14 November, 2017
This Indirect Tax Bulletin outlines recent Australian indirect tax developments which may affect your business.
What you need to know
Public Transport Development Authority v Commissioner of State Revenue [2017] VSCA 266
Summary
The Victorian Supreme Court of Appeal dismissed the applicant's appeal of the Tribunal's decision in relation to the site value of land for the purposes of land tax. The land in question formed part of Southern Cross Station in Melbourne and, due to planning restrictions, was only able to be used as a transport facility. Despite the fact that the property was commercially unviable as a train station, the Supreme Court rejected the applicant's submission that the site value should be nil. Instead, the Court affirmed the Tribunal's decision to assess the site value at $1,000/m2 on the basis that the Victorian State Government had a serious interest in it.
Background
This case concerns the site value of land forming part of Southern Cross Station in Melbourne. The land is owned by the applicant and is leased to Civic Nexus Pty Ltd.
The Commissioner assessed the land for land tax for the 2010 to 2013 land tax years.
The matter was initially heard by the Victorian Civil and Administrative Tribunal (the Tribunal) ([2016] VCAT 1457). The issue for the Tribunal was the correct determination of the site value of land in accordance with section 5A of the Valuation of Land Act 1960 (Vic) (the Act).
It was common ground before the Tribunal that, for the purposes of s 5A(3)(a) of the Act, the highest and best use to which the land might reasonably be expected to be put was its existing use as an intermodal transport interchange facility. This was due to planning restrictions, which restricted the use of the land as such.
This restriction on use meant that the land did not have the capacity to yield a monetary return in the hand of either vendor or purchaser. Further, there was only one potential purchaser of the land, being the State of Victoria.
The applicant's expert evidence suggested that, because the land was not commercial viable, it should have a site value of nil.
However, in considering the hypothetical sale of the station site, the Tribunal emphasised the importance of the station site to the State and the people of Victoria, and that this should be taken into account in determining the value of the land. Further, it was plausible that another entity would wish to purchase ahead of the State, in order to profit from a resale to the State.
On this basis, the Tribunal rejected the applicant's submission that the site value of the land was nil. The Tribunal also considered that the valuations submitted by the Commissioner were far too high. Instead, the Tribunal adopted a base level land value of $1,000/m2, based on rates used to determine the values of neighbouring properties. This equated to a site value of the property of $55,939,000.
The applicants appealed this decision.
Decision
The applicants submitted that the value of the land should be nil and, alternatively, that the Tribunal's valuation methodology was not justified.
The Court stated that, although there is no commercial market because of the planning restrictions, and no commercial valuation available, the valuer must nevertheless seek to attribute a value to the land in respect of the State of Victoria's interest.
Applying Raja v Revenue Divisional Officer [1939] AC 302, the Court highlighted that is wrong to assume that because a proposed development is not viable from an economic or commercial standpoint that it has no value, or that the State would pay nothing for the acquisition of land dedicated for public purposes.
The Court referred to section 5A(3) of the Act, which specifies six factors to take into account, where relevant. Section 5A(3)(f) provides for the consideration of the "actual and potential capacity of the land to yield a monetary return". Despite this being a consideration, the Court did not think that this caused the land to have zero value.
This factor in section 5A(3)(f) could not, alone, override all other relevant considerations. In particular, it could not override the fact that the hypothetical market would include, and probably be confined to, one entity, namely the State, which had a particular and highly important need for the land. Accordingly, the Court affirmed the Tribunal's decision that the land did have a value greater than zero, notwithstanding the absence of a commercial return.
The other grounds of appeal related to the Tribunal's valuation methodology. The applicant submitted that it was not possible to comprehend how the Tribunal arrived at its valuation of $1,000/m2. The applicant argued that this figure could only have been arrived at by disregarding the ability of the land to yield a monetary return.
This was rejected by the Court of Appeal, which considered that Tribunal's reasons disclosed a clear, intelligible and evident justification for the value. Further, the Tribunal provided sound reasons for rejecting the evidence of the applicant's valuers, in particular that one of the valuer's calculations showed a high degree of variability and uncertainty, and the other valuer simply did not address the value of the site to the State Government.
Accordingly, the Victorian Supreme Court dismissed the appeal.
North West Melbourne Recycling Pty Ltd v Commissioner of State Revenue (Vic) [2017] VSC 647
Summary
The Victorian Supreme Court has held that amounts paid pursuant to incorrect land tax assessments could be refunded, notwithstanding that the plaintiff had not objected to the existing assessments.
