EXEMPTIONS FROM RATING AND OTHER RATING ISSUES
Bill Henningham
(Based on a paper presented to the NSW Rating Professionals Conference in April 2008)
According to the Australian Government Productivity Commission’s Research Report, Assessing
Local Government Revenue Raising Capacity, issued on 17 April 2008, the revenue raised by local
government councils in Australia represents a small ratio of GDP - about 2%, The ratio of rates
revenue to GDP decreased from 1.0 per cent to 0.9 per cent between 1990-91 and 2005-06. In
NSW, in relation to those ratepayers whose property is not their principal place of residence, State
land tax erodes the local government rate base. Historically, NSW Government land tax revenue has
increased at a faster rate than council rate revenue.
The Productivity Commission found that “given the differences in the scope to raise additional
revenue across different classes of councils, there is a case to review the provision of Australian
Government general purpose grants to local governments”.
According to David Singer, a solicitor and land tax activist, in 1998 the State Office of State
Revenue collected around $600 million from around 300,000 people. In 2004, he maintains,
approximately the same number of people were paying $1,400 million in land tax.
NSW is the only state in Australia which maintains rate pegging, under section 506 of the Local
Government Act 1993 (“the LG Act”). Rate pegging clearly restricts councils from recovering
adequate income from rating revenue to address major infrastructure backlogs.
As North Sydney Council pointed out in its submission to the Productivity Commission “because of
the rate-capping regime, Councils have been obliged to turn to other sources of income to keep up
with the rising costs of delivering services. With the rate cap generally being pegged to CPI,
revenue for NSW councils has generally not been keeping up with expenditure for the same level of
service delivery”.
The Committee of Inquiry into Local Government Rating and Other Revenue Powers and
Resources conducted by Norman Oakes and Sir Nicholas Shehadie in 1989-90 reviewed the rate
exemptions under the Local Government Act 1919. Ernst & Young Management Consultants were
commissioned to report to the Inquiry on “Local Government Rating and Revenue Raising”. They
considered the issue of rate exemptions and observed that the exemptions provided to public trading
enterprises represented a government subsidy which was made without regard to broader policy
questions as to whether assistance was necessary or appropriate. Similarly, rate exemptions for
religious and charitable organisations were seen as maybe not the best way of providing
government assistance to such bodies. It was also canvassed that, arguably the responsibility for
assisting these bodies was the responsibility of State and Commonwealth Governments and not a
burden to be foisted upon local government.
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The Inquiry flirted with the idea of a Poll Tax or “community charge” which had recently been
imposed upon the Scots by the Thatcher Government and subsequently upon England and Wales.
Seventeen million people rose in violent revolt. As was graphically described by Danny Burns in
his book “Poll Tax Rebellion” AK Press 1992 there were widespread riots, the courts were blocked,
the collectors were resisted and the Poll Tax was destroyed.
The Inquiry proposed that the exemption of all Commonwealth and State Government commercial
type authorities should be reviewed. It considered that existing rating exemptions be retained for
hospitals, schools and churches but considered that eligibility conditions should be tightened for
charities.
The only reform which flowed from the Inquiry was that in the cases of a number of bodies
including public benevolent institutions, charities, public hospitals and universities the exemption
did not cover water supply and sewerage special rates. This, of course does not assist those councils
which do not provide those services.
By virtue of s 554 of the LG Act, all land in an area is rateable unless it is exempt from rating.
I believe that the function of rating professionals in NSW local government needs to be directed to
ensure that rate exemptions claimed under sections 555 and 556 are rigorously scrutinised and I
hope that I can be of some assistance to you by examining the exemption provisions in the LG Act
and analysing the effect of relevant Court decisions
As you are aware, s 555 exempts certain land from all rates and s 556 exempts certain land from all
rates other than water supply special rates and sewerage special rates.
Section 555(1)(a)
This section exempts land owned by the Crown not being land held under a lease for private
purposes.
