Differential Rates – Landlords may not have to pay!

Three years ago Scenic Rim Council introduced a new income source by charging extra rates on investment properties. For example an investment property valued at $310,000 attracts an additional rate of $307 per year compared to an owner occupied property.

This revenue making venture has been used by numerous Councils Queensland wide, and was deemed by the LGAQ as legal under the Act.

The Supreme Court in Mackay has recently handed down a ruling that differential rates is invalid (30 April 2014) in a case fought against the Mackay Regional Council.

In the words of Judge Duncan McMeekin, “To justify the categorisation the Council impermissibly took into account characteristics personal to the owners of the land and failed to restrict itself to characteristics of the subject land itself. It is simply a misuse of language to claim that the owner’s decision to reside on land, or not, is in some way a characteristic of the land.”

The LGAQ and Mackay Council are appealing the Supreme Court ruling. Further, the LGAQ has appealed to the Minister for Local Government David Crisafulli to provide legislative change so the Councils can finalise their budgets for the next financial year with certainity

The legality of this method of collecting rates however could still be in question. Some argue that a rental property is a commercial or investment property whilst others argue that the characteristic of the land is that it is used for residential purposes. Most people see rates as a direct link to their use of Council’s services and in practice this is true, but in the law the link is less direct.

In the law it is not defined by how much service is provided to a particular property but a means allowed to councils to raise revenues and apply them as they wish.   However as this court decision reveals, it should be regardless of whether a residential property is owner-occupied or tenanted.

The problem becomes clearer when a commercial property is considered. For example would it be valid to impose a differential and higher rate on two identical commercial properties with the same use where one was owner occupied and the other tenanted?

If the decision stands, the Councils using this revenue source may be required to repay monies collected in this manner. Potentially the SRRC could have an estimated shortfall of $1m in the budget this financial year which they will have to find elsewhere.

Although this decision may cause financial distress for these Councils it is considered that Councils and the LGAQ have an obligation to collect revenues in a legally acceptable manner. Until it is resolved would it be prudent for the SRRC to put monies collected in this manner aside?

Astrid Kennedy

IT Officer