Australia: Levying and recovering local government rates and charges from landowners

Last Updated: 19 March 2018
Article by Mathew Deighton and Alice Blackburn

IN BRIEF - THE DEFENCE THAT LOCAL GOVERNMENTS DO NOT HAVE THE RIGHT OR POWER TO LEVY RATES HAS NO BASIS AT LAW

Rates and charges are a primary source of revenue for local governments. However, a local government's power to impose rates and charges is often challenged by landowners.

In this update, we take a look at:

  • a local government's power to impose rates;
  • the process involved in recovering levied rates and charges on landowners; and
  • a local government's right to impose interest and recover legal costs against the rate payer.

LOCAL GOVERNMENTS' POWER TO LEVY RATES AND CHARGES

A common defence raised by landowners is that rates and charges are a tax and a local government does not have a legal entitlement to levy a tax. This defence is often based on the following arguments:

  • the Federal parliament has the power to legislate with respect to taxation, therefore precluding a state or territory parliament from exercising that same power; and
  • pursuant to section 109 of the Commonwealth of Australia Constitution Act 1900 (Commonwealth Constitution), the scheme of uniform taxation has the effect of rendering state laws, providing for rates on real property, invalid.

Both arguments have no basis at law because:

  • the power to pass laws, with respect to taxation, is a concurrent power. That is, laws imposing taxation can be passed by both state and federal parliaments; and
  • section 109 of the Commonwealth Constitution will only render state laws "invalid" or "inoperable" to the extent that such laws are inconsistent with relevant Commonwealth laws. As there is no Commonwealth law relevant to local council rates, there is no inconsistency.

Further, local governments are validly created under the Constitution of Queensland 2001 (Queensland Constitution). The Queensland Constitution not only provides that there must be a system of local government in Queensland but it also allows for the functions and powers of such local governments to be prescribed through other state legislation. Comparable positions are also taken in both New South Wales and Victoria (see section 51 of the Constitution Act 1902 (NSW), and section 74A and section 74B of the Constitution Act 1975 (Vic)).

In Queensland, the powers and functions of a local government are found within the Local Government Act 2009 (LGA). Under the LGA, local governments have broad powers to levy rates in respect of "rateable land". "Rateable land" is any land or building unit, in the local government area, that is not exempted from rates. In Queensland, the power to levy rates and charges is found within section 94 of the LGA, which says that local governments:

  • must levy general rates on rateable land; and
  • may levy special rates and charges, utility charges, and separate rates and charges.

Similar powers are conferred on local councils in both New South Wales and Victoria (see section 494 of the Local Government Act 1993 (NSW) and Part 8 Local Government Act 1989 (Vic)).

Examples of rate?s and charges

RATES OR CHARGES EXAMPLE
General rates Rates that contribute to the cost of roads and library services that benefit the community in general.
Special rates and charges Rates or charges that have a special association with a particular land. Examples include:
  • the cost of maintaining a road in an industrial area that is regularly used by heavy vehicles;
  • the cost of replacing the drainage system in only part of the local government area; and
  • land that is used only by businesses that would benefit from the promotion of tourism in the local government area.
Utility charges Charges for:
  • waste management;
  • gas;
  • sewerage; and
  • water.
Separate rates and charges Rates or charges "for any other service, facility or activity".
Municipal charges
(Victoria only)
Levied against all rate payers, as a general contribution to the administration cost of the municipality. This amount cannot exceed 20% of the sum total of revenue from municipal charges and general rates for the financial year.

Who is liable to pay for rates and charges?

When recovering overdue rates and charges, it is important to consider who bears the liability of such payments.

For rateable land - the current owner of the land is liable to pay any rates and charges, even if that owner did not own the land during the period in which the rates or charges relate.

For services that are supplied to a structure or to land that is not rateable land - the entity who asked for the services to be supplied is liable to pay for any such rates or charges.

OVERDUE RATES AND CHARGES

Rates and charges become overdue the day after the due date specified in the rate notice.

Should a landowner fail to pay their rates and charges, the council has the power, pursuant to section 95 of the LGA, to register a charge over the land. By registering the charge over the land, the relevant council has priority over any other encumbrances on the land. However, once the rates and charges have been paid, the relevant council must take steps to release the charge over the land.

Overdue rates and charges also encompass more than just the amount stipulated in the rate notice. They include:

  • the costs incurred if the local government takes the ratepayer to court to recover the rates or charges (and the court orders the ratepayer to pay the council's costs); and
  • interest on rates or charges, or costs.

Entitlement to interest on overdue rates or charges

Section 133 of the Local Government Regulation 2012 (Qld) (LG Regulation) allows a local council to charge interest on overdue rates and charges at no higher than 11% per annum on daily rests and as compounded interest.

Section 566 of the Local Government Act 1993 (NSW) allows a local government in New South Wales to charge interest on overdue rates and charges. Interest is accrued on a daily basis and determined by the rate specified by the Minister in the relevant Gazette.

In Victoria, a council is entitled to charge a penalty interest rate on unpaid rates and charges, which is fixed under the Penalty Interest Rates Act 1983 (Vic).

Commencing proceedings to recover overdue rates and charges

Overdue rates and charges are characterised as a debt. A local government has the power to commence proceedings against a person who is liable to pay the overdue rates or notices in order to recover the outstanding debt.

Power to sell land for overdue rates or charges

Local governments also have the power to sell land that is the subject of the overdue rates or charges. However, this power can only be exercised in limited circumstances. A local government should ensure that it has fulfilled its obligations (including any relevant notice requirements) under the relevant statutory regimes prior to taking such steps (see, for example, section 141, section 142, section 143 and section 144 of the LG Regulation).

The proceeds of sale must be applied in the order set out in section 146 of the LG Regulation. Should any of the proceeds of sale remain unclaimed after two years, the local government must pay such proceeds to the public trustee as unclaimed money.

LOCAL GOVERNMENTS HAVE THE RIGHT AND POWER TO LEVY RATES AND RECOVER OVERDUE AMOUNTS

Local governments rely on rates and charges as a source of revenue and are consequently conferred powers to levy and enforce the payment of rates and charges. The often repeated defence that local governments do not have the right or power to levy rates has no basis at law.

Each landowner is obliged to pay their respective rates and charges. Failure to do so can result in a local government taking steps to recover any overdue amounts.

Mathew Deighton Alice Blackburn
Local government
Colin Biggers & Paisley

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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Authors
Mathew Deighton
Alice Blackburn
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