Understanding Your Rates Notice: A Guide

This story has been updated for 2017. See it here.

There’s a day each year when home owners are delivered what may be their most misunderstood bill, known as the council rates notice.

Council rates calculate your bill using a non-recommended property valuation against a rate in the dollar they budget as your contribution – to meet expenses they forecast for the upcoming year. Statewide (Victoria), the average rates bill for all properties – residential, commercial, industrial and farming – was $1135 two years ago.

WHO GETS IT? WHO SENDS IT?

A Notice of Valuation, Rates and Charges 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.

They are circulated by Victoria’s 79 councils – 31 in metropolitan Melbourne and 48 in country Victoria.

WHAT DOES IT PAY FOR?

Victorian councils are responsible for more than $40 billion of infrastructure including roads, drains, town halls, libraries, recreation facilities, parks and gardens.

Councils maintain services including waste management, planning and some health services. Almost three-quarters of the funds received by local councils come from rates, fees, fines and charges.

WHAT ARE THE DATES?

Notices, sent between August and September, are paid in a lump sum on February 15 or in instalments in October, November, February and May.

Rates for this financial year are based on valuations from January 1 last year. Councils revalue properties in their municipality every two years.

HOW RATES ARE CALCULATED?

Councils would need to employ hundreds of valuers to assess the $867 billion of private property in the state.

Instead, valuers analyse property information and inspect a sample of properties to devise the total value of properties in a municipality.

For example, the value of land and improvements in the Bass Coast Shire Council in south-east Victoria is about $7.8 billion. Property in the City of Glen Eira is worth about $27.7 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): The value of land and the improved value of the property (house, other buildings and landscaping);

• Site Value (SV): The unimproved value 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.

For example, if a council needs $40 million and the municipality’s property is worth $10 billion it would divide $10 billion by $40 million (a rate in the dollar of 0.004).

For a property with a CIV of $400,000, the general rates would be $1600 ($400,000 x 0.004).

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 the determination provided by the council valuer.

WHY IS IT CALCULATED THIS WAY?

Contrary to popular belief, councils do not generate extra revenue from short-term property revaluations.

Councils collect the amount 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.

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 increases.

READING THE RATES NOTICE: WHAT DO THE TERMS MEAN?

• Rating Year: The period in which the rates notice is valid. Current notices are July 1, 2006, to June 30, 2007.

• Valuation Date: The last time your property was valued. This process is biennial. The next valuation is on January 1, 2008.

• 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 and improvements (house, landscaping). This amount 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 90 per cent of 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 determine the weekly rental value of your commercial property. For residential property, this amount is 5 per cent of the CIV.

• Additional Charges Most councils charge extra for services such as garbage collection. A municipal charge can be applied by the council to each home owner to cover extra costs, but this can’t be more than 20 per cent of what the council is asking in rates.

• Late Payment Councils take legal action for recovery of unpaid rates and associated costs if a property owner ignores rates notices. Late payments accrue an interest charge of about 11 per cent a year.

• Payment Options Rates can be paid in one sum or in four instalments that can be paid online.

• Overleaf Frequently asked questions including topics such as land tax, pensioner concessions and 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 considering 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 and 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.

OTHER SOURCES OF COUNCIL REVENUE:

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 governments, as well as from borrowings and other sources such as interest earned.

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Marc Pallisco

Marc Pallisco

A freelance property writer and analyst, Marc is a co-founder of realestatesource.com.au.

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