Land and Environment Court New South Wales

• Medium Neutral Citation: Storage Equities Pty Ltd v Valuer-General [2013] NSWLEC 137
• Hearing dates: 14, 15 March 2013
• Decision date: 22 August 2013
• Jurisdiction: Class 3
• Before: Craig J

Decision

Orders as set out at [55]

• Catchwords: VALUATION - land value - heritage restricted land - s 14G of the Valuation of Land Act 1916 - use for the purpose of a self-storage facility - incidence of GST on sale of land - factors personal to parties to the sale transaction affect liability to GST - hypothetical sale for the purpose of s 6A(1) of the Valuation of Land Act - capital sum which the land is expected to realise on sale includes GST
• Legislation Cited: A New Tax System (Goods and Services Tax) Act 1999 (Cth); Land and Environment Court 1979 (NSW); Land Tax Assessment Act 1910 (Cth); Valuation of Land Act 1916 (NSW); Sydney Local Environmental Plan 2005
• Cases Cited: Babcock & Brown Properties Pty Ltd v Valuer-General [2005] NSWLEC 526; Commonwealth Custodial Services Ltd v Valuer-General [2007] NSWCA 365; 156 LGERA 186; Commonwealth Custodial Services Ltd as Trustee for the Burwood Trust Fund; Trust Company of Australia Ltd v Valuer-General [2006] NSWLEC 400; 148 LGERA 38; CSR Ltd v Hornsby Shire Council [2004] NSWSC 946; 57 ATR 201; DB Rreef Funds Management Ltd v Commissioner of Taxation [2005] FCA 509; 59 ATR 388; Federal Commissioner of Land Tax v Duncan [1915] HCA 12; 19 CLR 551House of Peace Pty Ltd v Bankstown City Council [2000] NSWCA 44; 48 NSWLR 498; Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; 199 CLR 413; Re Hornsby Shire Council v Commissioner of Taxation [2008] AATA 1060; 71 ATR 442; Royal Sydney Golf Club v Federal Commissioner of Taxation [1955] HCA 13; 91 CLR 610; Spencer v The Commonwealth of Australia [1907] HCA 82; 5 CLR 418; Tomago Aluminium Company Pty Limited v Valuer-General [2010] NSWLEC 4; Trust Co of Australia Ltd v Valuer-General [2007] NSWCA 181; 154 LGERA 437; Valuer-General v New South Wales Golf Club [2012] NSWCA 355; 192 LGERA 105; Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5; 233 CLR 259
• Texts Cited: Macquarie Dictionary (Online Edition)
• Category: Principal judgment
• Parties: Storage Equities Pty Limited (Applicant); Valuer-General (Respondent)
• Representation: R White (Applicant); M Carpenter (Respondent); Gadens Lawyers (Applicant); I V Knight, The Crown Solicitor's Office (Respondent)
• File Number(s): 30825 - 30830 of 2012

Judgment

1 Storage Equities Pty Limited (the Company) owns two commercial properties in the inner Sydney suburb of Ultimo. As is required of him under the Valuation of Land Act 1916 (the Valuation Act), each year the Valuer-General has determined the "land value" of those properties.

2 The Company objected to the land value determined by the Valuer-General in respect of each property at the base date of 1 July in the years 2009, 2010 and 2011. Being dissatisfied with the determination of those objections, the applicant appeals to this Court pursuant to s 37 of the Valuation Act. As a consequence the Court is empowered to determine the land value of the properties at each base date: s 40(1)(b).

3 The Valuer-General accepts that the land values determined by him in respect of each property and for each of the base dates that I have identified were too high and that the appeals filed by the Company should be allowed. However, the parties do not agree upon the land values to be determined by the Court in place of those determined by the Valuer-General. As will become apparent, the only point of difference between the parties is whether the land value should include goods and services tax (GST).

Background

4 Given the narrow issue between the parties, the description of the properties in question and their characteristics relevant to the determination of value can be shortly stated. They are matters upon which the expert valuers retained by the parties agree.

5 The properties in question are located at 14-18 William Henry Street, Ultimo (the William Henry Street Property) and 492-516 Jones Street, Ultimo (the Jones Street Property). A large warehouse-style building is erected on each property. Both buildings are (and were at each base date) used as a self-storage facility.

6 At each base date of 1 July, both properties were zoned Residential B under the Sydney Local Environmental Plan 2005 (the LEP). For land so zoned, development for the purpose of a self-storage facility is permissible with consent. Both buildings are listed as heritage items in Sch 9 to the LEP.