Background
The plaintiff paid land tax for the 2011 to 2014 land tax years.
It was later agreed that, at all relevant times, the site value of the land in question was $1.00. Accordingly, the amount of land tax which should have been imposed on the land was negligible.
The amount of land tax paid by the plaintiff over the four years was $244,486.87.
The issue for consideration was whether the plaintiff was entitled to a refund of this amount, given that the plaintiff had not objected to the assessments in question within time.
This issue required the Court to consider two sets of provisions in relation to the availability of a refund, one being section 90AA of the Land Tax Act 2005 (Vic) (LTA), and the other being Part 4 of the Taxation Administration Act 1997 (Vic) (TAA).
For the purposes of the issues in question, the two sets of provisions are practically the same, save for the following two provisions in section 19 of the TAA:
(2) An application for a refund cannot be made if the Commissioner has previously served a notice of assessment of the tax liability of the taxpayer in respect of the matter in respect of which the payment was made to the Commissioner.
(2A) Sub-section (2) does not apply to an application for a refund of tax paid or purportedly paid under the Land Tax Act 2005.
The Commissioner submitted that section 19(1) of the TAA was a mere machinery provision, and therefore ignored the entirety of section 19. Instead, the Commissioner submitted that section 90AA of the LTA took priority.
The Commissioner's case was that the existence of extant land tax assessments, and the plaintiff's failure to object to these, was a necessary bar to an application for a refund. This was because section 90AA of the LTA did not provide a mechanism enabling a conclusion that tax had been overpaid to be made in these circumstances.
Decision
The Victorian Supreme Court rejected the Commissioner's arguments and found that the plaintiff was entitled to a full refund under Part 4 of the TAA.
The Court considered that the provisions in Part 4 of the TAA were the "leading provisions" and took priority over section 90AA of the LTA. This was clear based on section 18(2) of the TAA, which emphasised the primacy of Part 4 of the TAA "over every other taxation law".
Critically, the Commissioner failed to deal at all with the purpose, and effect, of section 19(2) and section 19(2A) of the TAA. If the Commissioner's views were accepted, this would have the effect of rendering these provisions superfluous, which was plainly not the intention of Parliament.
The Court found that not only was there no provision in Part 4 of the TAA which denied a taxpayer the right to apply for a refund due to failing to object to an assessment, but section 19(2A) quite clearly provides that the existence of an extant land tax assessment is not a bar to making such an application.
The Court stated that, even if the Commissioner was correct, and section 90AA of the LTA took priority over Part 4 of the TAA, the amounts paid by the plaintiff under the assessments could nonetheless be regarded as having been overpaid and susceptible to a refund under section 90AA. This was the case notwithstanding the existing assessments and the plaintiff's failure to make an objection. The Court noted that the refund regime in section 90AA of the LTA was independent of, and an alternative to, the refund obligation upon a successful objection, which was dealt with separately under section 38(2) of the LTA.
In making its decision, the Court considered the High Court's recent decision in Commissioner of State Revenue v ACN 005 057 349 Pty Ltd [2017] HCA 6. This case concerned the appeal of a decision of the Victorian Supreme Court of Appeal, a summary of which is provided in an earlier Ashurst publication.
Amendments to absentee owner surcharge
The State Taxation Acts Further Amendment Bill 2017 (Vic) was introduced into Parliament on 31 October 2017. Among other things, it amends the absentee owner surcharge provisions in the Land Tax Act 2005 (Vic).
The proposed amendments provide an exemption to an absentee trust in particular circumstances. The effect of the exemption is that the absentee beneficiary will not be treated as an absentee beneficiary in relation to the trust. The result is that the trust that owns the land will not be considered an absentee trust, and therefore will be exempt from the absentee owner surcharge.
This exemption replicates the exemption already available for absentee corporations. It appears to be intended to apply to entities which conduct a commercial operation in Australia through a trust, and whose commercial activities make a strong and positive contribution to the Victorian economy and community, and where the absentee beneficiary has only minimal practical influence.
The Treasurer is required to issue guidelines for the exercise of this exemption.
The proposed amendments also introduce the concept of a "chain of trusts", which refers to trusts in which the beneficiary and/or trustee hold an interest in another trust in the chain. The amendments provide for the apportioning of the absentee owner surcharge in these circumstances to reflect the absentee beneficiary's ultimate interest.
For further information, please contact:
Geoffrey Mann, Partner, Ashurst
geoffrey.mann@ashurst.com
