An artist’s impression of the planned Dairy Road project, which is seen as a model development. Image: Assembly Studio.
Reading ACAT decisions can be mind-numbing, or character building, at the best of times, but the case Molonglo Group (Australia) v Commissoner for ACT Revenue is particularly taxing.
Not least because it deals with arcane lease variation charges (LVC), the bête noire of the property industry because of its vagaries, vagueness and impact on the viability of developments, and therefore how much money can be made.
It is basically a tax charged on the uplift in the value of land from changing a lease, so that the community also benefits.
In a jurisdiction such as the ACT, which has a narrow tax base, land is currency, and for the government, property is bread and butter.
It helps pay for our schools, hospitals and services, so it should not be sniffed at, but at the same time, there have to be developments to tax, so like all taxes, there is a tipping point beyond which it becomes counterproductive.
In the case of Molonglo’s Dairy Road development, the government attempted to levy an amount that would have killed off the development.
If it had been upheld, it would have won 100 per cent of nothing, because the developer would have walked away.
The case involved one of Canberra’s more innovative and interesting developers, which sold out of its New Acton precinct to focus on developing its land at Dairy Road, both the commercial aspect and a multi-unit residential estate.
It had an estate development plan for the residential project approved but required a lease variation so multi-unit homes could be built on the land.
The general opinion was that the proposal was a great use of land that would otherwise lie idle and was a model development.
In March 2024, the government assessed the LVC at about $37 million, but Molonglo calculated that its development costs were so high that no LVC should be charged.
It sought a review but was shocked when, inexplicably, it was billed $101 million, and went to ACAT.
Apparently, the government took a hypothetical approach to how much development could be squeezed onto the land to produce an absolute value, instead of an assessment based on what Molonglo had actually proposed — up to 700 homes.
Ironically, Molonglo had limited its yield so that Dairy Road was not cheek by jowl and more space could be allocated to natural amenity.
Molonglo also could not claim for its considerable construction costs.
ACAT found that the government’s approach was fatally flawed and “manifestly absurd”, coming to the logical conclusion that such a levy would render the project unviable.
But it also found that Molonglo could not claim construction costs for some offsite works, even though it was in the process of acquiring that land, which is now part of the estate, adjusting the LVC to more than $26 million.
The implications of this decision are still being determined, but it appears to be a humiliating loss for the government, totally discrediting its assessment approach and raising questions about why such a figure was raised and why it ever thought it could be upheld.
One could point to a broken budget and a grasping government that sees the property industry as a cash cow, oblivious to the risk of, pardon the mixing of metaphors, killing the goose that lays the golden eggs.
The government wants more homes built, particularly so-called missing middle ones, precisely the sort that Molonglo aims to include at Dairy Road.
The finger will no doubt be pointed at Chris Steel, who, as both Planning Minister and Treasurer, is squarely in the frame.
Molonglo has now suffered an 18-month delay disputing the LVC, incurred legal costs and will now have to crunch the numbers to see how the project can be delivered.
There may also be implications for brownfield developments and offsite construction costs when it comes to calculating LVC.
That developers should pay their fair due is not in dispute, but this case highlights how the government needs to take a more balanced approach to encourage beneficial, timely development so the community genuinely is the winner.
Onerous taxation and project delays can only add up to poorer development outcomes and fewer homes and facilities, and deter the kind of development the ACT needs.
