii)Long-Term Leases over those blocks (which were to be granted consequentially to the completion of various development steps being undertaken by the Applicant).
·The Applicant to:
(i)pay the SLA an amount of $135,850,000 and
(ii)undertake and supply a range of Development Services.
Under the 2017 Contract it was agreed that the development would proceed by way of a series of 8 distinct stages which were described as stages 1B, 2A-1,2A-2, 2B, 2C, 2D-1, 2D-2 and 2E. It was anticipated that once a stage’s development had been completed, the Long-Term Leases would be issued with respect to it. The 2017 Contract also provided for a date of completion of the work in respect of blocks 11 and 12 of Greenfield 2 to be by 29 June 2018 and for block 13 to be by 30 June 2020.
As will become clear further below it is valuations of the land upon which the work was performed in development stages 2A[5], 2B, 2C and 2D-2 that is the subject of this review.
[5] presumably an amalgam of stages 2A-1 & 2A-2
On 18 January 2018 the Applicant applied to the Respondent for a further ruling pursuant to section 359-10 of Schedule 1 of the TAA 1953, this time in respect of the Greenfield 2 arrangement. It raised the same 2 questions addressed in the Greenfield 1A & 1B ruling and elicited substantially equivalent responses and reasons. A further paragraph was added to the conclusion of the ruling’s ‘reasons’ to make crystal clear that this “ruling does not address the value of the non-monetary consideration as it will depend on the factual matrix of the whole arrangement”.
By April 2018 some 30-35% of the lots had been sold in Greenfield 2 stage 2A and the Applicant commissioned a valuation to be provided by Knight Frank Valuations Canberra (Knight Frank) covering development stage 2A for “internal audit purposes only”.
The Stage 2A valuation report dated 20 April 2018 states in its executive summary that Stage 2A was an englobo parcel sold by the ACT Government containing 159 individual residential lots. The accompanying letter of instruction provided to the Knight Frank valuers included an instruction that “individual values only be reported (no in one line analysis/no feaso etc)”. The valuation report confirmed that it was intended to provide the “Market Value of unencumbered Crown Leasehold interest in 159 residential lots” using a “Direct Comparison approach”. Under a heading of ‘Valuation Rationale’ the report provided:
5.1 Valuation Methodology and Considerations
In assessing the market value, the appropriate method of assessment is considered to be the direct comparison method only.
5.2 Direction Comparison Approach
This approach identifies comparable sales on a dollar rate per square metre or dollar rate per block basis, whichever is more relevant, and compares the equivalent rates to the subject sites to establish the market value of each individual blocks. The medium density sites have been valued on a dollar rate per dwelling unit.
The report went on to confirm that the valuer had regard to sales that had already occurred across other stages of the Greenfield project as well as pre-sales made in respect of lots within this stage. In a section titled “Summary of Values” the report arrived at ‘adopted’ values for each of the subdivided lots which produced a total valuation of $95,770,000. This amount compared to an amount of $96,070,000 which was identified as being the combined ‘listing price’ presumably comprising the price of already concluded sales and the advertised amounts for lots that remained unsold at the time.
On 12 June 2018 Knight Frank, at the request of the Applicant produced a valuation report for development stage 2B also for “internal audit purposes only”. The report stated that Stage 2B is an englobo parcel sold by the ACT Government containing 207 individual residential lots. The accompanying letter of instructions provided to the Knight Frank valuers also included an instruction that the Applicant requires “a detailed valuation report for internal audit purposes only of all 207 crown leases”. Similar to the valuation for stage 2A, the stage 2B valuation report confirmed that it was intended to provide the “Market Value of unencumbered Crown Leasehold interest in 207 residential lots” using a “Direct Comparison approach”. In a section titled “Summary of Values” the report ‘adopted’ values which, as it were, substantially mirrored the ‘listing price’ for each lot.
