Rft Request for Real Estate Appraisal Contract

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					         SUBMISSION TO


THE STANDING COMMITTEE ON PUBLIC
           ACCOUNTS




  INQUIRY INTO LAND VALUATION
           IN THE ACT




            Submission by
        the ACT Government

             1 May 2006




                i
TABLE OF CONTENTS

1      Introduction..........................................................................................................1

    1.1        Terms of Reference ........................................................................................1
    1.2        Abbreviations .................................................................................................1

2   Terms of Reference a) - Criteria and methods used for determining the
value of improved and unimproved land...................................................................2

    2.1        The Contract Valuer ......................................................................................2
    2.2        Brief Outline of Residential Rating Approach by the AVO............................2
    2.3        Brief Outline of the Non-Residential Rating Approach by AVO....................5
    2.4        Number of Sales Analysed to Produce UVs for 2004 and 2005 ....................5
    2.5        Conclusion .....................................................................................................5

3   Terms of Reference b) - Quality controls used to achieve accuracy in land
valuations ......................................................................................................................6

    3.1        Land Valuations are Estimates ......................................................................6
    3.2        Quality Assurance by Contractor and ACTRO..............................................6
    3.3        Data Integrity Tests by AVO ..........................................................................6
    3.4        Objection/Appeal Process as a Measure of Accuracy of UVs.......................7
    3.5        Balancing Cost With Fair and Equitable Objection/Appeal Process............8
    3.6        Outcomes From Objections ...........................................................................9
    3.7        Outcomes From AAT Appeals......................................................................12
    3.8        Conclusion ...................................................................................................14

4   Terms of Reference c) - Professional standards required of the people
conducting valuations and criteria for selecting the valuer(s)...............................14

    4.1        Academic and Professional Qualifications of Valuers ................................14
    4.2        Practice Standards.......................................................................................14
    4.3        Procurement of a Contract Valuer ..............................................................15
    4.4        Procurement, Request for Tender and Contract..........................................15
    4.5        Conclusion ...................................................................................................16

5   Terms of Reference d) - Criteria (including frequency) and processes for
checking the accuracy of valuations.........................................................................16

    5.1        Data Integrity and Accuracy........................................................................16
    5.2        Edit Reports and Review on Objection ........................................................16



                                                                ii
   5.3         Conclusion ...................................................................................................17

6   Terms of Reference e) - Criteria and processes for resolving errors and
disparities in valuations.............................................................................................17

   6.1         Resolution of Errors and Disparities...........................................................17
   6.2         Conclusion ...................................................................................................17

7   Terms of Reference f) - Criteria and processes for dealing with objections to
valuations. ...................................................................................................................17

   7.1         Objections to Assessment Based on UV.......................................................17
   7.2         Current Work Practices ...............................................................................18
   7.3         Outcome of Objections and Appeals............................................................19
   7.4         Conclusion ...................................................................................................19

8    Terms of Reference g) - Information provided to landholders on the basis
for determining valuations. .......................................................................................20

   8.1         Written and Electronic Advice .....................................................................20
   8.2         Conclusion ...................................................................................................20

9   Terms of Reference h) - Impact of claims of commercial-in-confidence on
accountability and transparency. .............................................................................21

   9.1         Commercial-in-Confidence..........................................................................21
   9.2         Conclusion ...................................................................................................21

10    Terms of Reference i) - Impact of land tax rates on the housing rental
market. ........................................................................................................................21

   10.1        Features of Land Tax in the ACT.................................................................21
   10.2        Stability of Residential Land Tax Base ........................................................22
   10.3        Land Tax as a Component of Landlord’s Reward .......................................22
   10.4        The Economic Impact of Land Tax ..............................................................22
   10.5        Conclusion ...................................................................................................23

11     Terms of Reference j) - Information provided to landholders on the data
required and the processes for appealing against assessments of land value.......24

   11.1        Information Provided to Landholders .........................................................24
   11.2 AAT Comments in Chapman & Morgan Pty Limited V Commissioner for
   ACT Revenue............................................................................................................24
   11.3        NSW Ombudsman’s Report..........................................................................26
   11.4        Conclusion ...................................................................................................27



                                                               iii
12    Terms of Reference k) - Equity between landholders – information
provided to other landholders in the area/suburb in the event that an adjustment
is made to the valuation of a local property following a successful appeal. .........27

  12.1      Advice to Others After a Successful Objection ............................................27
  12.2      Advice to Others After a Successful Appeal.................................................27
  12.3      Conclusion ...................................................................................................28

13       Attachments....................................................................................................28




                                                           iv
1     Introduction

1.1     Terms of Reference

1.1.1    The Committee will inquire into, and report on the valuation of land in the
         ACT to determine the clarity, efficiency, equity, accountability and
         transparency of the Terms of Reference a) to k).

1.1.2 This Submission addresses the Terms of Reference in relation to land
      valuation as determined by the Commissioner for ACT Revenue under the
      Rates Act for the purpose of calculating rates under that Act and land tax
      under the Land Tax Act (where land tax is applicable). The ACT Revenue
      Office administers both rates and land tax.

1.1.3    The AVO has provided input for this submission, but has also advised of their
         intention to provide their own submission to the Committee.

1.2     Abbreviations

1.2.1    The following abbreviations are used throughout this Submission:
         o AAT is the ACT Administrative Appeals Tribunal.
         o AAT Act is the Administrative Appeals Tribunal Act 1989.
         o ACTRO is the Australian Capital Territory Revenue Office.
         o Appeal is an appeal to the AAT after an objection has been decided.
         o API is the Australian Property Institute.
         o AUV is the Average Unimproved Value as defined by the Rates Act.
         o AVO is the Australian Valuation Office.
         o Commissioner is the Commissioner for Australian Capital Territory
            Revenue.
         o BEPCON is the Building, Electrical and Plumbing Control (ACT Planning
            and Land Authority).
         o CAVS is the AVO’s Computer Aided Valuation System.
         o Department is the Department of Treasury.
         o DRC is Depreciated Replacement Cost.
         o Determination of UV means determination or redetermination by the
            Commissioner under the Rates Act.
         o Land Tax Act is the Land Tax Act 2004.
         o Morgan’s case is the AAT case of Chapman & Morgan Pty Limited V
            Commissioner for ACT Revenue.
         o Objection means an objection to an assessment of rates based on
            dissatisfaction with the UV.
         o Ombudsman’s Report is the NSW Ombudsman’s Report –Improving the
            quality of land valuations issued by the Valuer General.
         o PCA is the Property Council of Australia.
         o Rates Act is the Rates Act 2004.
         o REIACT is the Real Estate Institute of the ACT.
         o RFT is Request for Tender.
         o Taxation Administration Act is the Taxation Administration Act 1999.
         o UV is the Unimproved land Value.


                                            1
2     Terms of Reference a) - Criteria and methods used for
      determining the value of improved and unimproved land.

2.1     The Contract Valuer

2.1.1    Unimproved Value (UV) of rateable land is dealt with in Part 2 of the Rates
         Act 2004 (the Rates Act) and is defined in section 6 of this Act. In the ACT,
         UVs are independently assessed by a qualified contract valuer on behalf of the
         Department of Treasury (the Department), and are based upon an analysis of
         property sales near the valuation date of 1 January each year using accepted
         valuation principles and comparable sales evidence. This is further explained
         at paragraphs 2.2 and 2.3.

2.1.2    An electronic list of proposed UVs for all existing properties as at 1 January
         each year is provided by the valuer to the ACT Revenue Office (the ACTRO).
         The Commissioner for ACT Revenue (the Commissioner) electronically and
         manually tests each individual UV, and their total, for reasonableness. When
         satisfied, the Commissioner determines the annual revaluations (UVs) in
         accordance with the provisions of the Rates Act.

2.1.3    The newly determined UV, with the two previous UVs, is used to calculate the
         Average Unimproved Value (the AUV). The AUV is then used to assess the
         land value based component of the rates charge, and the land tax charge (if
         applicable).

