On 22 May 2018, Justice Steward of the Federal Court set aside the decision of the Administration Appeals Tribunal (Tribunal) in Decleah Investments Pty Ltd and Anor as Trustee for the PRS Unit Trust and Commissioner of Taxation  AATA 2418 on the basis that the Tribunal had erred in law by not properly considering key evidence submitted. This included evidence given by the Commissioner’s valuer in respect of whether the taxpayer’s valuation had been made in a manner contrary to professional standards. This case emphasises the importance of using valuers that are well informed and qualified to make valuations that comply with tax related provisions such as those set out under the GST margin scheme provisions.
By way of background, the GST margin scheme allows for the calculation of the GST payable on supplies of real property on the basis of 1/11 of the “margin” (specific rules being set out under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth)(GST Act) on the sale of real property. An important valuation in this calculation is the 1 July 2000 valuation.
The Taxpayer was a developer who had calculated and applied the margin scheme in selling lots of land and had obtained its own margin scheme valuations in respect of the land as at 1 July 2000. The Commissioner issued assessments (for GST) in respect of the relevant land, with one of the key matters of contention being in relation to the margin scheme valuation used by the Taxpayer.
Before the Tribunal, the Commissioner obtained and provided his own valuation.
The Tribunal rejected the applicant’s valuation, increased the amount of GST payable by the Taxpayer, set aside the Commissioner’s decision to reduce the originally imposed penalties (from 50% to 25%) and effectively reinstated a penalty of 50% for recklessness.
On appeal, his Honour set aside the Tribunal’s decision that the professional valuations obtained by the taxpayer were not ‘approved valuations’ for the purposes of the margin scheme and under which the Tribunal had increased the taxpayer’s GST liability.
In reaching this decision, Justice Steward made a number of observations including, that:
- there was conflicting evidence provided by valuers in respect of the professional standards which were identified by the Commissioner’s valuer
- the Tribunal misunderstood the legislative scheme and the issue for determination was in fact whether the taxpayer’s valuation was made in a manner not contrary to professional standards
- the fact that the Commissioner’s valuer has formed the view that the applicant’s valuation was not made in a manner contrary to professional standards was a decisive matter (and was one which was not considered by the Tribunal) and
- the Tribunal erred by not giving the parties the opportunity to make submissions about a relevant textbook on valuations, both with respect to its content and the potential expertise of its author.
His Honour also observed that, whilst the conflicts in the evidence were not capable of resolution by him (instead, it was appropriate that the proceeding be remitted back to the Tribunal to be heard in accordance with law), on the evidence, he would have been unable to accept that the Taxpayer’s valuation was so absurd or irrational that it would lead him to decide that it was made in a manner contrary to professional standards.
This case emphasises the importance of ensuring that valuers are instructed and informed in a manner that enables them to provide valuations that are compliant with the GST Act. Further, the process and standards on which valuer views are formed must be clearly and succinctly documented so that valuers can appropriately explain their methodology in the event that it is contested or compared to other valuer’s opinions.