Further valuation reports applying the same methodology were prepared on:
·3 December 2018 for Stage 2D-2 which comprised 5 vacant development lots expected to ultimately house an aged care facility and medium to high density residential housing; and
·20 March 2020 for Stage 2C which contained 45 development lots made up of 40 standard residential blocks and 5 multi-unit blocks.
Together these 4 valuations (provided in respect of 2A, 2B, 2D-2 & 2C as described above) I will refer to as the “Knight Frank Valuations”.
By March 2018 the SLA, accepting that some stages of the development works in respect of Greenfield 2 had been conducted and completed, began issuing batches of Long-Term Leases as anticipated under the 2017 Contract and as they applied to each completed stage.
The Valuation Methodology Agreement & the issuing of invoices
By 15 June 2018 (and shortly after the 2nd of the four Knight Frank Valuations was produced) the parties to the agreements turned their minds to how the development services might be valued and calculated under the 2015 & 2017 Contracts.
As the parties understood, once the Development Services had been valued:
·the Applicant could thereafter issue GST invoices to the SLA for the supply of those Development Services;
·the SLA could pay the relevant amounts calculated by reference to the GST components in accordance with what the parties understood at the time to be their obligations under each of the 2015 Contract and the 2017 Contract; and
·the Applicant and the SLA could each report their GST obligations (including that of the Applicant’s margin) in their respective BAS.
In an email exchange which spanned 15-20 June 2018 between a director of the Applicant and representatives of the SLA it was confirmed by the Applicant that, in relation to Greenfield 1, that given there were no improvements on block 5 and 6 the transaction (as was confirmed in the contract) was a GST free supply – ie with the exception of the small block 7 “which had a different GST treatment”.
On 15 June 2018 the Applicant reminded the SLA that it had obtained a private ruling in relation to “whether it made a supply of development services and whether that supply was non-monetary consideration for its acquisition of the land from [SLA]. These questions were confirmed in the affirmative”.
A representative of the SLA responded by email that same day thanking the Applicant for the provision of details in the earlier email and adding:
As per paragraph 69 of GSTR 2015/2, the parties are to agree on the valuation methodology of the development services. Noting this, could you please provide a substantiation (either in the form of a quantity surveyors report or detailed costings) as to the makeup of the $62m.
The SLA went on to advise that if the Applicant could provide an invoice for the development services before midday on 18 June 2018 they would be able to incorporate it into the agency’s May 2018 BAS. Following what must have been a telephone discussion the Applicant then wrote back a short time later advising:
As discussed just now, we are more than happy to provide our calculations which are based on an allocation of land value as a % of the sale price, and values as sold or substantiated by independent valuation. This was the same calculation or methodology that we used on the first 11 blocks we sold in Section 49. The benefit we had in that stage was that all 11 Blocks were sold, and therefore that is what we adopted as the Gross sale price/value.
It appears that no further clarification was sought from the SLA about the method to be adopted and by 18 June 2018 the SLA had received an invoice for GST payable in respect of Development Services. The SLA assured the Applicant that the Input Tax Credit would be included in its May 2018 BAS and that payment would be made once the ATO provided the SLA with the refund arising from the BAS.
On 18 August 2018 in the course of providing the SLA with a further invoice for the Development Services the Applicant gave the SLA a more detailed overview of its rationale underpinning the agreed methodology for calculating the cost in the following terms:
…..
Private binding ruling with respect to The Site
2.[The Applicant] was issued a Private binding ruling (the PBR) by the Commissioner on 27 February 2017 regarding the Commissioner’s interpretation of the arrangements at the Site (see edited version of the private ruling at Appendix A).
3.Specifically, the Commissioner has confirmed in the PBR:
a.the arrangement between [The Applicant] and the Suburban Land Agency (SLA) with respect to The Site is a ‘development lease arrangement’ for GST purposes;
b.GST treatment of development lease arrangements in GSTR 2015/2 applies to the transaction entered into between [The Applicant] and the SLA with respect to The Site; and
c.[The Applicant] has made a taxable supply of development works to the SLA under the Deed of Agreement and should have a liability to remit GST on the market value of that supply.
