Posted on September 25, 2013 by Stuart Simington

GST not to be excluded from valuations under the Valuation of Land Act 1916

In Storage Equities Pty Limited v Valuer-General [2013] NSWLEC 137, the Land and Environment Court recently held that valuations of land under s6A(1) of the Valuation of Land Act 1916 are to be determined inclusive of any GST component. No adjustment is to be made on account of any assumed GST liability of the vendor or the inability of a purchaser to claim an input tax credit.

Some GST Principles

GST is usually payable by a vendor on taxable supplies which includes the grant of an interest in real property.

Nevertheless, GST is not always payable, for example:

• by a vendor who is not required to register for GST;
• if it is the sale by a vendor of real estate that is a part of a going concern.

On the other side of the equation, a person is entitled to an input tax credit for any ‘creditable acquisition’. If registered for GST purposes, a person makes a  ‘creditable acquisition’  if:

• the person acquires something for a creditable purpose (ie not for consumption),
• the supply of the thing to the person is a taxable supply, and
• the person provides consideration for the supply.

The input tax credit is usually an amount that is equal to the GST payable (by the vendor) on the thing supplied. However, in some cases, such as where GST is assessed under the margin scheme, no input tax credit is available to a purchaser.

It follows as a consequence that the net cost of land to a purchaser can differ from the net benefit realised for that land by the vendor.

Facts

Section 6A(1) of the Valuation of land Act provides:

The land value of land is the capital sum which 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…had not been made. [my emphasis]

Storage Equities challenged the assessment of the Valuer-General under s6A(1) on grounds that the assessed value included a GST component. It argued that the sale price of the land inclusive of GST did not represent or afford evidence of the value of land to the vendor because the GST component was not ‘realised’ by the vendor, but rather remitted to the ATO. Therefore the amount ‘realised’ under s6A(1) must be the amount paid, ‘net’ of GST.

Judgment

Craig J rejected Storage Equities’ argument.

The hypothetical value of land under s6A(1) was to be determined  in accordance with the well know test in Spencer v The Commonwealth of Australia [1907] HCA 82. In summary, that test requires the determination of the price on a given day that a desirous purchaser and a willing vendor would have come together on, for the hypothetical unimproved land.

Craig J held that the amount actually paid by the purchaser must be the sum ‘realised’ by the vendor, regardless of whether or not some of that amount represents GST which must be remitted by the vendor to the ATO.

This was because His Honour found that there must be a unity of ‘value’ for the purposes of s6A(1) and that this could only be achieved if the ‘value’ is the sum realised by the vendor being the same amount as is paid by the purchaser (at [45]).

In that context, whether or not a purchaser can obtain an input tax credit for the GST component of the purchase price, the amount actually paid is clearly the purchaser’s liability. If so, the price ‘realised’ from the perspective of the vendor could not be anything different, ie, a price ‘net’ of GST.

In summary, therefore, whether or not the vendor is required to remit a component of the price as GST to the ATO and whether or not the purchaser is entitled to an input tax credit, is irrelevant for the purpose of determining value under s6A(1).

Implications

The task confronting valuers comparing sales data for the purposes of s6A(1) will be assisted by Craig J’s approach. It will not be necessary for valuers to enquire about the circumstances of a sale in order to determine whether or not GST was payable and therefore how the sale is to be treated compared to others.

It is less clear how this will affect future ratings valuations carried out under s6A(1). This will depend on the prevailing practice of valuers to date. It could, potentially lead to a general increase in valuations if there has been a wide spread practice of excluding the GST component of sales.