Tax office wins crucial case on property valautions

In a case that could have widespread ramifications for the building industry, a Federal Court decision has given the Australian Taxation Office the ability to challenge valuations used by property developers in calculating their tax bill.

In a case that could have widespread ramifications for the building industry, a Federal Court decision has given the Australian Taxation Office the ability to challenge valuations used by property developers in calculating their tax bill.

The ruling involved a $54.1 million valuation on a Brady King strata unit development in Melbourne by property valuer Christopher Nicodimou. The valuation was found to be invalid last month because it did not take into account items such as stamp duty and other purchase costs.

The valuation had been provided for a margin scheme, a commonly used method of calculating goods and services tax payable for property bought and sold by developers where tax is paid only on the value-add component of the property.

But the judge said a valuation must take into account the market value of the premises, the cost to complete partly-completed premises and holding costs.

Tony Riordan, tax partner at Riordans Lawyers, says the case will put new focus on the importance of professional valuations.

“The issue is really that in this case, for GST purposes, the valuation purpose is a statutory one. It’s not a matter of an expert expressing an opinion which can’t be challenged. The commissioner can drill down into the decision making process where GST is involved.”

But David Green-Morgan, research director at DTZ Research, says the court’s ruling may lead to a flood of new cases.

“You often get owners challenging the valuation, but for a tax authority to do so… I imagine you might see challenges that could force a number of cases into the courts… and tie up a lot of people’s time and effort.”

But Green-Morgan says the decision may force property investors to place a higher emphasis on obtaining thorough valuations.

“If anything it will encourage owners and developers to get proper valuations because they don’t want to be in danger of having it challenged by the tax office. If they want to avoid a fight with the ATO, and most people do, they would be more inclined to get proper – that is, official – valuations done.”

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