2.1.4    The Australian Valuation Office (the AVO) is the current contract valuer
         providing valuation services to the Department. The three year contract is due
         to expire in November 2006. The selection criteria for procurement, request
         for tender and the contract are discussed at paragraphs 4.3 and 4.4.

2.1.5    Improved valuations are not provided to the Commissioner for the purposes of
         assessing rates and land tax. However, the Commissioner may request
         improved values to assess duty in certain cases where evidence of the dutiable
         value of property is required.

2.2     Brief Outline of Residential Rating Approach by the AVO

2.2.1    Residential UVs in the ACT are determined from analysis of sales of vacant
         land and sales of improved residential properties. The Mass Appraisal System
         is predicated on a base year of values wherein relativities for all residential
         (and non-residential) properties had been established by assessment of
         individual properties.

2.2.2    The valuation process to ascertain the UV includes a series of steps:

         o   The AVO team, comprising 5 valuers, selects a broad range of property
             sales within a suburb sector that are then inspected from the street frontage
             to assess their external condition and a sample is inspected internally.
             During the 2006 rating project 1,200 were inspected externally and
             approximately 800 were reviewed by reference to building plans.


                                             2
        o   Additional information regarding internal condition, refurbishment etc, is
            obtained from AllHomes.com and discussion with agents as required.

        o   Included are other sources of information available on AVO hardcopy and
            electronic files, in the print media, and analysis by property organisations
            such as the Real Estate Institute of the ACT (the REIACT), Property
            Council of Australia (the PCA) and the Australian Property Institute (the
            API).

        o A building plan is usually on AVO’s file or one is ordered from Building,
          Electrical and Plumbing Control (BEPCON) to provide the valuer with
          additional information to establish the value of the improvements.

        o   The Depreciated Replacement Cost (the DRC) approach includes
            assessment of individual components of the improvements including the
            main building, fixtures and fittings, sheds, pool, landscaping, fencing and
            paving, and other improvements.

        o The AVO assesses different total useful life for the main property and any
          extensions where appropriate.

        o   The depreciated value of the improvements is deducted from the sale price
            to deduce a land value.

        o   The DRC approach may not be the only method relied upon to assess land
            values. Where there is some certainty regarding land value the valuer will
            also look at infill vacant land sales.

        o   Prior to being finalised, all values and calculations are checked by a senior
            valuer and the project manager. Comparative analysis also occurs on a
            section, suburb, district and ACT level to provide overall consistency.

2.2.3   In assessing the UVs at that time for both residential and non-residential
        properties, consideration is given to the evidence revealed by market sales,
        together with the other normal valuation considerations as relevant, including
        size, location, amenity, purpose clauses and maximum gross floor areas
        permitted.

2.2.4   An annual revaluation of residential properties within a suburb would involve,
        in brief, the following:

        o   A suburb is broken down into a number of localities where grouping of
            like properties in the suburb that shared common features and influences
            are considered to be subject to more or less the same market forces, for
            example, a section of larger sized properties on a ridgeline in a suburb
            affording extensive views over parts of Canberra, as against another
            locality containing properties that were not elevated, enjoyed no views and
            contained smaller than average blocks.



                                            3
o   Sales of comparable properties on or around the relevant date (1 January in
    each year) are inspected and analysed to derive a land value for the sale
    properties. Vacant land sales, if available and comparable, are used.
    However in their absence, analysis of “improved” sales provides the basis.

o   A block within the locality that, by virtue of its size, shape, and other
    characteristics/attributes is considered to be very representative of the
    other properties within the locality is identified and selected as the
    benchmark property. That benchmark property is valued as at the relevant
    date by reference to the comparable analysed sales evidence.

o   The derived land values from the analysed sales as at 1 January of each
    year are then compared with the previous UV of each of the sales, thereby
    establishing an indexing factor. If these analysed sales provide consistent
    evidence of an increase or decrease in land value this is expressed as a
    positive or negative percentage factor. The determined percentage factors
    are applied to the benchmark blocks and then applied to all the previous
    years’ values for the balance of the blocks in the respective localities and
    this is applied to the AVO’s Computer Aided Valuation System (CAVS) to
    produce the new UV.

o   The valuer considers all relevant factors, including Territory Plan
    variations for a suburb before checking the resultant values for the suburb
    based upon the newly determined benchmarks. As part of this checking
    process, any blocks whose attributes may have changed or be subject to
    new enhancing or detracting influences etc since the previous year’s
    valuation assessment will be singled out for amendment. However, it is
    noted that in most of these instances, analysis of sale properties similarly
    affected will identify any impact on value, thus individual adjustments are
    very few in the process, representing some 5 to 10 individual blocks.

o   The determined land values are then checked for relativity between each
    of the localities within a suburb and then they are considered between
    adjoining suburbs to ensure that there is consistency between all based
    upon the sales evidence and the experience of the valuer. All residential
    sales in the period near the base date are considered. However, only the
    mid range sales are adopted for comparison purposes. Limited numbers of
    analysed sales showing an extreme growth or fall in values over the
    previous valuation are disregarded. A senior valuer with relevant
    experience supervises the analysis process.

o   The Taxation Administration Act 1999 (Taxation Administration Act) and
    the Rates Act provide for the objection process where ratepayers have the
    opportunity to seek a review of the UV. The valuer, in this instance,
    inspects the property and reviews the objector’s UV based upon the
    arguments as outlined in the letter of objection having regard to the
    relevant analysed market evidence, and ultimately confirms, reduces or
    increases the UV.



                                    4
2.3     Brief Outline of the Non-Residential Rating Approach by AVO

2.3.1 For non-residential properties in suburban and outer metropolitan Canberra,
      generally the approach is similar, with properties of like lease purposes/uses
      identified and grouped according to the different locations. The commercial
      vacant sales occurring in Canberra are recorded and all details relating to the
      purpose clause and development conditions are analysed providing both gross
      floor area and site area $ rates per square metre.

2.3.2 In addition, reference is made to improved commercial sales within Canberra
      precincts of commercial office, commercial retail, industrial and suburban
      shops and these sales are analysed to provide both $ rates per square of gross
      floor area and site area. The analysis of these commercial properties further
      notes the standard of improvements and commercial activity for these
      properties at time of sale.

2.3.3    Specialised properties are valued on an individual basis having regard to all
         development conditions and other factors of the lease, which may have a
         bearing on the market value of the block of land.

2.3.4    For non-residential properties in metropolitan Canberra (in particular the
         central area of Civic), an individual assessment of each property is undertaken
         due to the specific nature of each lease, which defines the use and gross floor
         area of the individual blocks.

2.4     Number of Sales Analysed to Produce UVs for 2004 and 2005

2.4.1    There were 102,931 properties in the AVO’s CAVS on 1 January 2004 and
         104,024 on 1 January 2005. This represents an increase of just over 1% in the
         number of UVs provided for this period.

2.4.2    The Canberra valuation process will overall see approximately 1,100
         residential property sales analysed during each rating project. The AVO
         analyses on average 6 to 10 sales per suburb dependant on the number
         occurring within the relevant time period and also the number of localities
         identified within the suburb that require valuations. In the larger suburbs of
         Kambah, Gordon etc where there are a large number of sales and significantly
         more localities, the sales of up to 30 properties will be analysed.

2.5     Conclusion

2.5.1    The criteria and methods used to value land in the ACT are based on standard
         valuation practices. An outline of the basis for valuation is provided in the
         Valuation Notice (see Attachment I) that is issued annually to all rateable
         property owners. Further information is available by contacting the ACTRO.




                                            5
3     Terms of Reference b) - Quality controls used to achieve accuracy
      in land valuations

3.1     Land Valuations are Estimates

3.1.1    Land valuations are necessarily estimates. They are not expressed in absolute
         terms. Valuers are professional persons who might well have differing views
         on the value of a particular property. The API and NZPI Professional Practice
         2004 states, in relation to Valuation for Rating and Taxing, that “While the
         ideal is to produce a percentage error of zero, a value within 15% is generally
         regarded as acceptable.”1 Where values fall within this range there is little
         cause for concern.