Application of the principles in GSTR 2015/2
4.The following implications arise from the application of GSTR 2015/2 to the transactions made between [The Applicant] and the SLA as part of The Site development:
a.The market value of the development works should be calculated by deducting the monetary amount payable by [The Applicant] to the SLA under the Contract of Sale for The Site from the market value of land sold by the SLA to [The Applicant] under the consequent lease. This is in accordance with paragraph 82 of GSTR 2015/2 and also a private binding ruling issued in similar circumstances (refer to the edited version attached at Appendix B, and in particular the second paragraph under the ‘value of non-monetary consideration’ heading on page 3);
b.it is proposed that the market value of the development works is:
i.the market value of the land sold by the SLA to [the Applicant], being the sum of the sales price specified in each Contract of Sale for the residential and commercial lots between [the Applicant] and end purchasers.
ii.less an allocation of the monetary amount payable by [the Applicant] to the SLA under the Contract of Sale for the whole of The Site being $125,700,000;
…….
This agreed methodology was discussed in the context of 2015 Contract however I understand the arrangement and those discussions between the SLA and the Applicant as being equally applicable to the 2017 Contract and the Greenfield 2 DLA.
The Invoices and the lodgement of BAS
In March 2018 presold subdivided lots within Greenfield stage 2A began to settle and by the end of June 2018 the Applicant and the SLA were engaged in a process whereby (as set out above) having agreed a methodology for establishing the value of the non-monetary consideration:
·the Applicant would issue invoices to the SLA for those services;
·the SLA would pay an amount to the Applicant equivalent to the GST which arose in respect of the supplied development services; and
·the SLA would thereafter claim an equivalent amount of Input Tax Credits (leaving it effectively in a ‘GST neutral position’.
Between 11 September 2017 and 29 November 2018, the Applicant issued a series of invoices for development services which included GST components of $16,391,997 which were duly paid by the SLA.
As each development stage concluded the SLA, as they were required to under the 2015 and 2017 contracts, cancelled the short-term leases over the now developed land and issued the Long-Term Leases over the newly subdivided residential lots.
As sales of the subdivided lots finally settled the Applicant returned those sales in its BAS over the period 1 July 2017 until 30 June 2020. Each time it returned an onward sale it calculated the margin under the margin scheme - its acquisition costs being proportionally comprised of the monetary amount it had paid the SLA under the contracts and the ascertained value of the provided Development Services.
In August 2020 the Respondent commenced an audit into the Applicant’s BAS lodged for the monthly tax periods covering 1 July 2017 until 30 June 2020 at the conclusion of which the Amendments Assessments were raised. The Amended Assessments related to tax periods in which the margins from four sub-stages of the Greenfield 2 development were being returned (as described at paragraph 56 above).
On 9 November 2021 after becoming aware that each of the 2015 and 2017 Contracts had neglected to include what the Applicant has described as a ‘GST gross up’ clause the Applicant and the SLA entered into two additional deeds described as ‘Rectification Deeds’ (Rectification Deeds). These Rectification Deeds sought to capture the understanding of the parties in entering into the 2015 and 2017 Contracts that:
(i)the supply of the Development Services undertaken by the Applicant was a GST taxable supply;
(ii)that the parties to the agreements had intended that when the Development Services were complete that the Applicant would issue invoices to the SLA to account for the GST liability arising from the supply of the Development Services; and
(iii)that the SLA would make a payment to the Applicant which was equivalent to its liability for GST so long as the SLA “was left in a neutral GST position, ie that the [SLA] would be able to claim an input tax credit from the ATO of the amount in respect of GST to be paid to” the Applicant.
The Applicant lodged an objection on 25 October 2022 to the Amended Assessments however, as explained earlier, that objection was disallowed.
On 24 November 2023 the Applicant lodged an application with the Tribunal which sought review of the objection decision.
The Statutory Considerations
Before directly appraising the specific arguments raised by each party I feel there is some benefit in refocusing on the statutory task that confronted the Respondent at objection and therefore confronts this Tribunal, standing in the Respondent’s shoes, on review.