In Sydney City Council v University of Technology, Sydney (1992) 78 LGERA 200 (a decision of
the NSW Court of Appeal) the University leased a parcel of land from the Crown, and allowed its
Student’s Union to operate a profit making carpark on it for students, staff, public, with staff and
students having priority. The Court of Appeal looked at what the purposes of a university are. It
was observed in the judgment by Gleeson CJ that not all activities of an university are necessarily to
be regarded as purposes other than private purposes – if a university held a lease of land from the
Crown which was used solely/ principally for commercial activity designed to raise income, then
the exemption may not be attracted. However the Court accepted the public purpose approach in
the case of Ryde Municipal Council v Macquarie University (1978) 55 LgRA 373 (which I will
discuss later) and found that the purpose of allowing the University’s Student Union to operate the
car park as a profit making car park for students, staff, public – with staff and students having
priority was part of the public purpose of a university in its provision of education.
In Goulburn City Council v Haines (1992) 78 LGERA 281, the NSW Court of Appeal considered
the status of two residential parcels of Crown land with a dwelling house on each used as family
residences by two locally employed senior police officers and their families under informal leases
on favourable terms. The question to be determined was whether the parcels were rateable under
the 1919 Act equivalent to s 555 (1)(a). Again, the Ryde case was referred to. It was held that the
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officers and their families were certainly occupying the houses for their accommodation and shelter
but that was subsidiary or collateral to the achievement of Crown purposes. It was held that the
purpose was not a private purpose but what the Crown sought to achieve by having two officers to
be available as part of a disciplined force in the interests of administrative efficiency. The land was
held to be exempt from rating.
In State-Wide Roads Ltd v Holroyd City Council (1996) 90 LGERA 160 the NSW Court of Appeal
considered the situation of Crown land used for purposes of private toll roads. The project deeds
with the State government had been amended to state that the fundamental purpose of the projects
was “enhancing and modernising the State’s public public infrastructure for the benefit of the
people of NSW.”
In Security Parking v Darling Harbour Authority (1998) 99 LGERA 110, Pearlman CJ dealt with
the Entertainment Centre’s car park at Darling Harbour. The Darling Harbour Authority (“DHA”)
had been set up by the State government as a statutory corporation and was found to be a statutory
body representing the Crown. The applicant, Security Parking, held a license from the DHA which
was held to be a lease under the definition in the LG Act . Her Honour held that the lease of the land
was ancillary to the carrying out of the functions of the DHA and not for a private purpose.
However, in Australian Convention and Exhibition Services Pty Ltd v Sydney CC
(unreported, Land and Environment Ct, NSW No 30166 of 1996, 18 June 1997), Sheahan J
held that the occupier of the Darling Harbour Convention Centre, the Exhibition Centre and
the Exhibition Centre Car Park was liable to pay rates in respect of the carpark land, on the
basis that a carpark was not a purpose that the Crown ordinarily performs. Pearlman CJ in
Security Parking had the contrary view.
There can be outrageous claims for exemption. In Quality Parks v Maclean Shire Council (2002)
120 LGERA 272, the land was owned by the Crown and leased for a caravan park. The lessee
company maintained that it was carrying out a public purpose but Bignold J held that even if there
were a public purpose involved, the development was still one that the Crown did not ordinarily
perform. Limited access rights in favour of the public did not alter the private use of the land as a
commercially operated caravan park. His Honour applied an early case of Randwick MC v
Rutledge (1959) 102 CLR 54, a decision of the High Court. In that case the Trustees of the
Randwick Racecourse claimed that the land was a public reserve and exempt from rating. It was
noted that the area of the racecourse was not open to the public generally and the members of the
Australian Jockey Club had special privileges in relation to the facilities. It was held that in
considering whether the exemption applied the Court had to look at the actual use of the land and in
this case it was not consistent with a public reserve. The land was held to be rateable.
In Wentworth Park Sporting Complex Trust v Leichhardt Council (2003) 125 LGERA 440, the
NSW Court of Appeal considered claims by the appellant that land on which a substation was
erected together with the Wentworth Park Greyhound Track, with a total area of 3,986 hectares
were exempt because they were held under a lease from the Crown not being a lease for private
purposes. The land was a reserve trust under the Crown Lands Act 1989 (NSW). It was held that a
reserve trust under the Crown Lands Act was essentially independent of executive direction and
control in the exercise of its powers and directions with respect to the care, control and
management of the reserve of which it had been appointed trustee and the Minister had no relevant
powers. Accordingly, it was held that the reserve trust, although a statutory body, did not represent
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the Crown and it followed that the land was not owned by the Crown and was not exempt from
rates.