7 Following the objections made to the valuations initially notified to the Company, the Valuer-General determined land values for the William Henry Street Property in the following amounts:

1 July 2009 $5,750,000

1 July 2010 $5,195,000

1 July 2011 $5,185,000

The values determined for 2010 and 2011 were each reduced on objection from $5,750,000.

8 The Valuer-General determined the land values for the Jones Street Property as follows:

1 July 2009 $4,460,000

1 July 2010 $4,460,000

1 July 2011 $4,460,000

None of these values were reduced as a consequence of the objection lodged by the Company.

The valuer's agreed position

9 In case managing the present appeals, the parties were directed to prepare and exchange their valuation evidence. For this purpose the Company retained Mr D Blackwell while the Valuer-General retained Mr D Hill. Each of them prepared separate valuation reports that reflected valuations determined by reference to the analysis and application of comparable sales. There is a difference between the valuers in the land values reflected in their respective reports.

10 However, this position changed as a consequence of the joint conferencing held between them. They have produced a joint report for the purpose of the appeals pertaining to each of the two properties. In respect of the William Henry Street Property it is agreed that, if GST is excluded, the land value for each of the years in question is as follows:

1 July 2009 $3,400,000

1 July 2010 $3,215,000

1 July 2011 $3,215,000

If GST is included as a component of land value, the assessed land values are agreed to be:

1 July 2009 $3,740,000

1 July 2010 $3,536,500

1 July 2011 $3,536,500

11 For the Jones Street Property, the agreed land values, assuming exclusion of GST, are as follows:

1 July 2009 $2,751,000

1 July 2010 $2,625,000

1 July 2011 $2,625,000

12 If GST is correctly included as a component of land value, it is agreed that the land values are:

1 July 2009 $3,026,100

1 July 2010 $2,887,500

1 July 2011 $2,887,500

13 It will be seen that in each case, the difference in value expressed as a percentage is 10 per cent, being the rate at which GST is ordinarily imposed. Mr Blackwell contends that this component should be excluded while Mr Hill contends that it should be included. However, the agreed figures, even inclusive of GST, demonstrate why the Valuer-General has accepted that the land values that he initially determined are too high. As a consequence he agrees that the appeal should be allowed.

14 For reasons that follow, I have determined that the land value of each property for each base date should be that value which includes GST.

15 I was assisted on the hearing of this appeal by Acting Commissioner Parker (Land and Environment Court 1979, s 37(1)). His assistance is gratefully acknowledged.

The statutory provisions

16 In arriving at their agreed position, the expert valuers derived their land values by applying the provisions of ss 6A(1) and 14G of the Valuation Act. The provisions of the latter section were engaged because the Valuer-General accepted that at each base date both properties were "heritage restricted" by dint of their listing as heritage items under the provisions of the LEP: Valuation Act, s 14G(2). Both parties accepted that the valuers were correct in applying those provisions to their respective valuations.

17 Given the single issue to be determined in the present appeal, primary focus must be upon the provisions of s 6A(1) of the Valuation Act. The provisions of s 14G do not negate the assumption required to be made by s 6A(1) in the determination of "land value": Commonwealth Custodial Services Ltd v Valuer-General [2007] NSWCA 365; 156 LGERA 186 at [111]). Section 6A(1) provides:

"(1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made."

18 Notwithstanding the primary focus upon s 6A(1) for the purpose of determining the issue raised for determination, it is necessary to notice the provisions of s 14G(1). As will become apparent, the premise upon which land value is required to be determined in accordance with that subsection has a bearing upon the submission advanced by the Company as to why land value should exclude GST. Section 14G(1) provides:

"14G Valuation subject to heritage restrictions under EPI

(1) Land that is heritage restricted on the date by reference to which its land value is to be determined is to have its land value determined on the basis of the following assumptions:

(a) that the land may be used only for the purpose, if any, for which it was used when the value is determined,

(b) that all improvements on that land when the value is determined may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued,

(b1) that all improvements referred to in paragraph (b) on that land are new (without any deduction being made because of their actual condition),

(c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land,

(d) that the cost of construction of improvements on that land has no effect on its land value, with the result that there is to be no reduction in land value because of any difference between the cost of construction of the improvements referred to in paragraph (b) as new improvements and the cost of construction of other improvements used as a basis for comparison in the determination of land value."

19 Each of the expert valuers arrived at the land value expressed in their respective reports by applying the assumptions referred to in s 14G(1). Each of them assumed that the land was to be valued on the basis that its only use was for the purpose of a self-storage facility to be conducted in a building identical to that presently erected on each property and hypothetically replaced on the land at each base date. However, it is the business nature of a self-storage facility that bears upon the argument advanced by the Company.

