Appellants v Respondent

1 These four appeals all relate to the assessment of land tax in respect of land owned by the appellant taxpayers at 199 Toorak Road, South Yarra[1].

2 The impugned land tax assessments were issued by the respondent Commissioner on 22 March 2002 and 7 March 2003, respectively. Three of the appeals concern the 2002 assessments, namely a joint assessment issued to both taxpayers[2], a separate assessment issued to Vincent Lamanna[3], and a separate assessment issued to Gregory Lamanna[4]. The fourth appeal concerns a 2003 joint assessment issued to both taxpayers[5]. All four appeals rely on substantially the same facts and raise common questions for determination.

3 At the relevant times, there were nine shops on the ground floor and an office on each of the first to third floors of the building on the land. Each of the shops and offices was separately leased to a different tenant, but the land was not subdivided into separate titles. For the purposes of the Land Tax Act 1958 ("the Act"), the entire building constitutes an improvement upon the land.

4 The taxpayers contend that all of the assessments are wrong because the assessment notices imposed land tax on the improved rather than the unimproved value of the land, contrary to s.8(1) of the Act. They argue that the assessed amounts are excessive and should be reduced.

5 As a preliminary issue, the Commissioner argues that this court has no jurisdiction in relation to any of these objections, because the taxpayers' cases relate to "the amount at which the unimproved value of the land has been assessed"[6]. The taxpayers deny that and assert that these disputes concern the "authority to impose tax" or the procedure for assessment, rather than "the amount" of the assessment.

6 In relation to the substantive question of whether the assessments have imposed land tax by reference to the improved or unimproved value of the land, the Commissioner accepts that on their face the assessment notices appear to have calculated land tax based on improvements. However, the Commissioner contends that the court should have regard to extrinsic evidence - namely, the affidavit of Karl Cundall, who valued the land - in order to clarify that the tax liability imposed on the taxpayers was in fact correctly based on the unimproved value of the land.

7 The taxpayers argue that the court is limited to considering the assessment notice itself and that the extrinsic evidence is "irrelevant" and inadmissible.

The assessments

8 It is common ground that in each case the assessment notice comprised both the blue front page headed "land tax assessment notice" and all pages attached thereto.

9 The front page informs the taxpayer of the amounts of tax payable (either by instalments or a single payment) and the due date(s) for payment.

10 Attached to the front page is a page headed "summary of assessment details" which outlines the calculation of land tax payable by reference to total unimproved value. In the joint 2002 assessment, the summary shows the total unimproved value as $3,396,000. In the joint 2003 assessment, the total unimproved value is shown as $4,007,280. The tax calculations on those values are then shown. The taxpayers concede that had the document ended there, no objection could have been taken to the assessments.

11 Beneath the "summary of assessment details" is a section headed "statement of lands owned as at [the relevant time]". In all four assessment notices, the "statement of lands owned" lists the site value and unimproved value, the definitions of which will be further discussed shortly, for each of the nine shops and three offices in the building. The sum of all individual unimproved values equals the total unimproved value shown at the top of the first page of the attachment. In other words, each assessment notice appears on its face to have had regard to the value of improvements, namely the 12 occupancies, not the site.

12 The taxpayers only attack the assessment notices in so far as they refer to the first to third floors ("the top floors"). Even thought the ground floor shops are as much an improvement as the top floors, the taxpayers do not seek to exclude the ground floor from the assessments. This perverse and illogical argument will be considered later. For present purposes, it is sufficient to note that the 2002 joint assessment notice shows the top floors having unencumbered values totalling $1,466,000, whilst the 2003 notice shows them having values totalling $1,729,880.

13 Where did these unimproved values come from? On 20 July 2001, the City of Stonnington ("the council") issued rates notices which identified the site value, the capital improved value and the net annual value for each of the 12 occupancies in the building. However, the individual occupancy values were only calculated after the entire land had been valued by each valuation method and the total values then apportioned.