As is evident in the provisions of Division 75 of the GST Act set out earlier, a taxpayer who elects to apply the Margin Scheme to its taxable supplies of real property is required to calculate its margin under s75-10(2) by identifying the amount by which:
the consideration* for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.
Section 9-75 provides for the basis upon which a taxable supply is to be valued. As is clear from s 9-75(1)(b) in ascertaining the price of a taxable supply where consideration for whole or part of the supply has been provided in a form other than money the price of the non-monetary component is to be calculated by reference to its “GST Inclusive market value” as that term is defined at section 195-1.
In ascertaining the value of a taxable supply where non-monetary consideration is involved how one is to understand the concept of “market value” becomes important. The term “market value” is not expressly defined in the GST Act however both parties accept that the term is to be understood by reference to the well-known test laid out by the High Court in Spencer v The Commonwealth (1907) 5 CLR 418 (Spencer) and the many cases since which have applied it. In Spencer at 432, Griffith CJ explains that the value to be assigned to land (which in that case happened to be vacant land compulsorily acquired by the Commonwealth government) 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?” 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 conversant 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 had 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.
An uncomplicated reading of s 9-75(1)(b) might suggest that what should be valued to ascertain the GST inclusive market value of the non-monetary consideration is the Development Services themselves. For what it’s worth, the SLA appears to have initially anticipated such an approach would be taken (see paragraph 68 above) rather than the method ultimately used. However, it was agreed between the parties to the 2017 Contract and, perhaps more pertinently the parties to this application, that a deductive method by which to arrive at the value of those Development Services was to be preferred.
Put another way, I do not understand there to be any challenge by the Respondent to the permissibility of the approach taken by the Applicant subject, of course, to the distinction in the parties’ views as to how the valuation which anchored it should have been undertaken, in part to reflect their different views on what was acquired.
In short the approach which the Applicant adopted involved reliance on a valuation of the other side of the transaction (being the acquired land) from which the monetary consideration provided by the Applicant was to be subtracted to arrive at the value of the non-monetary consideration provided by the Applicant as part of its acquisition. Such an approach appears at least within broad contemplation in the Respondent’s public ruling GSTR 2001/6 Goods and Services Tax: Non-monetary consideration (GSTR 2001/6) and, but for some matters which I raise in the context of Issue 4 & 5 below, would be broadly uncontroversial in terms of its permissibility.
In addition to the mutual position that it is the acquired land to be valued the parties have also jointly proceeded on the basis that the relevant time of valuation is when each stage of development was concluded, that is, the point at which under the 2017 Contract the Long-Term Leases were ultimately issued in stage batches.
As will be seen, however, the parties differ on the manner in which the ‘land’ is to be valued with the distinction in approach, fundamentally, reflecting the parties’ different views on the nature of what had been ‘acquired’. For the Applicant, the ‘land’ to be valued was the land in the condition it was in at the time the Long-Term Leases issued, that is, fully developed, unencumbered and capable of being valued on a singular basis. Whereas for the Respondent, they accept that the ‘land’ to be valued could be appraised in the state that the Applicant has approached it, however that approach would only be reasonable if, and only if, such an approach to its valuation made express allowances reflecting that what was truly acquired was undeveloped englobo land rather than completed Long-Term Leases.
The evidence
Prior to the hearing the parties lodged a joint hearing book which extended to some 4700 pages. The factual background I have detailed above arises principally from a consideration of that material – I do not understand it to be in contest as least to the extent it supports the factual outline I have provided. The hearing book also included a witness statement from a project director employed by the Applicant & each side also filed reports from expert witnesses with valuation backgrounds. I will now provide an overview of the evidence led by each of those witnesses and will make some observations with respect to it.
