The next time you are passing a house on a large block in a built up location or a small farm in the suburbs, chances are that you’re subsidising their Council rates and State land tax … enjoy.
Here’s why ….
A 2012 token review of the Land Valuation Act (VLA) has ensured a privileged enclave of asset-rich land owners will continue to receive significant property tax concessions subsidised by the majority. QLD is the only State to have such inequality despite a succession of independent reviews denouncing these dispensations.
The land valuation system applicable to local government rates, state land tax and other property taxes was overhauled in 2010 with the introduction of the new VLA. (pls see earlier article here “New Site Value for Rates & Land Tax”) The new Act included a provision for the further review of the following “concessional provisions” by December 2012.
The single dwelling house concession was first introduced to the Valuation of Land Act 1944 (VOLA) in 1953 and was further amended in 1971 and 2000.
The farming concession was first introduced into the VOLA in 1971 and was further amended in 1991 and 2000.
The discount for subdivided land was first introduced into the VOLA in 1997 and was further amended in 1998 and 2001.
These were politically motivated “exceptions” that corrupted the original intent of the Act and bastardised the holy grail of “highest & best use” valuation methodology. As initially feared, they lead to an abuse of fairness and equity, producing more disputes and litigation in the Courts than all other provisions of the Act combined.
There have been no less than six government appointed independent reviews under the leadership of various eminent and knowledgeable persons to thoroughly examine the fairness and equity provisions of the system.
The earlier reports (Hardie, Chalk) suggested a dispensation from rates associated with a more valuable use and then, when the concessional use ceased, an optional retrospective rate recovery (by the local government), based on the more valuable use.
The Smith report went further to state that concessions were more appropriately the responsibility of local governments and also mentioned a concern that valuers were forced to make socio-economic decisions.
The more recent investigations (Evans 1996, Hefferan/Boyd 2008, PwC 2010) all recommended that concessions should be removed from valuation legislation and be the responsibility of revenue collectors.
Several of these investigations suggested re-couping ‘lost’ revenue when a property is sold. Understandably, there is little appetite for implementing a regime where rising rates and land tax force an owner to sell their property. On the other hand it seems reasonable that the majority of owners who pay property taxes through the course of their ownership would expect some re-balance of the ledger when the circumstances of the ‘privileged few’ change.
The two glaring examples of the inequity are:
Single dwelling house concession : Mum & Dad reside in the family home, perhaps for decades. The growth of the urban environment (not of their making) eventually makes their property ‘ripe’ for redevelopment (e.g. subdivision, units, commercial /industrial). The existing laws prevent the property being valued to ‘highest & best use’ so the land is valued for tax purposes only as a single house site. This often results in a valuation less than 50% of the actual land value.
Farming concession: Again, an owner (usually family) might establish property for primary production purposes. Often these are ‘hobby farm’ type uses. Notwithstanding the qualifiers of ‘dominant use’, ‘significant commercial purpose or character’, and ‘profit on a continuous or repetitive basis’ (a source of constant debate) these circumstance result in the existing laws preventing the property being valued to ‘highest & best use’ so the land is valued for tax purposes only as a farm holding. Again this can produce a statutory valuation substantially below the actual land value.
The reality of these instances is that the beneficiaries of the estate are usually the ones who enjoy the ‘windfall’. In the examples illustrated above the original ‘Mum & Dad’ owners frequently sell their property when confronted by circumstances of ageing, health, death etc.
Mind you, there are also a plethora of ‘savvy investors’ who acquire such property and install tenants to maintain either the residential or farming concessions. They receive the ‘tax breaks’ though this was not the intent of the originating legislation.
Govt estimates report there are 160,000 properties State wide that receive the single dwelling house concession and 35,000 that receive the farming concession.
The Office of State Revenue estimated the impact on land tax revenue from the removal of Single Dwelling House and Farming concessions from valuation as an increase of between $15 and $20 million each year. Bearing in mind that a principle place of residence is exempt from land tax, the lion’s share of this estimate is likely attributable to farming concessions.
The $$ dollar impacts on Council rating revenue are more difficult to define due to the mire of complex rating structures across the 73 local authorities. If it is assumed the average discounted benefit amounts to only $1,000 per property, then the lost rating revenue cost could be in the order of $150-200M per year. That’s possibly a conservative estimate.
Despite the abundance of previous expert evidence the State Government appointed a lop-sided Valuation Reform Reference Group (VRRG) in 2012 comprising mostly stakeholders whose constituents had an overwhelming vested interest in maintaining the status quo. The outcome was as predictable as a ‘Black Caviar’ race.
Parliament was duly advised that ‘after wide consultation’, no amendments were proposed.
Acknowledgement: some content above has been sourced from “2012 Valuation Reform Reference Group (VRRG) 5412T1860” www.parliament.qld.gov.au/docs/find.aspx?id=5412T1860
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