Principles derived from the above decisions
*
the lease from the Crown does not have to be a formal lease;
*
use for a clearly public purpose will suffice for the exemption;
*
use by a body such as a university solely or principally for a commercial activity to
raise income would arguably not attract the exemption;
*
for the land to be exempt in certain circumstances, the purpose of its use needs to be one
which the Crown ordinarily performs or has a use which is wholly ancillary to such a
purpose;
*
if an activity which has a commercial aspect is wholly ancillary to carrying out the principal
objects of a university this would attract the exemption;
*
land held by a reserve trust is not owned by the Crown.
Section 555(1)(e)(i)
This section exempts land that belongs to a religious body and is occupied and used in connection
with: “ a church or other building used or occupied for public worship”
The case of Ashfield Municipal Council v Joyce [1976] 1 NSWLR 455 went on appeal to the
Judicial Committee of the Privy Council. The court had to consider whether the land, on which was
erected a church hall used for religious purposes, but the worship was not open to the public, was
exempt from rates. It was held that the land was not used for public worship because the Exclusive
Brethren did not permit anyone other than members to attend. However it was held that Exclusive
Brethren was a charity within the legal sense of a charity and charitable purposes.
In Trustees for Gospel Trust No. 1 v Brisbane City Council, the Supreme Court of Queensland held
that a meeting room used by a religious fellowship known as the Brethren was not used for “public
worship” if the congregation was able to decide to permit particular members of the public to attend
that worship. “Public worship” in the rating context required that the worship was in a place open to
all properly disposed persons who wished to be present without vetting by a gatekeeper.
In House of Peace Pty Ltd v Bankstown City Council (2000) 106 LGERA 440, the NSW Court of
Appeal which dealt with the planning issue of whether a development consent for a “church”
restricted use of the subject land to Christian worship. Public worship was held not to be restricted
to Christian worship, and that the consent did not prevent use as a mosque, and a “church” is not
restricted to Christian worship.
Principles derived from the above decisions
*
public worship must be open anyone who wishes to attend, without restriction;
*
A church and public worship are not restricted to Christian worship.
Section 555 (1)(f)
This section exempts land that belongs to and is occupied and used in connection with a school
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(being a government school or non-government school within the meaning of the Education
Reform Act 1990 or a school in respect of which a certificate of exemption under section 78
of that Act is in force), including:
(i) a playground that belongs to and is used in connection with the school, and
(ii) a building occupied as a residence by a teacher, employee or caretaker of the school that
belongs to and is used in connection with the school,
In Ku–ring–gai MC v McIntosh (1936) 13 LGR 82, Jordan CJ said: "The word 'belongs' in
its context refers to some form of proprietorship. As to the particular form intended, when
property is said to belong to a person, the meaning of the word 'belong' depends upon the
context. It may refer to absolute ownership, or it may be satisfied by a right of exclusive
user. It may be satisfied by a special property as well as by a general property in the thing in
question ... When land is referred to in such a section as belonging to a person I think that
what is referred to is such ownership as would, apart from exemption, involve liability to
rates". Maugham AJ said: "Ambiguity now arises in the new sub-section from ... the use of the
nebulous verb 'belongs to', which is not a term of art. This expression 'belongs to' is obviously
intended to refer to something different from the term 'occupied' or the term 'used' and seems to
contemplate ownership".
In Uniting Church in Australia Property Trust (NSW) v Kogarah Municipal Council (1986) 61
LGRA 154, Bignold J held that land held under a lease from the State Rail Authority of NSW did
not “belong” to the appellant and was accordingly not exempt from rating under a provision in the
LG Act 1919 which required that the land had to “belong” for an exemption to apply.
The Dictionary to the the LG Act defines who is included in the word “owner”.
Principles derived from the above decisions
*
for exemption of a school to apply there must be ownership of the subject land;
*
the school must be a government school or non-government school within the meaning
of the Education Reform Act 1990 or a school in respect of which a certificate of
exemption under section 78 of that Act is in force.
