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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2010-06-30 Daily Xml
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LAND TAX (MISCELLANEOUS) AMENDMENT BILL

Committee Stage

In committee.

(Continued from 24 June 2010.)

Clause 1.

The Hon. P. HOLLOWAY: Could I make some further comments on clause 1? The Hon. Rob Lucas requested some information, and I have supplied him with a copy of the response but I need to place it on the public record. The first question asked by the Hon. Mr Lucas was about a breakdown of the cost to revenue of the proposed land tax changes, in particular, an explanation why the cost of land tax relief was quoted in The Advertiser as being $52 million a year for four years.

The answer is that the 2009-10 Mid-Year Budget Review advised that the changes to land tax rates and thresholds to provide broad-based relief to land tax payers had an estimated revenue cost of almost $53 million in 2010-11 and $157 million over the three years from 2010-11 to 2012-13. The Treasurer's media release of 11 May 2010, 'Government delivers promised land tax relief: nearly 75,000 will no longer pay land tax', advised that the relief package is fully accounted for in the state's budget and confirmed the $157 million total cost of the rate and threshold relief package over three years.

The revenue impact from the introduction of the changes to the land tax rates and thresholds as at the 2009-10 Mid-Year Budget Review is as follows. I seek leave to insert in Hansard a purely statistical table setting that out.

Leave granted.

2010-11 2011-12 2012-13 2013-14*
$m $m $m $m
Rate and threshold relief-from 2010-11 -52.8 -51.6 -52.3 -54.3
Indexation-from 2011-12 0 0 0 -10.8
Total revenue impact -52.8 -51.6 -52.3 -65.1

*Not published in the 2009-10 Mid-Year Budget Review

The Hon. P. HOLLOWAY: The Mid-Year Budget Review advised that, with interest rates expected to increase in the short term and the cessation of the commonwealth government's first home owners boost in December 2009, a real terms correction in residential property prices was then still expected over the forward estimates. Land value growth assumptions in nominal terms relevant to land tax at the time of the 2009-10 Mid-Year Budget Review are summarised in the table below. Again, I seek leave to have that inserted in Hansard. It is a purely statistical table.

Leave granted.

Land value growth assumptions (%) 2010-11 2011-12 2012-13 2013-14
Residential land value growth 9.0 -2.5 1.0 3.5
Non-residential land value growth 7.0 0.0 3.4 3.5


The Hon. P. HOLLOWAY: This very flat outlook for property prices accounts for the flatness in the forward estimates of the impact of the rate and threshold relief measure. On the basis of the property price projections at the time of the Mid-Year Budget Review, there was also only a very limited revenue impact from the introduction of indexation of tax brackets in 2011-12 and over the forward years.

Subsequent to the Mid-Year Budget Review, the Department of Treasury and Finance has revised its projections of property market growth over the forward estimates. These projections will be reviewed and finalised during the budget process. However, Treasury's revised projections no longer factor in a real terms correction in residential property prices. Consequently, the revenue impact from the rates and threshold measure from 1 July 2010, and subsequent indexation of thresholds, is likely to be larger than estimated at the time of the Mid-Year Budget Review. On the basis of current estimates, the revenue impact is as follows. Again, I seek leave to insert in Hansard a statistical table illustrating that revenue impact.

Leave granted.

Revenue impact—using current DTF projections 2010-11 2011-12 2012-13 2013-14
$m $m $m $m
Rate and threshold relief -52.8 -55.3 -57.9 -60.7
Indexation 0.0 -14.0 -29.6 -47.0
Total revenue impact -52.8 -69.3 -87.6 -107.8


The Hon. P. HOLLOWAY: The cost of the land tax rate and threshold relief measure by tax brackets as at the 2009-10 Mid-Year Budget Review is summarised in the table below. Again, I seek to have to that table inserted in Hansard.

Leave granted.

2010-11 2011-12 2012-13 2013-14*
$m $m $m $m
Increase threshold from $110,000 to $300,000 -43.2 -42.3 -42.8 -44.2
Adjustment to tax brackets and marginal rate
$300,001 to $550,000(a) -6.0 -5.9 -6.0 -6.4
$550,001 to $750,000(b) -3.5 -3.4 -3.5 -3.8


(a) Change the $350,001 to $550,000 tax bracket with a marginal rate of 0.7%, to $300,001 to $550,000 with a marginal tax rate of 0.5%.

(b) Change the $550,001 to $750,000 tax bracket to $550,001 to $800,000.

