The compulsory acquisition of land often triggers tax implications for the dispossessed owner, particularly associated with land held in an investment capacity, two of the more common of which are stamp duty and land tax. In the recent decision of Canal Aviv Pty Ltd v Roads and Maritime Services  NSWLEC 52 the applicant company sought recovery of stamp duty for a replacement property and ten months’ Land Tax paid for the 2017 calendar year for land it did not own at the relevant time. The Court ultimately refused the stamp duty claim on the grounds that the applicant was not in the business of property development and re-sale. The Court also refused the applicant’s Land Tax claim as Land Tax did not properly constitute an element of market value under s55(a) of the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act) or otherwise arise as a “direct and natural consequence” of the use of the land, as required by s59(1)(f) of the Just Terms Act.
In February 2017, the RMS compulsorily acquired approximately 2,500 square metres of land known as 1-3 Ricketty Street, Mascot for the purposes of the M5 WestConnex project, leaving a residue portion of approximately 8,941 square metres.
The applicant had originally intended to re-develop the land for a combined ‘warehouse storage’ and ‘self storage’ facility. Soon after being notified by the RMS that it required a significant portion of the applicant’s land, the applicant formed the view that the warehouse storage and self storage development was unlikely to be viable on the residue part of the land. The decision was made at the time that the applicant company would re-develop the land for self storage facilities only, and not warehouse storage.
The applicant was ultimately dissatisfied with the Valuer-General’s determination of compensation and commenced review proceedings in the Land and Environment Court. 
The applicant asserted that it was entitled to be reimbursed for stamp duty which would be incurred on the acquisition of a replacement property, based on the proposition that the applicant was a developer involved in land banking. The applicant relied upon the decision of Blacktown Council v Fitzpatrick Investments Pty Ltd  NSWCA 259, where the Court held that land banking activity provided an appropriate legal basis for the recovery of stamp duty under the Just Terms Act for the acquisition of replacement property. 
The respondent contended to the contrary, arguing that the activities of the applicant could not be characterised as property development in the limited sense addressed in Fitzpatrick, but rather development associated with the expansion of the applicant’s ‘self storage’ business. In other words, the applicant did not develop land and on-sell that land.
Findings on stamp duty
The Court observed:
- In Fitzpatrick, the acquired land was held for the purposes of development and on-sale and was not proposed to be used by the Fitzpatrick interests for any long-term business purpose – that is, the land in Fitzpatrick was regarded as development land held purely for transactional purposes.
- On the applicant’s evidence, the intention of the applicant was to develop the subject land and then operate the development site as part of the applicant’s ongoing business interests.
- Further, it was reasonable to assume, as the Court did, that the applicant might not remain the owner of the development on the subject land, with that ownership likely to be transferred to another related entity. The nature of that likely transfer would be ‘entirely intra-interests’, rather than evidencing a development intention of a transactional nature to an unrelated party.
The Court ultimately held that:
 The development activity proposed … was an operational one rather than a transactional one, and therefore had no relevant similarity with the circumstances arising in Fitzpatrick so as to cause any stamp duty entitlement to arise for the Company on a Fitzpatrick basis.
Accordingly, the Court rejected the applicant’s stamp duty claim.
The applicant set out the uncontested statutory framework in which land tax applies, noting that land tax under the Land Tax Act 1956 is assessed as at 31 December for the following year. Importantly, the compulsory acquisition of land (in that following year) does not trigger any entitlement to relief under the Land Tax Act.
The applicant contended that, in the circumstances, it was entitled to recover Land Tax under the Just Terms Act for that period of time in which it did not own the land. The applicant based its claim on s55(a) and s56(1) of the Just Terms Act as representing an element of market value. In the alternative, it relied upon the ‘catch-all’ provision of s59(1)(f) of the Just Terms Act.