3.2     Quality Assurance by Contractor and ACTRO

3.2.1    The contract valuer must adhere to the Quality Assurance Requirements of the
         Request For Tender (RFT) by running edit reports in order to ensure timely
         and accurate valuations are provided to the ACTRO.

3.2.2    In addition, during the annual revaluation process the ACTRO produces a
         series of edit reports which highlight:

         o all UVs that fall outside normal parameters - lists properties where the
           revaluation has increased or decreased beyond a specified percentage;
         o missing UV reports - lists all properties that have not been updated with
           the latest revaluation; and
         o warning reports - where more than one value has been provided for the
           same property or the value originally provided has been rejected by the
           system.

3.2.3    These edit reports are produced at regular intervals during the annual
         revaluation process and are forwarded to the AVO for checking and
         verification purposes. The valuation data is periodically reconciled between
         the ACTRO and the AVO until all values are updated and accurately recorded
         in the rates and land tax database. The UVs are then formally determined by
         the Commissioner.

3.3     Data Integrity Tests by AVO

3.3.1    The AVO conducts data integrity tests. When finalising the rating project, the
         UVs are checked to ensure that the correct percentage factors have been
         adopted for each of the residential localities. There are approximately 96
         residential suburbs with each suburb having between 1 to 8 identified
         localities, approximating 450 residential localities within the Canberra
         residential rating program. The 1,100 or so analysed residential properties are
         listed within the Canberra Division folios ready for forwarding to the ACTRO.




                                            6
3.3.2    Each Canberra residential suburb will be signed off after the senior valuer has
         ensured that the valuation exercise has met all valuation criteria and integrity
         processes.

3.3.3    The main commercial precincts comprising the five business centres of Civic,
         Belconnen, Tuggeranong, Woden and Gungahlin surrounded by the adjoining
         Service and Trades localities, including the three industrial precincts, and the
         suburban centres are considered on purpose clause activities. Each of the
         commercial precincts will be signed off after the senior valuer has ensured that
         the valuation exercise has met all valuation criteria and integrity processes and
         that the market evidence supports the determined percentage changes.

3.3.4    The rating valuation exercise will require the valuers to review all their sale
         analysis, checking the data used in arriving at the derived land value
         percentage changes. The first draft of the issued UVs is checked for each
         locality of each suburb to ensure that the percentage rate is at the level
         approved and additionally individual blocks within the localities are checked
         to ensure that they reflect the percentage as approved. After each valuer has
         completed this checking process it is then checked by the senior valuer who
         will make individual checks to ensure the correctness of the final assessment.
         The senior valuer, on acceptance of all UVs, signs off on the revaluation
         exercise.

3.4     Objection/Appeal Process as a Measure of Accuracy of UVs

3.4.1    An analysis of objections and appeals reveals that determinations of UVs are
         generally accurate and robust. Only a very small proportion of ratepayers
         object to their valuation. The purpose of the review process is clearly not to
         reduce rates and land assessments as such, but to maintain an accurate land
         valuation database that leads to fair and equitable treatment for all taxpayers.
         As measured by the review process, the level of community concern in
         relation to UVs is extremely low.

3.4.2    The accuracy of UVs can be evaluated, in part, by the accuracy of the UVs
         recorded by the objections and appeals processes measured by:

         o the number of objections received;
         o the percentage of objections allowed or disallowed;
         o the number of appeals to the AAT; and
         o the percentage of AAT appeals allowed or disallowed.

3.4.3    There are about 105,000 potential objectors (102,500 residential and 2,500
         non-residential) who are provided with relevant information about the review
         process every year with their annual rates assessments. (See paragraph 11 for
         further detail.)

3.4.4    The fee for lodging an objection to the UV determined by the Commissioner is
         $20 rather than the $50 fee charged for objections to all other tax assessments,
         decisions and determinations. The $20 fee is refundable if any change is made
         as a result of the objection. It is estimated that about 204,000 UVs were


                                             7
         determined for 2004 and 2005 and only 326 (about 0.15%) of these resulted in
         an objection. In other words, some 203,700 UVs, or about 99.85% of
         potential objectors did not raise an objection with the UVs as determined by
         the Commissioner.

3.4.5    At 1 March 2006, there were 21 objections to assessment based on UVs
         lodged during the period 1 July 2004 to 28 February 2006 awaiting a decision.
         Six are for residential property and 15 for non-residential property.

3.5     Balancing Cost With Fair and Equitable Objection/Appeal Process

3.5.1 Whilst it is important to provide an equitable and effective process of review
      for taxpayers, it is also important that the cost to both taxpayers and the
      Territory is kept to a minimum. The land valuation system is an
      administrative process designed to apportion revenue charges to land holders
      on the basis of the value of their lease and needs to be administratively
      efficient and effective. The estimated costs and benefits of objections to the
      Commissioner and Appeals to the AAT over the period 1 July 2004 to
      28 February 2006 are set out in Tables 1 to 6 in paragraphs 3.6 and 3.7.

3.5.2    The stated Department costs are an estimate based on the average time spent
         on each objection and appeal.

3.5.3 The estimated AVO cost for an objection is based on the cost per objection for
      those in excess of the 150 provided for under the set fee contract price. The
      AVO is unable to provide an estimated total cost (including consultants) for
      each AAT appeal for the period required as these, up to 10 per year, are borne
      within the fee for the contract agreement between the Department and the
      AVO. If there are any appeals in excess of 10 per year, the cost is negotiated
      on a case by case basis.

3.5.4    The valuation contract includes revaluation of all rateable land, 150 objections
         and 10 appeals each contract year. The contract requirements are further
         detailed at paragraph 4.4.5.

3.5.5 The AVO bears all costs of up to 10 AAT appeals/year within the set fee. By
      agreement between the parties, the AVO may employ a contractor and,
      accordingly, the AVO employed contractors for two of the seven appeals
      (listed in Table 6) from within its contract price.

3.5.6    The average total cost of the AVO and the Department expenses per objection
         is estimated at $700 for residential land and $1,100 for non-residential land.
         The greater complexity in dealing with non-residential UVs is reflected in the
         cost differential between the two categories. The contract with AVO provides
         for higher fees (about 115% more) and a longer response time (50% longer)
         for non-residential property.

3.5.7    The cost per appeal is estimated to average $20,000 for the Department and
         the Government Solicitor’s Office (including Counsel’s fees). The costs for
         the AAT and the AVO cannot be estimated.


                                            8
3.6     Outcomes From Objections

3.6.1    It should be noted that any change in UV results in an amended AUV (the
         three year average) used to calculate the valuation based component of rates,
         and any land tax charges. This averaging process reduces the impact of the
         UV change on the calculation of those charges. Changes to the AUV in future
         years cannot be estimated as the component values for those years are not
         known. The impact of a changed AUV component on future rates could also
         be moderated by changes to the value of the threshold and/or the fixed charge.
         Future rates and land tax charges will be impacted by the determined rate/$
         used to calculate these charges.

3.6.2    There are sometimes specific circumstances affecting a particular block that
         the Mass Appraisal System could not be expected to identify. The nature of
         the circumstances that could impact on UV may be related to the individual
         owner of a block, or even to the owner or circumstances of a neighbouring
         block. Such circumstances could change over time as ownership of property
         changes and will only be discovered and dealt with appropriately on objection.

3.6.3    The objection process can also be used by ratepayers seeking an increase in
         the UV determined for their property, which would lead to an increase in
         charges assessed for rates and land tax. In the period 1 July 2004 to
         28 February 2006 there was one such successful objection. It is also possible
         that the AVO review on objection may result in an increased UV.