The Hon. P. HOLLOWAY: The second point the Hon. Mr Lucas asked about was the revenue impact in each of the financial years from extending the exemption from land tax to for-profit aged-care providers.

Current land tax arrangements provide an exemption for not-for-profit organisations in respect of land use for residential aged-care facilities. The amendment included in the Land Tax (Miscellaneous) Amendment Bill 2010 ensures that all commonwealth accredited residential aged-care facilities, in particular for-profit aged-care providers, will not be required to pay land tax. The 2009-10 budget advises that the cost of this measure was $6.2 million over the four years from 2009-10 to 2012-13. The cost of this measure is summarised in the following table, and I seek leave to incorporate the table into Hansard.

Leave granted.

2009-10 2010-11 2011-12 2012-13
$m $m $m $m
Revenue impact of the provision of relief for for-profit residential aged care facilities -1.6 -1.5 -1.5 -1.6


The revised estimate of the revenue impact of this measure is in the order of $1.2 million in 2009-10. The third question asked by the Hon. Mr Lucas related to information on how the Valuer-General and Treasury will manage the indexation process under the new arrangements. In his second reading speech the Hon. Mr Darley provided an accurate summary of the process the Valuer-General proposes to adopt to calculate the average percentage change in site values.

The Valuer-General and Treasury will manage the indexation process in the following way: upon completion of the general valuation the Valuer-General will, on or before 30 June in each year, determine and publish by notice in the Gazette the average percentage change in site values and the index value for the ensuing financial year. On or after the publication of this notice by the Valuer-General, the Commissioner of State Taxation will publish the thresholds that will apply with respect to that financial year.

The Valuer-General has confirmed that he will request from Revenue SA a list of properties subject to land tax at the general valuation gazettal date, which is late May. For example, in determining the change in average site values to apply to thresholds in 2011-12, the Valuer-General will use a dataset of properties provided by Revenue SA that are subject to land tax as at the general valuation gazettal date in 2011. He will then calculate the total site values for those properties for the current financial year, that is, applying in 2010-11, and also the total gazetted proposed site values for those same properties for the impending financial year, that is, to apply in 2011-12.

The Valuer-General will then calculate the average percentage change in site values between the two years and the index value for the ensuing financial year. All properties in Revenue SA's dataset that are liable for land tax at the general valuation gazettal date will be used to calculate the average change. New properties created in the current year that are not captured in this dataset will not be included in calculating the increase until the following year. Correspondingly, if properties become no longer liable to pay land tax for the year ahead, they will still be included in the calculation for that particular year.

The fourth question asked by the Hon. Mr Lucas was: why has the government changed the approach to determining the average percentage change in site values? The information provided in the House of Assembly related to the intentions of the Valuer-General at that stage. The working formula at that time was based on a weighted average calculation of residential and non-residential percentage annual increases where the weights used had regard to the proportion of residential land value that is subject to land tax—that is, rather than all residential land, a large part of which is subject to the principal place of residence exemption.

Additionally, the approach excluded, where possible, all other properties with uses that are land tax exempt, such as primary production, caravan parks, retirement villages, etc. In essence, the formula and the approach sought to reflect, where possible, the property base that is subject to land tax. Following discussions between the Valuer-General's staff and the Hon. Mr Darley, the Valuer-General has simplified the formula by proposing the use of the actual Revenue SA dataset and thereby dispensing with the need for a weighted average model.

The Valuer-General advises that the use of a defined dataset is preferable in ensuring the average increase calculation is not affected by the large proportion of residential and other land not subject to land tax. I can confirm that the underlying principles in this approach and the previously calculated working formula are consistent. I trust that that answers the honourable member's questions.

The Hon. R.I. LUCAS: I thank the minister for the replies. I have a number of questions, but that answers the vast bulk of the questions I put. With a couple of these questions I would be happy, in the interests of trying to expedite the processing of this bill today, if the minister was prepared to give an indication to take them on notice and correspond with me afterwards, because I expect that there may not be an immediate response.

On page 2 of the note the minister has just read from, the second table provides a breakdown of the total cost according to the various components, which was my question, and gives an indication of the cost to revenue of increasing the threshold from $110,000 to $300,000. As I read it, that is a breakdown done at the time of the Mid-Year Budget Review. If I have read it correctly, we now have new estimates, and I wonder whether the minister can take on notice to provide a similar breakdown on the more recent estimates and provide it in writing after the processing of the bill.

