Australia: Treating minerals as privately-owned to increase land tax and rates

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) [2015] 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 values.

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 their operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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