3.6.4    Residential property objections to UVs determined by the Commissioner and
         resolved in the period 1 July 2004 to 28 February 2006 are detailed in Table 1.
         The estimated average change in UV and rates and land tax charges are in
         Table 4 and Table 5. The results compare favourably with the API Standard
         for valuation of land for taxing purposes of plus or minus 15%, with only 12
         properties (5% of all residential objections) with UVs amended by more than
         15%. 95% of allowed objections fell within the API Standard. The cost
         effectiveness for both the taxpayer and the Department should be considered
         as 29% of all residential objections resulted in an adjustment of rates and land
         tax of less than $50. In summary over the 20 months to February 2006:

         o   There were 243 residential objections with 103 allowed (an overall
             objection rate of 0.12% of all potential residential objections).
         o   12 objections (5%) resulted in UV change of >15%.
         o   47 objections (19%) resulted in UV change up to 5%.
         o   The total UV reduction for residential property was 8%.
         o   Average cost to process objections per property was $700.
         o   Estimated average reduction in rates and land tax/property was $300.
         o   30 objections (29%) resulted in rates and land tax adjustment < $50.
         o   73 objections (71%) resulted in rates and land tax adjustment $50 or more.




                                            9
Table 1. Residential Property Objection Outcome 1 July 2004 to 28 February 2006 (rounded)
                No of          Total UV         Reduction in    Estimated         Estimated
                Objections     Determined by Total UV           Total             Total Cost to
                               Commissioner After               Reduction in      Department
                               Subject to       Objection       Rates and         and AVO
                               Objection *                      Land Tax as a (at $700 per
                                                                Result of         obection)
                                                                Objection
                                          $000            $000              $000
                                                                                            $000
Allowed                  103          118 446           14 996                77               72
Disallowed               140            74 654              nil               nil              98
Total                    243          193 101           14 996                77              170
                                                        or 8%
* Includes 23 properties with UV $1m to $5m, 3 with UV >$5m, and 1 property >$12m



3.6.5   Non-Residential property objections to UVs determined by the
        Commissioner and resolved in the period 1 July 2004 to 28 February 2006 are
        detailed in Table 2. The estimated average change in UV and rates and land
        tax charges is in Table 4 and Table 5. The results compare favourably with
        the API Standard for valuation of land for taxing purposes of plus or minus
        15%, with only 7 properties (11% of all non-residential objections) with UVs
        amended by more than 15%. 89% of allowed objections fell within the API
        Standard. Only 5% of all non-residential objections resulted in an adjustment
        of rates and land tax of less than $100. In summary over the 20 months to
        February 2006:

        o There were 62 non-residential objections with 19 allowed (an overall
          objection rate of 1.2% of all potential non-residential objections).
        o 7 objections (11%) resulted in UV change of >15%.
        o 1 objection (<2%) resulted in UV change up to 5%.
        o The total UV reduction for non-residential property was 3%.
        o Average cost to process objections per property was $1,100.
        o Estimated average reduction in rates and land tax/property was $1,000.
        o 1 objection (5%) resulted in rates and land tax adjustment < $100.
        o 18 objections (95%) resulted in rates and land tax adjustment $100 or
          more.
Table 2. Non-Residential Property Objection Outcome 1 July 2004 to 28 February 2006
(rounded)
             No of          Total UV         Reduction in    Estimated        Estimated
             Objections     Determined by Total UV           Total            Total Cost to
                            Commissioner After               Reduction in     Department
                            Subject to       Objection       Rates and        and AVO (at
                            Objection                        Land Tax as a $1 100 per
                                                             Result of        objection)
                                                             Objection
                                       $000            $000             $000

                                                                                            $000
Allowed                 19            23 883            3 766                64               21
Disallowed              43            94 449               nil               nil              47
Total                   62           118 332            3 766                64               68
                                                       or 3%


                                               10
3.6.6   All property objections to UVs determined by the Commissioner and
        resolved in the period 1 July 2004 to 28 February 2006 are detailed in Table 3.
        The estimated average change in UV and rates and land tax charges is in
        Table 4. The overall results compare favourably with the API Standard for
        valuation of land for taxing purposes of plus or minus 15%, with only 19
        properties (6% of all objections) with UVs amended by more than 15%. 94%
        of allowed objections fell within the API Standard. In summary over the 20
        months to February 2006:

        o   There were 305 objections with 122 allowed (an overall objection rate of
            0.15% of all potential objections).
        o   19 objections (6%) resulted in UV change of >15%.
        o   48 objections (16%) resulted in UV change up to 5%.
        o   Total UV reduction for residential property was 6%.
        o   The estimated average reduction in rates and land tax/property was $460.

Table 3. Total Objections Outcome 1 July 2004 to 28 February 2006 (rounded)
               No of        Total UV         Reduction in     Estimated          Estimated cost
               Objections   determined by Total UV after Total                   to Department
                            Commissioner Objection            Reduction in       and AVO
                            Subject to                        rates and land
                            Objection                         tax as a result
                                                              of Objection
                                 $000              $000            $000              $000
Allowed                122         142 329            18 762              141                93
Disallowed             183         169 104                nil              nil              145
Total                  305         311 433            18 762              141               238
                                                      or 6%



3.6.7   For the taxpayer, a successful objection results in the recovery of the objection
        fee of $20, and the amendment of rates and land tax (where that tax is
        applicable) assessments.

3.6.8   The total reduction in rates and land tax (where applicable) allowed on
        objection for the period 1 July 2004 to 28 February 2006 is estimated to be
        $143,000 (including the refund of the $20 objection fee) at an estimated cost
        to the Department and AVO of $238,000 to administer.

3.6.9 Table 4 shows the percentage changes in UV and average reduction in rates
      and land tax per property after objections for the period 1 July 2004 to
      28 February 2006. It also highlights the allowed objections where the UV
      change was >15% (note that in one case the UV was increased by >15% at
      ratepayer’s request), and again where the UV change was 5% or less.




                                             11
Table 4 – Allowed objections - Change in UV and rates/land tax - 1 July 2004 to February 2006
(rounded)
                Reduction in     Average UV      Average            Allowed         Allowed
                Total UV as      Reduction per Reduction in         Objections      Objections
                %                Property        Rates and          where UV        where UV
                                                 Land Tax per Changed by            Changed by
                                                 Property           >15%            up to 5%
                                          $000                 $
Residential           8%               62              300          5% (or          19% (or
                                                                    12 properties)  47 properties)
Non-                  3%               61             1,040         11% (or         <2% (or
residential                                                         7 properties)   1 property)
All                   6%               61              460          6% (or          16% (or
                                                                    19 properties)  48 properties)



3.6.10 As an indicator of the cost effectiveness of the objection process, the
       objections allowed for the period 1 July 2004 to 28 February 2006 have been
       sorted into value ranges showing adjustment to rates and land tax charges.
       Table 5 shows that some 29% of residential objections result in an adjustment
       of less than $50.


Table 5. Allowed objections - Rates and land tax adjustments - 1 July 2004 to 28 February 2006
                               Residential                            Non-Residential
Adjustment of       Number of           Percentage of         Number of           Percentage of
   Rates and        Objections             Allowed            Objections            Allowed
   Land Tax           Allowed             Objections           Allowed             Objections
                                          (rounded)                                (rounded)
                                              %                                        %
      <$20                7                    7                   0                    0
  $20 to <$50            23                   22                   0                   0
  $50 to <$100           34                   33                   1                   5
 $100 to <$500           29                   28                   4                   21
$500 and more            10                   10                  14                   74



3.7     Outcomes From AAT Appeals

3.7.1    There were seven valuation matters dealt with by the AAT in the period
         1 July 2004 to 28 February 2006, with six of them in relation to
         non-residential property and only one for residential property. This amounts
         to only about 2% of the total objections received in this period.

3.7.2    Table 6 shows the results of valuation matters determined or subject to an
         order by the AAT in the period 1 July 2004 to 28 February 2006. For the
         period in question, for residential property this is 1 appeal from about 205,000
         valuations (less than 0.001% of all potential objections) and for non-residential
         property, it is six appeals from about 5,000 valuations (0.12% of all potential
         objections). In summary over the 20 month period to February 2006:




                                               12
         o   There were 7 appeals, with 3 allowed.
         o   Of the 3 allowed, the UV reduction did not exceed 15% in any case.
             (Maximum UV adjustment was 10.8%).
         o   The total UV reduction was 0.3%.
         o   Estimated average reduction in rates and land tax was $690 per
             non-residential property.
         o   Reduction in rates for the one residential property was $26.
         o   Cost to the Department to process all seven appeals is estimated at
             $140,000 (not including AAT and AVO costs).

