Vic Supreme Court Rules Land Valuation a Matter of Common Sense
VIC SUPREME COURT RULES VALUATION A MATTER OF COMMON SENSE
The Victorian Supreme Court’s 22nd of September 2017 judgement on the case of Public Transport Development Authority (‘PTDA’) v Commissioner of State Revenue has demonstrated that common sense in terms of valuing land is the order of the day.
The case, an appeal from VCAT, saw the applicants, the PTDA and Civic Nexus Pty Ltd contesting the Commissioner over the proper means of site valuing Southern Cross Station for the purposes of land tax.
The crux of the matter revolved around the interpretation of section 5A of the Valuation of Land Act 1960, which prescribes a process of land valuation. Of particular importance was subsection (3)(f), which holds that regard must be had to “the actual and potential capacity of the land to yield a monetary return,” as well as subsection (3)(a), whereby land valuation is also determined by reference to the “highest and best use” to which the land would be reasonably put.
Sensing a loophole, the applicants argued that since the relevant planning controls and contractual obligations required the land to be used as a train station, there was no commercial market for the land, and thus it had an effectively nil value. Understandably, the State Government rejected this argument.
In the initial tribunal hearing, Justice Garde (sitting as VCAT President) concluded that the true value of the site was not derived from its commercial value, but its potential to be used for a public purpose, namely the provision of public transport services.
In cases of compulsory land acquisition, the general principle from Spencer v The Commonwealth is that site value is determined by asking what might reasonably be arrived at between a willing buyer and seller at a hypothetical auction. However, as per Raja Vyricherla Narayana Gajapatiraju v Revenue Division Officer Vizagapatam, even where there is only one body who can make use of the land’s potential, and thus no real competitive commercial value, the land’s value is still assessed on the basis of its potential use, not on demand from buyers or market pressures.
Ultimately, VCAT held that while the lack of a commercial value under subsection (3)(f) forms a relevant consideration of site valuation, this consideration cannot override others, such as the value derived from the land’s “highest and best use.” Southern Cross could not be put to a higher or better use than as a train station, nevertheless it still possessed a value, even if only to the State, and consequently, the valuer must still put a figure to it for tax purposes. The applicant land owner appealed this decision.
By agreeing with VCAT and dismissing the appeal, the Victorian Supreme Court of Appeal has not only re-asserted that site valuing requires a wider interpretation of value than mere “commerciality,” but has ensured that a literalistic interpretation of land valuing provisions does not provide an absurd vehicle with which to avoid tax.
In a wider business context, the Supreme Court of Appeal’s decision is a warning to land owner developers that Victorian courts will reject literalistic and theoretical interpretations of revenue raising statues in favour of interpretations which steer a middle road between taxpayer and SRO positions.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.