Section 556(1)(h)
This section exempts land “ that belongs to a public benevolent institution or public charity and is
used or occupied by the institution or charity for the purposes of the institution or charity”.
By virtue of section 559, the provisions of the Charitable Fundraising Act 1991 are not relevant to
the determination of whether a body is a public benevolent institution or a charity for the purposes
of sections 556 and 558.
To obtain the benefit of this exemption the body must provide relief of poverty, sickness,
destitution or helplessness as well as being public: see Perpetual Trustee Co Ltd v Federal
Commissioner of Taxation (1931) 45 CLR 224.
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In Income Tax Commissioners v Pemsel [1891] AC at 583, Lord Macnaghten said: "the
popular meaning of the words `charity' and `charitable' does not coincide with their legal
meaning ... It is difficult to fix the point of divergence, and no one has as yet succeeded in
defining the popular meaning of the word `charity' ... `Charity' in its legal sense comprises
four principal divisions – trusts for the relief of poverty; trusts for the advancement of
education; trusts for the advancement of religion; and trusts for other purposes beneficial to
the community, not falling under any of the preceding heads".
In NSW Baptist Homes Trust v Ryde Municipal Council (1977) 35 LGRA 182 it was noted that the objects
of the NSW Baptist Homes Trust were set out in its memorandum of association. The principal
object was to establish and maintain all types of public benevolent and public charitable institutions
and in particular, homes for the aged. The Trust succeeded against the council, the court deciding
that its main objects were charitable.
In The Boy Scouts’ Association, NSW Branch v Sydney City Council (1959) 4 LGRA 260, the Land
and Valuation Court of NSW considered the situation of a four storey building in George Street,
Sydney in which about two thirds of the space on the ground floor was used as a shop for display
and sale of goods to members. The balance of the ground floor, and the third floor were occupied by
tenants and the rest of the building was occupied by the organisation for its dominant educational
purpose, which was charitable. It was held that the exemption applied only to those parts of the
building which were used by the charity and the land deemed to be not rateable was to be
ascertained by notionally dividing the land, horizontally as well as vertically .
In Australian Red Cross v Albury City Council [1973] 2 NSWLR 309 it was held that if there was a
substantial use for the charitable purpose of letting to religious bodies and the non charitable
lettings were casual and infrequent this did not negate the primary charitable use.
In Maclean Shire Council v Nungara Co-operative Society (1995) 86 LGERA 430, the NSW Court
of Appeal considered the situation of cooperative society which had built 16 houses which were
occupied by Aborigines. The rents were less than those prevailing in the district and it was held by
Handley J that the current disadvantaged position of Aborigines was that such that any valid
charitable purpose on their behalf was a public benevolent purpose. Accordingly, the land on which
the houses were built was exempt.
In Dareton Local Aboriginal Land Council v Wentworth Council (1995) 89 LGERA 120 the
applicant was constituted under the Aboriginal Land Rights Act 1983 (NSW) and it was claimed
that that body was a public benevolent institution. Most of the land was to be held for future
community development purposes while being currently available for recreation uses. Some was
used for housing Aboriginal people. It was held that it was neither a public charity nor a public
benevolent institution. His Honour looked at the functions and objects of the body and found that
there were relevant functions and objects which were neither charitable in nature nor merely
ancillary to the charitable purpose of advancing Aboriginal people in the land council area. Also, he
found that the objects and indeed the activities of the applicant went beyond those pertaining to the
relief of poverty.
In Toomelah Co-operative Ltd v Moree Plains Shire Council (1996) 90 LGERA 48 the applicant
was a community advancement society under the Co-operation Act 1923 (NSW). Over 95% of the
around 900 Aboriginal people in the area were unemployed and Stein J held that the objects of the
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rules of the body and its activities (including employing Aboriginal people on community projects)
made the organisation a public benevolent institution and a public charity.
In Murray Darling Community Care Incorporated v Wentworth Shire Council and Anor (2000) 111
LGERA 345 Pearlman J found that the memorandum of each of the applicants specified that their
purposes were to relieve poverty, sickness, destitution distress, suffering, misfortune or helplessness
of needy members of the Aboriginal or Torres Strait Aboriginal communities. She also found that
houses on the subject land were being used or occupied for the purposes of each of the institutions.