The Hon. P. HOLLOWAY: I can, yes.

The Hon. R.I. LUCAS: Again this question the minister will have to take on notice as it is not directly related but is tangential to the whole debate. I spoke in the second reading debate about the fact that the critical point from my viewpoint, and for many in the land tax debate, the non-competitive part of our land tax regime even after these changes is the rate in the dollar above the million dollar bracket, which I think is currently $3.70. Will the minister at least take on notice and undertake to provide in writing an indication of the cost to revenue if that was reduced to $2.50 as opposed to the current $3.70?

The Hon. P. HOLLOWAY: We can do that.

The Hon. R.I. LUCAS: I thank the minister for that as it assists greatly. The final issue is in relation to the revenue impacts. Clearly from a budget viewpoint the revenue impacts are important to the government and, in particular, the Treasurer and of great interest to the opposition. That is the reason I put a long series of detailed questions to the government.

I thank the government for the provision of the response because, on my reading, it would appear that the cost to revenue of these proposals is now significantly greater. Having had a look at this, my quick calculations are that the original estimated cost to revenue over the forward estimates period was $221.8 million, or just over $50 million or so a year—it was obviously increasing towards the end of the forward estimates period—and that total cost to revenue has now significantly increased to $317.5 million, or around about that mark.

I am just seeking clarification that my quick calculations are correct, which are that the total cost to revenue is now almost $100 million higher than was originally estimated and budgeted for, I think probably around about $95.7 million over the forward estimates period.

The Hon. P. HOLLOWAY: The impact of indexation will obviously depend on the actual rate of increase in property values, so I suppose if property values are expected to increase by more than was predicted, obviously, in that sense, the cost to revenue will be commensurately greater, because clearly the impact of that indexation will be greater than one would otherwise get. If one is using the term 'cost to revenue', one needs to take into account that essentially we are talking about something we might have had if inflation and property were at a greater rate. My advice is those figures are correct.

The Hon. R.I. LUCAS: I understand the minister's explanation, but I am just seeking to clarify the information that has been provided to the committee. This confirms the fact that, in essence, the increased cost to revenue of $95.7 million is 43 per cent higher over the forward estimates period than the original estimate. Of more interest, I guess, to the Treasurer, the government and those of us on the other side is that, by the end of the forward estimates period, the cost to revenue per year is now estimated to be $42.7 million higher than the original $65.1 million cost. The cost to revenue in the fourth year of the forward estimates is actually 66 per cent higher than the original estimated cost to revenue and, over the four year period, it is 43 per cent higher.

As I said, I thank the minister for his response to the questions because information provided to me in my preparation for the bill indicated that the cost to revenue may well indeed be more significant than had originally been outlined, partly for the reasons that the minister has stated. I thank the minister for that response.

I will make a comment on page 3 of the four page answer that the minister provided. I thank him again for the detailed response because I put a series of questions in the second reading debate and I was going to pursue them in the committee stage, but I no longer intend to pursue them because the minister has now confirmed this process.

Essentially, my questions were that, if we were going to work out this average increase, when you are looking at the financial year 2011-12, you could not accurately do it until, and after, 30 June, because you do not know the properties to which land tax will apply until after June 30. On June 30 you know whether or not various properties are eligible for various exemptions under land tax because of changed ownership arrangements, or a whole variety of other things. Yet all of these calculations were going to be done in the period between May and June leading up to 30 June.

The minister has put on the record and clarified that we—and I can understand the reasons why—will not be using 30 June as the operative date. It is going to be what is referred to as the general valuation gazettal date, which is in late May. In essence, late May is going to be the cut-off. If you are subject to land tax in a particular property in late May, even if your arrangements change five or six weeks later on 30 June and you are not subject to land tax, for the purposes of this calculation, you will still be part of the calculation that the Valuer-General and Revenue SA are going to have to engage in.

As I said, there was this problem when one looked at the mechanics of how this calculation was going to be done. The answer essentially is that they will obviously not be able to make a judgment as to what properties are actually subject to land tax on 30 June. They will have to do it on the basis of what they are now saying is the general valuation gazettal date, which is in late May.

In the end, there will be no perfect formula, as the Hon. Mr Darley would be the first to acknowledge. Certainly, from my viewpoint, I can understand that. There will be inadequacies and inequities in any formula that we have to use. This will be an inadequacy or an inequity in relation to a proper calculation of the indexation movement, but I understand why it has been done and, in the absence of someone else coming up either to us or the government with a better way of doing it, it is something that we probably at this stage will have to live with and see whether or not it is possible to improve on the process in the future.

