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There’s a sad day each year, when home owners are delivered what might be their most misunderstood bill for the year – the council rates notice.
Council rates are calculated using your property’s valuation and a rate in the dollar your council has budgeted as your contribution. The statewide average rate bill is $1,135 for all properties including residential, commercial, industrial and farming.
We break down the numbers and explains what you pay, what you get – and why it’s worked out the way it is.
Who gets it? Who sends it?
A Notice of Valuation, Rates and Charges is circulated to more than 2.5 million property owners throughout the State. People who own a property in Victoria, whether it’s residential, commercial or a vacant parcel of land, will receive a rates notice each year.
They are circulated by Victoria’s 79 councils – 31 in metropolitan Melbourne and 48 in rural and regional Victoria.
What does it pay for?
Collectively, Victorian councils are responsible for more than $40 billion of infrastructure – including roads, drains, town halls, libraries, recreation facilities, parks and gardens.
They also maintain services including waste management, planning & building and some health services. Of all the funds received by local council, almost three quarters come from the collection of rates, user fees, fines and charges.
What are the relevant dates?
Rate notices are sent out each August through September and can be paid in one lump sum on February 15, or in four installments – due in October, November, February and May.
Rate notices for the 2006/07 financial year are based on valuations carried out on 1 January 2006. The council revalues all the properties within its municipality every second year.
How are rates calculated?
Councils would need to employ hundreds of valuers to independently value every property within in the state, as there is $867 billion worth of private property in Victoria.
Instead, council appointed valuers gather and analyse a range of property related information, and inspect a sample of properties, to come up with the total value of all properties within a municipality.
The value of land and improvements in the Bass Coast Shire Council in south-east Victoria for example, is around $7.8 billion. The value of land and improvements in the City of Glen Eira, is around $27.7 billion.
This figure is used as a ‘base’ against which the respective council will strike a rate in the dollar, for each ratepayer. That rate is multiplied by one of three values:
• Capital Improved Value (CIV): The total market value of land plus the improved value of the property including the house, other buildings and landscaping;
• Site Value (SV): The unimproved market value of the land;
• Net Annual Value (NAV): Calculated as five per cent of CIV for residential properties and the annual rental a property could achieve, less landlord expenses such as insurance, land tax and maintenance, for commercial and industrial properties.
If for example the council needs to collect $40 million and the total value of its municipality’s property is $10 billion – it would divide $10 billion by $40 million (equating to a rate in the dollar of 0.004).
For a property with a Capital Improved Value (land and buildings) of $400,000, the General Rate sum payable would be $1600 ($400,000 x 0.004).
General Rates are added to any municipal and garbage collection charges set by a council to determine the total rates payable on a property.
Ratepayers have the right to object to the valuation of their property if they are dissatisfied with the determination provided by the council valuer.
Why is it calculated the way it is?
Contrary to popular belief, councils do not generate extra revenue as a result of short-term property revaluations.
Councils collect the pre-determined amount identified in their annual budgets. The rate in the dollar it calculates depends on the amount of money a council thinks it needs to meet its obligations and is fixed for the year.
An increase in property values will not increase the amount of money a council collects in rates – because it recalculates the rate in the dollar it charges property owners.
For example a rate in the dollar this year might be 0.004 cents of the Capital Improved Value, but might be 0.0038 cents next year if the value of properties within a municipality have increased.
UNDERSTANDING YOUR RATES NOTICE
Rating Year: The period which the rates notice is valid, usually a financial year such as 01/07/07 to 30/06/08.
Valuation Date: The last time your property was valued. This process is biennial.
Property Description: Should include the address and the property’s lot plan number.
Site value: The value of the land only.
Capital Improved Value: The value of the land plus any improvements (house, landscaping). This figure is typically more conservative than a bank valuation or real estate agent’s appraisal.
Note: Tells you which ‘valuation base’ your council is calculating its rates on. The Municipal Association of Victoria says that around 90 per cent of all rates are calculated using the CIV.
Net Annual Value: The annual amount a property could achieve if it was rented in the open market. Divide this by 52 to get an idea of the weekly rental value of your commercial property. For residential property, Net Annual Value is 5% of the Capital Improved Value.
Additional Charges: Most councils adopt individual charges for services like garbage collection. A municipal charge can be applied by the council to each home owner to cover additional costs, but this figure can’t be more than 20 per cent of what the council is asking in rates.
Late Payment: Council takes legal action for recovery of unpaid rates, and associated costs, if recovery attempts for unpaid rates are ignored. Late payments accrue an interest charge, typically of around 11% per annum.
Payment Options: Rates can be paid in one sum, or in four installments. Nowadays, rates can be received electronically and paid online.
Overleaf: Information of frequently asked questions, including land tax, pensioner concessions and details of how to object to valuations.
FAST FACTS:
Valuation Process:
To work out how much each property is worth council valuers’ analyse latest property sales and rental data, as well as consider other factors such as use of the land, shape, size, location, house value and other site improvements.
Council can use this information to forecast land value a property’s ‘best use’.
Role of the Valuer General:
The Valuer General Victoria (VGV) independently oversees the valuation and rating process to ensure statutory requirements have been met. Only qualified valuers – those holding recognised tertiary qualifications – can perform municipal valuations.
Once the VGV is satisfied a council’s general valuation meets required standards, the Minister declares it is generally true and correct and can be used by councils.
Where Else Council’s Get Money:
Council rates, fines and other charges contribute to 73 per cent of the infrastructure and services provided by councils.
Councils receive the remainder of their finances through grants from the State and Federal Government, as well as from borrowings and other sources such as interest earned.
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