The Moreton Bay Regional Council has likely made a mistake with its new rating categories for 2010-2011. Moreton Bay’s new “R2” category charges more to owners of residential land if it is not their principal place of residence, or even if it is, if the owner is deemed by Council to be a “non natural person”. The Council has done it with the intention of playing its part to redistribute the wealth, readily admitting over the phone at least, that the rating differential has no bearing on the cost to Council of providing its mandated services.

Indeed, the Moreton Bay Regional Council has explained that rates are a “wealth tax”. After pressing the Council rates officer about Council’s role and power to levy rates and drawing their attention to the wording of the regulations that give them a power to differentiate between types of land, not types of owners, the Council’s reply is simply that other Councils are doing it too.

On 2 July 2010 the Court of Appeal of the Supreme Court of Queensland, in Xstrata Coal Qld P/L & Ors v Council of the Shire of Bowen [2010] QCA 170, decided against the Council Shire of Bowen which took into account the capacity of the ratepayer to pay higher rates when deciding its rating categories. That rate payer argued capacity to pay was irrelevant and the Court unanimously agreed.

Appeal Justice Chesterman described it this way –

They argue the Act did not contemplate anything other than some attribute or characteristic of the land which was to be categorised and differentially rated being taken into account when determining the rate. The appellants submit that what might be taken into account were such things as the use to which the land might be put, including its highest and best use, the burden the land or its use may have upon the Council’s budget and, of course, the value of the land including its potential to earn income for the land owner. The appellants submit, emphatically, that the Council was not entitled to take into account any characteristic of the owner of the land, such as wealth, when fixing a differential rate. The submission, must, I think, be accepted …. if a Council is to utilise the statutory powers to set a differential general rate it must divide the land in its area into categories; and the categorisation must occur by reference to identifiable criteria which in some way describe the land.

Appeal Justice Holmes simply wrote -

I agree with Chesterman JA that the learned primary judge erred in concluding that the capacity of a landowner to pay, independent of any quality of the subject land, was a relevant consideration in the decision to set rates.

The Appeal Court quoted approvingly of a New Zealand Court of Appeal decision against the Wellington Shire Council as “entirely apposite”, emphasising rates are levied on properties, not property owners.

“… rates are levied on property, not on ratepayers as such and, materially for present purposes, the criteria specified under s 81 are directed to the characteristics of property rather than of ratepayers.” Wellington City Council v Woolworths New Zealand Ltd (No 2) [1996] 2 NZLR 537 noted (546)

Appeal Justice Chesterman further refined the issue to this –

“were the differential rates set by reference to the appellant’s personal capacity to pay rates, or by reference to the capacity of the land in the separate categories to produce the capacity to pay?”

The Council rates officer I spoke with justified rates as a wealth tax because it is based on the value of land, and implicitly, as a wealth tax Council should levy higher rates against those able to pay more. The Appeal Court had already dealt with that argument too. Justice Chesterman -

“A ratepayer’s wealth is irrelevant to the process of deciding what rates should be levied on its property. That proposition is undoubted…. The unimproved value of land is an attribute of the land. Such a value of land owned by a ratepayer says nothing about his wealth or capacity to pay rates. That the legislation fixes upon unimproved capital value as the basis for levying rates is a substantial indication that the property owner’s wealth, measured by anything but that value of the land, is not a factor to be considered in the levying of rates.”

I put a simple example forward to Council.  Consider two alike residential houses side by side, one owner occupied, the other in a family trust with the occupier being the sole director and shareholder of a corporate trustee and the main trust beneficiary. Council’s rates officer said although the demands on Council services would be the same, the difference was the second home had a non natural owner and therefore would be charged higher rates.

I elaborated: what if the trust was the necessary result of a death in the family? The Council rates officer said Council would make an exception for some trusts. I asked for the criteria Council uses to charge some non natural owners more and not others. The answer given was that generally Council will apply the higher rating category to a residence owned by a company trustee owner, whereas a trust with an individual as trustee would pay the lower rate. This did not make sense to me, given a testamentary trust arising from death may well have a company trustee, and ‘for profit’ unit trusts often have one or more individuals as trustee.

