Key Takeaways
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With land valuations for land tax purposes due to occur on 1 July, landowners should be ready to consider land valuations, and whether an objection is warranted.
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More unique properties with unusual characteristics warrant more careful attention to the valuation notices to ensure that the relevant circumstances are properly taken into account.
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Because of the way land tax is calculated, most landowners in NSW should expect an increase in their 2024 land tax assessment.
In brief
Volatility in the property market in recent years is leading to fluctuating land valuations and risks of valuations being inaccurate. Whilst the Valuer-General's valuations are less susceptible to these problems, it nevertheless serves as a reminder for landowners that they should be aware of the prospect of overvaluations and the impact that the Valuer-General's land valuations have on their liability for rates and land tax. If the Valuer-General's valuation is considered too high, it is important that landowners now start planning how they might address the overvaluation of their land holdings.
Problems with the land valuation process in NSW
Issues with the valuation process used to determine land tax in NSW have been raised since its inception well over a century ago, and reintroduction in 1956 (see Land Tax in New South Wales, NSW Parliamentary Library briefing paper).
Whilst there have been improvements in the process over this time, cyclical criticisms continue to arise.
In 2013, the Chair (Matt Kean MP) in his foreword to the report by the Joint Standing Committee on the Office of the Valuer-General stated that:
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"this is a system that has systemic issues, particularly regarding the fairness in the way landholders are treated and the transparency surrounding how land is valued"; and
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"On volatility, independent analysis highlighted material and significant yearly fluctuations in land values. Such volatility risks creating a council rate lottery for landholders… Regarding procedural fairness, it is readily apparent that landholders are not currently afforded a fair hearing."
More recently the Joint Standing Committee on the Office of the Valuer-General in June 2023 made recommendations for the Office of the Valuer-General NSW to continue to work with the NSW Department of Planning and Environment to "improve communication with the public about land valuation and related matters".
In a media release by the Blue Mountains Council on 28 April 2023, the Mayor has unconventionally requested that the Valuer-General either maintain current valuations or subsidise rate increases. With new valuations affecting rates from 1 July 2023, that Council estimates that a quarter of its residents will face an increase in land tax bills. More scathing criticisms have been reported in the media from one of Blue Mountain Council's other Councillors.
Despite the criticisms, ultimately valuations by the Valuer-General are conducted under the methodology prescribed by the Valuation of Land Act 1916 (NSW) and Land Tax Management Act 1956 (NSW).
These valuations are then used to levy rates and form the basis for NSW Government land tax. In simple terms, a higher than justified valuation will correspond with land tax and rates above what they would otherwise legitimately be.
How land tax is calculated
Land is valued as at 1 July each year: section 14B Valuation of Land Act 1916 (NSW).
Land tax is determined by averaging the current and two preceding land valuations: see section 9 and section 9AA Land Tax Management Act 1956 (NSW). Given the large average increases in values over the last three years, owners of land can expect higher land valuations and by corollary larger land tax assessment notices and Council rates.
The liability for land tax then crystallises at midnight on 31 December: see section 3AL of the Land Tax Act 1956.
Land tax assessments based on valuation notices are then issued to landowners typically between January to mid-February.
The rate of land tax paid depends on the land value and the land tax thresholds.
For 2023, the rates of land tax are:
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General rate: $100 plus 1.6 per cent of land value above the General Threshold, up to the premium rate.
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Premium rate: $79,396 plus 2 per cent of land value above the Premium Threshold.
For 2023, the thresholds are:
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General Threshold: $969,000
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Premium Threshold: $5,925,000.
With 1 July approaching, it is important that landowners, particularly landowners of high value parcels of land, are aware of the importance these valuations have, particularly in times of fluctuating property values.
Land valuation by the NSW Valuer-General
When valuing land, the Valuer-General assumes the land is vacant (e.g excluding building improvements), and values the land based on the land's highest and best permitted use (by considering town planning considerations): see the Valuer-General's website, and section 6A(1) Valuation of Land Act 1916 (NSW).
A "mass valuation" approach is taken unless properties with specific attributes require individual valuations, with the prescribed valuation method explained here.
However, Leeming JA in the Court of Appeal decision of Olefines Pty Limited v Valuer-General of NSW [2018] NSWCA 265 at [32] described section 6A as involving "unwieldy complexity" and involving, in that case, the "essential problem".
