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.
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.
Examples of rates and charges
|Rates or charges
||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.
- waste management;
- sewerage; and
|Separate rates and charges
||Rates or charges "for any other service, facility or activity".
|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
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.
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.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2022.