The refusal of special leave to appeal the NSW Land and
Environment Court's (LEC) decision in Perilya Broken Hill
Limited v Valuer-General (No 6)  NSWLEC 43 (Perilya
v Valuer-General) to the High Court on 28 July 2016, has
confirmed all future mining land valuations by the Valuer-General
will treat minerals in the land as privately-owned even though, in
most cases, they are publicly-owned. This development in valuing
land is likely to bring about significant changes in the way
valuations for mining land are conducted and how land tax and
council rates are levied on that land.
In March 2015, the LEC delivered a judgment in Perilya v
Valuer-General about the valuation of mining land under s 6A
of the Valuation of Land Act 1916 (Valuation Act), which
brought significant implications for the mining sector. The Court
found the land value of "land" (inclusive of mining
leases) containing publicly-owned minerals—as defined in the
Mining Act 1992 (Mining Act)—would be determined on
the assumption that the minerals are privately-owned. The decision
was the subject of an appeal to the NSW Court of Appeal, which
upheld the LEC's decision.
The Court's decision turned on the meaning of "fee
simple of the land" in s 6A of the Valuation Act. The Court
found that when the definition of "land value" in s 6A
speaks of the fee simple of land, it means the hypothetical fee
simple being the highest estate unencumbered and subject to no
conditions or reservations—not the estate of fee simple that
has actually been granted. For this reason, the Court found that
the reservation of minerals to the Crown, which applies to almost
all land in NSW, was to be disregarded for the purpose of
determining land value under s 6A.
Implications of treating minerals as privately-owned
The effect of treating minerals as privately-owned is that s 284
of the Mining Act will apply when carrying out valuations. Under s
284, the owner of the mineral is entitled to seven-eighths of any
royalty paid to the Minister under any relevant mining lease. In
the hypothetical transaction used to derive land value under s 6A
of the Valuation Act, this represents (in most cases) a substantial
income stream that will likely significantly increase the value of
the land. Consequently, it is probable the valuations that will be
applied to mining land, which are based on discounted cash flow
methodology, will increase substantially. The Valuer-General's
methodology for valuing mines to date has not taken this
hypothetical income stream into account.
Valuations prepared under s 6A of the Act are used for two
purposes—the levying of land tax and rates. Under the land
tax system in NSW the "taxable value" on which land tax
is levied, is the average of the value recorded in the register
kept by the Valuer-General over three years. Where the present
value of the royalty stream assumed to be payable to the owner of
the land is included, it is likely that the amount of land tax
payable will increase. Section 14F(5) of the Valuation Act requires
the amount of any increase in land value brought about by the
presence of coal in a colliery holding to be separately recorded in
the register (land tax is not payable on that amount). However, it
is unclear how this will operate in practice, particularly for land
that is not currently within a colliery holding. It appears likely
the potential land tax payable on land containing coal, which is
outside a colliery holding, will increase unless it is entitled to
the primary production exemption. There is some evidence that the
Office of State Revenue is seeking to restrict the availability of
the primary production exemption from land tax in the context of
mining projects. For this reason, there is the potential for the
land tax liability of owners of land suitable for mining to
increase going forward.
When calculating land tax, the amount by which the presence of
coal within a colliery holding has increased the land value is
first subtracted from the land value. However, the same is not true
when determining rates. While the assumption that the minerals are
privately-owned is likely to increase the land value used to
calculate rates, councils remain subject to rate capping, which may
limit (although not remove) the impact of any increase in land
Mining companies will need to pay particular attention to the
way their land is treated, to ensure they do not end up paying
unexpected amounts of land tax and rates. Companies should seek
legal advice to further understand the impact of this change on
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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It is a common misconception that the grant of mining tenure, whether it be an Exploration Permit, Mineral Development Licence or Mining Lease, will entitle the holder to access all land within it in order to explore or mine.
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