Objecting to Land Tax Assessments
Landowners who are dissatisfied with their land valuation can object within 60 days from the issue date on the valuation notice: section 35 Valuation of Land Act 1916 (NSW). Valuation NSW was reported by the Sydney Morning Herald as stating that 1564 objections had been received in a single month from January 2023 to February 2023, with the Herald reporting this was on the basis that the months-old land valuations failed to capture property price falls.
Importantly, according to the Valuer-General's 2020-2021 Annual Report, of the 2,732 objections lodged in 2021-2022, 28.9% were allowed, and 55% of objections were disallowed.
If you are dissatisfied with the Valuer-General's determination of your objection, you may appeal to the NSW Land and Environment Court: section 37 of the Valuation of Land Act 1916 (NSW). Obviously, the costs involved in commencing proceedings need to be weighed against the costs any overvaluation may create.
Land valuation and rating appeals counted for 26% of the Class 3 caseload in 2021 as set out in the NSW Land and Environment Court's Annual Review for 2021(which also includes compulsory acquisition compensation appeals and Aboriginal land rights claims).
Appeals to the Land and Environment Court
The last decade has seen a relatively small number of judgments in the NSW Land and Environment Court regarding the Valuer-General's determinations of land valuation objections. A number of these have subsequently been appealed to the Court of Appeal.
Often the appeals involve more obscure property interests, for example the Sydney Fish Market, and Perisher ski resort. More unique properties with unusual characteristics warrant more careful attention to the valuation notices to ensure that the relevant circumstances are properly taken into account.
The Court of Appeal in Valuer-General v Sydney Fish Market Pty Ltd [2023] NSWCA 52 recently considered whether the Sydney Fish Market land was "Crown lease restricted" for the purposes of section 14I of the Valuation of Land Act 1916. After complex consideration of historical and transitional provisions and the factual circumstances, the Court of Appeal held that the land was "Crown lease restricted", and therefore is "to have its land value determined taking into account the restrictions on the disposition or manner of use that apply to the land by reason of its being the subject of the lease concerned", as stated in section 14I.
In Perisher Blue Pty Limited as Trustee for the Snow Trust v Valuer-General [2023] NSWLEC 41 the Land and Environment Court was required to consider the approach to valuing the Perisher ski resort. This comprised land the subject of a lease within Kosciuszko National Park (Consolidated Mountain Lease), and a further 1313ha of licenced land around the leased land. The appeal related to the Valuer-General's determination in two valuation years. The parties had agreed on the appropriate value to be attributed to licenced land. However, the Court was required to determine the value of the leased land, comprising accommodation and ski infrastructure. Ultimately, the Court preferred the valuation evidence of the Applicant's valuer, and determined that the valuation of the leased land at a significantly reduced amount. In total, for the leased and the licenced land, the Valuer-General had valued the land at approximately $39,000,000, whereas the Court determined the land valuation of the leased properties at approximately $14,000,000.
Property market volatility affecting the valuation process
Given the volatility in parts of the property market and the various unique land uses existing within NSW, the potential inability of the valuation process to adjust and capture nuances in the property market remains even if this arises just for a narrow set of property interests held within NSW.
According to the Valuer-General, land values increased across NSW by 26.3% from 2021 to 2022 constituting an increase by $600 billion at 1 July 2022.
Despite the correlation between higher land valuations and higher land tax, many either assume the immutability of the valuation conducted by the Valuer-General or ignore the opportunity to object to the valuation despite it underlying the significant amounts in rates and land tax paid and the potential for methodological and other flaws to exist.
Importantly, the arrival of the 2023 valuations will spell the end of the 2020 valuations in the averaging exercise that takes place. Most landowners in the State should therefore expect an increase in their 2024 land tax assessments by this fact alone, given there was according to the Valuer-General a 24% increase in the total value of land in NSW in the 12 months to 1 July 2021.
What landowners should remember
Where the land size is large or has a large underlying land value then the impact of an overvaluation can be quite significant. There will also be situations where businesses own multiple properties with a large property portfolio where the cumulative effect of increased land values causes significant increases in land tax liabilities.
Landowners should carefully examine land valuation notices in order to quickly identify any unusual increases in valuations or other features of the land that indicate an inflated value.
With land valuations due to occur on 1 July, landowners should be ready to consider land valuations, and whether an objection is warranted.