The New South Wales Office of State Revenue has issued Revenue Ruling No. DUT 045 “Market Value and GST” where the Commissioner concludes that it is not possible to determine a GST-exclusive market value and that the value of land will include any GST which the vendor may be liable to pay.
The Commissioner has also stated that he will not accept a valuation as a market valuation that is expressed to be on a “GST-exclusive” basis or where the valuer was instructed to make a determination of market value on that basis. The reason for this view is that the Commissioner accepts the view of the Courts in a line of authorities (including Storage Equities Pty Ltd v Valuer-General  NSWLEC 137) that while GST may have an impact upon the market value of property, it is a not a separate amount to be deducted when determining the market value of the item. My post discussing the decision in Storage Equities can be accessed here.
The ruling observes that the Court’s conclusion in Storage Equities was that the land value is the amount expected to be received on the sale of the land, including any GST which the vendor may be liable to pay. The ruling also considered the following points of the decision to be noteworthy:
- The starting point for determining land value is the test articulated in Spencer v Commonwealth (1907) 5 CLR 418, namely the price negotiated between a hypothetical willing vendor and a hypothetical willing purchaser, both having access to all current information affecting the property (see paras ,  and );
- The impact of GST upon each of the vendor and purchaser depends upon their particular, individual circumstances. However, the hypothetical vendor under the Spencer test cannot be assumed to have attributes (eg: GST registered or selling as a going concern) which affect the GST consequences of the sale for the vendor (see paras ,  and );
- In determining value by reference to comparable sale transactions, no adjustment should be made to those transactions on account of any GST liability of the vendor (see para ).
The Commissioner also noted that the view in the ruling was consistent with the policy of the Valuer General.
The ruling refers to the following simple example:
A valuer is engaged to value 2 residential properties located side by side. On the valuation date, one property is a newly completed house which has never been occupied and the other is an established home built some years before.
The valuer would need to take GST into account when determining the market value of the first property, but not the second, because GST is not payable on the sale of an established home. To complete the engagement, the valuer will need to determine a market value for each property. But it would not be open to the valuer to determine a “GST-exclusive” market value for the first property. That would be contrary to the decided cases and the Valuer General’s policy.