As discussed in this Land Tax Series, land tax is a state and territory tax levied on the total taxable value of land held by taxpayers in particular jurisdictions. Land tax is assessed on a calendar year basis on the land you own at midnight on 31 December. For example, land you hold on 31 December 2021 will be used to calculate your land tax liability for 2022. Land tax assessments are generally issued between January and May.

Who determines land value for land tax purposes?

In Victoria, section 21(1)(a) of the Land Tax Act 2005 (LTA) provides that, for the purposes of assessing land tax, the Commissioner may use “valuations made by a valuation authority”. For the 2019 land tax years onwards, valuations of land have been conducted annually by the Valuer-General. Previously, valuations were undertaken by local councils every second year. The Valuer-General’s valuations are guided by the Valuation of Land Act 1960 (VLA).

The valuations used for land tax purposes are the ‘site value’ of the land. ‘Site value’ references the value of the land without improvements. It assumes that the land is vacant and therefore does not include the value of buildings affixed to the land. The VLA defines ‘site value’ at section 1 as follows:

… the sum which the land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might in ordinary circumstances be expected to realise at the time of the valuation if offered for sale on such reasonable terms and conditions as a genuine seller might be expected to require, and assuming that the improvements (if any) had not been made;

The site value is determined at 1 January of the previous year and must consider every circumstance affecting the land at that date. Your 2022 land tax assessment will therefore be based on a value of your property at 1 January 2021. Once the site value is determined, the relevant land tax rate is applied to your landholdings, excluding any exempt land you hold such as your home.

What valuation methodologies should be adopted in determining land values for land tax purposes?

The appropriate valuation methodology to be adopted for land tax purposes have been the subject of litigation in recent years. The general position taken by courts is that the land (and not the buildings) should be valued in accordance with their highest and best use which requires consideration of several issues and in particular the relevant zoning of the land.

In the NSW case of Peter Sleiman Property Investments Pty Ltd and Anor v Valuer-General of New South Wales (No 2) [2021] NSWLEC 47 (Sleiman Case), the applicants contested the valuation applied to a parcel of land by the NSW Valuer General. The relevant land was used to operate a service station. The Valuer-General had valued the Land at $5,365,000 and $6,200,000 on 1 July 2016 and 1 July 2017 (relevant times). The applicants contended that the land should have been valued at $1,150,000 and $920,000 at the relevant times.

The NSW Valuer General is guided by a similar providing to section 1 of the VLA, in the NSW legislation contained in section 6A of the Valuation of Land Act 1916. The Court confirmed that section 6A requires a valuation of land based on a ‘notional sale, whereby the Land is being hypothetically purchased for its highest and best use.’

In interpreting the concept of ‘highest and best use,’ the Court adopted the definition provided in Olefines Pty Ltd v Valuer-General of New South Wales [2018] NSWCA 265 which equated the ‘highest and best use’ for land with:

‘the most financially rewarding use permitted within the boundaries of applicable legal regulation.’ 

The applicants in the Sleiman Case had submitted that the costs of redeveloping the land and fixing any potential contamination from the service station meant the highest and best use of the land was the service station. However, the Court concluded that contamination risks (and associated remediation costs) were minimal and should not be a significant factor.

The Court held that the land should have been valued at $4,883,000 and $5,165,000. The Court determined this in consideration of the highest and best use of the land and noted that due to zoning it had the potential for mixed-use development.

The Court further stated that where comparable sales are available then a direct comparison method should be adopted. However, in the absence of comparable sales other valuation methods could be used. In discussing appropriate valuation methods, the Court accepted the Valuer General’s criticism of a hypothetical development approach. Therefore, in circumstances where comparable sales are not available there remains some uncertainty as to the appropriate valuation approach.

Why has my land tax liability increased this year?

Land tax liabilities will increase as a result of an increase in the land valuations attributed to land. However, land tax liabilities may also increase as a result of:

• the taxable value of your property exceeding the land tax threshold, being $250,000 (or $25,000 for trusts);

• you acquire an additional property or properties which in turn increase the total taxable value of your land above the land tax threshold; or

• an exemption that applied to one or multiple properties is removed. For example, you hold land that is exempt on the basis that it is used for primary production, however, the State Revenue Office (SRO) determines that the exemption no longer applies. This exemption has been the subject of significant litigation in recent times and in the following parts of this series we will discuss the primary production exemption as well as other exemptions.

Can I object to my land tax assessment?

Yes. Any person dissatisfied with their land tax assessment issued by the Commissioner may object to that assessment pursuant to section 24A of the LTA.

After receiving your land tax assessment carefully check the assessment to confirm the land area is correct, appropriate exemptions have been applied and land you hold on trust is not included. Land tax assessments can be objected to for several reasons which include:  

• factor changes, for example removing land that you do not own or adding land you do own; or

• the legal basis for the assessment, for example if you believe you qualify for one of the exemptions from land tax (such as the principal place of residence or the primary production exemptions).

You have 60 days from receiving your land tax assessments to lodge an objection. If you’re outside of the 60-day timeframe, you can make an application to the SRO requesting that the Commissioner grant you with an extension to lodge an out of time objection. This is a discretionary power of the Commissioner’s and he may reject the application if sufficient reasons for the extension are not provided.

If your land tax assessment contains incorrect data, for example, it includes land you do not own, exemptions have not been applied or have been applied incorrectly, you should contact, and make appropriate disclosures, or applications, to the SRO. Where an exemption has been incorrectly applied, for example, the principal place of residence exemption, penalties may be imposed where you do not notify the SRO of the error.

Should I object to the land site values?

If you would like to object to the land site values contained in your land tax assessment you will need to consider whether the values identified are reasonable. Some initial factors to consider may include:

• Seeking an independent market valuations or appraisal for the unimproved land as at 31 December the prior year.  

• Considering historical council rates notices to compare the Capital Improved Value (CIV) and Site Values of your land in prior years to determine if the change in values is in line with the market movements.

• Comparing the sale price of similar properties in your local market that have been sold on or about the valuation date and comparing this to the CIV and underlying Site Value identified for your land. An example of a free resource for this is www.oldlistings.com.au.

How we can help?

The process of objecting to your land tax assessment and/or land site values can be confusing. Our team can help you understand your land tax assessments in assessing whether it is correct, if you qualify for any exemptions and to understand what you need to lodge a valuation objection.

For further details contact our specialist team:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au