3.7.3 The AVO costs in preparing the appeal, which would be substantial, cannot be
      estimated as they form part of the set fee contract which provides for many
      services. The costs incurred by the AAT in conducting its hearings have not
      been included.

3.7.4   Of the seven matters considered by the AAT, only three were successful. One
        related to residential land and the reduction in UV was 3.1%, resulting in an
        adjustment to rates of only $25.80. Of the six non-residential appeals, only
        two were successful with a UV reduction of 8.6% and 10.8% with resulting
        reductions in rates and land tax of $1,700 and $2,400 respectively. The cost to
        the taxpayer of an appeal to the AAT is currently $220 plus whatever fees may
        be payable for professional assistance such as legal advice or representation.
        It is difficult to estimate the cost to the Department for a single case, however,
        the average cost to the Department (excluding AAT and AVO costs) is
        estimated to be $20,000.


Table 6. Total Appeals (rounded)
  AAT       UV Determined Reduction in       % Reduction   Reduction in     Estimated
Reference         by             UV on         in UV        Rates and         $20 000
             Commissioner      Appeal to                    Land Tax         Average
                                 AAT                                          Cost to
                                                                           Department
                                                                             (without
                                                                            AVO and
                                                                           AAT costs)

                           $000      $000             %           $000           $000
03/119                   23 000        nil           nil             nil
02/154                   23 000        nil           nil             nil
04/117                   12 018        nil           nil             nil
04/109 *                    643        20            3.1          0.026
05/26                       975       105           10.8             2.4
05/27                     1 750       150            8.6             1.7
03/76                    27 700        nil           nil             nil
TOTAL                    89 086       275            0.3            4.1           140
* Residential property




                                             13
3.8     Conclusion

3.8.1 The contractor (the AVO) and the Commissioner both adhere to strict quality
      controls and data integrity testing to ensure an accurate land valuation data
      base. As measured by the review process, accuracy is well within the API
      Standard of plus or minus 15% in about 94% of all objection cases and 100%
      of appeals. The low number of objections indicates that community concern
      about the accuracy of UVs is not high.

4     Terms of Reference c) - Professional standards required of the
      people conducting valuations and criteria for selecting the
      valuer(s).

4.1     Academic and Professional Qualifications of Valuers

4.1.1 All valuers employed by the AVO are members of the API and are Certified
      Practising Valuers. The AVO also has two valuers-in-training who, though
      not Certified Practising Valuers, are members of the API and mentored by
      AVO Senior Valuers.

4.1.2    In addition, there is a wide range of other professional and academic
         qualification amongst the valuers who undertake valuations for the
         Department including:

         o   Graduate Diploma in Applied Finance and Investment (Securities Institute
             of Australia);
         o   Graduate Diploma in Land Economy, (University of Western Sydney);
         o   Bachelor of Business (Land Economics), (University of Western Sydney);
         o   Diploma of Technology (Valuation), South Australian Institute of
             Technology;
         o   Diploma in Business (Valuation), (University of Western Sydney);
         o   Associate Diploma in Business (Valuation);
         o   Associate Diploma in Valuation, (ACT TAFE);
         o   Certificate in Valuation of Real Estate; and
         o   Advanced Certificate in Real Estate;

4.1.3    There is no requirement for valuers to be registered in the ACT, however
         AVO valuers are registered in one or more of NSW, Victoria, WA and
         Queensland.

4.2     Practice Standards

4.2.1    The AVO abides by the Australian Property Institute’s guidelines and
         professional practice requirements as a minimum. Further information can be
         found on the API website at http://www.api.org.au. The AVO, to the best of
         their knowledge, adheres to the standards as described in the Professional
         Practice publication which is only available by contacting the Membership
         Services Officer at API-National Office on 02 6282 2411.



                                           14
4.2.2    In addition, those Valuers who belong to other professional bodies abide by
         those bodies’ standards.

4.3     Procurement of a Contract Valuer

4.3.1    Normal procurement processes apply to the tender process. The current
         contract was signed with the AVO on 18 November 2003. The AVO may use
         consultants as agreed by the Commissioner and the AVO on a case-by-case
         basis.

4.4     Procurement, Request for Tender and Contract

4.4.1    The selection criteria for selecting the successful tenderer are stated in the
         Procurement Documents and specifically in the Request for Tender (RFT) and
         include the following assessment criteria:

         o   Compliance with the Statement of Requirements, including the ability to
             provide the required services such as annual revaluation, objections and
             appeals, and Commonwealth Grants Commission data.

         o   Demonstrated ability and expertise in delivering similar services including
             managerial capacity, operational capacity, and knowledge of ACT
             leasehold system.

         o   Company resources and infrastructure must be available to provide
             ongoing support.

         o   Quality assurance with stated minimum requirements.

         o   Adherence to Canberra Region Industry Plan (the ACT Government
             purchasing policy applying to major procurements).

         o   Pricing.

4.4.2    The contract valuer must provide valuation services to the ACTRO in respect
         of land (used to assess rates and land tax), and land and property (used to
         assess stamp duty) to the standard of care and skill expected of a person who
         regularly acts in the capacity in which the contractor is engaged and who
         possesses the knowledge, skill and experience of a person qualified to act in
         that capacity.

4.4.3    All valuation services provided by the contractor must meet professional
         standards, be reasonably accurate, be of a high quality, and must be provided
         in stipulated timeframes as set out in the valuation contract. The availability
         of resources, infrastructure to provide on-going support and contingency plans
         are also considered, as are previous experience in the field, skill profiles of key
         staff and operational capacity to deliver the required services.




                                             15
4.4.4 An open tender process is conducted by the ACTRO to identify a suitably
      qualified service provider to provide valuation services of property for rating
      and taxation purposes. It is a mandatory condition within the contract to have
      the relevant qualified staff to undertake the valuation services.

4.4.5    The contract requires the valuer to:

         o revalue all rateable land in the ACT as at 1 January each year;
         o provide UVs of new parcels of rateable land;
         o provide Commonwealth Grants Commission with the annual land
           valuation data for all rateable land in the ACT by districts and value
           ranges;
         o provide UVs, improved property values and valuation of assets being
           purchased, sold or mortgaged for the purpose of assessing stamp duty;
         o review and provide detailed reports on individual objections to valuations;
           and
         o provide general consultation on valuation matters relating to the provision
           of services under the contract and provide other valuation services as may
           be agreed between the parties.

4.5     Conclusion

4.5.1    The procurement process and RFT criteria ensure that the academic and
         professional qualifications and standards of the contractor and the valuers
         employed by the contractor are high.

5     Terms of Reference d) - Criteria (including frequency) and
      processes for checking the accuracy of valuations.

5.1     Data Integrity and Accuracy

5.1.1 This aspect has been covered in sections 3.2 and 3.3.


5.2     Edit Reports and Review on Objection

5.2.1    As part of the annual revaluation of all rateable parcels of land, the contract
         valuer must reconcile and edit all source land valuation data to the ACTRO
         records to ensure accuracy of the valuations. Annual edit reports are produced
         as part of the general revaluation process, and ad-hoc edit reports are produced
         as required. Corrections are made before the Commissioner determines the
         UVs.

5.2.2    In addition to the above edit reports, as part of the objection process the
         contract valuer conducts a comprehensive review of any land value where an
         objection has been lodged with the Commissioner and provides a detailed
         report on individual objections to valuations (see also paragraph 6.1).

5.2.3    Every AVO report on an objection to UV is checked for internal consistency
         and plausibility before the objection is determined. Trends on objection


                                            16
         reports and AAT decisions for different areas and classes of property are
         reported to the Commissioner.

5.3     Conclusion

5.3.1    The criteria and processes for checking the accuracy of valuations is stringent
         and most discrepancies are identified and corrected before the UVs are
         determined by the Commissioner.


