Compensation and other payments

Compliance with legislative requirements

  1. Under the LAA there are two main types of acquisitions – by agreement (where the Commonwealth pays a mutually agreed price to the interest holder) and compulsory acquisition (where the Commonwealth pays an amount of compensation to the interest holder). If the entity is acquiring land under the LAA, the amount paid for either type of acquisition needs to satisfy ‘just terms’ for the landholder and, as the acquisition is a procurement, must also represent an appropriate use of resources and provide value for money for the Commonwealth. See paragraphs 50 and 51 of Acquisition process on consideration for price or acquisitions by agreements.
  2. An appropriate use of resources means that land transactions are managed in an efficient, effective, economical and ethical way, consistent with the accountable authority’s obligations under the PGPA Act.
  3. Where a price is mutually agreed between the Commonwealth and the landholder, it is important that decision makers can clearly demonstrate that both value for money and just terms have been achieved.

Heads of compensation

  1. To provide assurance that compulsory acquisitions occur on ‘just terms’ as required by section 51 (xxxi) of the Constitution, the LAA sets out a number of potential types of compensation (also called, heads of compensation) including:
  1. market value: the market value of the interest in land on the day of acquisition, which is defined as ‘the amount that would have been paid for the interest if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer’;
  2. special value: the value of any financial advantage, incidental to ownership of the interest in land and additional to market value, on the day of acquisition;
  3. severance: the reduction in the market value of any remaining land caused by its severance from the portion of the land acquired;
  4. enhancement or ‘injurious affection’: which applies where part of a property is acquired and the Commonwealth’s activities on the acquired land have caused, or will cause, an increase or decrease in the market value of the remaining part of the property. The total amount of compensation may be increased or decreased depending on the circumstances;
  5. disturbance: any loss, injury or damage suffered, or expense reasonably incurred as a direct, natural and reasonable consequence of the acquisition of the interest. This also includes losses or damages incurred as a direct result of issuing a PAD or section 24 certificate;
  6. expectation of lease renewal: where the interest in land is subject to termination or a time limit, the likelihood of continuation or renewal of the lease will be taken into consideration;
  7. ‘solatium’: an additional lump sum (approximately $24,000 in 2021, which is $10,000 under section 61 of the LAA with indexation applied under section 126 of the LAA), payable where the interest which was acquired included a person’s principle place of residence; and
  8. professional costs: any legal or other professional costs reasonably incurred in relation to the acquisition, including the costs of:
    1. obtaining advice in relation to the acquisition, the entitlement to compensation, or the amount of compensation; and
    2. executing, producing or surrendering any documents required by the Commonwealth.
  1. Most types of compensation relate to the market value of the acquired interests in land at the time of acquisition, however, other types of compensation including professional costs, injurious affection and disturbance loss can be forward-looking and are not limited to loss or damage or costs or expenses incurred at the time of acquisition.
  2. When approving offers (and payment) of compensation, officials and decision makers must have clear reference to value-for-money, just terms, the PGPA Act and other relevant legislation and policy.
  1. LAA delegations to determine the amount of compensation that will be offered to an interest holder for a compulsory acquisition are held by Finance officials only (and not by acquiring authorities).
  2. Once an offer is accepted by the interest holder, the acquiring authority is responsible for making the compensation payment to the interest holder.

Taxation considerations

  1. Entities should be aware that compensation and other payments to claimants may attract taxation and should strongly encourage claimants to seek independent professional taxation advice early in the negotiation process. Officials can direct claimants to seek advice from the Australian Taxation Office (ATO) (see guidance on Involuntary Disposal of a CGT (Capital Gains Tax) asset).
  2. When considering compensation claims, entities should, where possible, be aware of the taxation implications of claims and how taxation issues may impact on the amount of compensation landholders will ultimately receive.


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