It was common ground that the institutions were public benevolent institutions. Her Honour held
that the land was used for the purposes of the institutions and was therefore exempt.
Principles derived from the above decisions
*
the body must provide relief of poverty, sickness, destitution or helplessness as well as being
public;
*
the main objects of the body must be charitable and its activities must be in accordance
with those objects;
the subject land must be used for the purposes of the body;
if part only of the premises is used for charitable purposes the land can be notionally
divided to ascertain the proportion which is exempt.
*
*
Section 556(1)(i)
To obtain the benefit of this exemption, the land must belong to a public hospital.
In Poplars Community Hospital Ltd v Hornsby Shire Council (1962) 8 LGRA 234 it was
held that the hospital which was run by a co-operative society and provided services for
paying patients in private and intermediate wards did not meet the requirements of the
exemption.
In Blacktown District Hospital v Blacktown MC (1963) 10 LGRA 29 it was held that a
public hospital in the course of construction was entitled to the exemption.
In O'Connell v Greater Newcastle MC (1941) 15 LGR 18, Jordan CJ said:
"I can see nothing in the phrase `public hospital' nor in its immediate or general context to
suggest that it is confined to hospitals which are subject to some form of public control
(whatever is to be understood by this expression) and whose income and property are not at
the disposal of any private authority. On the contrary, it is the purposes to which the hospital
is directed, not the manner in which it is controlled, which determines whether it should be
regarded as a public hospital ...
In my opinion, in its present context, the phrase `public hospital' means a hospital which is
conducted not for private profit but primarily and substantially for the benefit of ordinary
members of the general public or of an appreciably important class of such members”.
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In Newcastle City Council v Royal Newcastle Hospital [1959] AC 248 the hospital was surrounded
by bushland. The council maintained that the physical hospital part was exempt but the bushland
part of the site was rateable. The Privy Council found otherwise. It held that this bushland
provided quiet and serene surroundings and gave room to expand the activities of the hospital.
Accordingly, the bushland area was held to be exempt from the payment of rates.
Principles derived from the above decisions
*
for the exemption to apply, the subject land must be owned by the hospital;
*
a “public hospital' means a hospital which is conducted not for private profit
but primarily and substantially for the benefit of ordinary members of the g e n e r a l
public or of an appreciably important class of such members;
*
in the case of a public hospital in the course of construction its land is entitled to the
exemption.
*
land which surrounds a hospital can be exempt if it enhances the treatment provided by the
hospital and, as such, is used by the hospital (the current exemption does not require the
land to be “used” for the purposes of the hospital).
Section 556(1)(l)
To obtain the benefit of this exemption, the land must be: “vested in a university, or university
college” and “used or occupied by the university or college solely for its purposes”.
In the case of Ryde Municipal Council v Macquarie University (1978) 55 LGRA 373, the High
Court addressed Macquarie University’s claim for exemption from rates under s 132(1)(f)(ii) of the
Local Government Act 1919 which was in virtually identical terms to s 556(1)(l).
Ryde Municipal Council (as it then was) misinterpreted the provision - it contended that to be
eligible for the the exemption, the land had to be used solely by the university for its purposes. The
University had decided to devote an area at the centre of the campus for various shops to be for
commercial purposes. There was a co-operative bookshop, a retail shop, a chemist shop; an office
let to the Australian Union for Students for a travel centre, branches of two banks, a handicrafts and
gift shop, and an area occupied by the University Sports Association, which also included a shop.
The shops operated with a view to profit but primarily for staff and university students.
In his judgment, Gibbs ACJ said that there were three interrelated questions which arose in the
case:
·
is the land used or occupied by the university?
·
if so, was the use or occupation for purposes of university?
·
was it solely used for those purposes?
His Honour observed that if the land in question had been let simply to raise money for purposes of
university – then it would not have been possible to say that the land was used for the purposes of
the university. However, he said that in the circumstances of the case it was proper to conclude from
the evidence that the university arranged for the building to be erected because the businesses to be
located in it were regarded as necessary or desirable for the functioning of the university under
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modern conditions. The majority of the Court looked at the public purposes of the university and
came to the view that those public purposes were being served by leasing part of the land in this
way.