14 In calculating the total unimproved values for the assessment notices, the Commissioner took the total site values specified in the July 2001 rates notices and multiplied them by an equalisation factor. In 2002, the relevant equalisation factor was 1, whilst in 2003 it increased to 1.18. Accordingly, the 2002 joint assessment notice imposed land tax by reference to a total unimproved value (which was also the site value) of $3,396,000. The 2003 joint assessment used the same site value, but applied the higher equalisation factor, thereby imposing tax by reference to a total unimproved value of $4,007,280.

15 The July 2001 rates notices had been prepared based on a valuation obtained by the council. That valuation process is described in an affidavit sworn by Karl Cundall, a qualified valuer, on 28 April 2004.[7] Mr Cundall was a director of the company which was employed by the council to carry out valuations of rateable land in the municipal district for the purposes of a general valuation conducted in 1999-2000.

16 Mr Cundall personally performed the valuation of the land, upon which the Commissioner relied when making the 2002 and 2003 assessments. Mr Cundall assessed the site value of the whole of the land as $3,396,000 on 1 January 2000.

17 In determining the site value of the whole of the land, Mr Cundall has deposed that he did not include or make allowance for the value of any parts of any building or any other improvements on the land.

18 Having determined the site value of the whole of the land, in order to comply with s.13DC(1) of the Valuation of Land Act 1960 ("the VLA"), the site value of each separate occupancy had to be calculated for rating purposes. The apportioned values were calculated in accordance with s.2(3) of the VLA, which is discussed shortly.

19 The site values attributed to each of the 12 occupancies by Mr Cundall are identical to the unimproved values apportioned under the "statement of lands owned" part of the 2002 assessment notices.

The objections

20 The taxpayers objected to the 2002 assessments on grounds which may be summarised as follows:

(a) The site and unimproved values of the land should exclude the top floors of the building (but not the ground floor), because they are improvements and do not satisfy the relevant definition of "land".

(b) Each of the taxpayers should be separately assessed for land tax on their respective half of the unimproved value of the land, and amended assessments should be issued accordingly.

21 In April 2003, the taxpayers lodged an objection to the 2003 assessment. It repeated the grounds of objection to the 2002 assessments. It went on to add the following additional ground: if (contrary to (b) above) the taxpayers should not be separately assessed, then the Commissioner should apply the relevant formula in s.45(4) of the Act "to deduct from the taxpayer the tax payable by a joint owner, the amount (if any) necessary to avoid double taxation".

22 The 2002 and 2003 notices of objection also said that a separate objection would be lodged in relation to the site values under the VLA, on what appear to be the same grounds. There is no evidence that any such separate objection was ever lodged.

23 In July 2003, the Commissioner's delegate disallowed each of the objections, on the basis that the assessments had been correctly made in accordance with ss. 8, 16 and 45 of the Act and s.13DC(1) of the VLA. The reasons also noted that the Commissioner was not entitled to entertain an objection relating to the site value of the land.

24 In September 2003, the taxpayers' solicitors asked the Commissioner to treat the objections as appeals and cause them to be set down for hearing in this court pursuant to s.25(1)(b) of the Act.

The general statutory scheme

25 Before considering the jurisdiction and assessment questions, it is useful to discuss the inter-related provisions of the Act, the VLA and Local Government Act 1989 ("the LGA").

26 Land tax is required to be levied on the total unimproved value of all land which a taxpayer owns at midnight on 31 December immediately preceding the assessment[8]. "Land" is defined to include all land and tenements and all interests therein[9].

27 The unimproved value of land is the foundation of land tax liability. The "unimproved value" is to be calculated by multiplying the site value by the prescribed equalization factor, if any, applying to the relevant area of land in that tax year[10].

28 "Site value" has the same meaning in the Act as in the VLA[11], namely:

"... 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."[12]

29 For present purposes, "improvements" are "all work actually done or material used on and for the benefit of the land, but in so far only as the effect of the work done or material used increases the value of the land...".[13] There is no doubt that the entire building on the land in this case is an improvement.

