Land tax 101: Time is ticking on the NSW 60-day objection period - is it worth appealing?

All investment and development properties incur a land tax liability annually. The annual land tax liability for a property is derived from the value of the land only and doesn’t include the value of any improvements. In brief, anyone can object to the valuation which is provided by the NSW Valuer-General, however there is only a 60-day window in which this can be done. In some instances there are significant savings to be made.

Property developers and owners of major investment properties are the most likely to be hit with excessive land lax assessments.

What property types incur land tax?

Land tax is paid on most properties that are not a principal place of residence or not used for primary production. Development sites and land banks, retail and commercial investment properties, vacant land, land improved with a dwelling or apartments, a holiday home and many other property types incur land tax.

There are various concessions/exemptions from land tax such as a primary place of residence, the property is intended to be a primary place of residence, some boarding houses, a new residence is acquired while the previous one is yet to be sold, you have a home office but the majority of business is done elsewhere, absence from principal place of residence (e.g. move overseas) or a deceased estate.

How much is land tax and how is the amount calculated?

Land tax is payable over a certain threshold. For 2014 the threshold is $412,000. Land tax is calculated at $100 plus 1.6% of the land value up to the premium rate threshold ($2,519,000) and 2% thereafter.

The amount payable is based on the average of the last three years’ assessments. It is possible to object to any of the three assessments. If you are objecting to a value that has previously been objected to, new information must be provided.

In most instances it is too time-consuming to lodge an objection for a small investment property, as a successful objection may only reduce the burden slightly. However, with major development sites and investment properties land tax liabilities can be reduced by many hundreds of thousands of dollars.

Residential strata buildings and land tax

In order to determine the land value for individual residential apartments the Valuer-General assesses the land value of the site on which the apartment building is erected. The total land tax liability for the building is allocated to each apartment based on its unit entitlement under the strata scheme. Some owners will incur a liability and others will be exempt for reasons detailed previously.

How is land tax assessed and what difficulties impact the assessment process? Why might the assessment be wrong?

To arrive at the land value of a property the valuers working for the NSW Valuer-General analyse recent comparable sales. The opinion of value is arrived at after comparing the identified sales to the subject property based on their various characteristics, such as location, site conditions, zoning, development approval, scale, floor space ratio, view profiles, aspect and proximity to employment bases and infrastructure.

Although this method is the simplest way to determine land value, there are often points of contention as how the characteristics are compared (and ultimately land value assessed) is a matter of opinion. Small oversights in the valuation process can change an assessment greatly.

Ideally a valuer will use sales of vacant land to determine the land value (unimproved value) of the subject property; however in most built-up areas vacant land sales are not available and sales of properties with improvements (units, houses, offices) need to be used. In this instance the valuer will deduct the value of the buildings from the sale price to arrive at the land component of the sale price. This process includes a number of assumptions and a large margin for error, particularly as the buildings are given a value without having been internally inspected.

In addition, sales of properties such as development sites and major commercial office buildings often do not transact under standard/basic conditions. Often sales include conditions such as extended settlement periods, various types of options, rental guarantees, lease backs or staged payments and these conditions can allow a purchaser to pay more for a property for any number of reasons. The value for land tax purposes assumes unconditional sale so it can’t be compared to a conditional sale without making the necessary adjustments. If these adjustments have not been made by the valuer then the identified sale might be contributing to an inflated land value assessment.

Next page: Considerations and tips for making an objection.

There are any number of reasons a property owner might disagree with their assessment and these may be reasonable cause for an objection. Any objection needs to have supporting evidence based on analysis of the sales used by the Valuer General or sales not considered. Some reasons to object might be:

• My development site has been given the same rate/square metre in value as all the comparable sales but it is in an inferior location and with inferior amenity.
• There have been a number of sales around my property that have not been used by the Valuer General and I am of the opinion they are the most comparable and they support a lower land value for my assessment.
• My land is heritage listed and the valuer general did not take this into account in their assessment.
• Two of the sales used by the Valuer-General were between related parties (e.g. family members) and as such cant be relied upon. I have new sales that support a lower value.

How long do I have to consider an objection?

A period of 60 days is provided in which an objection can be lodged. This can be lengthened at the Valuer-General's discretion. This is only a narrow time to object and it is in the objector’s best interest to object before the end of the 60 days.

Notwithstanding the above as previously mentioned your land tax liability is based on the average of the previous three years and it is possible to object to any of the three years that appear on the notice. As such, if you miss the 60 day window you will have another chance to object to the value the following year.

Things that ought be taken into consideration before lodging an objection?

• How much of my time will it take to lodge a professional and well researched objection?
• Should I appoint a valuer/property professional to prepare the objection on my behalf? If so, what fee should I expect?
• By what amount do I estimate I can reduce my liability by? After considering the time and cost to lodge an objection, is it worthwhile?
• Who is a property consultant that can provide some guidance/advice in this?
• Do I have the expertise to properly lodge an objection?
• The assessment is based on an average of three years and this should be taken into account when deciding what years out of the three can be objected to.

What increases the chance of success?

• Properly analyse the sales identified by the Valuer General so that all details of the sale are known and their impact on the value explored.
• Identify any key sales not used by the Valuer General.
• Provide a clear and concise objection.
• Instructing a qualified valuer and/or land economist to prepare an objection for you.

Determining objections and how to appeal. Is it worth appealing?

After an objection is lodged it will be reviewed by an independent valuer appointed by the Valuer-General. Once the objection has been reviewed a notice of determination of the objection is sent to the relevant party. If a notice is not received within 90 days of lodgement then the objection is deemed to be disallowed.

If an objection is not successful then you have 90 days to lodge an appeal with the Land and Environment Court of NSW.

The cost of an appeal can be significant due to the inclusion of lawyers and property valuers. The high cost of an appeal is part of the reason it is important to lodge a professional objection.

Sam Barrow is an Associate Director for Landsburys Property providing strategic advice and property valuation services. Sam has experience in all property types, however specialises in residential and mixed use development projects and master planned communities throughout New South Wales.