Court Decisions
GST valuation not valid
18.12.2008
The Federal Court (Middleton J) has held that a professional valuer made a number of vitiating errors in making a 1 July 2000 GST margin scheme valuation under the hypothetical development method of valuation prescribed by the margin scheme valuation requirements determination (“the Determination”) for valuing partly completed buildings (Brady King Pty Ltd v FCT (No 2) [2008] FCA 1918).
The Determination required that the valuation be provided by a professional valuer and that the valuer have regard to the market value of the completed premises, the cost to complete the partly completed premises and the profit margin and holding costs that are attributable to the period on or after the valuation date. Although the term “holding costs” is not defined, it was accepted by the parties that holding costs included rates and taxes (including land tax, but not GST).
Middleton J said that, if the valuer did not have regard to the three matters mentioned (the market value of the completed premises; the cost to complete the partly completed premises; and the profit margin and holding costs that are attributable to the period on or after the valuation date), the valuation would be invalid and of no operation for the purposes of the Determination. However, just because another valuer may come to a different valuation figure did not mean that the valuation relied on may not be in compliance with the prescribed requirements.
Middleton J held that there were a number of errors made by the valuer which rendered the valuation invalid. These were:
· the valuer failed to take into account actual sale prices after 1 July 2000, although such were available to him, and this was a fundamental error which affected the validity of the valuation;
· in the calculation of the profit margin, the valuer had not made an allowance for an estimate of the GST that would be payable and this was required by the Determination as a matter of law. The fact that GST is not specifically identified as such in the Determination was not determinative of leading to the conclusion that it is excluded if it is otherwise a matter to be taken into account under the concept of profit margin. The effect of leaving GST out of account was to exclude an outgoing of approximately $2,500,000 from the calculation;
· the valuation was made on the basis that interest on the acquisition cost was to be calculated on the actual purchase price, whereas the correct figure on which to calculate interest was approximately $23,000,000; and
· the valuation failed to take into account stamp duty and legal costs that a hypothetical developer would bear.
In addition, Middleton J held that the valuation should have taken into account (as holding costs) rates and land tax, although this error on its own may not have been sufficient to vitiate the valuation.
