Lyla Lindsey
Council rates are a form of property tax levied by councils in Australia to fund local infrastructure and services. The value of each property is used as the basis for calculating what each property owner will pay. Council rates are not subject to GST as they are considered an Australian tax, defined as a tax imposed under Australian law. However, tenants may be charged GST for the 'on-supply' of this service if their landlord is registered for GST. This has sparked some debate, with sources noting that landlords cannot simply add GST on top of outgoings that do not include GST.
| Characteristics | Values |
|---|---|
| Council rates defined | A form of property tax levied by councils to fund local infrastructure and services. |
| Calculation | Based on the value of each property. |
| GST applicability | Council rates are not subject to GST as they are considered an "Australian tax". |
| Payment methods | Councils typically allow for multiple instalments and flexible payment plans. |
| Rate caps | Caps apply to the council's total rate revenue, not individual properties. |
| Landlord-tenant dynamics | Landlords may not pay GST on council rates but may charge GST to tenants for the 'on supply' of this service. |
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What You'll Learn
Council rates are an 'Australian tax'
Council rates are a form of property tax levied by councils in Australia to fund local infrastructure and services. The value of each property is used as the basis for calculating how much each property owner should pay. Each council sets rates for its municipality through its budget, and must engage with its community when making decisions about budgets, rates, and other charges.
Council rates are considered an "Australian tax", as per the GST Act, and are therefore not subject to Goods and Services Tax (GST). The GST Act defines an "Australian tax" as a tax imposed under an "Australian law", which is a law of the Commonwealth, State, or Territory. The power to charge council rates is found in the Local Government Act, a legislative act of State Parliament.
The Commissioner also relied on the long-standing High Court decision in The Municipal Council of Sydney v The Commonwealth (1904), where judges found that municipal rates were taxes within the meaning of s 114 of the Constitution. However, the Commissioner contended that there is no general proposition that local governments are "States" for the purposes of s 114, and that the legislation constituting a particular local government must be considered.
While landlords may not be charged GST on council rates, they may pass on these costs to their tenants as 'on-supply', provided they are registered for GST.
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GST charged on council rates for tenants
In Australia, council rates are a form of property tax levied by councils to fund local infrastructure and services. Each council sets rates for their municipality through their budget, with the value of each property used as the basis for calculating what each property owner will pay.
Council rates are generally exempt from GST. However, in certain cases, tenants may be charged GST on council rates as an 'on-supply' of the service. This occurs when the landlord is registered or required to be registered for GST and recovers outgoings on rates from the tenant through the commercial property lease.
For example, if a landlord receives an invoice for yearly council rates with no GST charged, they may pass this charge on to the tenant as an operating expense or 'OPEX'. If the landlord is registered for GST, they can add GST to the amount invoiced to the tenant. It is important to note that GST charges cannot be added on top of pre-existing GST.
The power to charge council rates is derived from the Local Government Act, a legislative act of State Parliament. Council rates are considered a "tax" as they meet the criteria of a "compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered".
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Councils set rates for their municipality
In addition to the municipal charge, councils can impose special rates or charges for specific works or services, such as roads, footpaths, or drains, and for promotional or economic development initiatives. These rates are not subject to a cap. The general rate and municipal charges are subject to a rate cap set by the Minister for Local Government, which is based on the forecast Consumer Price Index (CPI) and advice from the Essential Services Commission (ESC). The cap applies to the council's total rate revenue, and individual rates may deviate from this cap due to valuation movements.
Council rates are a form of property tax that homeowners must pay to their local council. These rates fund local infrastructure and services, including parklands, libraries, sports facilities, roads, and waste collection. The rates are calculated based on the value of each property, and they make up a significant portion of local council income, contributing to about 3.6% of taxes received by all levels of government. While council rates are mandatory and non-payment can result in fines or legal action, councils can offer flexible payment plans and concessions for those facing financial difficulties.
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Rates are a form of property tax
General rates are considered an "Australian tax" under s 81-5(1) of the GST Act, and therefore, they are not subject to GST. This is because an "Australian tax" is defined as a tax imposed under an 'Australian law', which is a law of the Commonwealth, State, or Territory. The power to charge rates is found in the Local Government Act, a legislative act of State Parliament. The rates are considered a "tax" because they are a compulsory exaction of money by a public authority for public purposes, enforceable by law, and are not a payment for services rendered.
The Commissioner also relied on the High Court decision in The Municipal Council of Sydney v The Commonwealth, where judges found that municipal rates were taxes within the meaning of s 114 of the Constitution. However, the Commissioner contended that there is no general proposition that local governments are "States" for the purposes of this section, and the legislation constituting a particular local government must be considered. This means that for the Commissioner's argument to succeed, it would need to be shown that the terms of the legislation constituting a local council were such that the council was no longer exercising governmental functions, including levying rates on properties.
In terms of statutory outgoings, landlords may not be charged GST on council rates, but they may charge their tenants GST for the 'on-supply' of this service if they are registered for GST.
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Rate cap mechanism reviewed in 2021
In 2015, a cap on rates was introduced to limit annual increases in rate revenue. The Rate Cap Mechanism was reviewed in 2021 as required under section 185G of the Local Government Act 1989. The rate cap applies to the council's total rate revenue only, not individual properties. Individual rates bills may increase or decrease by more or less than the capped rise amount due to their valuation movements.
Each council collects rates from residents and businesses in its municipality to fund local infrastructure and services. The value of each property is used as the basis for calculating what each property owner will pay. Each council sets rates for their municipality through their budget. They must engage with their communities on their decisions relating to budgets, rates, and other charges.
Determining how much each property pays involves determining the total amount of rate revenue required and dividing this across the total value of all properties in the municipality to establish a rate in the dollar. The rate in the dollar is then applied to each individual property's value to calculate its rates.
Councils can apply to the ESC for a higher cap if they can demonstrate community support and a critical need for spending on services or projects that require a rate rise above the capped amount.
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Frequently asked questions
Yes, council rates are considered a form of property tax levied by councils to fund local infrastructure and services. The value of each property is used as the basis for calculating how much each property owner will pay.
No, general council rates are not subject to GST as they are considered an "Australian tax". However, tenants may be charged GST for the 'on-supply' of this service, and landlords who are registered for GST can charge GST on top of council rates when invoicing tenants.
Council rates can include general rates, municipal charges, waste charges, and other user fees and levies. Councils set rates for their municipalities through their budgets and must engage with their communities regarding budget decisions.
Council rates are calculated by determining the total amount of rate revenue required and dividing this by the total value of all properties in the municipality to establish a rate in the dollar. This rate is then applied to each individual property's value to calculate its rates.
