Contrary to popular belief, rates are not calculated exclusively on how much your property is worth – the quoted total value of the land and home (the Capital Improved Value, or CIV) is not a professional, individual assessment of your dwelling.
Numbers used in the rates notice, including the CIV, are calculated every two years. The ‘bottom line’ you see is a multiplication of a generalised valuation of a property – a base if you will – against a rate in the dollar your council has budgeted.
Council can fluctuate this ‘differential rate’ to soften the blow of big rate price hikes for recipients. Rates can move up or down according to what has been budgeted as needed for the upcoming year by the local level of government.
Property owners generally recorded a big drop in their council rates when in the 1990s, the number of local municipalities was shrunk to 79 (31 in metropolitan Melbourne and 48 in country Victoria. This number may grow, however, if attempts by councils including around Macedon and Phillip Island are successful in lobbying for independence).
But in recent years, owners have received bills which may be substantially higher than ever before. Valuers often price a property for its “highest and best use” – an industry term to describe what the land would deliver as a most valuable outcome if replaced (sites that could be high density apartment projects).
This assessment has arguably forced owners who under-utilise their sites to sell to developers – which itself is a strategy the council’s colleagues in the planning divisions are trying to see. Site and airspace redevelopment generally adds to the land value of property in the municipality (a point council’s can then use to justify hikes in upcoming Notices).
State-wide (Victoria), the annual average rates bill for all properties – residential, commercial, industrial and farming ago – has been more than $1100 for 10 years.
THE RATING PERIOD
In most cases, notices relate to annual periods effective from July 1 to June 30 (an Australian financial year).
Upfront – usually by mid-February. Or in quarterly instalments, the first due around September (so within six to eight weeks of receiving the bill).
The Capital Improved Value adds together the value of the land (the Site Value) plus any “improvements”. An improvement includes the home.
It is important for calculating how your base rates bill is calculated. An example using City of Yarra council details here:
Capital Improved Value = $800,000
$800,000 x 5% = $40,000 (Net Annual Value)
$40,000 x 0.04091118 (Rate in the Dollar) = a base rates bill of $1,636.45
COUNCIL’S FLUCTUATING DIFFERENTIAL RATE
Ultimately, if council’s decide to substantially manipulate the ‘differential rate’ they charge, they can send the value of your Notice through the roof.
The rate varies and is usually more for residential property than for commercial (one Melbourne council is this year charging a differential rate of 0.3514 cents in the dollar for residential dwellings. Commercial and industrial users pay 0.4393 cents. Rural properties are charged 0.2460 and vacant developable lots are 0.5271).
Municipal, garbage and recycling charges derive extra fees for council. A fire levy is collected by the State Government.
WHO GETS IT? WHO SENDS IT?
A Notice of Valuation, Rates and Charges notice is sent to more than 2.5 million of the state’s property owners. People who own a property in Victoria – residential, commercial or vacant land – receive a rates notice each year.
WHAT DOES IT PAY FOR?
Councils are responsible for more than $40 billion of infrastructure in Victoria including roads, drains, town halls, libraries, recreation facilities, parks and gardens. Services including waste management, planning and some health services are also maintained by council, who some also call a ‘local government’ or ‘local administration’.
Almost three-quarters of the funds received by local councils come from rates, fees, fines and charges.
WHEN ARE THEY DELIVERED ?
Notices are typically sent between August and September every year, payable as a lump sum or in instalments (with a fine if you don’t keep up).
WHAT DATES ARE THEY EFFECTIVE FOR?
Rates for this financial year are based on ‘valuations’ based on January 1 for that year or the previous year (councils revalue properties in their municipality every two years).
HOW ARE RATES CALCULATED?
With circa-$1 trillion dollars of private property in Victoria alone, local government would need to spend millions employing assessors to estimate values for every one. So instead, assessors look at property information and inspect a sample to devise the total value of real estate in a municipality. Properties in the City of Glen Eira for example, are estimated to be worth about $30 billion.
Once the council has a “base” figure, it will determine a rate in the dollar for each ratepayer, which will be multiplied by one of three values:
• Capital Improved Value (CIV): land improvements – ie, buildings and landscaping;
• Site Value (SV): an unimproved value estimate of the land;
• Net Annual Value (NAV): Calculated as 5 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.
General rates are added to municipal and garbage collection charges to determine how much is payable on a property.
Ratepayers have the right to object to the valuation of their property if they are dissatisfied with council price (but don’t try to argue for it to be higher!).
WHY IS IT CALCULATED THIS WAY?
Councils do not generate extra revenue from short-term property revaluations. They do to collect an amount pre-determined in their budgets – the rate in the dollar they calculate depends on the amount of money a council thinks it needs to meet its obligations and is fixed for the year.
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.
OTHER SOURCES OF COUNCIL REVENUE:
Council fines – from rates, and other things, like parking – also contribute greatly to charges collected for infrastructure and services. Councils also receive funds from State and Federal government grants, as well as from borrowings and other sources such as interest earned.