Evidence of the Project Director
The Applicant lodged a witness statement dated 23 August 2024 from a director of the Applicant who acted as project director on the Greenfield projects. The project director had practiced as a qualified valuer in the ACT for an extended period of time before in 2015 taking a consultancy role with the applicant whereby he “was engaged to document the due diligence on behalf of [the Applicant] as it considered the acquisition” of the land the subject of these proceedings. He was thereafter responsible for the development and sale of the serviced vacant lots. Importantly it was he who provided instructions to Knight Frank commissioning the 4 valuations on behalf of the Applicant.
The witness gave evidence of the process he undertook in pricing and marketing both the single dwelling and multi-unit sites and explained that state of the market meant there had been little need to either allow any discounts from what he evaluated as the appropriate price points or to sell sites collectively at a discount. His statement then deposed that:
·“in his 38 years as a property professional, I have never known a developer to construct and sell a large-scale set of completed serviced vacant blocks to a single buyer” nor ever “known a developer to express interest in purchasing a set of completed serviced vacant blocks from another developer for the purpose of immediate resale of the vacant land”;
·The only time he had ever seen ‘in-one-line’ valuations produced in respect of property developments were in bespoke circumstances where developers were seeking secured external funding and it presupposed a distressed sale; however
·the Applicant had since 2021 commissioned a number of ‘in-one-line’ valuations but the catalyst for such instructions being given to valuers on each occasion was:
The ATO amending its public ruling that year, to require that an in-one-line valuation to now be provided in assessing the quantum that could be claimed for development services performed by the company on behalf of the ACT government. This change to the ruling by the Commissioner and the ATO is the only reason that [the Applicant] amended its instruction to its valuer requesting an in one line valuation.
In cross examination the project director was taken to valuations in respect of Greenfield 1A and 1B which had been commissioned by the SLA in mid-2015, being in the months prior to the sale of the englobo land, which were conducted by Knight Frank and which combined a “Development feasibility Analysis and Direct Comparison Approach”. The Witness acknowledged that he was familiar with the methods used and that these valuations included risk calculations.
In procuring the Knight Frank Valuations the witness explained that he had given instructions to the valuers that he wanted values for “serviced vacant land values for each service block only” and that there were to be “no in one line analysis/no feaso”. He had done this, he said, because the motivation behind obtaining the valuations was to use them to demonstrate to the Applicant’s stakeholders that the Long-Term Leases were not being undersold as to value.
The Project Director’s statement had annexed a list of purchases in respect of each of the lots sold taken from the Applicant’s computer systems and identifying the dates those lots exchanged.
To the extent such findings are required in what was mostly uncontested evidence i confirm that I accept the evidence of the project director generally. He presented as an honest and truthful witness whose evidence was consistent with the documents he was provided. He gave clear and acceptable evidence about his particular experiences in the industry and the basis upon which the Knight Frank Valuations were commissioned. In short, the valuations were intended to provide a market value of the unencumbered lots at the time of the valuation.
The Project director was also shown a pair of spreadsheets produced by the Respondent which sought to illustrate the number of days each lot was held (based on the exchange dates identified in the witness’ annexed list). The Respondent did not tender that document and to the extent it was used to ground a submission that the Long-Term Leases were held for (in some instances) significant amounts of time from issue I do not think much turns upon it.
Expert report of Mr Calvin Rogers
The Applicant lodged an independent expert report dated 11 April 2024 from Mr Calvin Rogers who holds various tertiary qualifications in the fields of commerce, property development and property valuations and is a registered real estate valuer. After being provided with the four Knight Frank valuations Mr Rogers was invited to provide his opinion on the following matters:
1.In relation to each of Knight Frank’s valuations of stages 2A, 2B, 2C and 2D-2 of the [Greenfields] land, please provide your opinion in response to the following questions.
a.Did each valuation use valuation methodologies consistent with professional guidelines?
b.Did each valuation use a reasonable valuation methodology?
c.Does each valuation arrive at a market value of the land including the development works within the relevant stage (2A, 2B, 2C and 2D-2)?
d.Are you familiar with the concept of a ‘wholesale market’ in relation to property valuation?
2.Please identify specifically any valuation methodologies or professional guidelines upon which your opinion in response to each question is based or relies.