20 GST is a tax imposed by A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act). For the purpose of determining the present issue between the parties, nothing turns upon the precise wording of any particular provision of the GST Act. Rather, it is the general operation of the Act determining a liability for payment of GST in the context of any particular transaction that is relevant to be considered. As the Company submitted, the operation of the GST Act was usefully summarised by Sackville J in DB Rreef Funds Management Ltd v Commissioner of Taxation [2005] FCA 509; 59 ATR 388. His Honour's summary of the legislation in that case is not disputed by the Valuer-General and is sufficient for present purposes. I respectfully embrace his Honour's summary commencing at [22] as follows:

"22. GST is payable, relevantly, on 'taxable supplies'; ss 7-1(1). A person must pay the GST on any taxable supply made by that person: s 9-40. Entitlements to input tax credits arise on 'creditable acquisitions': s 7-1(2).

23. Amounts of GST and amounts of input tax credits are set off against each other to produce a net amount for a tax period: s 7-5. Every entity that is registered, or required to be registered, has tax periods applying to it: ss 7-10, 23-5. The tax periods may be quarterly or monthly, depending on the circumstances: ss 27-5, 27-10, 27-15. The net amount for a tax period is the amount that the entity must pay to the Commonwealth, or the Commonwealth to the entity, in respect of the period: s 7-15.

24. A registered person makes a taxable supply if he or she makes the supply for consideration and the supply is made in the course of an enterprise that is carried on: s 9-5. However, the supply is not a taxable supply to the extent that it is GST-free: s 9-5. A supply is 'GST-free' if, inter alia, it is GST-free under a provision of another Act: s 9-30(1). This of course includes the GST Transition Act.

25. The term 'supply' includes a grant of an interest in real property: s 9-10(d). The amount of GST on a taxable supply is 10 per cent of the value of the taxable supply: ss 9-70, 9-75. Section 9-75 specifies a formula for calculating the value of a taxable supply. The formula requires the gross price payable on the supply (without any discount for GST payable on the supply) to be multiplied by 10/11. The product of this formula plus 10 per cent of the amount so derived, equals the price.

26. A person is entitled to the input tax credit for any 'creditable acquisition' he or she makes: s 11-20. Generally speaking, the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired: s 11-25.

27. A registered person makes a 'creditable acquisition' if that person acquires anything for a 'creditable purpose', the supply of the thing to the person is a taxable supply, and the person provides consideration for the supply: s 11-5. An 'acquisition' is defined to mean any form of acquisition and includes the acceptance of a grant of an interest in real property: s 11-10(1), (2)(d). Subject to certain exceptions, a thing is acquired for a 'creditable purpose' to the extent that it is acquired in carrying on an enterprise: s 11-15(1). Thus a person acquiring something for consumption does not acquire it for a creditable purpose."

21 In his valuation report, Mr Hill refers to the Policy issued by the Valuer-General on 21 September 2010 relating to GST. Notwithstanding reference to the Policy, Mr Hill maintained, in oral evidence, his opinion that, independent of the Policy, land value should be determined inclusive of GST. However, as the existence of the Policy was criticised by the applicant, it is relevant to note some of its terms. The Policy relevantly states:

"The Valuer General issues valuations for rating and taxing, compulsory acquisition and other purposes.

The Goods and Services Tax (GST) commenced on 1st July 2000; in some circumstances it can be liable [sic] on the sale of real estate and is payable by the vendor.

Valuation Assumptions

A market price is a sale negotiated between willing and not anxious parties; a vendor will accept a price for real estate which is dictated by the market; conversely a purchaser will pay the price indicated in the marketplace.

When applicable GST is part of the price of supply, the market adjusts for this factor which is reflected in the price. In other words lands which attract Goods and Services Tax will sell or be bought at a consideration which incorporates GST in the price. Therefore the market can be taken to have been informed about the operation of GST and to have reflected its influence on market behaviour.

...

The market price will be that amount paid by the purchaser to obtain possession of the real estate. If in addition to the sale price there is agreement for the whole or part of GST to be paid by the purchaser then that amount in addition to the sale price will form the market price."

 

The Policy concludes by indicating that statutory valuations and valuation reports prepared on behalf of the Valuer-General will be inclusive of GST "which has formed part of the purchase price."

The test of land value

22 Fundamentally, the test of 'land value' must focus upon the words of s 6A(1) of the Valuation Act. I will return to consider the critical part of the subsection in due course.

