Council rates and Land Tax
By Robin Hocking
Municipalities throughout Victoria are now revaluing properties for rating purposes every two years. Prior to 2000 the periods between revaluations ranged between four and six years.
Landowners will soon receive their municipal rates notices. New valuations were completed by June 30, 2002 and it must be expected there will be an increase in the values.
Local Councils are required to provide three assessments:
Capital Improved Value (CIV)
Site Value (SV)
Net Annual Value (NAV)
Quarry owners and operators must be aware of the repercussions of this two yearly review of values, and in particular the Site Value which is the basis for the assessment of land tax.
Land tax has rapidly become a horrendous charge by the State of Victoria on freehold land and there are many instances where the assessments are completely out of kilter with reality. In particular, there are examples where operating quarries have been assessed for land tax at sums not much less than the quarries total annual net profit.
The three rating assessment i.e. CIV, SV and NAV are defined in the Valuation of Land Act and consequently there are instances where the definition produces results which have little resemblance to real values.
The Site Value is in effect the value of the property without any improvements and C.J. Ham and Murray Pty. Ltd. argue very strongly that improvements include all roads, footpaths, kerbing, channelling, power, water, sewer, gas, buildings, plant and machinery and the Work Authority.
Consequently, we suggest that all quarry operators ask the question – what would they expect a purchaser to pay for the quarry site without any of the improvements as listed, and without a Work Authority and without any geological assessments?
The answer to the above question may well be considerably less than the Rating Assessment produced by your Municipal Valuer.
The rate in the dollar for land tax jumps very quickly to 5% of the Site Value and property owners holding various parcels of land with a total value in excess of $2.7 million will be effectively assessed for land tax at a rate of almost 4.8 per cent. There are exemptions and in particular the exemption for primary production is important.
Ratepayers, that is both owners and tenants, have the opportunity to object to the local Council assessments within two months of receiving the rate notice. This is an important time frame and there is nothing to be gained by waiting until the next land tax notice arrives, probably in March or April of 2003 to lodge an objection.
All objections to rating assessments must be lodged with the local Municipality and the Land Tax Department will refuse to accept objections to valuation assessments. It will argue is not responsible for the valuations.
It is recommended that the forthcoming Municipal rate notices be examined with some care and if there is any doubt as to the accuracy of the assessments an objection to the local Municipality should be lodged immediately and certainly within the statutory two month period.
The objection is a simple form obtained from the Municipality, and the Municipal Valuer must give the objector the opportunity to discuss the objection and to have a face to face conference if necessary.
In the event that the Municipal Valuer refuses to accept the objection, the matter can be taken to the Victorian Civil Administrative Tribunal.
Regardless of the end result the important matter is to acknowledge the procedures and lodge the objection within the two months period.
The current land tax notices, for the year 2002, are using Site Values set back in June, 2000 and the same Site Value will be used again for the land tax year of 2003. Subject to legal argument rate payers have probably lost the right to object to the current Site Value, and may have also lost the right to a substantial refund of Land Tax with interest.
In 2004 the Land Tax will use the new SV set this year (Jun 2002), and consequentially the ratepayer must lodge an objection to the forthcoming rate notice if there is to be any effect on the Land Tax assessment for 2004. THINK AND PLAN FOR YOUR FUTURE.
If your Council bases their rates on the CIV, which they probably do, the Council income will not be affected by your objection to the Site Value, and at the same time your Council has little if anything to be gained by refusing your objection.
The ratepayer must pay the Land Tax on time, regardless of any pending objection. Interest will be charged on late payment, and interest will be added to any refund of Land Tax overpaid.
The subject of Land Tax and rating assessments is a very difficult one and there are many pit falls and complications. Do not throw the rate notices in the hard basket, either in your office or in Head office, and then make the payments at the last minute and run out of time to object.
Example –
A client recently purchased a quarry for $7.2m. There was no break up between the land value and the value of the Work Authority or the geological information, which there well could have been. As a consequence the land transfer was recorded at $7.2m and the local valuer accepted that information at face value.
The purchaser paid Stamp Duty at almost 6%, – $432,000 and Land Tax at almost 5% – $360,000 in the first 12 months of his purchase. In other words $790,000 cash outlay. Not a pretty picture.
There is a need in the extractive industry for competent legal and accounting advice.
- A Work Authority is a valuable asset. But a new asset will be subject to Capital Gains Tax if sold. Only important if you intend to sell.
- Should the resource be amortised, and at what rate and when? Amortisation does not provide any tax relief, but neither does it affect the cash flow
- Should rents and royalties be paid to an associated entity?
- Consider how reclamation should be accounted. The substantial cost of final reclamation may need to be treated as a capital expense, and not as an outgoing for that financial year i.e. no taxation relief.
The large accounting firms address these types of accounting problems and questions only when asked, generally by a large quarry operation, and the smaller operator is not always aware of the possibility of changes. This suggests a need for ongoing professional advice which opens up a great opportunity for discussion between your competitors and contemporaries and members of your CMPA.
Do not forget your next rate notices.
Robin Hocking
C.J. Ham & Murray Pty, Ltd
Consulting Valuers
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