I asked Council’s rating officer if there were any directions or guidance, whether for rates assessors or rate payers, on how Council exercises its discretion when deeming a rate payer non natural and therefore liable to the higher rate. Unfortunately there is nothing written down about it, at least nothing the public can access. To be cynical, giving trustee ratepayers such certainty would enable them to easily change their trustees to avoid the new impost. I think it fairer and more realistic to say Council simply has not thought it through. The only guidance is the definition of non natural person in Council’s “Rating Category Statement 2010/11” –

“Any reference in this Rating Category Statement to a “non natural person” means a company, trust, government department and any other type of entity deemed by the Council not to be a natural person.”

This definition is circular: a non natural person is any entity the Council deems to be a non natural person. This nonsense harks of another theme touched on by Appeal Justice Chesterman in his judgment.

“A decision to impose a greater proportion of the rates burden on some, but not all, wealthy landowners, where there is no rational basis for distinguishing amongst such owners, may well be arbitrary or capricious, but the applicants did not advance such a case.”

It is settled administrative law that public authorities that retain a discretionary decision-making power over people should develop and publish policies and guidelines to help decision-makers be consistent and give due weight to relevant factors only. While in my opinion Council have no lawful authority to make discretionary decisions about a ratepayer’s ability to pay more rates without reference to the type of land, if it does, to be fair, it should be transparent about it and publish its thinking.

The unanimous decision by the Appeal Court of the Supreme Court of Queensland is emphatic that Council must rate types of land, not types of owners. Before Council will admit to its mistake, its lawyers can be expected to argue that forceful decision was based on the law before the Local Government Act 2009 and the Local Government (Finance, Plans and Reporting) Regulation 2010. Let’s take a look at them.

The enabling section of the Act is straight-forward, allowing rates on all rateable land, including separate or special rates and charges by budget resolution.

“94 Power to levy rates and charges

(1) Each local government—

(a) must levy general rates on all rateable land within the local government area; .. “

The 2010 Regulations give specific guidance about the types of differential rating categories.

“15 Categorisation of land for differential general rates

(1) Before a local government levies differential general rates, it must decide the different categories (each a rating category) of rateable land in the local government area.

(2) The local government must, by resolution, make the decision at the local government’s budget meeting.

(3) The resolution must state—

(a) the rating categories of rateable land in the local government area; and

(b) a description of each of the rating categories.


A resolution may state that the rating categories, and a description of each of the rating categories, are as follows—

(a) residential land—land that is used for residential purposes in particular urban centres, rural localities, park residential estates and coastal villages;

(b) commercial and industrial land—land that is used solely for commerce or industry in particular urban centres and rural localities, other than land used for manufacturing sugar or another rural production industry;

(c) grazing and livestock land—land that is used, for commercial purposes, for grazing and livestock;

(d) sugar cane land—land that is used for producing sugar cane;

(e) sugar milling land—land that is used for manufacturing sugar;

(f) rural land—

(i) land that is not in an urban centre or locality; or

(ii) land that is not used for grazing and livestock; or

(iii) land that is not sugar cane land or sugar milling land;

(g) other land—any other type of land.”

As you would expect, the regulations give Council a discretion to categorise different types of rateable land in its budget resolution. But despite the recent Supreme Court decision right on point, Council have interpreted Regulation 15 to allow it to assess the land owner’s capacity to pay.

In so doing, Council has created the new R2 category for rental properties or owner occupied properties where the owner is deemed to be a non natural person. Council gamely admits that the different categories apply to land that is otherwise indistinguishable, except for Council’s view of the ownership structure. Council plainly did not read that part of the Court of Appeal’s decision relating to “arbitrary or capricious” rating assessments either.

I drew Council’s attention to the eight examples given in the Regulations of acceptable categories of land that may be rated differently. Every one of the eight examples relates to the quality, use or character of the land. There is no example given of a rating category with reference to the type of ratepayer or their capacity to pay. The “catch-all” for new categories which the Council might establish in its undoubted discretion, not covered by the examples, is “any other type of land”.

Council’s response is that examples are just examples and do not limit its discretion to decide categories in any way it considers appropriate. Council did agree that imposing a higher rating on rate payers with red hair would not work, but I expect for reasons of politics, not law.  Council have indicated they will defend their budgetary resolution, presumably to the Appeal Court of the Supreme Court of Queensland, and beyond, at ratepayers expense.

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