By on June 26, 2012

Over the last few months a number of members have raised concerns with the Secretariat regarding Land Tax and its implications on their business. Two members of our association with considerable experience in this area were approached for their comments. The following is the second of two articles that will discuss this complex issue.

ANDREW LUMB, a Solicitor from Nevett Ford Melbourne Pty Ltd provides a further view on Land Tax.


The following comments are offered and may to some extent serve to enlighten one or two questions raised by Robin Hocking in his recent Discussion Paper.

The view is expressed that turnover and profit is not an acceptable valuation methodology for quarries, although the Valuer Generals Guidelines do include capitalisation of earnings before interest and tax as one of the acceptable valuation methods. Although in the guidelines the example given results in a capital improved value, the implication is that the methodology is applicable to establish site value, as the calculation involves adding back the value of structural improvements.

This methodology appears to assume that the valuer is in possession of a considerable amount of the quarry operator’s financial information.

The Valuer Generals Guidelines include a suggested information questionnaire for quarries which includes the following items:

  • estimated life of quarry;
  • estimated level of reserves;
  • annual rate of extraction;
  • gross revenue for previous 3 years;
  • average charge;
  • gross operating costs for the past 3 years and breakup of such costs;
  • last 3 years profit and loss statements;
  • book value for plant and equipment;
  • rehabilitation obligation and costs;
  • amount of royalties.

Quarry owners will consider this to be highly sensitive commercial information and be very uncomfortable about providing this to a valuer conducting the municipal valuation for rating (and land tax) purposes, particularly as very likely the valuer will be a contract valuer, who may see no problem in adding the information to his database for use in other entirely commercial contexts.

While there are provisions in the Taxation Administration Act 1997 which require people to keep and produce records to enable a taxation liability to be properly assessed and the Commissioner has extensive powers to require information and production of documents. This applies to land tax as such, but not to valuations for rating purposes which are then adopted in a secondary manner by the State Revenue Office, for the purpose of calculating and assessing land tax.

Under the Valuation of Land Act 1960 a valuer engaged pursuant to the Local Government Act may, when reasonably necessary for the purposes of a valuation, enter and inspect any premises, and/or may either verbally or in writing put questions to the owner, his agent or the person in occupation to enable a true and correct valuation to be made.

However only if the valuation is for a Minister or permanent head or principal officer of a government department, or the secretary or similar officer of a public authority, can the valuer inspect any books or documents or papers and take extracts from them. This would not seem to include a valuation for a municipal council.

A person who refuses entry or refuses to answer questions put by the valuer, or willfully provides a false answer, is guilty of an offence and liable to a penalty not exceeding two penalty units (approximately $230.00).

The ability to extract financial information of the sort detailed in the Valuer Generals Guidelines, seems to be limited, and it is doubtful that a valuer could effectively obtain copies of the quarry operators financial statements by requiring answers to a multitude of detailed questions, as otherwise there would be no point in confining the right to inspect books and documents to valuations carried out for a minister or permanent head of a department etc.

The real problem with the methodology of establishing value by capitalisation of earnings before interest and tax, is the underlying assumption that the quantum of earnings is solely linked to the hole in the ground, whereas it may be significantly linked to the expertise, reputation and business acumen of the quarry operator, or perhaps influenced by the quantity and quality, or lack of it, of the plant and equipment used in the operation.

Is there logic in the proposition that the rating value of the quarry property, (and hence the amounts of rates and land tax paid), should be less in the case of a poor operator than in the case of a very good operator?

It is true that the Valuer Generals Guidelines require the valuer to adjust for “exceptional management” (and abnormal factors affecting revenue) but it is difficult to see how the valuer makes this judgement, or that such a subjective judgement should determine the valuation outcome.

Another question raised was the extent to which land tax assessments can be retrospective. Section 9 of the Taxation Administration Act 1997 allows the Commissioner to make a reassessment of a tax liability, increasing the assessment, even if an amount previously assessed has been paid. However under Section 9 the Commissioner cannot make a reassessment more than 5 years aft er the initial assessment unless there was not full disclosure of relevant information previously, or another Act authorises reassessment after 5 years. Section 51 of the Land Tax Act 2005 specifically permits reassessment after 5 years.

Reassessment is of course different to a situation where there has been no previous assessment, and in the case of reassessment there is obviously a wider issue of the extent to which people can rely on an assessment as finalising the matter.

It therefore appears that there is probably no statutory limit on retrospectivity of a land tax assessment. It is to be noted that Section 134 of the Taxation Administration Act 1997 limits prosecution of an offence against a taxation law to a period of three years after the offence. Prosecution for an offence is of course different from assessment of tax for a previous year, or recovery of that tax.

However when enquiry was made at the State Revenue Office, the answer was that they would assess back to 2008, effectively 3 years. Th is appears to be nothing more than a current policy as the person spoken to could point only to Section 51 of the Land Tax Act as relevant to the issue, and Section 51, for the reasons above, does not answer the question.

Andrew is a very experienced Solicitor with Nevett Ford Melbourne Pty Ltd who has provided legal advice to the CMPA for over ten years. The CMPA would like to thank Andrew Lumb for his article on Land Tax.

The CMPA would again like to thank Robin and Michael Hocking fr om C.J. Ham & Murray Pty Ltd for their articles on Land Tax.

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