28 SEPTEMBER 2010
Executive Summary
The new Land Valuation Act 2010 (“Act”) came into effect on 20 September 2010, replacing the former Valuation of Land Act 1944 (“VLA”).
Of significance, the Act:
(a) introduces new methodology for valuing land, which distinguishes between non-rural and rural land;
(b) ensures that the value of development approvals, leases, agreement for leases, and infrastructure credits are not included in determining the value of the land;
(c) for non-rural landowners, makes available some deductions for site improvements paid for and effected by the landowner in the 12 years preceding a valuation; and
(d) extends the time for lodging an objection to a valuation to 60 days (from 45 days).
Objectives of the New Land Valuation System
Earlier this year the Government passed “interim” legislation to amend the approach to the valuation of land in Queensland. The two amendments of significance were:
(a) broadening the definition of “unimproved value”, to include the benefit of leases, agreement for leases and like instruments to enhance the value of land as well as the benefit of the payment of infrastructure charges and construction of infrastructure;
(b) changing the process of objections and appeals, including the requirement to fully particularise objections.
The stated objective of the Land Valuation Bill (now the Act) which was introduced into Parliament earlier this month was to “simplify the State’s statutory land valuation process consistent with other Australian jurisdictions, and provide a more credible, transparent and less contentious valuation system”. The two amendments of significance are:
(a) introducing new methodology for valuing land, which distinguishes between non-rural and rural land; and
(b) streamlining the objections and appeal process.
Valuer General and Annual Valuations
Pursuant to the Act, the Valuer General has an independent role and will be obliged to prepare annual valuations of all land in a local government area, except where it is not possible due to ‘unusual circumstances’. Previously, valuations were only required to be made once every 5 years.
Valuation Methodology for Non-Rural Land – Site Value Approach
Non-rural land will be valued on the ‘site value’ approach, not the former ‘unimproved value’ approach.
The ‘site value’ of unimproved non-rural land is its “expected realisation [ie. market value] under a bona fide sale”.
The ‘site value’ of improved non-rural land is its “expected realisation under a bona fide sale assuming all non-site improvements for the land had not been made”. There is now a specific distinction between ‘site improvements’ and ‘non-site improvements’. Site improvements which will be included as part of the value include, the clearing of vegetation, improving soil fertility, remediation of contamination, underground drainage works and excavation for footings or foundations. Non-site improvements are not included as part of the value but are limited to work done, or material used, on the land other than a site improvement, which would include buildings and other structures constructed on the land.
As a significant departure from the VLA (as amended earlier this year), the value of development approvals, leases, agreement for leases, and infrastructure credits are not included in determining the site value of the land.
The value of the site improvements is the lesser of:
(a) the added value which the existing improvements give to the land, regardless of their cost; or
(b) the costs which should have been reasonably involved in effecting improvements of a nature and efficiency equivalent to the existing improvements.
Importantly, owners may apply for deductions to the site value for site improvements paid for and effected by the owner in the 12 years prior to the relevant valuation. Unfortunately, the benefit of the entitlement of these deductions does not transfer with the ownership of the land (an exception to this is the transfer of land on death).
Further, as a transitional arrangement, the Act provides that where the 2011 site valuation is more than $1 million greater than that last valuation of the land, the difference will automatically be offset in equal instalments over a 12 year period. However, a land owner will not be able to apply both the offset as well as be entitled to site deductions – that is, if both apply, the owner must choose which one to apply.
Valuation Methodology for Rural Land – Unimproved Value Approach
Rural land will be valued on the ‘unimproved value approach’.
The ‘unimproved value’ of unimproved rural land is its “expected realisation under a bona fide sale”.
The ‘unimproved value’ of improved rural land is “its expected realisation under a bona fide sale assuming all site improvements and non-site improvements on the land had not been made”.
Valuing rural land contrasts with valuing non-rural land in that all improvements, whether they are site improvements or non-site improvements, such as clearing of vegetation, are excluded from the assessment. We believe this is a significant opportunity for rural landholders to reduce statutory valuations, which of course will reduce the costs of rates and land tax (the latter of which is relevant if the land is not exempt from land tax).
Objections and Appeals
Under the new regime, owners will have an extended period of 60 days (formerly 45 days) to lodge an objection. While the objection must still be ‘properly made’ as per the amendments to the Act earlier this year, the test for satisfying this requirement has been simplified and an owner is given an opportunity to correct an improperly made objection.
For valuations over $5million, the Valuer General is required to offer the owner an objection conference, on the basis that valuations of this level would benefit from an exchange of information and ideas between the parties.
Final Comments and Practical Steps
It is a positive step that the amendments to the VLA introduced earlier this year which resulted in development approvals, leases, infrastructure credits and development permits being included in the determination of the value of the land have been overhauled in the Act. This had the potential to largely inflate the value of land, particularly, for commercial properties.
As the Act will apply to the next round of valuations issued in March 2011, we draw your attention to the need to be prepared to apply to the Valuer General for deductions for site improvements, if any such improvements have been made by you as landowner in the 12 years preceding March 2011.
We strongly recommend that significant land owners undertake a review of their properties, ascertain the relevant approach that should be applied and identify all site improvement costs that may be available as deductions, because, in the absence of an application to the Valuer General, valuations issued will not (automatically) take into consideration the value of any site improvement deductions.