In doing so Mr Rogers was asked to assume the following:
1.The margin scheme applies to supplies of real property made from the [Greenfields] Land.
2.The Development Services supplied by the [Applicant] formed non-monetary consideration for the [Greenfields] Land acquired from the SLA and should be included in the GST margin scheme calculation for onward sales of subdivided land under Division 75 of the GST Act.
3.The Development Services should be included in the Acquisition Consideration for the [Greenfields] Land when calculating GST payable under the margin scheme on sales of the Subdivided Lots;
4.The things exchanged between the SLA and the Trustee are of equal market value. That is, the market value of the [Greenfield] Land is equal to the market value of the monetary and non-monetary consideration (including the Development Services) provided by the [Applicant] to the SLA for the [Greenfield] Land.
5.The market value of the non-monetary consideration provided for the land is to be calculated by obtaining the market value of the relevant land, including the completed Development Services, and subtracting from that market value the monetary consideration paid to acquire the [Greenfield] Land.
Mr Rogers considered that each of Knight Frank’s valuations used a methodology consistent with professional guidelines. He noted that the Direct Comparison approach that was used was a form of “Market Approach” which was one of three principal valuation approaches identified under Section 105 of the International Valuation Standards (IVS) published by the International Valuation Standards Council and which he states are considered by “valuation professionals as the key document providing valuation standards that valuers must adhere to”.
Mr Rogers confirmed that in his view each of Knight Frank’s valuations used a reasonable valuation methodology and arrived at a “market value of the land including the development works with the relevant stage”. He also went on to state that he was not aware of such a concept as a ‘wholesale market’ in the context of property valuations and would need guidance if ever asked to value on such a basis.
Expert report of Mr Tew
In response to Mr Roger’s report the Respondent lodged an independent expert report dated 2 August 2024 from Mr Robert Tew a Certified Practicing Valuer of over 35 years standing with his work experience involving the provision of “valuation and property advisory services” to a broad range of clients.
Mr Tew was given the four Knight Frank valuations, an addendum dated 26 November 2021 which reappraised the valuation report for 45 various blocks dated 24 March 2021 as at 31 March 2021, a copy of Mr Roger’s report and a letter of instructions which provided the facts and assumptions that had been provided to Mr Rogers as well as some additional facts and assumptions. The additional assumptions were numbered 6-12 as follows:
6.Market value is defined as the GST-inclusive value exchanged by a ‘willing buyer and willing seller’ on the same day and in an appropriate market (see paragraph 11 of Appendix A of the brief dated 5 June 2024).
7.The 'appropriate market' is the sale of the [Greenfield] Land to a single, defined entity in a single transaction rather than the sale of land to hundreds of consumers buying from a developer.
8.There was no further stamp duty payable for acquiring the Consequent Leases, so no stamp duty is applicable to the valuations.
9.There were no outstanding development costs or civil works that should be factored into the valuations.
10.The Development Services were completed in stages (e.g. Stage 2A, 2B, 2C and 20-2) and the valuations should be assessed at the completion of these stages. The [Applicant] would 'surrender' the Holding Lease to the SLA after the completion of the Development Services for each relevant stage and call for the issue of the Consequent Leases.
11.Pursuant to paragraphs 93-94 of GSTR 2015/2, the relevant dates of valuation are the dates that SLA granted Consequent Leases to the [Applicant]. The dates of valuation in the Knight Frank valuations are indicative enough for this purpose.
12.The 'professional guidelines' include but are not limited to those identified by Calvin Rogers of Opteon Solutions in his report dated 11 April 2024.
Mr Tew was then asked:
(a)to provide his opinion in respect of each of the matters 1a to 1c (as extracted above) as put to Mr Rogers relying only on the facts and assumptions that Mr Rogers was provided with;
(b)Whether his opinion might change if he took into account the additional instructions and assumptions that he had been provided with;
(c)Whether “in relation to the Addendum dated 26 November 2021 which reassessed the valuation report for 45 various blocks dated 24 March 2021 as at 31 March 2021:
oeach valuation methodology used was consistent with professional guidelines; and
oWhich valuation methodology or methodologies are reasonable to use to ascertain the market value of the Denman Prospect Land, being the sale of land from the SLA to a single, defined entity in a single transaction?”