6     Terms of Reference e) - Criteria and processes for resolving
      errors and disparities in valuations

6.1     Resolution of Errors and Disparities

6.1.1 Apart from standard edit reports conducted by both the ACTRO and the AVO
      (see paragraphs 3.2, 3.3 and 5.2), whenever a ratepayer considers that the
      newly determined UV of their property may not be correct, they may have the
      value reviewed through the lodgment of an objection to the assessment of rates
      based on the valuation in question. In addition, any objection (even if
      allowed) can be subsequently appealed to the AAT if the taxpayer is not
      entirely satisfied with the outcome of the objection. The objections and
      appeals processes play an important role in resolving errors.

6.1.2    Errors in UV may also be identified through clerical checks after the
         Commissioner has determined them. Every suspect UV is investigated and
         section 11 of the Rates Act provides the Commissioner with the means to
         correct errors in the determined UVs (and to adjust those UVs to allow for
         changes in circumstances). The Commissioner can adjust the last three UV
         determinations under that provision. In these cases, the property owner is
         advised of the amended UV and any objection/appeal rights, and rates and any
         land tax charges are amended to reflect the amended UV.

6.2     Conclusion

6.2.1    Criteria and processes for resolving errors and disparities in UVs stem from
         the review process and internal clerical checks.

7     Terms of Reference f) - Criteria and processes for dealing with
      objections to valuations.

7.1     Objections to Assessment Based on UV

7.1.1    Objections can be made to an assessment of rates and land tax for any reason,
         however they must satisfy criteria set out by the Rates Act and the Taxation
         Administration Act (see paragraph 7.1.4).




                                            17
7.1.2 Ratepayers who are not satisfied with the determined UV may lodge with the
      Commissioner a written objection to an assessment of rates requesting a
      review of the UV. A person other than the original decision-maker considers
      all objections.

7.1.3    An objection to an assessment of rates that relates to the valuation on which
         the assessment is based must be made within 60 days of the date of the
         Valuation Notice (see Attachment I) and there is no discretion to extend this
         time period. For other objections, the 60 day limit may be extended at the
         Commissioner’s discretion. It should be noted that for a unit subdivision,
         objection based on valuation only applies to the owner’s corporation, and not
         to the individual unit owner.

7.1.4 The criteria for lodging an objection, in summary, are:

         o the appropriate fee must be paid ($20 for an objection to an assessment
           based on the determined UV, or $50 for an objection to an assessment on
           other grounds);
         o the objection must be lodged within 60 days of the date of the Valuation
           Notice or assessment;
         o the objection must be in writing; and
         o the objection must include grounds for the ratepayer’s objection to their
           assessment of rates (this may be based on dissatisfaction with the UV
           determined by the Commissioner).

7.1.5    Objection reports from the contract valuer must provide a full response to all
         points raised by the objector and must include an attachment of the relevant
         sales evidence to substantiate the UV recommended on objection.

7.2     Current Work Practices

7.2.1    Briefly stated, current work practices are as follows:

         o   on receipt of an objection, an acknowledgement letter is sent to the
             ratepayer providing a unique objection number, contact telephone number,
             postal and physical address and name of a contact officer;
         o   a copy of the ratepayer’s objection is sent to the AVO;
         o   for a non-residential property, when the written advice from the AVO
             dealing with that objection is received, it is forwarded to the owner for
             comment. The owner’s response is considered along with the AVO’s
             advice, the matter is reviewed, and a decision made on the objection. This
             reflects the greater complexity in the process to investigate and resolve
             objection to non-residential UVs;
         o   for residential and rural property, on receipt of written advice from the
             AVO dealing with that objection, the advice is considered, reviewed and a
             decision made on the objection;
         o   notice of the decision is sent to the taxpayer together with a copy of the
             AVO’s advice (if not already forwarded) explaining the basis of the



                                            18
           valuation including sales evidence and responding to the taxpayer’s
           grounds of objection; and
         o a brochure providing information on the ratepayers’ right to appeal to the
           ACT Administrative Appeals Tribunal is also enclosed.

7.3     Outcome of Objections and Appeals

7.3.1    The bulk of objections, nearly 60% (or 140 properties) of residential
         objections and 70% (or 43 properties) of non-residential objections, were not
         allowed on the grounds that the original determination was found to be correct
         on review. About 60% of all appeals were disallowed and the determined UV
         confirmed by the AAT.

7.3.2    The ACTRO fully supports the objection and appeal processes which assist in
         providing a check on UVs as well as equity for taxpayers. There are, however,
         many cases where the outcome of an objection or an appeal results in little
         financial benefit to the taxpayer because the change in UV is small.

7.3.3    For example, excluding disallowed objections (see paragraph 7.3.1), about
         19% of all residential objections (47 properties) and about 2% of all
         non-residential objections (1 property) had a UV change greater than zero but
         not more than 5% (see Table 4) in the 20 months to February 2006.

7.4     Conclusion

7.4.1    The basis for valuation and the objection process is well publicised and every
         assistance is given to potential objectors by ACTRO staff, in conjunction with
         the valuers. An independent person other than the decision-maker deals with
         all objections.

7.4.2 An analysis of objections over the period 1 July 2004 to 28 February 2006
      indicates that almost one third of successful residential objections result in
      small changes to UV with small adjustments to rates and land tax charges.

7.4.3    Only 6% of all objections and no appeals resulted in a UV revision of more
         than the Australian Standard (+/- 15%). This indicates that the current
         processes, ranging from the open tender selection of a contract valuer through
         to internal checking of valuations, is providing an accurate data base on which
         to calculate rates and land tax.

7.4.4 For most objectors, and nearly all appellants, the result achieved is a minimal
      reduction in rates and land tax. For example, for 76% of residential objectors
      and 71% of non-residential objectors, the change in UV is not more than 5%.




                                           19
8     Terms of Reference g) - Information provided to landholders on
      the basis for determining valuations.

8.1     Written and Electronic Advice

8.1.1    As part of the annual billing cycle for rates, ratepayers are provided with a
         Valuation Notice (see Attachment I) that shows the most recently determined
         UV. Included in this notice are the two preceding UVs to assist a ratepayer to
         calculate their AUV. These notices incorporate a summary of the valuation
         process and an explanation of the owner’s rights of review under the
         Taxation Administration Act.

8.1.2    The Valuation Notice provides contact telephone numbers for ACTRO
         officers so that ratepayers may seek further information and advice about
         objection procedures. Some callers are referred to the appropriate valuer for
         further explanation of the valuation process. Many queries are resolved by
         telephone and do not lead to a formal objection.

8.1.3    A Schedule of Revaluations for all rateable properties in the ACT (the
         Commissioner’s Schedule) is made available to the public at each of the
         Canberra Connect Shopfronts and at the ACTRO Customer Service Centre.
         The schedule lists all revalued rateable properties identified by suburb, section
         and block. It shows the revaluation, the current valuation and the previous
         valuation. There is a summary for each suburb, a summary for the entire ACT
         listing, a count of properties and UV totals by purpose code.

8.1.4    As well as Valuation Notices, Rates Assessment Notices and leaflets, and
         Land Tax Assessment Notices and leaflets all provide information to
         ratepayers on the assessment, objection and appeals processes. Examples are
         at Attachments II, III, IV and V.

8.1.5    General information about valuation, rates, land tax and objection and appeal
         rights is also readily available electronically on the ACT Revenue Office
         website at www.revenue.act.gov.au.

8.2     Conclusion

8.2.1    Individual ratepayers are advised annually of the valuation methodology along
         with their review rights and contact telephone numbers to seek further
         information if required. The public are kept fully informed through the
         Commissioner’s Schedule. Information relating to valuations is also available
         on the ACTRO website.




                                            20
9     Terms of Reference h) - Impact of claims of commercial-in-
      confidence on accountability and transparency.

9.1     Commercial-in-Confidence

9.1.1    Contractual clauses imposing terms of commercial-in-confidence between
         parties to real property transactions cannot stand against the legislative powers
         in the Taxation Administration Act whereby the Commissioner can obtain
         information. Consequently those clauses have no effect.

9.1.2    The secrecy clauses at Division 9.4 in the Taxation Administration Act
         preclude the Commissioner from advising ratepayers of an objection to
         determined value by another ratepayer unless that ratepayer consents to that
         disclosure.