30 For the purposes of assessment, the Commissioner may use a valuation made by a rating authority, or by the Valuer-General or nominee[14]. A "rating authority" includes "any council in respect of its powers under any Act" and the Commissioner[15].

31 A council may appoint one or more people to make valuations under the VLA for the purposes of the LGA[16]. Pursuant to s.157(1) of the LGA, a council may use the site value, net annual value or capital improved value system of valuation. Pursuant to s.158A of the LGA, rates and charges are to be levied by municipal councils on each occupancy. When performing such a valuation:

"...each separate occupancy on rateable land must be computed at its net annual value, its capital improved value and, if required by a rating authority, its site value."[17]

32 Where an occupancy on rateable land is part of a larger property, the apportionment of capital improved value and site value to each occupancy is governed by s.2(3) of the VLA, which provides:

"If it is necessary to determine the capital improved value or site value of any rateable land in respect of which any person is liable to be rated, but which forms part of a larger property, the capital improved value and site value of each part are as nearly as practicable the sum which bears the same proportion to the capital improved value and site value of the whole property as the estimated annual value of the portion bears to the estimated annual value of the whole property."

33 The rights of a taxpayer to object to an assessment of land tax vary according to whether the Commissioner has or has not made use of a valuation prepared by a rating authority under the VLA. If the Commissioner has used such a valuation, then s.24A of the Act "precludes the Commissioner from entertaining the objection in so far as it relates to the unimproved value of the land the subject of the assessment, and leaves that aspect of the matter to be dealt with under the [VLA]."[18]

34 Section 24A of the Act relevantly provides that:

(1) Any person who is dissatisfied with the assessment of the Commissioner may give to the Commissioner within 60 days after service of the notice of assessment an objection in writing against the assessment stating fully and in detail the grounds on which he relies but the Commissioner must not entertain any objection relating to the unimproved value of the land where the assessment is based on a valuation made under the [VLA].

(1A) Nothing in sub-section (1) limits or affects the right of any person to object to a valuation in accordance with the provisions of Part III of the [VLA].

(3A) The Commissioner shall not make a decision upon any objection relating to the amount at which the unimproved value of any land was assessed without consulting the Valuer-General."

35 If the taxpayer is dissatisfied with the Commissioner's decision on an objection, it may ask the Commissioner to refer the decision to the Victorian Civil and Administrative Tribunal for review or to treat the objection as an appeal to this court. However, s.25(1) of the Act provides that a taxpayer may not invoke the review or appeal jurisdiction in the case of "an objection relating to the amount at which the unimproved value of the land has been assessed by a rating authority within the meaning of the [VLA] not being the Commissioner...".

36 As s.24A(1A) of the Act indicates, objections to the valuation of land are dealt with under Part III of the VLA. The grounds for such an objection are set out in s.17 of the VLA and are as follows:

"(a) that the value assigned is too high or too low;

(b) that the interests held by various persons in the land have not been correctly apportioned;

(c) that the apportionment of the valuation is not correct;

(d) that lands that should have been included in one valuation have been valued separately;

(e) that lands that should have been valued separately have been included in one valuation;

(f) that the person named in the notice of valuation, assessment notice or other document is not liable to be so named;

(g) that the area, dimensions or description of the land are not correctly stated in the notice of valuation, assessment notice or other document."

37 Counsel were unable to refer me to, and I have been unable to find, any cases on the meaning of the phrase "an objection relating to the amount at which the unimproved value of any land has been assessed" in s.25(1) of the Act. In my opinion, it at least encompasses those matters which are specifically listed in s.17 of the VLA.

38 For the purposes of these appeals, it is not necessary for me to determine whether the exception in s.25(1) is cast more narrowly than the corresponding exception in s.24A(1) of the Act. That is because, if these appeals involve a valuation dispute, the only possible ground of objection is under s.17(a) of the VLA; as that ground is one of "amount" it clearly falls within both exceptions.