The Applicant argues that to the extent the Respondent claims that not only must the valuation produce a market value of the land it must also be considered ‘reasonable’ is to effectively put “a gloss on the words of the Act” where none exists. Again, I disagree,
Where the Respondent argues that the valuation must produce a ‘reasonable’ GST Inclusive market value I do not understand that notion to ‘put a gloss’ or read words into the legislation in any real sense. I understand the Respondent’s reliance on the term ‘reasonable’ as going no further than to suggest that a valuation will be ‘reasonable’ where it is capable of meeting or responding to the statutory question being posed by s 9-75.
A valuation will be ‘reasonable’ to the extent it applies an appropriate valuation method for whatever is to be appraised responsive to the statutory task. In my view the term speaks as much to the use to which the valuation is put as it does to the method applied within the valuation itself. As the expert witnesses have agreed -the KF Valuations to the degree they respond to the instructions the valuers were provided with were conducted on a basis that was consistent with professional valuation guidelines and applied a ‘reasonable’ valuation method for providing assurance to the Applicant’s stakeholders that the post development lots were being sold at their market rate. It’s the degree they have been relied on by the Applicant for establishing the price of its non-monetary consideration that makes them not ‘reasonable’.
In reply to the Respondent’s argument that the KF Valuations were based on an incorrect factual premise because (inferentially) they led to “nil or close to nil margin between the cost base and supplies made to third parties” the Applicant has argued that there is “No principle of law [that] requires the Commissioner to be guaranteed a large positive margin or requires that, in the absence of one, a “reasonable” GST inclusive market value was not determined”. I would agree with the Applicant in this regard- the absence of a tax yield, in itself, is not a basis for determining whether the valuation relied upon was reasonable for the purpose of s 9-75. It’s the failure to adequately represent what was acquired rather than the lack of a substantial margin that will determine whether a “reasonable” GST inclusive market value” of the non-monetary consideration has been arrived at.
Both parties sought to address the Tribunal on the applicability of the High Court’s decision in Turner v Minister of Public Instruction (1956) 95 CLR 245 (Turner). In Turner the High Court was asked to consider, in valuing a parcel of englobo land that had been acquired under the Public Works Act 1912 (NSW), what the approach to valuation should be. The land, albeit completely undeveloped was considered to be “ripe for development” and capable of being subdivided into 19 vacant lots. In characterising what was be valued Kitto J at page 288 explained:
It is essential to recognise at the outset, as I have already pointed out, that what has to be valued is a single unsubdivided parcel of land, and not nineteen separate allotments capable of separate sale at the date of the resumption. If the process of subdivision had been completed before the resumption was made, it would have been very relevant to observe that the hypothesis of a willing but not anxious buyer does not necessarily import only one buyer for the entirety of the allotments. But the observation is not relevant in a case like the present, where the land to be valued was in fact at the relevant date an unsubdivided whole, which could be sold as a whole but could not be sold otherwise. Its potentiality for subdivisional sale must, as I have said, be allowed for. No sensible buyer or seller would omit to give it weight. But neither would such a buyer or seller suppose for a moment that because that potentiality existed the present value (i.e., at the date of resumption) would be equal to the net amount likely to be produced by sales of allotments effected at a then future date after time, trouble and money had been ex-pended in creating the conditions necessary to make sales in subdivision possible. To hold that compensation for the resumption, of a parcel of land, as to which all that can be said is that it is suitable for immediate subdivision, should be the net amount which the land would be estimated to produce to the owner if he were to subdivide it and sell the allotments himself is, in my opinion, to fall into the precise error which the Privy Council condemned in Yyricherla's case (citation removed), by approving the saying that it is the possibilities of the land and not its realised possibilities that must be taken into consideration.
