Under section 6.26(1) of the Local Government Act 1995 (WA) ("the Act"), rates must be paid on all land unless specifically exempted under the Act.
Generally, exempted land falls into the following categories:
- Crown land;
- land used for public facilities or purposes, and land vested in public authorities and bodies;
- land used by a religious body;
- land used by private schools;
- land vested in trustees for agricultural or horticultural show purposes; and
- land used exclusively for charitable purposes.
At first glance, many of these exemptions appear fairly self-explanatory; however, as is frequently the case with statutory interpretation, Courts and Tribunals will scrutinise commonplace words and phrases so that their meaning is often quite different to what might be ordinarily understood.
For example, in the recent case of Australian Flying Corps & Royal Australian Air Force Association (WA Division) Inc ("RAAFA") and City of Mandurah ("the City") ( WASAT 47), RAAFA successfully argued that land being used to operate a retirement village was capable of falling within the 'charitable purposes' exemption pursuant to section 6.26(2) of the Act.
Facts of the Case
Under the Act, where a local government provides notice to a landowner that rates are payable, the landowner (i.e. RAAFA) may object to paying the rates. In this case, the City dismissed RAAFA's objections and RAAFA then applied to the State Administrative Tribunal ("SAT") to review the City's decision.
While RAAFA is a not-for-profit organisation and is approved as such with various bodies such as the Australian Taxation Office, its costs of providing the facilities and services at the retirement village were funded by the residents. Specifically, an incoming resident had to pay an interest-free entry loan to RAAFA for the grant of a lease. RAAFA then repaid this loan, less a retention sum, to the resident or their estate on termination of the lease. The residents were also required to pay a monthly operating costs charge as a contribution to the operating costs.
Furthermore, the City argued that the retirement village's common facilities, such as a hair salon, and medical and consulting rooms, were not charitable. Therefore, the City submitted that even if the accommodation could constitute 'charitable purposes', the land could not constitute being used 'exclusively' for charitable purposes.
What is a 'Charitable Purpose'?
The issue before the SAT was, in essence, whether land could be used 'exclusively for charitable purposes' if it is used to provide accommodation and other services to residents in return for the cost of doing so.
While 'charitable purposes' is not defined in the Act, it is accepted that "the relief of aged, impotent and poor people" will be classified as charitable according to Uniting Church Homes (Inc) and City of Stirling ( WASAT 191). Secondly, for a purpose to be 'charitable', there must be a public benefit – that is, a benefit that is directed to the general community or to a sufficient section of the community to amount to the public (Lloyd v Federal Commissioner of Taxation (1955) 93 CLR 645).
Overall, the SAT held that when viewed objectively, the land was being used exclusively for charitable purposes and that RAAFA should be exempt from paying rates.
In making its decision, the SAT made the following observations:
- The fact that the residents of the retirement village were required to purchase the right to occupy their units, and pay fees, did not alter the charitable characterisation of the land use.
- The retirement village held a public benefit because residency was available to anyone and was not restricted to members of RAAFA (although all residents were required to subsequently become members of RAAFA).
- The village facilities other than for accommodation were held to be incidental to the needs associated with providing 'relief of the aged', and although residents were required to pay any fees payable for these other facilities, most of the facilities were available to residents without paying an additional fee.
- Despite RAAFA generating a small surplus during the relevant years, the Tribunal found that this did not necessarily mean that the village operated for commercial gain.
Legislation is intended to be drafted as precise and clear as possible in anticipation of all the possible scenarios that may arise in the course of applying that statute. However, no matter how precise and clear, it is inevitable that the task of interpreting statutes may create some unintended situations, such is the richness and indeterminacy of our language. While not all land used for retirement villages will be exempt from paying rates, local governments should note that it is possible (or rather, likely) for relatively unambiguous words such as 'charitable' to produce unexpected legal outcomes.
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.