23 Both parties accept that in determining the "value of land", the relevant principles to be applied are those articulated in the judgment of the High Court in Spencer v The Commonwealth of Australia [1907] HCA 82; 5 CLR 418. The principles there articulated have been accepted as relevant to the application of s 6A(1): Commonwealth Custodial Services Ltd as Trustee for the Burwood Trust Fund; Trust Company of Australia Ltd v Valuer-General [2006] NSWLEC 400; 148 LGERA 38 at [13]. The Company placed particular reliance upon the judgment of Sir Samuel Griffith in Spencer where the Chief Justice said (at 432):

 

"In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e. whether there was in fact on that day a willing buyer, but by inquiring "What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?" 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."

24 Reliance is also placed upon a passage from the judgment of Isaacs J in Spencer, that passage being cited with approval by McHugh J in Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; 199 CLR 413. In the latter case McHugh J said at [49] - [50] (omitting citation of authority):

"49. Value is determined by forming an opinion as to what a willing purchaser will pay and a not unwilling vendor will receive for the property. In determining that value, there must be attributed to the parties a knowledge of all matters that affect its value. Those matters will include the predicted impact of future events as well as the experience of the past and the rates of return on other investments. As Isaacs J pointed out in Spencer v The Commonwealth:

"We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property." (emphasis added.)

50. The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property."

That passage from the judgment of McHugh J was, in turn, adopted by the High Court in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5; 233 CLR 259 at [51].

25 Having identified the principles that inform the determination of the value of land, the Company contends that a sale price of land inclusive of GST does not represent or afford evidence of the value of land to the vendor. It submits that this is so because the GST component of the sale price is received by the vendor as the holder of the tax to be remitted to the Australian Tax Office. Underlying the submission is the general hypothesis that a vendor will be liable to pay GST and as a consequence that liability will be reflected in the price at which the vendor is willing to sell the land. For the purpose of the submission, emphasis is upon the amount which the vendor would receive from the proceeds of sale once the liability or GST is paid. Thus, so it is submitted, the "value" of the land is evidenced by the price received, net of GST.

26 Applying the provisions of the GST Act, as earlier summarised, to the principles articulated in Spencer, the Company submits that the following principles can be established:

(i) assuming that the vendor of a property is registered for GST, that vendor is liable to pay that tax on all taxable supplies it makes in the course of business, including the sale of real property which constitutes a taxable supply (if not sold as a going concern);

(ii) as the vendor is only the collector of GST on behalf of the Australian Taxation Office, the GST component of the sale price does not represent value to the vendor;

(iii) on the assumption that the purchaser is also registered for GST, the purchase of the property is a "creditable acquisition" entitling the purchaser to an input tax credit with the result that the purchase price is "not a cost to the purchaser and does not therefore represent what the purchaser has to pay for the property, applying the test in Spencer's case" (Company's written submissions at [35]).

27 Apart from the application of the Spencer principles to the consideration of GST as a component of a sale price, the Company relies upon the evidence of its experts. Mr Blackwell, the Company's expert valuer, states that when negotiating the sale of property, particularly commercial property, the parties to transactions are conscious of the incidence of GST upon their transaction. From a valuation perspective, it is usual for him, as a valuer, to "interrogate" sales transactions used as comparables for the purpose of valuation, in order to determine whether there was a GST component in the price paid. This interrogation often involves making inquiries of at least one of the parties to the transaction.

28 Mr Blackwell stated that the need for interrogation of parties to a transaction arises by reason of the observations of Isaacs J in Spencer, as it forms part of the information about which vendor and purchaser are assumed to be "perfectly acquainted" (Spencer at 441). If GST is a liability that the vendor must bear then, so he contends, the quantum of that liability should be deducted so as to determine the sum "realised" by the vendor "at the end of the transaction". In oral evidence, Mr Blackwell said (Tcpt 19: 18-20):

"Basically what I can bank or what I can take home. I apply that as just a very pragmatic and simple definition of what realised may mean to me."

29 That evidence succinctly summarises the approach of Mr Blackwell that is more fully explained in Section 5 of each of his expert reports received into evidence (Exhibit A: Tabs 8 and 18). As those reports indicate, Mr Blackwell's experience with parties to transactions for the sale and purchase of self-storage facilities reveals that both vendor and purchaser take account of the GST payable by the vendor and the input tax credit received by the purchaser in negotiating the price paid for the transaction. This has the consequence, so he opines, that the "value" of the land reflected in that transaction does not include GST. It reflects neither the net amount received by the vendor nor the net liability of the purchaser in paying the price nominated in the contract for sale.