9.1.3    Statistical information can be provided by the Commissioner under the
         Taxation Administration Act, provided it does not identify, or disclose, matters
         concerning the personal affairs of a rate-payer.

9.1.4    The method of valuation and the Commissioner’s Schedule are both available
         for public scrutiny and the outcome of AAT cases is a matter of public record.
9.2     Conclusion

9.2.1    The Commissioner can access Commercial-in-Confidence information for the
         purposes of determining a value. However, this information cannot be passed
         on to other parties without the taxpayer’s consent and cannot be used in any
         case not directly related to the particular taxpayer.

10 Terms of Reference i) - Impact of land tax rates on the housing
   rental market.

10.1 Features of Land Tax in the ACT

10.1.1 Land tax has been assessed on all non-residential property in the ACT since
       1987. In 1991 all residential property that was not the owner’s principal place
       of residence became liable to an annual land tax charge. The impetus for the
       introduction of land tax on some residential property came from the
       Commonwealth Grants Commission finding that the ACT was not putting
       sufficient effort into revenue raising by way of land tax.

10.1.2 Land tax is a deductible rental property expense for income tax, reducing the
       overall cost to investors.

10.1.3 In 1995 land tax became a quarterly charge. The test for residential property
       changed so that it became liable to land tax if it was rented on the first day of
       each quarter. In 1997, the three year rolling average UV (AUV) was
       introduced as the basis for calculation and in 2002, residential property owned



                                            21
       by a corporation or trustee also became liable to land tax, regardless of rental
       status. These features are unique to the ACT.

10.2 Stability of Residential Land Tax Base

10.2.1 The percentage of residential properties owned by property investors and
       subject to land tax has remained stable since the imposition of land tax on
       rented residential properties in 1995. Since 1 July 1995 when 19.6% of
       residential property was liable to land tax, the percentage has changed very
       little over the years. The highest percentage was 20.5% in 1998 and the
       lowest percentage was 18.3% in 2002. On 1 July 2005, 20.1% of residential
       property was liable to land tax. Land tax charges do not appear to have had
       any noticeable effect on the ACT residential investment property market.

10.3 Land Tax as a Component of Landlord’s Reward

10.3.1 The Land Tax Act charges the owner of rented residential property with land
       tax. Typical housing leases used in the ACT charge tenants with rent, not land
       tax. Rent is only part of the reward sought by landlords, they also seek capital
       gains on their property. Consequently, in calculating total returns, landlords
       consider land tax, along with rates, as part of their total costs not just as a
       portion of the rental return.


10.4 The Economic Impact of Land Tax

10.4.1 At current rates, land tax is unlikely to have a major impact on the housing
       rental market. This is because:

       o   a significant proportion of the cost of land tax is offset by lower income
           tax payable by property investors (as noted earlier, land tax is a deductible
           expense for Commonwealth income tax purposes);

       o   over time, the impact of land tax may be offset to some extent by an
           adjustment in the price of housing. (When investors are considering
           purchasing properties they take into account the expected capital gain and
           the expected net rental returns after considering all costs, including taxes
           and financing costs. A reduction in land tax may lead to investors being
           willing to pay higher prices, and take on increased mortgages, with the
           increased financing costs offsetting, to some degree, the impact of reduced
           land tax. This would leave net rental returns at the level required by
           property investors to be competitive with alternative investments.);




                                          22
         o   any residual impact of land tax is shared between property owners and
             renters, with the shares determined by the relative elasticity of rental
             property supply and demand (price elasticity is an economic measure of
             the responsiveness of demand and supply to changes in prices). 1

10.4.2 It is not possible, given the available data, to separately quantify each of these
       factors. Nevertheless, they indicate that land tax does not have a one-to-one
       impact on the rents paid by tenants or the returns accruing to investors.

10.4.3 The average land tax in the ACT in 2005-06 is:
       o for houses, around $1,950 per annum or $37.50 per week; and
       o for units, around $520 per annum or $10 per week.

10.4.4 Taking into account the factors outlined above, only a portion of land tax
       would be reflected in rents paid by tenants. In this context, it may be relevant
       to note that average rents paid in the ACT in the December quarter 2005 were:
       o for houses, $310 per week; and
       o for units, $290 per week.

10.5 Conclusion

10.5.1 At current rates, land tax is unlikely to have a major impact on the housing
       rental market. The share of residential properties owned by investors has
       remained broadly stable over the past decade. Because land tax is a deductible
       expense, the cost of land tax is partly offset by lower income tax paid by
       investors. The overall impact on renters is also reduced to the extent that
       house prices reflect the level of land tax in the ACT. Finally, the residual
       effect of land tax is shared between property owners and renters, with the
       actual proportions determined by conditions in the rental housing market.




1
  The extent to which land tax is borne by property owners or by renters depends on the relative
elasticity of rental property supply and demand.
          o If demand is relatively price inelastic (for example if there is little reduction in the
               demand for rental properties as the price of rent goes up), the burden of the tax falls
               mainly on the renter.
          o If demand is very price elastic relative to supply, the burden falls mainly on the property
               owner.

While the relative elasticities of rental property supply and demand in the ACT are unknown, they are
likely to be related to a range of economic and demographic cycles.
          o Short-term impacts are likely to differ from longer-term impacts, in part because the
               supply of rental dwellings is likely to be more inelastic in the short-term than in the
               longer-term.
          o In addition, rental agreements are frequently fixed for periods of 6 to 12 months,
               preventing the passing on of costs during the currency of such agreements.




                                                  23
11 Terms of Reference j) - Information provided to landholders on
   the data required and the processes for appealing against
   assessments of land value.

11.1 Information Provided to Landholders

11.1.1 Valuation Notices, Assessment Notices and leaflets provided by the ACTRO
       (at Attachments I, II, III, IV and V) are issued annually to all ratepayers. They
       explain the revaluation process and list their objection and appeal rights
       available under the Taxation Administration Act. They do not, however,
       prescribe the evidence required by the AAT, as that evidence is a matter for
       that body. The ACTRO provides some information about appeals to the AAT
       and AAT contact details in a Statement of Rights leaflet (see Attachment VI)
       which deals with Objections and Appeals. The leaflet is available on the
       ACTRO website.

11.2 AAT Comments in Chapman & Morgan Pty Limited V Commissioner for
     ACT Revenue

11.2.1 The AAT suggested that potential objectors should be provided with access to
       comparable sales or other evidence upon which the relevant determination of
       UV was made. Advice as to the means by which access to such information
       may be obtained should be included in valuation notices.

11.2.1.1 In response to this comment, it should be noted that there are approximately
         131,000 ratepayers in the ACT. As unit holders can only object to the UV of
         the unit title (not the 29,000 individual units), about 102,000 ratepayers
         (99,500 residential and 2,500 non-residential) have the right of objection and
         are therefore potential objectors. Determinations of UV are made using a
         mass appraisal system. The sales, on average around 6 to 10 per suburb,
         used by the AVO to calculate values in an area are unlikely to be directly
         comparable with the particular block subject to objection. Consequently it is
         only when an objection is received that the sales comparable to the block in
         question are extracted.

11.2.1.2 The AAT’s suggestion to provide specific sales evidence to each potential
         objector is impractical and prohibitively expensive given the number of
         ratepayers in the ACT and the small number of objectors.

11.2.1.3 The Commissioner acknowledges an administrative error at the objection
         stage in Morgan’s case whereby not all the appropriate information was
         provided to the objector. However the ACTRO has already modified its
         work practices in response to the AAT’s suggestion. Where a UV
         determination on a commercial lease (there are approximately 2,500
         excluding units) is subject to objection, the valuer’s report will be provided
         to the owner with an invitation to comment on the merits of the valuer’s
         report. The Commissioner will consider any such comments before making
         a decision on the objection.



                                           24
11.2.2 The AAT suggested that a review should be made of administrative practices
       to ensure compliance by the Commissioner with the requirement of Section 37
       of the AAT Act.

