Medium Neutral Citation [2001] VCAT 1945

SUBJECT LAND: Site 10, Slalom Street, Falls Creek

1. The applications for review are dismissed. The decisions of the Commissioner of State Revenue to disallow the Applicant's objections to Land Tax Assessment Notice 010136748 for the Assessment Year 1995 and to Land Tax Assessment Notice 012763127 for the Assessment Year 1996 are affirmed.

THE HON. JUSTICE KELLAM JOHN BAKER-SMITH G M BOURKE

Respondent: Mr J Delany of Counsel instructed by Solicitor For The Commissioner of State Revenue

1. Julian's Lodge Pty Ltd ("the Applicant") is the holder of a leasehold interest in land situated at Falls Creek in Victoria. The land known as site No. 10, Slalom Street, Falls Creek ("the land") is Crown Land.

2. These two applications relate to objections by the Applicant to the unimproved value placed upon the land leased by it by the Commissioner of State Revenue ("the Commissioner") for the assessment years 1995 and 1996.

3. There has been significant delay in the bringing of the proceedings before the Tribunal. We were by informed by the parties that by agreement between them the matters had been "put on hold" pending the handing down by Ashley J of the decision in the matter of Commissioner of State Revenue v Hotham Management Pty Ltd (1997) 98 ATC 4068.

4. Proceeding No. 78783 of 2000 ("the first proceeding") concerns the review of the Commissioner's decision to disallow the Applicant's objection dated 17 February 1995 to the unimproved value of the land assessed in land tax assessment No. 10136748 dated 3 February 1995 for the assessment year 1995.

5. Proceeding No. 80119 of 2000 ("the second proceeding") concerns the review of the Commissioner's decision to disallow the Applicant's objection dated 18 April 1996 and 17 February 1995 to the unimproved value of the land assessed in land tax assessment No. 12763127 dated 12 April 1996 for the assessment year 1996.

6. The unimproved value of the land was assessed to be $485,480 for the assessment year 1995 and $290,000 for the assessment year 1996.

7. The basis of the applicant's objection to each assessment is that the valuation of the unimproved value of the land is excessive.

8. Section 43 of the Land Tax Act 1958 ("the Land Tax Act") provides in part that:

(1) Any person entitled to any leasehold estate ... in land under lease from the Crown ... shall be deemed for the purposes of this Act to be the owner of the land; and shall be assessed and liable for tax."

9. Section 3 of the Land Tax Act relevantly provides as follows:

"(2) For the purposes of assessing the tax to be charged, levied or collected under this Act in any year .... (a) the unimproved value of any land shall be an amount equal to the site value (as defined in the Valuation of Land Act 1960) of the land as at the relevant date adjusted in accordance with sub-section (4)".

(4) For the purpose of assessing the tax to be charged, levied and collected for the year commencing on 1 January 1984 or for or in any subsequent year, the unimproved value of any land within an area shall be deemed to be an amount equal to the amount of the site value of the land determined as set out in sub-section (2) multiplied by the prescribed equalization factor, if any, applying to land within that area in respect of the year for or in which land tax is being assessed.

10. Section 16 of the Land Tax Act provides that for the purpose of assessment of Land Tax the Commissioner may use valuations made by the Valuer General.

11. Site value of land is defined by s.2 of the Valuation of Land Act 1960 ("the Valuation Act") as:

" `site value' of land means 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. Improvements is defined by s.2 of the Valuation Act as:

" `improvements' for the purpose of ascertaining the site value of land, means 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 and the benefit is unexhausted at the time of the valuation, but, except as provided in sub-section (2AA), does not include -

(a) work done or material used for the benefit of the land by the Crown or by any statutory public body; or

(i) the removal of destruction of vegetation or the removal of timber, rock, stone or earth; or

(ii) the draining or filling of the land or any retaining walls or other works appurtenant to the draining or filling; or

(iii) the arresting or elimination of erosion or the changing or improving of any waterway on or though the land -

unless those improvements can be shown by the owner or occupier of the land to have been made by that person or at that person's expense within the fifteen years before the valuation.

13. In determining the value of land s.5A(3) of the Valuation Act relevantly provides as follows:

"(3) Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account

(a) the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;

(b) the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may effect the use or development of such land;

(c) the shape size topography soil quality situation and aspect of the land;

(d) the situation of the land in respect to natural resources and to transport and other facilities and amenities;

(e) the extent condition and suitability of any improvements on the land; and

(f) the actual and potential capacity of the land to yield a monetary return.

14. As is apparent from the foregoing, by letters dated 28 and 29 August 2000 the Commissioner has referred to VCAT the two decisions of the Commissioner disallowing the objection of the Applicant to its land tax assessment for the years 1995 and 1996 respectively.

