Property development within the ACT is set to undergo a significant change with the introduction of a new regime for assessing the charges associated with varying a Crown lease. The new regime is the result of a Treasury commissioned report into the current 'change of use' system which follows a long period of industry concern.
The Planning and Development (Lease Variation Charges) Amendment Bill 2011 (ACT) (Bill) replaces the current ‘change of use charge’ regime in the pursuit of increased ‘transparency and efficiency'. The Bill introduces two types of crown lease ‘chargeable variations’ that trigger a ‘lease variation charge’ (LVC). These are:
- ‘prescribed chargeable variations’; and
- 's.277 chargeable variations’. The Bill commences 1 July 2011.
‘Prescribed chargeable variations’ (the codified regime)
A ‘prescribed chargeable variation’ is a variation that is subject to a codified charge (or ‘LVC determination’) via a pre-determined table of fees which are based on the location of the land. ‘Prescribed chargeable variations’ include:
- a variation to increase or limit the permitted number of dwellings on a single residential lease;
- a variation to increase the maximum amount of permitted GFA or which increases or limits the number of permitted dwellings on a single non-residential lease; and
- a variation to consolidate or subdivide a lease or leases.
Disappointingly, at the time the Bill was tabled, the relevant codified fees and the proposed grouping of locations were not released. The guidelines (which will provide how the fees are to be determined and updated) were also not released.
‘S.277 chargeable variations’ (the valuation regime)
A ‘s.277 chargeable variation’ is any variation that is not the subject of the new codified regime (i.e. is not a ‘prescribed chargeable variation’) or a variation that is a ‘prescribed chargeable variation’ for which no charge is determined via the LVC determination. The new charge will be worked out under a new V1/V2 formula (LVC = (V1 - V2) x 75%) but with some significant differences to the present CUC formula.
It is currently proposed that any variations which change the authorised use under a lease will fall under this category.
Where a variation is a combination of both types of chargeable variations, the calculation of the LVC is to be as prescribed by the Regulations. The proposed Regulations however are currently silent on the matter.
Non ‘chargeable’ variations
Lease variations that are not ‘chargeable’ at all include:
- variations which only alter a common boundary between two or more adjoining non-rural leases where the use of the land remains the same;
- variations to remove the concessional status of a lease; and
- variations prescribed by Regulations (including a variation of a holding lease).
What’s the discount or increase factor?
Both types of chargeable variations will continue to be payable less any relevant remission (i.e. discount) or plus any relevant increase. As with the current CUC system, the amount of a remission or increase is to be prescribed by the Regulations.
In its current form, however, the proposed amended Regulations do not provide a general remission framework for a ‘prescribed chargeable variation’ (or for the use of ‘policy directives’ to do so).
The Territory’s 2011/2012 budget papers outline proposed transition arrangements which provide for a remission rate of 75% in 2011-12, decreasing by 10% in each of the next two years, and decreasing by a further 15% in each of the following two years. After four years, the remission rate will be 25%.
The current 25% discount for ‘s.277 chargeable variations’ will continue via the new V1/V2 formula. But this is misleading as the new formula is very different and arguably will significantly discriminate against commercial developments compared to residential with a starting 75% discount.
The current regime in respect of increases for variations of recently commenced and concessional leases continues.
The Treasurer will also have the ability to waive a lease variation charge under section 131 of the Financial Management Act 1996. This may lead to a well trodden path of developers to the Treasurer’s door seeking special concessions.
Exclusion of improvements and offsite works
Significantly, one of the more controversial aspects of the new system is that it excludes the consideration of existing improvements and any required offsite works from the calculation of the applicable LVC.
- For ‘prescribed chargeable variations’, the very nature of the ‘pre-determined’ LVC determination, excludes the consideration of site-specific improvements.
- For ‘s.277 chargeable variations’, however, s.277 expressly provides that improvements are not to be taken into account within the V1/V2 calculation. The limited specified exceptions to the exclusion include improvements by way of clearing, filling, grading, draining or excavating the land.
