Rates Charges and Valuation Processes

Introduction

In the ACT, property taxes (rates and land tax) raise a significant proportion of government revenue which contribute to the provision of services including health care, education, law and order and municipal services.  In recent years property taxes have become a greater proportion of total tax revenue as a number of other tax types have been eliminated or reduced.  Property taxes are considered to be relatively efficient as they tend not to distort economic behaviour and are difficult to avoid.

Property values are the basis for the assessment of rates and land tax.  The Territory uses ‘unimproved value’, which is the value of the underlying land without improvements. The Commissioner for ACT Revenue redetermines unimproved values each year in accordance with the relevant legislation.  Assessments are based on unimproved values averaged over several years.  This helps smooth the impact of changes in unimproved values from year to year.

Framework

The Rates Act 2004 (the Act) provides authority for tax charges to apply each year to a parcel of rateable land in the Territory (section 14).  Rateable land covers most land in the Territory unless specifically excluded such as land used for hospitals, schools, churches or unleased Commonwealth land (section 10).

The Act specifies that the ‘unimproved value’ of land – averaged over a period – is the basis for rates charges (section 14). Unimproved value is the capital amount that might be expected to have been offered on a date, for the lease of the parcel, assuming that there are no lessee improvements on the land such as buildings, landscaping, paths and fences (section 6).

Unimproved value incorporates the valuation concept of the ‘highest and best’ use.  This recognises the highest value of the land permitted by the Crown Lease purpose clause (even when this differs from the existing use of the land). Highest and best use is a fundamental principle in land valuation practice in Australia and is recognised by the courts in land valuation cases.

The Act requires that the Commissioner for ACT Revenue must, as soon as practicable, redetermine the unimproved value for each rateable parcel of land as of 1 January each year for the purpose of determining annual rates charges (section 10).

The Act does not specify what factors the Commissioner must take into consideration in redetermining the unimproved value of rateable land. In practice, the Commissioner receives advice from professionally accredited valuers on unimproved values each year. In order to make redeterminations, the Commissioner has regard to the:

Once the Commissioner has made the redetermination, the Commissioner must give written notice of the amount determined to the owner (this is done by way of a Valuation Notice) and arrange for unimproved values to be made available to the public (section 12). Unimproved values are available from the Access Canberra website here.

Section 104 of the Taxation Administration Act 1999 provides every property owner with the right to object to a property valuation and requires that the Commissioner must consider the objection and make a decision to either allow the objection, in whole or in part, or disallow the objection. Under the Act (section 71) objections to valuation assessments generally must be made within 60 days of the issuing of the Valuation Notice. For valuations of commercial land, if the property owner lodges a request for additional information within 28 days of receiving the valuation notice, the time limit to lodge an objection to the valuation is 60 days from when they receive the additional information. The objection process typically involves the gathering of a range of valuation information and generally the commissioning of property valuation advice, for example a valuation report.  The objection decision generates rights for the property owner to a merits review of the decision at the ACT Civil and Administrative Tribunal (ACAT). For further information see  www.revenue.act.gov.au/rates/rights-and-objections.

Annual property valuation process

Between November and April of every year valuers accredited with the Australian Property Institute as Certified Practising Valuers, complete valuations for every rateable property in the Territory.  This process involves:

These processes are described in the diagram below. At the conclusion of the valuation process, recommended unimproved values for each property are provided the Commissioner to assist the Commissioner in redetermining unimproved values in accordance with the Act.

Annual Valuations Review

1. Review Outcomes
This involves reviewing the previous valuation exercises to identify areas requiring further focus. It also involves analysing a range of administrative and review decisions (including by the ACAT), taken throughout the year, to determine if existing unimproved values were amended and, as a consequence, whether other properties or groups/categories of property require review.
2. Collating Property Market Information
This involves tracking and recording property and market sales for both improved properties and land across the Territory from all sources including Allhomes, RPData, Real Estate Websites (Domain.com, Property.com),  Territory Government (ACTLIS, Suburban Land Authority, EPSDD) and external sources (NSW & Commonwealth governments, real estate agents and private valuers). This ensures that most of the relevant information is available to support the annual valuation review.
3. Analysing Property Market Trends
This involves applying standard diagnostic valuation techniques to the collected data to develop unimproved value property trends by locality and property category.
4. Identifying Areas Where Unimproved Values are Inconsistent with Market Evidence
Detailed valuation effort focuses on localities or property types where strong sales evidence indicates that unimproved values require adjustment. This step in the process will determine which of the two processes identified below will be applied.  Where there is a scarcity of comparable sales then the recommendation will be to retain current values.

5a. Determining the Relevant Change in Property Values for Particular Property Types or Localities
This involves determining the relevant change in property values for particular property types (e.g.  hotels) or localities (e.g. a locality within the suburb of Red Hill).  This is a process of determining whether the value of one (benchmark) or a number of similar non-benchmarked properties have changed over the year. The recommendation will be to adjust the unimproved values of ‘like’ properties by a percentage analysed from the sales evidence. In practical terms this means that a percentage change will be applied broadly across the locality or property category. This will not change the value relativities between individual properties in those groups.

5b. Undertaking Property by Property Reviews in Areas of Significant Misalignment with Market Evidence
These are known as a location or submarket group ‘regrades’.  Regrades are typically undertaken in areas of rapid redevelopment; where planning laws have changed and/or in areas where demand for particular property types has affected value levels. It involves physically examining the attributes (size, location and amenity) and reviewing the lease conditions of every property included in the regrade and determining whether the existing unimproved value of the property is supported by the sales evidence.  Where it is not, a recommendation will be made to align the unimproved values of those properties with the comparable sales evidence. This approach is typically referred to as ‘handcrafting’ and may result in a change to the relativities between properties.

6. Advice to Commissioner
Valuation advice provided to the Commissioner to redetermine unimproved values in accordance with the Act.

7. Issuing of Valuation Notices
Valuation Notices are issued for each rateable property in the ACT.