In Storage Equities Pty Ltd v Valuer-General [2013] NSWLEC 137 the Land Environment Court found that valuations of land made for the purposes of the Valuation Act (NSW) should include GST. The decision provides a helpful analysis of the treatment of GST in the context of valuations.

The sole issue between the parties was whether the valuation of the properties concerned should include GST, being calculated at the rate of 10%. The valuations relied on by the owner were therefore 10% less than the valuations relied on by the Valuer-General.

Section 6A(1) of the Valuation Act provided that “land value” meant:

(1) The land value of land is the capital sum which the fee-simple of 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, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner’s predecessor in title had not been made.

Both parties accepted that in determining the “value of land”, the relevant principles to be applied are those articulated in the judgment of the High Court in Spencer v The Commonwealth of Australia [1907] HCA 82; 5 CLR 418. Further, as observed by McHugh J in Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25;199 CLR 413 (at [50]):

The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property.

The Company contended that a sale of land inclusive of GST does not represent or afford evidence of the value of land to the vendor – rather, that value is evidenced by the price received, net of GST. The Company relied on the following principles which it contended followed from applying the GST Act to the principles in Spencer:

• assuming that the vendor of a property is registered for GST, that vendor is liable to pay that tax on all taxable supplies it makes in the course of business, including the sale of real property which constitutes a taxable supply (if not sold as a going concern);
• as the vendor is only the collector of GST on behalf of the Australian Taxation Office, the GST component of the sale price does not represent value to the vendor;
• on the assumption that the purchaser is also registered for GST, the purchase of the property is a “creditable acquisition” entitling the purchaser to an input tax credit with the result that the purchase price is “not a cost to the purchaser and does not therefore represent what the purchaser has to pay for the property, applying the test in Spencer’s case”

The Company also contended that the word “realise” in s 6A(1) should mean the net amount received by the vendor, after GST had been paid.

The Court rejected the Company’s arguments and concluded that the amount “realised” from the sale of land necessarily reflects “that sum of money that secures the entitlement of the purchaser to a transfer on title” and “regardless of any component of that sum that the vendor may be liable to pay as a consequence of realising it”.

The Court noted that its conclusion was consistent with the decision in CSR Ltd v Hornsby Shire Council [2004] NSWSC 946. In that case, the Supreme Court considered the question of whether the Council was entitled to deduct GST from the amount of GST required to be paid to CSR following the compulsory acquisition of land. The Court rejected the claim and also observed as follows:

As the Valuer-General has said, the market place as adjusted to the imposition of GST and imbedded it in the market value of land. The test of the price that a willing purchaser would have to pay to a vendor not unwilling, but not anxious to sell in Spencer v The Commonwealth (citation omitted) has been enshrined in the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), s 56(1). If the vendor must pay GST on the consideration for sale, that impost will be included in the price the purchaser would have to pay. Thus the market value of the land was $25,000,000 and not $22,700,000 plus GST.