With those comments, I thank the minister for having confirmed, clarified and answered the questions that I put in relation to how that process would operate.

The Hon. P. HOLLOWAY: There is just one other point I wish to quickly make on the Hon. Mr Lucas' earlier comments about the fact that the cost of this indexation is now estimated to be greater because of the higher expected increase in prices of property. I should point out that the revenue forgone from indexation will certainly be higher, but the revenue collection would have been higher too, so the net effect on the budget, from the higher estimated cost of indexation is zero. So, in other words, there is no net effect. Yes, it will cost more. If you did not have the indexation, you would have got more money because there is more revenue but, in terms of the budget, there is no net cost.

The Hon. J.A. DARLEY: In my second reading speech, I indicated that I would ask the minister a number of questions. The first of those questions is whether land tax is calculated on Housing SA properties, South Australian Land Management Corporation properties and other state-owned trading enterprises, such as SA Water, in the same manner as private taxpayers' properties, and then debited to each property within the ownership.

The Hon. P. HOLLOWAY: Yes; if the honourable member is happy with that.

The Hon. J.A. DARLEY: The other question is: on how many occasions has the commissioner had regard to minority interests up to 5 per cent, and how many of those has he approved? I understand that the figure is six.

The Hon. P. HOLLOWAY: My advice is that that is correct; it is six.

Clause passed.

Clauses 2 and 3 passed.

Clause 4.

The Hon. J.A. DARLEY: I will not be proceeding with amendments Nos 1 to 5 as originally filed. Instead, I am moving the second set of compromise amendments, dealing with the same issue, following discussions last night with the Commissioner of State Taxation, Treasury officials and the Valuer-General. I move:

Page 3—

After line 23—After subclause (1) insert:

(1a) Section 5(10)—after paragraph (b) insert:

(ba) land may be wholly exempted from land tax if—

(i) the land is owned by a natural person and constitutes his or her principal place of residence (whether or not he or she is the sole owner of the land); and

(ii) the buildings on the land are used for the purposes of a hotel, motel, set of serviced holiday apartments or other similar accommodation; and

(iii) more than 75% of the total floor area of all buildings on the land is used for the person's principal place of residence;

(bb) land may be partially exempted from land tax by reducing its taxable value in accordance with the scale prescribed in subsection (12) if—

(i) the land is owned by a natural person and constitutes his or her principal place of residence (whether or not he or she is the sole owner of the land); and

(ii) the buildings on the land are used for the purposes of a hotel, motel, set of serviced holiday apartments or other similar accommodation; and

(iii) 25% or more of the total floor area of all buildings on the land is used for the person's principal place of residence,

(and for the purposes of the scale prescribed in subsection (12), the area used for the hotel, motel, set of serviced holiday apartments or other similar accommodation will be taken to be the area used for business or commercial purposes);

After line 34—After subclause (3) insert:

(3a) Section 5(12)—delete 'subsection (10)(b)' and substitute:

subsection (10)(b) or (bb)

For the sake of convenience, I will speak to amendments Nos 1 and 2 together. The purpose of the amendments is to ensure that owners of hotels, motels, serviced holiday apartments, or other similar accommodation, are able to seek an exemption from land tax, either in whole or in part, for the portion of the premises that they occupy as their residential premises. It brings hotels, motels and other similar accommodation in line with the exemptions that apply to other premises such as bed and breakfasts. It is my understanding that these amendments are acceptable to the government.

Following lengthy discussions, I think it is fair to say that the Commissioner of State Taxation agrees that the revenue lost would be less than $1 million per annum. In my opinion, the revenue lost would be significantly less than $1 million per annum, taking into account the qualifications required and the increase in threshold of $300,000 as proposed by the government. Once again, the Valuer-General's attitude has been less than constructive on this matter. He has preferred to be part of the problem, rather than part of the solution.

The reason for the amendment is that, as members will recall, during my second reading contribution I outlined a matter concerning the owners of a small country motel whom I have been assisting in trying to gain at least a partial exemption from land tax. The owners of the motel are required to reside at the property in order to retain their AAA three-star rating. The motel is their home. The owners live at the property on a daily basis and use the amenities, including the kitchen, bathroom, laundry, living areas and the yard for their own living purposes.