The stated rationale for such an exclusion is that the policy of ‘betterment’ requires a strict (and theoretical) valuation of the additional value associated only with any addition to ‘the bundle of rights’ which comprise a Crown lease and not anything else. Such a ‘theoretical’ approach ignores the inherent costs associated with exercising any additional rights as well as the value of all existing rights. For example, under the codified regime, a site that requires significant remediation works in respect of contamination will be treated no differently to a neighbouring site which is free from any form of contamination.
Surprisingly, the Bill does not seek to address the concept of off-site works - allowing for their cost to be deducted from the charge. This recommendation from the Nicholls/Macroeconomics review is not apparently dealt with. The hope is, however, that such a regime will appear later in negotiations or an amendment to the Bill. If not, then this is a serious deficiency in the Bill.
Appeal and reconsideration rights
Prescribed chargeable variations
There is no express ability to seek a review of, or appeal against, an LVC that is determined via the codified LVC determination. Such a determination will only be reviewable on matters of law in the Supreme Court and so not in the ACAT.
This is put down to the pre-determined nature of the charge and the lack of any excercise of discretion.
S.277 chargeable variations and reviews
Section 277 chargeable variations (i.e. the V1/V2 calculation) are subject to an internal reconsideration process.
- After receiving a notice of assessment (NOA) of an LVC (with an approved DA) an applicant is able to request a ‘working out statement’ of the LVC which must be provided within 20 working days.
- An applicant then has a period of 80 working days after they receive the NOA to apply for an internal reconsideration of the decision.
- An application for reconsideration must include an independent valuation of the V1 and V2 amounts by an accredited valuer agreed with the Commissioner.
- The original decision must then be reconsidered by a different decision maker and either substituted or confirmed within 20 working days (a failure to do so is a deemed confirmation of the decision).
ACAT merits review
An applicant is able to apply to the ACAT for a review of the following decisions only:
- an internally reconsidered decision;
- a s.278 decision in respect of a remission amount;
- a s.279 decision in respect of an increase an LVC amount.
The Government (particularly since ‘rectification’) has been concerned with the number of CUC matters going onto the ACAT. To further reduce this dispute process, the Government is now seeking to place further hurdles in the ACAT path. Whether the use of the reconsideration and independent valuer model as preliminary hurdles will limit the number of ACAT disputes is something to monitor.
Unilateral reassessment of LVCs by the Commissioner
As described below, the Commissioner is given a unilateral right under the Taxation Administration Act 1999 (Tax Act) to reassess an LVC after it has been paid. Such reassessments can be objected to and reviewed by the ACAT under Part 10 of the Tax Act.
As ‘offsite works’ are excluded from the regime, any decision as to the value of such works are not subject to the reconsideration or merit review procedures provided by the Act.
LVC now a ‘tax’
The Bill also amends the Tax Act to make the assessment and payment of an LVC a tax for the purposes of the Tax Act. This will mean that (amongst other things):
- it is the Commissioner for Revenue that will assess the amount of an LVC. This role however is able to be (and is expected to be) delegated to ACTPLA;
- the Commissioner’s powers in relation to anti avoidance schemes and coercive search and seizure powers will be enlivened in respect of an LVC and the Commissioner will have the ability to unilaterally re-assess an LVC after it has been paid (as described above). This may create potential risk/liability and uncertainty for developers, financiers and Crown lessees;
- an applicant will have increased obligations in respect of providing full and true information as well as record keeping; and
- if, via the reconsideration or reassessment process, an LVC is increased, an applicant will be liable to pay the additional amount as a debt owed to the Commissioner (with interest and punitive tax rates applicable).
Amendment to the Unit Titles Act 2001
The Bill amends the Unit Titles Act 2001 to add a requirement that a Crown lease that is to be unitised and which is in a zone prescribed by Regulations must state the number of units (however described) permitted on the land. For older leases with ‘residential purposes’ clauses, this provision raises the question of acquisition of property rights on unjust terms.
For development applications lodged prior to 1 July 2011 which have not had their CUC determined by ACTPLA prior to that date, there will be the option until 1 October 2011, for the applicant to choose under which regime (either the current or the new) they would like their CUC or LVC to be determined.
This highly controversial new tax regime will no doubt significantly impact the ACT development industry. Its potential to radically distort the market will be the focus of some attention during its initial application. The Government has committed to monitor its progress and acceptance by industry.