11.2.2.1 Shortly stated, section 37 of the AAT Act provides that the Commissioner
         will provide reasons for his/her decision and the documents in his/her
         possession that are considered by him/her to be relevant to the review of the
         decision by the tribunal. Subsection 8 of section 37 provides the AAT the
         power to request lodgment of any other document it considers relevant to the
         issue.

11.2.2.2 The ACTRO accepts that in Morgan’s case the documents it lodged failed to
         meet the requirements the AAT set down in Palmer’s case 2 in relation to the
         quality and timing of the provision of information. In plain language the
         quality requirements were:

           o the rejection of the substituted value put forward by the owners;
           o the rejection of the reasons stated in the owners' application;
           o the conclusion that the amount of the UV specified in the notice of
             re-determination is not too high; and
           o the recommendation of the valuer in respect of the following matters:
                 evaluation of the subject land;
                 full details of the analysed sales;
                 manner of arriving at deduced unimproved value for each sale; and
                 manner of arriving at the unimproved value of the subject land.

11.2.2.3 In relation to the timing of the provision of information, in Palmer’s case the
         valuer’s report was furnished in response to a request made under the AAT
         Act, not with the decision on the objection. In Morgan’s case, the valuer’s
         report was, in substance, provided to the taxpayer with the decision on the
         objection, that is, at a much earlier stage in the process.

11.2.2.4 Further, the AAT, in making its decision in Morgan’s case, could not be
         aware that extensive material was provided by the valuer to the taxpayer in
         Preliminary Conferences the AAT itself had conducted. This is because
         proceedings at AAT Preliminary Conferences are confidential under the
         AAT’s own processes and knowledge of them is deliberately denied to the
         AAT when deciding a matter that was the subject of such a conference. This
         is so the AAT hearing is conducted with a fresh approach uninfluenced by
         previous discussions. Provision of that material does not, however,
         exonerate the Department’s admitted failure to properly comply with Section
         37 of the AAT Act.

11.2.2.5 Generally, the information provided to the objector included the above
         advice which goes a long way (at considerable expense to the Department) to
         meeting the information requirements set down by the AAT in Palmer’s case
         prior to a hearing by the AAT on the merits of the matter.

2
    Palmer and Minister for the Capital Territory (1978).


                                                    25
11.2.3 The AAT suggested that notions of ordinary fairness suggest that the
       information relied upon by the respondent in determining the UV of rateable
       land should be identified and made available for inspection by prospective
       objectors.

11.2.3.1 In response, it should be noted that the mass appraisal system used to
         produce the Commissioner’s determination does not use comparable sales for
         each individual block. It does use a calculation of an average change in UVs
         for each area. The system is further described in paragraph 2.2. The relevant
         issue is whether the determined value of each block is supportable using
         acceptable valuations methods. It does not matter what procedures are
         followed to calculate the determined figures but it does matter that the
         figures can be supported. Consequently an efficient (and cost effective)
         system of mass appraisal can be used to provide the allocation of value to
         each property as long as it can be supported on objection and appeal.

11.2.3.2 The mass appraisal system can only show a value for each block.
         Adjustments are automatically made to values of blocks in the system for
         factors including location, size, level, aspect and increase or decrease in
         average land values. Sale of particular blocks is adjusted to exclude the
         values of improvements and give an average rate of increase or decrease in
         land value for an area. It is not possible to calculate, and not relevant to the
         defence of the determined value, to attribute a dollar value to each factor.

11.3 NSW Ombudsman’s Report

11.3.1 The NSW land valuation system used for rates and land tax purposes is that
       the NSW Valuer General operates under the Valuation of Land ACT 1996
       which requires that office holder to make valuations based on recommended
       values and provides that the valuations can be made without an independent
       assessment of the accuracy of those recommendations.

11.3.2 The margin of error of plus or minus 15% (the API Standard) was adopted by
       the Ombudsman. The report dealt with that margin and found only 66% of
       appraised values were within that margin when compared with actual sales of
       those properties.

11.3.3 Suggestions in that report include distribution of the appropriate General
       Valuation Sales Reports to satisfy the need of persons inquiring about the
       objections process.

11.3.4 In the ACT however, the Commissioner determines land values under the
       Rates Act for the purpose of assessing rates and land tax. The Commissioner
       uses the advice of a contractor, currently the AVO, in determining such land
       values. Unlike NSW (see paragraph 11.3.1), the ACT legislation does not
       state that values can be determined without an assessment of the accuracy of
       the advice provided by the valuer to the Commissioner. The Commissioner
       makes his own checks (detailed above in paragraphs 3.2.2 and 3.2.3) on those
       values before they are determined.


                                            26
11.3.5 In the ACT, only 5% of residential UVs and 11% of non-residential UVs were
       adjusted after objection by 15% or more. Of all objections processed, only 6%
       of UVs were adjusted by more than 15%. This result from a sample of ACT
       values (those subject to objection ) compares extremely favourably with the
       NSW Ombudsman’s Report that 33% of values selected from the general
       population of values on the basis of a portion of properties sold were misstated
       by 15% or more.

11.3.6 In the ACT, in all but one case where an objection has been allowed, the UV
       was reduced. The issue in the NSW Ombudsman’s Report appears to be that
       the land values have been consistently understated. ACT objectors should
       bear in mind that a UV can be increased on objection or appeal with a
       subsequent increase in rates and land tax (where applicable).

11.3.7 Unlike NSW, there are no General Valuation Sales Reports the Commissioner
       could publish. The Commissioner would be prevented by the secrecy
       provisions of the Taxation Administration Act from releasing individual
       property details from the limited sales reports provided by the AVO to the
       ACTRO.

11.4 Conclusion

11.4.1 The results of matters litigated and dealt with on objection are set out in
       Table 4 at paragraph 3.6.9 and show that about 94% of all variations made to
       the Commissioner’s original determinations after objection fall well within the
       API Standard of plus or minus 15%. For matters that went to appeal, 100%
       were within the API Standard.

12 Terms of Reference k) - Equity between landholders –
   information provided to other landholders in the area/suburb in
   the event that an adjustment is made to the valuation of a local
   property following a successful appeal.

12.1 Advice to Others After a Successful Objection

12.1.1 Secrecy provisions in the Taxation Administration Act prevent the
       Commissioner from disclosing information about a taxpayer or their affairs to
       anyone who is not a taxation officer, unless the taxpayer consents.

12.1.2 Successful objections and/or appeals to rates assessments based on UV are
       looked at in isolation and do not have a flow-on effect to other property
       owners as they are unique for each block.

12.2 Advice to Others After a Successful Appeal

12.2.1 All matters dealt with by the AAT are a matter of public record and, like
       objections, there is no flow-on effect to other properties as an outcome of an
       appeal.


                                          27
12.2.2 Appeals to the AAT may take some months, or even longer, to be heard. By
       the time an appeal to the AAT is resolved, the 60-day time limit for lodging an
       objection based on dissatisfaction with the determination of UVs will have
       expired. There is no discretion to extend this time period.

12.3 Conclusion

12.3.1 It would breach the secrecy provisions of the Taxation Administration Act to
       advise anyone other than the objector of the outcome of an objection.

13 Attachments
       o   Attachment I        Valuation Notice, back and front (at pages 29 & 30)

       o   Attachment II       Annual Rates Assessment Notice, back (at page 31)

       o   Attachment III      Land Tax Assessment Notice, back (at page 32)

       o   Attachment IV       Rates 2005-06 leaflet: see
                   http://www.revenue.act.gov.au/docs/2005-06%20Rates%20Pamphlet.pdf

       o   Attachment V        Land Tax 2005-06 leaflet: see
            http://www.revenue.act.gov.au/docs/2005-06%20Land%20Tax%20Pamphlet.pdf

       o   Attachment VI       Statement of Rights – Objections and Appeals leaflet:
           see
                          http://www.revenue.act.gov.au/docs/StatementofRights01-7-05.pdf




                                           28
Valuation Notice - Front   ATTACHMENT I




           29
Valuation Notice Back   ATTACHMENT I (page 2)




                   30
Annual Rates Assessment Notice Back   ATTACHMENT II




                         31
Land Tax Assessment Notice Back   ATTACHMENT III




                   32

				
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