At page 291 Kitto J observed:
It all comes back to the one point: at the date of resumption the land was simply incapable of immediate sale in subdivision, and it would necessarily remain incapable of sale in subdivision until time, trouble and expense had been laid out upon it; and no one, present owner or incoming owner, is likely to be so completely unbusinesslike as to make these outlays unless he believes that he can reasonably count on getting from the subdivision sales an amount which will exceed the present value of the land by such a sum as will make it all worth his while.
The Applicant argues that the remarks of Kitto J in Turner are supportive of the basis upon which it has valued the land it acquired. In its view, at the relevant valuation date the land had already been subdivided, the work concluded and to value the land in some less realised state would amount to doing something other than valuing the land as it was at the time.
The Respondent argues that Turner is instructive as to how englobo land is to be valued if something akin to the direct comparison method is used – that being from the expected gross sale value of the lots amounts should be deducted accounting for expenses (including those for development work, risks, interests, rates and profit). The Respondent argues that this is the approach required in this case.
Whilst I accept that Turner is not directly analogous to the matrix of facts in this case, in my view, it provides some guidance that:
·land should be valued in accordance with its characteristics which include its potential for enhancement albeit not as though those enhancements have been undertaken and have crystalised in the asset; and
·where land to be valued was englobo in form than it would be appropriate to include various reductions to account for commercial imperatives like profit expectation.
If I had considered that the land acquired and to be valued for the purpose of s 9-75 was as described by the Applicant then Turner would have compelled me to determine this issue in the Applicant’s favour – in that sense I would be agreeing that the land in its physical state at the time of the valuation (denuded of the context of the broader contractual arrangement) should be the focus. But as I have explained elsewhere, for the valuation to be reliable for the purpose of balancing off against the monetary and non-monetary consideration what must be characterised as being acquired is land purchased as englobo and then developed.
Further, if the parties had agreed that the appropriate valuation date[21], so as to enable a deductive ascertainment of the value of its non-monetary consideration under s 9-75, was the date of the 2017 Contract (when the land was truly englobo) then the principles in Turner would have directed how the valuation should have been undertaken.
[21] See considerations described in GSTR 2001/6 paragraphs [159] – [165]
Lastly, for the purpose of this application I am not required to determine whether the Respondent’s preferred approach, whether it be described as the ‘in-one-line’ approach or “the Residual Method which involves using a combination of Market Approach, Income Approach and Cost approach to calculate Market Value is the most appropriate approach to value the land that was acquired by the Applicant.
There may be good reasons to conclude an ‘in-one-line’ approach may be the most effective method – the leases were, after all and at least to the extent they were issued stage by stage, issued all at once and to one recipient. That being said, the onus requires only that I consider whether the approach taken by the Applicant in relying on the KF Valuations as a basis for working out (deductively) its non-monetary consideration was sufficiently open to it as a matter of law such that I am satisfied that the assessments are excessive and provide a basis for what they ought to have been. In that regard I am not so satisfied – in my view the approach taken by the Applicant failed to adequately capture and value the land acquired from the SLA by the Applicant for the purpose of s 9-75. To value only the Long-Term Leases in isolation, in my view, fails to incorporate the reality that the land was acquired as an englobo parcel and part of an overall development arrangement.
CONCLUSION
I have determined each of the issues against the Applicant and it is therefore not successful in discharging its burden to show that the Amended Assessments are excessive and what they ought to have been. Pursuant to s 105 of the Administrative Review Tribunal Act 2024, the reviewable objection decision is affirmed.
Date(s) of hearing: 11 November 2024
12 November 2024Counsel for the Applicant: Ms CM Pierce SC, Mr W Stone Solicitors for the Applicant: PricewaterhouseCoopers Counsel for the Respondent: Ms C Ensor, Mr K Josifoski Solicitors for the Respondent: McInnes Wilson Lawyers
Key Legal Topics
Areas of Law
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Taxation Law
Legal Concepts
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Margin Scheme
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Goods and Services Tax
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Non-Monetary Consideration
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Statutory Interpretation
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Assessments
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