39 The only objection still pursued by the taxpayers in these appeals is that, to the extent that each of the assessments took into account the value of the top floors, they were wrong and should be reduced accordingly ("the floors objection"). The taxpayers do not press their objections based on the joint nature of their interests and the application of s.45 of the Act.

40 The Commissioner says that the floors objection is simply an objection as to whether the site value assessed by the council and acted upon by the Commissioner has been correctly calculated. Such a dispute ought to be resolved by the objection process under the VLA, not under this Act.

41 The taxpayers dispute that the floors objection is one "relating to the amount at which the unimproved value of the land has been assessed" (within the meaning of s.25(1) of the Act). It was not clear precisely how the taxpayers said that the floors objection ought to be categorised.

42 In some places[19], the taxpayers' lawyers used language such as "the site value is too high" or "the assessments are excessive", because of the inclusion of the top floors. So described, it sounds like an argument "relating to the amount at which the unimproved value of the land has been assessed."

43 In their later outline of arguments[20], the taxpayers said that they are not contending that the valuation of the first to third floors was incorrect, rather that "the assessments of the first, second and third floors should never have been made." In their oral submissions, the taxpayers' counsel said they were not saying that the assessment was too high. "We are saying please take those items of assessment out of the equation."[21] Elsewhere it was said that what is before the court is "a question of the authority of the Commissioner to issue the assessment in the way that he has. In that sense it's a question of process."[22]

44 In my opinion, properly analysed, the floors objection is really just an objection that the site value is too high because it includes things which the taxpayers contend ought to have been excluded, namely, the top floors. The taxpayers ought to have pursued that objection through the VLA objection processes, as they threatened to do in their 2002 and 2003 notices of objection.

45 The Commissioner informed the taxpayers in his reasons for decision that he was not entitled to entertain such an objection. In my opinion, the Commissioner was correct in that observation. Here, the council valuation on which the assessments are based was made under the VLA. The floors objections is one "relating to the unimproved value of the land where the assessment is based on a valuation made under the [VLA]", within the meaning of s.24A of the Act.

46 When the taxpayers asked the Commissioner to treat their objections as an appeal, the s.45 issues were still being pursued. I agree with the Commissioner that, had that not been the case, the Commissioner would not have been entitled to refer the matter to the court at all. Such an appeal would have been one which only concerned "an objection relating to the amount at which the unimproved value of any land has been assessed by a rating authority" other than the Commissioner, within the terms of s.25(1) of the Act.

47 In my opinion, this court does not have jurisdiction to hear the floors objection.

48 Even if, contrary to the above finding, I did have jurisdiction to hear these appeals, I would not resolve them in a way favourable to the taxpayers. Given the time that was spent arguing these matters, I will make a few observations as to the merits of the appeals.

49 The substantive question for determination is whether the Commissioner assessed land tax on the improved or unimproved value of the land. If he did so on the improved value, the assessments would be excessive. In that event, I would have the power to make such order as I think fit and "may by such order confirm reduce increase or vary the assessment."[23]

50 The taxpayers relied on the fact that, as well as showing a total unimproved value of the land, the assessment notices showed site values and unimproved values for the 12 occupancies. They argued that the assessment notices were therefore irregular on their face. The Commissioner effectively agrees that the assessment notices were irregular on their face. The question then is whether I am entitled to look beyond the assessment notices.

51 It is common ground that the Commissioner was entitled to use the Cundall valuation when causing the relevant assessments to be made[24]. However the taxpayers argue that, once made, those assessments were conclusive and "final". The taxpayers said I could not look at the Cundall affidavit, either to determine whether the assessments were excessive or in deciding whether to confirm, reduce, increase or vary them. They argued that if I came to the conclusion that the assessments were excessive, then all I could do was deduct the values for the top floors from the total unimproved value of the land. On the question of conclusiveness, they relied upon s.20 of the Act and authorities on equivalent provisions in federal tax legislation.