In this case, the land tax is payable by virtue of the value of the motel site and its commanding views of the harbour, as well as other land owned by the same owners. The owners are not seeking a full exemption: they are seeking a partial exemption for the portion of the motel that they personally occupy.

These amendments will ensure that those owners, and owners like them, will be treated in a manner consistent with the way bed and breakfast operations are treated under the act. I urge all honourable members to support these amendments.

The Hon. P. HOLLOWAY: First of all, I just defend the Valuer-General. My advice is that the Valuer-General was acting under crown law advice, and the Valuer-General has to act in accordance with the law. If he gets crown law advice that the Valuation of Land Act operates in a certain way, then he is obliged to take that into consideration and observe that advice.

In relation to the honourable member's amendments, the original amendments filed by the Hon. Mr Darley last week had the effect of removing the requirement that the premises have a residential character in order to be eligible for a principal place of residence exemption. The response of the government to those amendments is as I read into Hansard last week.

However, as the honourable member said, further discussions have taken place between Revenue SA, Revenue and Economics, the Valuer-General, the Hon. Iain Evans and other Liberal Party MPs and the government, and a much narrower exemption is now being proposed by the Hon. Mr Darley. The narrower exemption puts hotels and motels, serviced holiday apartments and other similar accommodation on the same footing as bed and breakfasts for land tax purposes.

The revenue effect of this narrower exemption is as the honourable member suggests: it is not expected to be significant. It is certainly far less than the exemption originally on file from the Hon. Mr Darley. On those grounds, the government is happy to accept the amendments.

The Hon. R.I. LUCAS: My question is to the minister in relation to his advice. I think the minister said that the revenue implications are not expected to be significant. Has the government been given more definitive estimates? I think the Hon. Mr Darley said that it would be significantly less than $1 million a year. Does the government have more definitive estimates in relation to what the revenue impact will be? If it does not have definitive estimates, is it correct to say that it is significantly less than $1 million a year?

The Hon. P. HOLLOWAY: Obviously, the government has not had time to formulate that. My advice is that it would require going through the entire database, so it would be a large exercise. We rely on the Commissioner of Taxation's advice, that in his judgment it would not be significant, but I do not think we would like to put an actual dollar figure on it.

The Hon. R.I. LUCAS: I can understand that. Is the minister prepared to take it on notice then? I assume, with the passage of the bill, there will have to be some estimate done in terms of budget purposes. If it is not specifically reported in the budget (which I suspect if it is small it will not be), is the minister prepared to take on notice what it is and to provide by way of letter the estimated revenue impact, if that is ultimately done by Revenue SA?

The Hon. P. HOLLOWAY: My advice is that to try to make an estimate now would be quite a significant effort. The way that one can best measure this is, by the end of year, when the applications come in for exemption the government will be in a much better position to be able to make that estimate. A lot of resources are involved in making an estimate that may not necessarily be accurate anyway. I suggest the honourable member follow that up later in the year when we have some actual applications.

The Hon. R.I. LUCAS: I accept and understand that, and certainly I will undertake to do that. Again, I request that perhaps at the end of the year, either in a budget document or a Revenue SA annual report, once the government or Revenue SA has that figure, whether it would be prepared to report on that particular figure.

I have not always had great luck with getting answers to questions on notice, so if the minister was prepared to indicate that, in some way or another, having followed the process he is suggesting—which I think is sensible—we look and see what the applications are and then see whether the government is prepared to report after a period of time on that figure.

The Hon. P. HOLLOWAY: The commissioner has agreed to that, and I suggest the honourable member perhaps reminds us of that commitment at the time, but we are happy to give it.

The Hon. R.I. LUCAS: I thank the minister for that undertaking. In relation to the amendments, the Hon. Iain Evans (member for Davenport) was involved in the discussions, and he has indicated that the Liberal Party is supporting the amendments, as is the government. On behalf of the Liberal Party, I thank the Hon. Mr Darley for his assiduous pursuit of this particular issue by way of original amendments and now the more refined amendments, which both the government and the opposition are in a position to support.

I place on the record again my thanks to the Hon. Mr Darley for his work in relation to this bill in its entirety and in relation to this particular amendment. It is further evidence of the value of having someone with expertise and knowledge in these areas participating in the debate through the parliament.

Suggested amendments carried; clause as suggested to be amended passed.

Remaining clauses (5 and 6) and title passed.

Bill reported with suggested amendment.

Third Reading

Bill read a third time and passed.

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