By Anthony Whealy, Partner and Ben Salon, Associate
With Revenue NSW currently issuing land tax assessment notices, owners of NSW land are reminded that there is just 60 days from service of the notice to lodge an objection to the assessment. The last thing any NSW property owner needs is to be paying too much land tax resulting from an inflated valuation by the Valuer-General in your land tax assessment notice.
NSW revenue has announced however that if you haven’t received your land tax assessment notice yet and the tax-liable property is in a bushfire-affected postcode, then the sending out of your land tax assessment is being delayed until 27 April 2020.
Also worth noting for trustees holding interests in NSW residential land who have been lumped with a 2% ‘foreign landowner’ land tax surcharge, even though no foreigner is involved in the trust, is that there may still be time to amend trust deeds to escape, or be refunded that surcharge where already paid for tax years from 2018 onwards.
Land Tax in NSW
Land tax is payable on most properties in NSW that are not the principal place of residence of the owner, or a property used for primary production. That means owners of investment properties, businesses, and property developers should review their land tax notices carefully to ensure that the valuations forming the basis of the land tax liability reflects the real value of the property.
If you think a valuation in the assessment notice is too high, you can object to and appeal the valuation of your property. If either of these reviews result in a lowering of the value of the land the subject of the land tax assessment notice, then your land tax liability will also be lower. You must move quickly though as the first step in the process, lodging an objection, must be done within 60 days of being served with the land tax assessment notice. While there is some scope to lodge a later objection, it is prudent to act while you have a legal right to seek a review of the valuation.
The Valuation Process
The Valuer General oversees the valuation of over 2.5 million parcels of land in NSW as at 1 July each year. Most land in NSW is valued using a process where properties are grouped into districts of similar characteristics called components.
Benchmark properties within these components are chosen for a detailed valuation. Valuers then compare the benchmark properties to other land in the component to estimate the values of the other properties in the component. When undertaking this comparison, the valuers consider factors including the land use zoning, heritage and other constraints on the use of the property, and other nearby development and infrastructure. In addition and as the value of land in your land tax assessment notice is the unimproved value of your land, the valuers must deduct an amount for any improvements on the benchmark properties that are not to be included. That deduction often occurs without an internal inspection of any buildings on the benchmark properties.
This process necessarily means assumptions are made that lead to a margin for error that may see an inflated value given to your property. This is especially so as the comparison of a particular parcel of land with the benchmark properties is a matter of opinion.
What to do once you’ve received your land tax assessment notice
Upon receiving a land tax assessment notice, you should immediately note the last date an objection can be lodged. That date is usually detailed on the land tax assessment notice but as mentioned, it is 60 days after being served with the assessment notice.
Consideration should then be given to the valuations in the land tax assessment notice. The assessment notice sets out the value of the land over the last three years and it is the average of these amounts that forms the basis of the land tax liability. You can object to any or all of these values if you think these are too high. If you missed the deadline to object last year, this can be a good way to object to an earlier valuation now.
Valuing land can be a complicated process and so you may wish to engage an independent registered valuer to value your property if you suspect that any of the valuations in the land tax assessment notice are too high. If you decide to lodge an objection you will need to detail your reasons for objecting to the valuation and a preliminary independent valuation by the valuer can form the basis of an objection. More information on making an objection can be found in the Guide to the Valuer General’s Review Process.
The value of your property also determines the rate of land tax you are liable to pay. The land tax threshold for 2020 is $734,000 and the land tax rate is calculated on the combined value of all the taxable land you own above this threshold. Land tax is calculated as $100 plus 1.6% of the land value between the threshold and the premium rate threshold ($4,448,000 for 2020) and 2% thereafter.
What to do once your objection has been determined
If you lodge an objection to a valuation, the Valuer General will appoint an independent valuer to review the valuation. Your objection will then be determined and you will be advised whether your objection has been allowed, allowed in part or disallowed. If the Valuer General does not determine the objection within 90 days of it being lodged, then it is deemed under law to have been disallowed.
If your objection has been disallowed, or is deemed to have been disallowed, you have 60 days after the date of disallowance to commence an appeal of the determination in the NSW Land and Environment Court. When considering whether to appeal the determination of your objection, it is very important that you seek legal advice. Amongst other things, you will need to consider whether the cost of the appeal might outweigh the potential tax savings if you are successful.
Foreign Landowner Land Tax Surcharge
Proposed changes currently before the NSW Parliament clarifying when a trustee of a discretionary trust holding an interest in residential land in NSW is liable for a 2% ‘foreign landowner’ land tax surcharge did not pass through Parliament in 2019.
Under the amendments proposed by the State Revenue Legislation Further Amendment Bill 2019 a trustee of a discretionary trust holding an interest in residential land in NSW may be able to escape, or be refunded where already paid, the 2% ‘foreign ownership’ land tax surcharge imposed from the 2018 land tax year onwards, if the terms of the trust deed prevent a foreign person from being or becoming a beneficiary of the trust.
As introduced, the Bill contained transitionary provisions for existing discretionary trusts to be given an exemption or refund on surcharges imposed from the 2018 land tax year onwards if the trust deed was amended by 31 December 2019 to prevent a foreign person from being, or becoming, a beneficiary of the trust. However as the Bill has not yet passed, NSW Revenue has announced that the Government intends to extend that 31 December 2019 deadline and it appears the Bill has now been amended to extend the deadline to 31 December 2020. This means there may still be time to review the deeds of discretionary trusts and make the required ‘no foreign beneficiary’ amendment to be eligible for these transitionary arrangements should the Bill pass with an extended deadline. If trustees of existing discretionary trusts have not yet undertaken this process, then action should be taken now.
Mills Oakley has significant experience in all aspects of NSW land valuation matters. We can assist in determining whether to lodge an objection to valuations in your land tax assessment notice and the preparation, lodging and furthering of objections with the Valuer General. Where an objection has been disallowed, we can also advise and represent clients in appealing the determination in the NSW Land and Environment Court. By way of an example, we recently represented a client in an appeal that saw the land value reduced for land tax purposes by 39%. Of course, once appeal proceedings are commenced, we work to resolve the proceedings through early conciliation if possible so as to avoid the cost and uncertainty of a hearing.
Please contact us if you would like further information on lowering your land tax liability by objecting to valuations in your land tax assessment notice or appealing the determination of an objection. We can also advise on existing and future discretionary trust deeds, and can attend to the required amendments in relation to the changes proposed by the State Revenue Legislation Further Amendment Bill 2019 detailed above.