52 The Commissioner conceded that if he had in fact assessed land tax based on improvements, then the assessments would be excessive. However, he denied that he had done that, notwithstanding the reference to individual occupancies in the part of the assessment notices headed "statement of lands owned". The Commissioner argued that the court is not confined to considering the assessment notices and that s.20 of the Act provides a clear basis for the court to have regard to other evidence, namely the Cundall affidavit. If I can have regard to the Cundall affidavit, it clearly establishes that the total site value of the land was calculated without reference to any improvements; the floors objection is not sustainable.

53 It is therefore necessary to consider the effect of s.20 of the Act, which is in the following terms:

(1) The production of an assessment or of a document under the hand of the Commissioner purporting to be a copy of an assessment shall -

(a) be conclusive evidence of the due making of the assessment; and

(b) be conclusive evidence that the amount and all the particulars of the assessment are correct, except in proceedings on review or appeal against the assessment, when it shall be prima facie evidence only."

54 I also observe that in appeals under the Act, the taxpayer bears the burden of establishing that an assessment is excessive[25].

55 The taxpayers took me to several High Court case which they said supported their argument that the assessment notices were conclusive. In particular, they referred to Batagol v Commissioner of Taxation[26] and Deputy Commissioner of Taxation v Richard Walter Pty Ltd[27], both of which concerned income tax assessments. In Richard Walter , the court considered s.177 of the Income Tax Assessment Act 1936 (Cth), which provided that production of a notice of assessment under the Commissioner's hand was "conclusive evidence of the due making of the assessment and, except in proceedings ... on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct". The court noted that s.177 distinguishes "between the procedure or mechanism by which the taxable income and tax is ascertained or assessed on the one hand and on the other hand the substantive liability of the taxpayer. The former involves the due making of the assessment"[28] The taxpayers rely on the equivalent distinction in s.20 of the Act to argue that this court cannot go beyond the assessment notices to ascertain whether the assessment was duly made.

56 The distinction drawn by the High Court does not assist the taxpayers here. I accept that I cannot go beyond the assessment notices if the court's task in this case was to determine whether the assessments were "duly made" (s.20(1)(a)). If I was being asked to determine whether the assessments were duly made, then the taxpayers would be stuck with the assessments. But that is not the task I am being asked to perform.

57 In terms of s.20 of the Act, these can only be proceedings on appeal against the assessments (s.20(1)(b)). The relevant question would be whether the amounts and particulars of the assessments were correct. The assessments would be "prima facie evidence only" on these appeals.

58 The words "prima facie evidence only" are used in a number of tax statutes throughout Australia[29]. In Feez Ruthning v Commissioner of Pay-roll Tax[30], the Court of Appeal of the Supreme Court of Queensland considered whether an equivalent "prima facie evidence" provision[31] enabled the Court to receive further evidence on a relevantly similar type of revenue appeal. The court held[32] that:

"...on an appeal, the production of a document under the hand of the Commissioner specifying a liability of the taxpayer or notifying any determination of the Commissioner is only prima facie evidence of the correctness of any calculations upon which the liability is ascertained or on which the determination is based. Clearly, the legislature intended that the taxpayer not be restricted to the materials that were before the Commissioner.

I am satisfied that the Court has power to receive further evidence on appeal."

59 In support of their argument that I should not look at Mr Cundall's affidavit, the taxpayers also sought to rely on various authorities for the proposition that adjustment sheets do not form part of the notice of the income tax assessment[33]. That argument is also misconceived. In this case the Commissioner does not assert that the Cundall affidavit forms part of the assessment itself. Rather, the Commissioner says that I should look at the affidavit because it is part of the evidence that is available to the court in considering and reviewing the assessments.

60 I agree with the Commissioner that s.20(1)(b) of the Act makes it clear that in an appeal such as these, where the assessment is in issue and it is to be reviewed and the court in effect stands in the shoes of the Commissioner, then the court must look at all available evidence, as could the Commissioner under s.17 of the Act. There is no other reason for s.20(1)(b) being in the Act if not to enable a court or tribunal, when reviewing the assessment, to look beyond the assessment, and treat the assessment as prima facie evidence only.

