A common course which is followed for this purpose is to take sales of improved land and to make deductions from the price paid on such sales which will indicate the value of the land in an unimproved state. Since these sales are for the most part of land which has been improved by the erection of structures, fencing, and farm buildings, as well as the clearing of timber and pasture improvement, this process involves the deduction from the sale price of improved properties of the value or depreciated cost of the various improvements. To deduct the cost at current rates of effecting such improvements would be improper, for cost is not always reflected in value and expenditure on an improvement does not necessarily result in an increment of the same amount to the value of the land; sometimes it will be more and sometimes it will be less depending upon a variety of factors including the durability of the improvements, its necessity as a measure of proper development of the property, and so on.

This is, I think, only too well established by decisions of this Court and elsewhere to admit of argument (cf. In re Stobie, 3 LVR 28; In re McHugh, 16 LVR 35; Stennett and Ainsworth v VG, 12 LGRA 269; Thornton v Warren Shire, 15 LGRA 328; Trust and Agency v Ryan, 4 LCC 228; Greene v Hargrave, 7 LCC 18; Hopkins v Min for Lands, 12 SR (NSW) 215 at p 228; Campbell v Dep Fed Comm of Land Tax (NSW) 20 CLR 49 at pp52-53; McDonald v Dep Fed Comm Land Tax (NSW) 20 CLR 231.

In some of the authorities in which this matter has been discussed a distinction seems to have been drawn between improvements in the nature of buildings or other structures and those which relate only to the land itself such as clearing and timber treatment and statements will be found in the cases which suggest that in the case of structures their value or depreciated cost only is to be deducted whilst with clearing, timber treatment and other improvements to land itself the actual cost at current rates is to be deducted. This differential treatment might. appear to be justified by the fact that buildings and other structures depreciate with the passage of time whilst clearing. timber treatment and other improvements to the land itself do not. But a little reflection will show that it is erroneous to make any distinction between improvements of one sort or another and indeed if the current cost of all improvements were to be deducted from the value of land as disclosed by sales of improved land the result might well be a negative figure. Moreover it will be evident that the measure of appreciation of a building or structure may or may not be greater than the measure of depreciation of the currency in which its value is to be expressed and it follows that the money value in an improvement may increase or remain static despite its obsolescence so that current cost and actual cost less depreciation as simple formulae in ascertaining the added value of improvements may be equally erroneous as guides to unimproved value. This is not to say however that depreciated replacement cost may never be employed as a means of ascertaining the value which an improvement has added to land but as Dr Murray has pointed out (Principles and Practice of Valuation p 220) that method of calculation can be validly employed only under certain conditions one of which is that the value assigned to the improvements by that method is equal to their value as disclosed by sales.

There is another ground upon which it seems to me erroneous to treat the actual cost of making improvements as a deduction from improved values for the purpose of ascertaining unimproved values and this is to be found in the special concessions to primary producers provided by the Income Tax and Social Services Contribution Assessment Act 1936- 1962. These concessions are mostly contained in s75(1) and allow of the deduction from income of expenditure incurred in any year on the following matters -
(b) The destruction and removal of timber, scrub or
undergrowth indigenous to the land;
(c) the destruction of weed or plant growth detrimental to the land
(d) the preparation of the land for agriculture
(e) ploughing and grassing the land for grazing purposes
(h) The construction of dams, earth tanks, under ground
tanks, irrigation channels and so on.
In an explanatory booklet published under the authority of the Hon. the Treasurer for the Commonwealth in June 1965 it is pointed out "that comparable deductions are not allowed to all industrialists or traders or other taxpayers engaged in business" (p 22) and that the effect of deductions under s75 of the Act is that capital gain may be achieved by a primary producer effecting improvements to rural land at a net cost to him substantially less than the actual cost of the improvements, the amount of the net cost depending on the rate of income tax otherwise payable by the landowner (p 24).
It will be apparent that these income tax concessions enable a primary producer to undertake improvements to land which in terms of actual cost exceed the amount by which they add to the value of the land and in consequence a buyer of unimproved land who has a substantial income from primary productions or otherwise will be able to pay for that land in the market a much higher sum than a buyer who has no other income. But even the buyer who is in this latter position can look forward to
progressive benefits from income tax deductions as the land is gradually improved and its income earning capacity increases.

No doubt if there were frequent sales of land in an unimproved state the effect of the income tax concessions would be reflected in the price paid on the market for such land to the extent that such price, with the addition of costs of clearing, timber treatment, and the like, would exceed the market value of the property in an improved condition. This I think, is hardly capable of refutation but it is another question whether the measure of the excess price which might be obtained in the market for land in an unimproved state is capable of being estimated solely by an understanding an application of the provisions of the Income Tax and Social Services Contribution Assessment Act and the rates of income tax fixed by the complementary Income Tax Act which is passed each year.
- Objections to Valuation - Shire of Goobang (1969) The Valuer, January 1970, p57 at pp 65-66.

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