15. It is apparent from sub-sections 3(2) and 3(4) of the Land Tax Act that the calculation of the unimproved value of the land for land tax purposes is a mathematical calculation based upon the site value of the land as defined in the Valuation Act, and the prescribed "equalisation factor", if any, applying to the land in respect of the year for or in which land tax is being assessed. It is further apparent that it is the "site value" assessment under the Valuation Act that is the real issue in dispute between the parties in these proceedings.

16. It is clear that the issue for determination is the appropriateness of the site value put on the land by the Valuer General. It is this value which is by formula converted to the "unimproved value" under the Land Tax Act 1958.

17. We accept the submission made by Mr Delany that the Applicant bears the onus. (101 Collins Street Pty Ltd v City of Melbourne (Unreported 2 April 1996, Batt J, and particularly pages 75 to 76)).

18. Furthermore, Section 26 of the Land Tax Act 1958 provides in clear terms that the onus in these proceedings is upon the Applicant.

19. The only witness to give evidence in the proceeding before us was Desmond Burkitt, a valuer formerly employed by the Valuer-General's Office. Mr Burkitt was the valuer who assessed the site values for each of the land tax assessments which are under challenge before us. He assessed the site value of the subject property at the 1988 relevant level date of 30 June 1988 at $485,480. He assessed the site value of the subject property as at the 1993 relevant level date at $290,000.

20. Mr Burkitt was the valuer responsible for conducting the valuations of all of the approximately 90 sites at Falls Creek, all of the approximately 80 sites at Mt Hotham and the approximately 200 sites at Mt Buller at the relevant time. He gave evidence that the method adopted by him involved the analysis of comparable sales of lessees' interests with detailed calculations to establish notional freehold values.

21. He gave evidence that he had regard to the definition of "site value" as defined in the Valuation Act and that he had undertaken the valuation of site value in accordance with that Act. He gave evidence that he had had regard to the matters set out under s.5A of the Valuation Act. He said that the overwhelming majority of property transactions at Victorian alpine resorts are of leasehold interests only, and that in order to assess the site value of a particular property the valuer must have regard not only to the results of an analysis of the price paid for the leasehold interest but also to the other interest in the property, that is the lessor's interest. He gave evidence that his method was to analyse the leasehold interest to arrive at the bare land value of that particular interest and then to analyse the lessor's interest in order to arrive at the value of that interest. The method involved the combination of the analysed bare land value of the leasehold interest together with the value of the lessor's interest as the basis of determination of site value. He gave evidence that his method involved the conversion of that value to a rate of value per square metre. He also gave evidence that he had given alternative consideration to the value of each site on the basis of the maximum number of bed numbers permitted per site pursuant to the policy statement of the Alpine Resorts Commission.

22. Mr Burkitt presented the detailed calculations undertaken by him in respect of both valuations. He compared sales of other leasehold interests which he considered to be comparable. Having deducted from the purchase price the value of improvements and other plant and equipment and having taken into account the lessee's interest and the lessor's interest Mr Burkitt then adjusted his valuation for the grading of the site up to 100%. This analysis provided him with a total value of site value.

23. We are satisfied that the method adopted by Mr Burkitt to value site value in each case was an appropriate method. We recognise the difficulties inherent in the establishment of a site value for leasehold land of the nature of that in the Victorian Alpine Resorts. We are unable to suggest any superior method of valuation to that adopted by Mr Burkitt. It is appropriate to say that we accept that Mr Burkitt has substantial expertise in the valuation of Alpine Resorts and that he had a clear and detailed knowledge of the particular issues relevant to the valuation of such sites. We are comforted in this regard by the failure of the Applicant to call any expert evidence whatsoever or to challenge, in any meaningful way, the method of valuation adopted by Mr Burkitt.

24. Having conducted his analysis of comparable sales Mr Burkitt then gave evidence of his opinion of the site value of the relevant site in consequence of such analysis. Insofar as the site valuation for 1995, it should be noted that he expressed this opinion having considered the comparable sale of Langlauf Ski Club which had a site area of 652 square metres and an entitlement for 34 beds. Langlauf Ski Club was zoned low density and, in fact, had only 12 beds in existence at the time of its sale. It was valued at $496.00 per square metre by Mr Burkitt. Taking into account the greater development potential of the subject land, its medium density development zone area and other relevant factors including the fact that it has good views, was connected to all services, was close to village facilities and that skiers could ski in and out, he concluded that the subject site should have an appropriate value of $667.00 per square metre assessed as its site value. We accept the expert opinion of Mr Burkitt in this regard and as noted above observe that his valuation was not challenged by any contrary expert evidence.