30 Mr Blackwell further contends that by reason of the assumptions required to be made in accordance with s 14G(1) of the Valuation Act, the hypothetical sale transaction for the purpose of determining land value must be between parties selling and buying a self-storage facility which is a business enterprise. His experience has been that parties to transactions of that kind have always been registered for GST, thereby reinforcing the need to determine the land value net of any GST component. All of the comparable sales agreed between Mr Blackwell and Mr Hill as applicable to determine the land value of the properties had involved parties that were GST registered. However, it was acknowledged by Mr Blackwell that of the seven transactions considered for direct comparison, two had involved the sale of self-storage facilities as a going concern, with the consequence that no GST was payable.

31 In cross-examination, the standard form of contract for sale used for real estate transactions in this State was shown to Mr Blackwell. The standard provisions of the contract that address GST, assuming that a liability for GST is acknowledged, require an indication as to whether GST is payable in full and, if not, the extent of liability for that tax. While not professing expertise as to the form of contract, Mr Blackwell acknowledged the provision and the possibility that the extent of liability for GST may be less than 10 percent. As a consequence, when addressing comparable sales, it would be necessary to interrogate the parties to determine the extent of GST liability. He further stated that when addressing a comparable sale, the appropriate question to ask was whether the full 10 percent was payable by the vendor.

32 Mr T Windle is a partner in a national firm of chartered accountants. He presently heads his firm's "national indirect tax practice" with a number of years experience in the operation of the GST Act. He was called on behalf of the Company.

33 The comparable expert called by the Valuer-General was Mr C Lockhart. Mr Lockhart is a practising solicitor who specialises in property transactions, particularly those involving the sale and purchase of land for commercial purposes. In so doing, Mr Lockhart frequently advises upon the preparation of special conditions for, and the incidence of, GST that may be payable on such transactions.

34 The purpose of the evidence given by Mr Windle and Mr Lockhart was to explain the operation of the GST Act upon real estate transactions. They acknowledged that the GST Act contained definitions of both "price" and "value". The value of a supply for the purpose of the GST Act does not include GST: s 9-70 GST Act.

35 As might be expected in evidence explaining the operation of the GST Act as it applied to real estate transactions, the area of disagreement between Mr Windle and Mr Lockhart was narrow, at least as relevant to the issue to be decided in the present appeals. The areas of both agreement and disagreement between them are usefully summarised in a joint report (Exhibit C). By reference to that joint report, it is sufficient for present purposes to notice two matters of agreement. First, they acknowledge that there may be sales of real estate where the GST component of the price (assuming that the vendor is making a taxable supply) is an actual cost to the purchaser because the purchaser, having no obligation to be registered under the GST Act receives no input tax credit. GST may also become a cost under what is described as the margin scheme provided for in the GST Act.

36 In their agreed position reflected in Exhibit C, the experts also provided examples of circumstances in which there would be no GST payable by the vendor on the price received for the sale of land. Those examples include:

(i) a sale by a vendor carrying on an "enterprise" but not required to register for GST because the turnover of the enterprise does not exceed $75,000 (for most entities) or, in the case of charities, does not exceed $150,000, and

(ii) a sale of real estate as part of a going concern.

37 For these reasons, they acknowledge that the identity of the supplier or vendor, is relevant to determine the obligation of the vendor to be registered for GST purposes and the liability of that vendor in a given transaction.

38 The one matter upon which Mr Windle and Mr Lockhart disagreed was as to the "convention" in preparing contracts for sale in differentiating between the "price" and the component for GST. It was the experience of Mr Windle who, although residing and practising in Queensland, claimed considerable experience in advising upon New South Wales real estate transactions potentially involving a GST liability, that the price identified in the contract is expressed to be GST exclusive, with special conditions inserted for the "grossing-up" for GST, requiring an additional payment by the purchaser to the vendor commensurate with that tax. Mr Lockhart indicated, from his experience, that if the sale involves a taxable supply, the price stated on the contract is expressed to be inclusive of GST, leaving standard Condition 13 in the standard form of contract for the sale of land in this State as "pro-forma or replaced and modified by a Special Condition that provides for alternatives if the sale should not be a taxable supply."

39 It is unnecessary to resolve the disagreement as to "the convention". I have no reason to disbelieve either expert and I accept that the manner described by each of them for addressing the sale of land involving a taxable supply will be reflected in a given transaction, depending upon the advice given to and accepted by the parties to that transaction. Whichever course is taken does not, to my mind, bear upon the "land value" to be determined conformably with s 6A(1) of the Valuation Act.