61 As has already been mentioned, Mr Cundall's unchallenged evidence is that in arriving at the total site value (from which the total unimproved values have been calculated), he did ignore all improvements to the property, including those on the ground floor and the top floors. Having done that, he was then required for rating purposes to apportion the total site value to the separate occupancies. Based on the Cundall affidavit, I would be satisfied that the assessments were not in fact based on a site valuation which included improvements and were therefore not excessive.

62 Although Mr Cundall was required to perform that apportionment for rating purposes, the individual site and unimproved values should not have been listed in the land tax assessment notices. It is unfortunate that somebody in the Commissioner's office erroneously included that information in the assessment notices. Including that information has led to the error "on the face" of the assessments, and the taxpayers' subsequent objections and appeals. All that the Commissioner was required to do under the Act was to tell the taxpayers the total unimproved value of the land and how much tax was being assessed.

63 Even if I could not look beyond the assessments for the purposes of determining whether they were excessive, in my opinion the taxpayers' submission that I should simply exclude the top floors from the assessments is flawed and illogical. The taxpayers submit that I should reduce the assessments by removing the value of the top floors but retaining the value of the ground floor. The taxpayers' counsel could offer no basis for such an approach having been taken in the original objections and pursued on appeal. No authority was offered in support of such an argument.

64 The ground floor is as much an improvement as the top floors. I agree with the Commissioner that the 2002 and 2003 assessments are either wholly right or wholly wrong.

65 If I had jurisdiction to hear these appeals, the Commissioner would succeed on the merits.

66 It follows that in each of the appeals there should be an order that the appeal be dismissed.

[1] Being the whole of the land comprised by Certificate of Title Volume 9605 Folio 260.

[2] Proceeding No 4618 of 2004.

[3] Proceeding No 4619 of 2004.

[4] Proceeding No 4620 of 2004.

[5] Proceeding No 4621 of 2004.

[6] Within the meaning of s.25(1) of the Act.

[7] An affidavit in relevantly identical form has been filed in each appeal. The taxpayers object to my looking at the affidavits when I come to consider the merits of the appeals; that objection will be discussed later in these reasons.

[8] Sections 6 and 8 of the Act.

[9] Section 3(1) of the Act.

[10] Section 3(2) and (4) of the Act.

[11] Section 3(1) of the Act.

[12] Section 2(1) of the VLA.

[13] Section 2(1) of the VLA.

[14] Section 16 of the Act.

[15] Section 2(1) of the VLA.

[16] Section 13DA(1) of the VLA.

[17] Section 13DC(1) of the VLA.

[18] Melbourne City Council v Port of Melbourne [2005] VSCA 72 at [10] per Nettle JA, with whom Buchanan and Eames JJA agreed.

[19] For example, in the solicitors' letter of 21 July 2003 and the April 2004 outline of submissions.

[20] Dated October 2004.

[21] T56.

[22] T23.

[23] Section 29 of the Act.

[24] Sections 16 and 17 of the Act, s.13DA(1) of the VLA.

[25] Section 26(1)(b) of the Act.

[26] [1963] HCA 51; (1963) 109 CLR 243

[27] [1995] HCA 23; (1995) 183 CLR 168

[28] At 182 per Mason CJ, relying on George v Federal Commissioner of Taxation [1952] HCA 21; (1952) 86 CLR 183 at 206-207; McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263 at 271, 279; Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614 at 620, 632.

[29] See eg: Gift Duty Act 1968 (SA) s.46; Taxation Administration Act 1996 (NSW) s.119(b); Pay-roll Tax Assessment Act 1941 (Cth) s.37; Succession Duties Act 1929 (SA) s.71.

[30] [2002] QCA 396; [2003] 2 Qd. R 41.

[31] Section 46(2) of the Pay-roll Tax Act 1971 (Qld).

[32] Per Wilson J with whom the other members of the court agreed at 48-49.

[33] For example, Richard Walters at 229 per Toohey J.