25. As well as assessing site value per square metre Mr Burkitt valued the value of the property in accordance with the maximum number of beds permitted pursuant to the policy statement of the Alpine Resorts Commission. This was undertaken as a secondary check and he assessed the value of each of the 56 beds at the relevant site in the sum of $8,178.00. This compared with the value per bed in the comparable sale site of Langlauf Ski Club of $13,235.00.

26. In this regard we accept the evidence of Mr Burkitt that the maximum bed numbers per site which are permitted pursuant to the Alpine Resorts Commission policy are relevant matters to site value and are not matters relevant to development or improvement. We accept his evidence that the maximum numbers of beds which may be permitted on any particular site are matters relevant to zoning of residential development density just as are the low density and medium density zones in the Alpine Resort. We accept his evidence that such matters of zoning are relevant to site value and are not related to issues of improvement or other development.

27. Mr Burkitt gave evidence in relation to his site valuation the subject of the 1996 land assessment. That site valuation was based upon values assessed for the year 1993. Mr Burkitt gave evidence that he followed the same method in valuing site value as he had in relation to the 1988 valuation. That is, he undertook analysis of comparable sales of the lessee's interests together with detailed calculations to establish freehold values. Likewise Mr Burkitt produced for us the details of those calculations which do not need to be repeated here. He gave evidence that there were two sales which he regarded as comparable, one being the sale of Snowhaven Lodge and the other being of the Geelong Ski Club. He assessed the value per square metre of the sale of the Snowhaven Lodge at $330.00 and the value per square metre of the Geelong Ski Club at $416.00. Using these comparable sales he assessed the value per square metre of the subject site at $422.00. It should be noted that Snowhaven Lodge had an entitlement to 75 beds but only 35 beds were in existence. It was zoned medium density. It had a site area of 1284 square metres. The Geelong Ski Club had a site area of 776 square metres and a maximum entitlement of beds of 39 of which 12 were in existence. It was zoned in a low density area. He gave evidence that of the two he regarded the Snowhaven Lodge as more apposite to the subject site.

28. We accept his evidence that his analysis of comparable sales was appropriate and we accept his opinion that the value per square metre of $422.00 established in respect of the subject site was appropriate as at 1993.

29. It should be noted that in the course of his cross-examination Mr Burkitt, was asked about a number of freehold sales which had taken place at Mt Hotham and at Dinner Plain. He gave evidence that these sales were not comparable with the sales of leasehold property and were not comparable with the subject site. We accept that evidence.

30. It should be noted that the two dates relevant to the valuation were nearly six years apart. This is clearly the reason for the apparent anomaly when comparing the two valuations the subject of the evidence before us. We were advised by Mr Burkitt that valuations are now required to be conducted bi-annually.

31. It is apparent from the evidence given before us by Mr Burkitt that the value of properties in Alpine Resorts dropped dramatically between 1988 and 1993. He gave evidence that this was reflective of the general property market and of the economy and of the depressed circumstances of both at that time. We accept that evidence.

32. It follows that the applications for review are dismissed.

33. Section 25(2) of the Valuation Act provides in part that the Tribunal may in its discretion award the costs of any proceedings under Division 4 of Part 3 of the Valuation Act to the party in whose favour the proceedings are determined. The provisions of Division 3 of the Valuation Act are incorporated by virtue of section 27 of the Land Tax Act. In part that section provides that if any matter is raised in a review under the Land Tax Act in relation to the value of land, the Tribunal has the same powers with respect to that matter as it has in a review under Part 3 of the Valuation Act, and the provisions of that Part apply accordingly.

34. There is a clear discretion in the Tribunal in these proceedings on the question of costs. Both s25(2) of the Valuation Act and the preceding costs provision provide for the exercise of such discretion.

35. Mr Delany submitted that if the Applicant was not successful, costs should follow the event and be ordered in favour of the Commissioner. Mr Newton-Brown submitted that, irrespective of the outcome, each party should bear their own costs.

36. These proceedings involved the interpretation of complicated legislative provisions. They also involved an analysis of the methodology used by the Valuer-General in determining site values of the subject land on the basis of that land being held by the Applicant as an estate in fee simple, when in fact the subject land was Crown land, with the Applicant holding a leasehold interest. It is clear that the method of valuation was complex and depended to a considerable degree upon the experience of the valuer concerned, Mr Burkitt. In such circumstances and taking into account the apparent anomaly between the two valuations the subject of these reviews it is not surprising that the Applicant had concerns about the level of land tax imposed upon it. In such circumstances and taking into account the novel and unusual issues raised by these applications, we consider a proper exercise of our discretion is to make no order as to costs.

THE HON. JUSTICE KELLAM JOHN BAKER-SMITH G M BOURKE