GST should not be excluded when determining land value

40 Critical to the submission of the Company is the contention that a GST component, if any, of the price received from a property transaction is to be removed in order to determine or provide evidence of the "value" of the land sold. According to the submission, that is a consequence of the need to determine "value" as being the "capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require" conformably with s 6A(1) of the Valuation Act. The emphasis in the submission is upon reference to the sum which the land might be expected "to realise" on sale. The Company contends that the sum "realised" is the net amount received by the vendor. As Mr Blackwell expressed his understanding of the verb "to realise", it would require determination of that sum which the vendor "could bank" on completion of the transaction.

41 I do not accept this submission. The phrase "to realise", when read in context of the statutory expression found in s 6A(1), should not be given the restricted meaning which the Company attributes to it. The verb "realise" is defined in the Macquarie Dictionary (Online Edition) as meaning "to convert into cash or money". I consider that to be an appropriate meaning of the verb as used in the subsection (cf House of Peace Pty Ltd v Bankstown City Council [2000] NSWCA 44; 48 NSWLR 498 at [25]-[29]). It would appear to reflect the intended purpose of the subsection. So understood, the determination of value is to be made as if the land was converted to cash or money by reason of the hypothetical sale contemplated by the section. The land, so converted, necessarily reflects that sum of money that secures the entitlement of the purchaser to a transfer of title. The amount paid by the purchaser is the sum "realised" by the vendor on the transaction regardless of any component of that sum that the vendor may be liable to pay as a consequence of receiving it.

42 Such an approach is consistent with authority. The relevant phrase defining land value has been included in taxing statutes for many years. The phrase as used in s 17 of the Land Tax Assessment Act 1910 (Cth) (now repealed) was considered by the High Court in Federal Commissioner of Land Tax v Duncan [1915] HCA 12; 19 CLR 551. The decision in that case was delivered after the judgment in Spencer. When considering the relevant phrase, Sir Samuel Griffith said (at 553):

"The underlying idea is that the land is to be treated as converted into money as on the day as of which the assessment is made, so that a realized capital sum takes the place of the land. That, of course, assumes a hypothetical purchaser. It does not mean that you are to inquire whether there was at that time a purchaser in existence who would have been willing to buy the particular parcel of land. That was pointed out in Spencer v The Commonwealth, which was a case of land resumed by the Commonwealth from a private owner under the Lands Acquisition Act 1906, under which compensation equal to the value of the land taken is to be paid to the owner."

43 Observations to similar effect were made in the same case by Isaacs J. His Honour said (at 559):

"The land is, by hypothesis, to be transformed into its fair equivalent in money."

44 Further, I do not regard the statutory phrase as requiring that the sum realised on sale to be construed only from the perspective of the "seller" or vendor. The requirement of the provision is to consider a sale negotiated between vendor and purchaser according to the Spencer test. Application of the statutory provision in that way is consistent with the observations of Isaacs J in Duncan where his Honour said (at 558-559):

"In my opinion, so far as the test is concerned, the question is what could the vendor expect to get by realizing the land on terms not unduly restricted - "such reasonable terms as a bona fide seller would require", as the section says; expanded that means the best terms a seller can get having regard to what an ordinary prudent purchaser would look upon as not unreasonable from his own standpoint, and therefore as not loading, so to speak, the ordinary business considerations which a purchaser would take into account in agreeing to a price for the land. In other words, it means business terms from both standpoints, and the Act assumes the seller will not sacrifice his own interest, or insist on the purchaser sacrificing his. The land is, by hypothesis, to be transformed into its fair equivalent in money."

45 I have earlier recorded the significance of the identity and tax status for GST purpose of the parties to any given transaction in order to determine the liability, if any, to GST. In a transaction involving a purchaser who is not registered for GST, that purchaser derives no 'benefit' or credit for whatever component of the purchase price may be sought by the vendor to account for a GST liability. The price agreed, so far as the purchaser is concerned, is that amount which must be paid in order to obtain a transfer of title. That amount is the purchaser's 'net liability' and is evidence of the land's value to that purchaser. Yet, if the argument of the Company is correct, the price received by the vendor in that same transaction must have deducted from it the amount of the vendor's GST liability in order to determine "value" in the hands of the vendor. As a consequence, there is one 'value' from the perspective of the vendor and a different 'value' from the perspective of the purchaser. Such a consequence is not consistent with the text or context of s 6A(1) of the Valuation Act. Unity of "value" is only achieved if the capital sum realised is the sum required to be paid by the purchaser to the vendor to secure a transfer of title.

