How are heritage properties in Victoria now assessed for land tax?
Landowners who own investments properties, commercial properties, holiday homes and vacant land are required to pay land tax. A landowner’s annual land tax is based on the “site value” of all the taxable land owned. The “site value” of land is set by the Valuer-General and reflects the unimproved value of the land, meaning the value of any “improvements” such as buildings, structures and landscaping are excluded.
The recent High Court decision of Valuer-General Victoria v. WSTI Properties 490 SKR Pty Ltd (WTSI Case), is a significant decision that impacts how “site value” is calculated in Victoria.
The case concerned a review of the Valuer-General Victoria site value assessments for 490 St Kilda Road, Melbourne (Subject Land). The Subject Land is home to “Landene”, a Queen Anne style commercial mansion, currently used for the storing and private showcasing of the owner’s collection of antiquities, and a personal office space. A site-specific heritage overlay (HO331) applies to the Subject Land, restricting demolition and redevelopment.
The WTSI Case centred on whether Landene should be considered an “improvement” under s 2(1) of the Valuation of Land Act 1960 (Vic) for the purpose of determining site value of land. The question for the High Court was:
Should the increase in land value from improvements be assessed at the time the work was done, or at the time of valuation?
Key findings of the High Court
- Time of Valuation is Determinative
The High Court held that whether work or material increases the value of land must be assessed at the time of valuation, not when the work was originally done. This aligns with the orthodox concept of market value, which is based on a hypothetical sale at the valuation date.
- Definition of “Improvements” Requires a Market Comparison
To determine if something is an “improvement,” one must compare the market value of the land with and without the putative improvement at the time of valuation. The improvement must increase the land’s value and have an unexhausted benefit at that time.
- Highest and Best Use Principle
Valuation must consider the highest and best use of the land — meaning the most valuable use that is physically possible, legally permissible, and financially feasible.
However, the High Court did not determine whether Landene should be treated as an “improvement” of the Subject Land. The matter has been remitted back to the Court of Appeal to consider whether Landene should be treated as an “improvement”. A hearing date is yet to be set.
Implications for landowners of heritage properties
For landowners of heritage properties, any heritage buildings or structures on the land will not automatically be considered “improvements”. Rather, an assessment of whether they increase the land’s value at the valuation date needs to be undertaken. This involves a market comparison between the market value of the land with and without the putative improvement at the time of valuation. A hypothetical example demonstrating how this would work in practice is below.
To assess the site value of Property X, it is necessary to consider whether the heritage building, known as Y House, is an “improvement”.
Y House is the putative improvement. Therefore, a comparison of the market value of Property X with Y House and the market value of Property X without Y House at the time of valuation needs to be undertaken.
If a valuer estimates that Property X with Y House is worth around $12.5 million, but could be sold for $17 million without Y House and the site could be redeveloped (subject to planning restrictions that apply to Property X, and are not specific to the retention of Y House), then it is clear that Property X is worth more without Y House, and therefore Y House does not increase the value of the land, and is not an improvement for land tax purposes.
Because Y House is not an improvement, the site value is therefore the market value of Property X with Y House on it – $12.5 million.
Landowners may reconsider renovating or retaining older buildings if those structures do not contribute to the land’s market value.
For developers, this ruling reinforces the importance of understanding how planning overlays and heritage controls affect land value. It cannot be assumed that the existing use is the highest and best use. Rather, it is important to consider whether any controls or restrictions are specific to the putative improvement, or not.
Impact of the WSTI Case in other states
This decision may also impact landowners in New South Wales and Queensland, as the land valuation regimes in those states also exclude the value of improvements, other than site works, in assessing the value of land for land tax purposes. However, the key difference is that “improvements” is a defined term in Victoria, whereas in New South Wales and Queensland, it is not.
A summary table comparing the land valuation regimes in Victoria, New South Wales and Queensland is below.
| Victoria | New South Wales | Queensland | |
|---|---|---|---|
| Governing Legislation | Valuation of Land Act 1960 (Vic) | Valuation of Land Act 1916 (NSW) | Land Valuation Act 2010 (Qld) |
| Valuation Authority | Valuer-General Victoria | Valuer General NSW | Valuer-General Queensland |
| Valuation Frequency | Annually (as at 1 January each year) | Every 3 years (as at 1 July) | Annually (varies by local government area) |
| Objection Process | Lodge with SRO; forwarded to Valuer-General | Lodge via NSW Valuation Portal | Lodge with QLD Valuation Office; online or written objection |
| “Value” used to calculate Land Tax | “Site Value” which is the value of land assuming no improvements. | “Land Value” which is the value of land, assuming no improvements, other than land improvements. | “Site Value” for non-rural land, which is the value of land assuming all non-site improvements for the land had not been made. “Unimproved Value” for rural land, which is the value of land assuming all site improvements and non-site improvements on the land had not been made. |
| Definitions relating to “improvements” | “Improvements” means all work actually done or material used on and for the benefit of the land, but in so far only as the effect of the work done or material used increases the value of the land and the benefit is unexhausted at the time of the valuation, but excludes site works, e.g. the removal or destruction of vegetation or the removal of timber, rocks, stone or earth; or the draining or filling of the land unless those improvements can be shown by the owner or occupier of the land to have been made by that person or at that person's expense within the fifteen years before the valuation; | “Land improvements” means the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths, the picking up and removal of stone, the improvement of soil fertility or the structure of soil, the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation, any excavation, filling, grading or levelling of land (otherwise than for the purpose of irrigation or conservation) that is associated with—(the erection of any building or structure, or (the carrying out of any work, or the operations of any mine or extractive industry, the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and underground drains. | “Site improvements” means any of the following done to the land: clearing vegetation, picking up and removing stones, improving soil fertility or soil structure, works to manage or remedy the contamination, restoring, rehabilitating or improving its surface by filling, grading or levelling, not being irrigation or conservation works, reclamation by draining or filling, including retaining walls and other works for the reclamation; underground drainage; any other works done to the land necessary to improve or prepare it for development. “Non-site improvements” means work done, or material used, on the land other than a site improvement. The work done or material used is a non-site improvement whether or not it adds value to land. |
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Authored by:
Andrea Towson, Partner
Gerard Timbs, Partner
Ben Swain, Special Counsel
Stafford Hopewell, Special Counsel
Carlyna Yap, Associate
Get in touch
- Gerard Timbs
- Partner, Brisbane
- +61 7 3114 0190
- gerard.timbs@gadens.com
- Andrea Towson
- Partner, Melbourne
- +61 3 9252 2544
- andrea.towson@gadens.com
- Stafford Hopewell
- Special Counsel, Brisbane
- +61 7 3114 0232
- stafford.hopewell@gadens.com
- Ben Swain
- Special Counsel, Brisbane
- +61 7 3114 0276
- ben.swain@gadens.com