The applicant also relied upon the observations of Justice Sheahan in Carlewie Pty Ltd v Roads and Maritime Services  NSWLEC 78. In that decision, the Court held that the applicant had not made out its claim for Land Tax but observed that there “may have been a basis for the claim had there been evidence of a consistent practice in the market for an adjustment of Land Tax consistent with the amount claimed.”  The applicant in the current case contended that it had adduced the requisite evidence by:
- presenting expert evidence that land tax adjustments were an almost universal adjustment in the sale of commercial and industrial land, and
- demonstrating that the subsequent sale of the parent parcel of land itself, executed in November 2015 (relatively shortly before the acquisition date), included an adjustment of land tax.
The respondent contended that while land tax was often adjusted in commercial and industrial sale contracts, it was not a universal practice, but always optional. Separately to that submission, the respondent contended that there was no legal basis under the Just Terms Act to claim or recover land tax.
Findings on land tax
The Court observed that, in relation to the applicant’s primary submission on land tax, the determination of market value under the Just Terms Act was a separate and distinct exercise to the adjustments which follow agreement on market value.
 … What adjustment factors may have been agreed (whether Land Tax; non-fixture inclusions; council rates or other outgoings – whether statutory or not) is a matter that forms part of the negotiation but does not form part of the identified amount that would have been paid for the land. They are factors which are, if agreed to, ones that lead to the calculation of a final transaction price, a final transaction price likely to vary to some degree dependent on the settlement date when the outcome of the transaction is crystallised and ownership of the property passes from the vendor to the purchaser.
On that basis, the Court determined that land tax, being an adjustment under the sale contract (whether a common practice or not), did not form part of market value and was therefore not claimable under s55(a) and s56(1) of the Just Terms Act.
In relation to the alternative submission, the Court observed that ‘the use’ of the acquired land was a combination of vehicle access (to adjacent land) and parking spaces. However, the liability for payment of Land Tax pursuant to s3AL of the Land Tax Act did not arise as a “direct and natural consequence” of these uses of the acquired land. The Court concluded that the liability arose solely as a consequence of the applicant’s ownership of the land as at 31 December 2014.
 … The bare fact that the land tax liability arises from this ownership at that date, and that that liability remains on the Company despite the resumption of the acquired land, cannot, on a proper construction of the terms of s 59(1)(f) of the Land Acquisition Act, give rise to any entitlement to compensation in these circumstances pursuant to that provision.
The decision of Canal Aviv upholds the Court’s long-standing approach to the issue of stamp duty claims under the Just Terms Act in connection with the acquisition of investment properties, to the effect that it will only be available in circumstances where an applicant can establish that it is in the business of development and re-sale. The approach stands notwithstanding that most property investors are, following the compulsory acquisition of their investment property, compelled to re-purchase another investment property – and pay a further round of stamp duty – to avail themselves of the ATO rollover provisions relating to capital gains tax. 
In relation to the issue of land tax, the situation remains equally if not more so constrained by the current interpretation of the Just Terms Act, in so far as Canal Aviv is authority for the proposition that land tax is not claimable as part of market value under s55(a) and s56(1) of the Just Terms Act or under the so-called ‘catch all’ provision of s59(1)(f) of the Just Terms Act, for the reasons set out in the judgment.
Arguably, the potential scope for the recovery of land tax under the Just Terms Act suggested by Carlewie now appears to be closed out by the judgment of Canal Aviv, irrespective of whether an applicant can demonstrate a common or even universal practice of how land tax is treated in sale contracts for a particular class of land.
There remains, on the face of it, something problematic about dispossessed land owners facing tax consequences that they would not otherwise be exposed to, at least not at the time of their choosing, but for the compulsory acquisition of their land. It is perhaps a timely reminder, in the circumstances, of the NSW Court of Appeal decision of Tolson v Roads and Maritime Services  NSWCA 161, which held that there is no ‘just compensation override’ in connection with the Just Terms Act.
 The applicant pressed various claims in the proceedings. This article is limited to the applicant’s claim for stamp duty and land tax.
 Subsequently followed in Speter v Roads and Maritime Services  NSWLEC 128 and Konduru t/as Warringah Road Family Medical Centre v Roads and Maritime Services; Konduru v Roads and Maritime Services, Konduru v Roads and Maritime Services  NSWLEC 36.
 See our article “Stamp Duty Claims associated with the Compulsorily Acquisition of Land” posted 10 April 2017.