46 As I have earlier recorded, Mr Windle and Mr Lockhart also agreed that although both parties to a sale transaction are registered for GST, there may be no liability to pay any GST or the quantum of GST payable may not equate to a rate of 10 percent. The fact that there may be no GST payable when a sale involves a going concern or that some amount less than 10 percent may be payable, depending on the identity of the vendor, speaks against the submission of the Company. The hypothetical sale to be assumed for the purpose of s 6A(1) is not a sale by the person or entity who happens to own the land on the date upon which the value is to be assessed nor does it require an assumption that the vendor will necessarily have any of the characteristics that attract a liability for GST.

47 Properly applying the provisions of s 6A(1) of the Valuation Act the land must be assumed to be devoid of improvements for the purpose of determining its value (Trust Co of Australia Ltd v Valuer-General [2007] NSWCA 181; 154 LGERA 437 at [33]; Commonwealth Custodial Services Ltd v Valuer-General at [111]). Applying the assumptions required by s 14G to the land in the present case, it is to be assumed that its use is restricted to that of self-storage in a building taking the form of the building presently erected on the land. However, that assumption does not detract from the proposition that the identity of the hypothetical vendor is irrelevant. Given the fact that the identity of the vendor is critical to the determination of a liability for GST, no assumption can be made that every hypothetical vendor will, for the purpose of applying s 6A(1), not receive the "full benefit" of the purchase price paid for the land.

48 In the result, the land value is that amount expected to be received on the sale of that land, including any GST which the vendor may be liable to pay. It follows that in determining value by reference to comparable sale transactions, no adjustment should be made to those transactions on account of any GST liability of the vendor.

49 There is nothing unusual in reaching such a conclusion. The artificiality of the exercise to be undertaken to give effect to s 6A(1) is well recognised (cf Commonwealth Custodial Services Ltd v Valuer-General at [119]). Considerations that might apply to the value of land for other purposes do not necessarily apply when determining land value in accordance with the provisions of s 6A(1) (see, for example, Royal Sydney Golf Club v Federal Commissioner of Taxation [1955] HCA 13; 91 CLR 610 at 623; Valuer-General v New South Wales Golf Club [2012] NSWCA 355; 192 LGERA 105 at [34]).

50 The conclusion that I have expressed is consistent with two recent cases that have considered the implications of GST when determining the value of land. In CSR Ltd v Hornsby Shire Council [2004] NSWSC 946; 57 ATR 201, Gzell J was required to determine whether the defendant Council was entitled to deduct GST from the amount of compensation required to be paid to the plaintiff following the compulsory acquisition of the plaintiff's land. The plaintiff had pleaded an entitlement to be paid the gross sum assessed for compensation. One of the grounds upon which the Council denied such an entitlement was that the Company would be unjustly enriched if it received the entire compensation and not obliged to pay GST. His Honour rejected that claim as not engaging the principles of unjust enrichment. Having made that determination, his Honour continued:

"15. In view of this finding, it is unnecessary for me to determine whether there was a separate GST component in the determination of market value. In my view there was not. As the Valuer-General said, the market place has adjusted to the imposition of GST and imbedded it in the market value of land. The test of the price that a willing purchaser would have had to pay to a vendor not unwilling, but not anxious to sell in Spencer v The Commonwealth (citation omitted) has been enshrined in the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), s 56(1). If the vendor must pay GST on the consideration for sale, that impost will be included in the price the purchaser would have to pay. Thus the market value of the land was $25,000,000 and not $22,700,000 plus GST.

16. In Pebruk Nominees Pty Ltd v Woolworths (Victoria) Pty Ltd [citation omitted], Blow J in contrasting the Australian GST system with comparable systems overseas said that the Australian GST was in the same category as British VAT and New Zealand GST. In effect, it provided that the price paid by a consumer comprised two components - the value of a taxable supply, and the GST on that taxable supply. I regard that passage as but a description of the structure of the impost and not authority for the proposition that market value is less than the GST inclusive price paid for a supply in the open market. If his Honour did intend to state that conclusion then, with respect, I disagree. If the market commands a payment of $550 to purchase a video recorder at $500 plus $50 GST, I am of the view that the market value of the video recorder is $550."