However, Aitkin J, in dissent, said ”I cannot regard the land for use by a tenant as a bookshop or for
other commercial purposes of its own (even assuming there was a covenant requiring such use)
which purposes are convenient for the university, as use by the university solely for its purposes.”
Principles derived from the above decision
*
if the subject land is used or occupied by a university solely for its purposes then prima
facie it will not be rateable;
*
however, if the land was leased just to raise money the position would arguably be
different;
*
such a case has to be decided according to the facts of the matter and the degree of the facts.
Some rating issues
Appeals against categorization
In Imhoff v Port Stephens Council (2005) 139 LGERA 95 the NSW Land and Environment Court
dealt with the situation of a categorisation by the Council of certain land as “business” and the issue
of a rate notice on that basis. However, no formal declaration under s 625 had been made. The applicants wrote to the council requesting a change in the categorisation from business to residential.
The council responded, advising that it had determined that the land category was business. The applicants then requested the council to amend the category to residential. The council did not determine the application for review within 40 days of the date it received the applicants’ letter requesting amendment of the categorisation and the Court held, by virtue of s 525(6), of the LG Act that
the council was deemed to have declared the land to be within its existing category. The Court further held that the applicants’ appeal within 30 days from the date of the expiration of the 40 days
complied with s 526 The Court noted that s 525(1) does not limit the number of reviews which can
be sought.
Service of rate notices
Section 710 of the LG Act provides for a number of ways of serving notices, including rate notices.
The NSW Court of Appeal in Kyogle Shire Council v Muli Muli Aboriginal Land Council (2005)
141 LGERA 343 dealt with the question of when service of a notice sent by mail to the respondent’s
post office box was effected. It was found that the respondent’s appeal to the LEC was outside the
required 30 days.
By virtue of the code established by s 710, service is effected when the document is posted not in
accordance with s 76 of the Interpretation Act on the 4th working day after posting. Tobias observed
10.
that there is no statutory requirement for a council to establish that notices have been received by
the person to be served. The act of posting is conclusive evidence of service,
Recovery of Rates
Section 574 enables an appeal to be brought in the Land and Environment Court against the levying
of a rate on the ground that the land or part of it is not rateable or not liable to a charge. The appeal
must be lodged within 30 days after service of the rates or charge notice.
An appeal can’t be brought under this section on the ground that the land has been wrongly
categorised - there is a separate appeal for that under s 526.
Section 712(1) enables proceedings for recovery of rates and charges to be brought at any time
within 20 years from the date when the rate or charge became due and payable.
Section 712(5) makes it abundantly clear in my view that if a ratepayer or chargee fails to appeal
under s 574 that person does not have a second opportunity by raising a defence in the recovery
proceedings.
By virtue of s 550(1), rates and charges and any interest and also any costs awarded to the council
are a charge on the land. However, a bona fide purchaser for value who has made due inquiry
without notice of the liability is protected against liability. Obtaining a s 603 certificate constitutes
due inquiry.
By virtue of s 102 of the Conveyancing Act and s712(7) of the LG Act proceedings for recovery of
rates or charges by enforcement of the charge are prevented.
Section 713 enables sale of land for overdue rates. The case of Quzag v Gunning Council (2005)
142 LGERA 77 dealt with a claim for damages against the Council on the basis that the council had
sold the property for less than its market value and the plaintiff had suffered loss and damage. It
was held that s 713(4)(a) permitted the council to determine what conditions of sale were proper
and s 713(4)(b) to such things as it considered appropriate for the purpose of selling the land at its
full value.
However, the NSW Supreme Court held that the provisions in the Act did not authorise sale at a
throwaway price. The Council was in a similar position to a mortgagee exercising power of sale. It
was held that s 713(4) did not give rise to a statutory cause of action against councils. In relation to
the claim for negligence against the council, the Court was satisfied that there was no breach of the
council’s duty of care and judgment was found for the council.
Garbage charges re rate exempt land
Section 496(2) was inserted into the Act in 1997 to enable annual charges to be made for provision
of a domestic waste management service for rate exempt land if the service is available for that
land, the owner of the land requests or agrees to such provision, and the amount of the charge is
limited to recovery of the cost of providing the service.
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