51 That decision was cited and followed by Pepper J in Tomago Aluminium Company Pty Limited v Valuer-General [2010] NSWLEC 4. Her Honour was there required to determine an appeal brought under s 37 of the Valuation Act. The appellant contended that the land value determined by the Valuer-General for its land was too high. That contention was not accepted by her Honour, having regard to the proper analysis of the comparable sales upon which the appellant relied. However, one of the arguments advanced by the appellant was that the land value should be determined as a sum that did not include a GST component. After citing the decision of Gzell J in CSR Ltd, her Honour said (at [60]):

"60. Given my findings concerning the indirect comparability of the sales evidence, the resolution of whether GST ought to be a separate component in a determination of market value is sufficiently immaterial as to be unnecessary. If it were necessary to decide, however, in my view, it is not. As the respondent submitted, and as Mr St Leon conceded in cross-examination in relation to at least one of the comparable sale sites (the Hexham site), the price inclusive of GST is the consideration for sale which a willing purchaser would have to pay a vendor not unwilling but not anxious to sell. It therefore logically forms part of the market price of the land and so becomes evidence of its value."

52 Although the observations made in the two cases that I have cited as to the relevance of GST when assessing land value are obiter, for the reasons that I have earlier indicated I respectfully regard them as correct. For completeness, it should be noted that in Babcock & Brown Properties Pty Ltd v The Valuer-General [2005] NSWLEC 526 Commissioner Nott ruled (at [21]) that GST payable on the purchase of a comparable property when used in the direct comparison method of valuation should not be included in the land value of that property. No reasons are given for that conclusion or ruling although it does seem that it was accepted without argument. In the absence of any reasons for that ruling, there is no reason to further address it.

53 The Company challenged the correctness of the decisions to which I have referred. For reasons that I have given, I do not agree in that submission. Support was said to be found for the challenge in the decision by the Administrative Appeals Tribunal in Re Hornsby Shire Council v Federal Commissioner of Taxation [2008] AATA 1060; 71 ATR 442. That decision was a sequel to the decision earlier cited in CSR Limited v Hornsby Shire Council. The Administrative Appeals Tribunal determined that the Council, having paid compensation to CSR, was entitled to an input tax credit for the amount of GST on the amount of compensation paid. However, the determination in that case was dependent upon the application of terms and expressions used or defined in the GST Act. No determination was made or could be made as to the relevance of a GST component when determining land value in accordance with s 6A(1) of the Valuation Act. As a consequence, I see no support in that decision for the Company's submission.

54 For these reasons I determine that the land value at each base date and for each of the William Henry Street Property and the Jones Street Property is that value agreed between the valuers which includes GST. Expressed in the language of s 6A(1) of the Valuation Act, the capital sum that each parcel of land is expected to realise on sale includes GST.

55 Accordingly, the orders that I make are as follows:

(1) In proceedings 12/30825:

1. Appeal allowed.

2. Determine the land value of the land situated at 14-18 William Henry Street, Ultimo as at base date 1 July 2009 to be $3,740,000.

3. Exhibits may be returned.

(2) In proceedings 12/30826:

1. Appeal allowed.

2. Determine the land value of the land situated at 14-18 William Henry Street, Ultimo as at base date 1 July 2010 to be the sum of $3,536,500.

3. Exhibits may be returned.

(3) In proceedings 12/30827:

1. Appeal allowed.

2. Determine the land value of the land situated at 14-18 William Henry Street, Ultimo as at base date 1 July 2011 to be the sum of $3,536,500.

3. Exhibits may be returned.

(4) In proceedings 12/30828:

1. Appeal allowed.

2. Determine the land value of the land situated at 492-516 Jones Street, Ultimo as at base date 1 July 2009 to be the sum of $3,026,100.

3. Exhibits may be returned.

(5) In proceedings 12/30829:

1. Appeal allowed.

2. Determine the land value of the land situated at 492-516 Jones Street, Ultimo as at base date 1 July 2010 to be the sum of $2,887,500.

3. Exhibits may be returned.

(6) In proceedings 12/30830:

1. Appeal allowed.

2. Determine the land value of the land situated at 492-516 Jones Street, Ultimo as at base date 1 July 2011 to be the sum of $2,887,500.

3. Exhibits may be returned.

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Amendments

28 February 2014 - Inserted correct quotation - 'acquainted with the land and cognisant of all'
Amended paragraphs: 24

27 March 2014 - Typographical error in quote - deleted "of Australia" in "Spencer v The Commonwealth of Australia"Typographical error in quote - deleted "acquainted with the land, and cognisant of all"
Amended paragraphs: 24

Decision last updated: 27 March 2014