Inquiry into Commercial Rates announced by ACT Legislative Assembly – Input from members being sought

The ACT Legislative Assembly has announced that the Public Accounts committee is conducting an inquiry into commercial rates, with submissions due by 4 February 2019.  The Property Council will be making a submission and invites your input.  The terms of reference for the Assembly Inquiry can be found here:

As indicated in our last newsletter, the Property Council is actively engaged on the issue of commercial rates with the ACT Government, and has commenced discussions with the ACT Government about the impact of tax reform progression – as the only jurisdiction undergoing this reform, with our National Office also engaged, recently presenting to a number of jurisdictions including officers from ACT Treasury.

The ACT Property continues to seek data around rates and other charges for commercial office space and current rents and vacancies so that we might provide an insight into the current affects.  If you are happy to share the impact of rates increases are having, a form is available to input your data.  To contribute, please email Adina Cirson ([email protected]) no later than 21 January 2019.

Our findings to date include:
• Commercial properties above $600,000 in land value now pay property rates at 5.1675% which in effect, owners are paying the equivalent of a stamp duty-like charge every year.
• Commercial rates are approximately nine times higher than residential rates (comparing the highest marginal tax rates of 5.1675% for commercial to 0.57% for residential).
• The highest marginal tax rate for commercial rates are more than double what they were in 2012 (5.167% compared to 2.361%).
• The highest marginal tax rate for residential rates have more than doubled what they were in 2012 (0.57% compared to 0.2727%).

Of greatest concern is the lack of visibility on which rates will be payable at the end of the 20-year reform plan. Commercial properties above $1.5 million also remain subject to a 5% flat stamp duty rate and there are no plans to further reduce the top rates for commercial properties within the current budget forecast period.

We believe that the rates/tax measures for the commercial and industrial sectors require a critical analysis, as well as the processes that are currently in place.

We are advocating on the following key issues we have with the current rate of tax reform:
• Unimproved value $ increase – significant uplift in UV $ applied to commercial and industrial properties, despite little evidence to support such increases.
• Cost of appealing rating values – there is a need for an intermediate step/mediation process between the first step (initial objection letter) and full ACAT hearing which costs $80-100k.
• Rolling 3-year average - the flow on effect of the high 2018 values will mean very significant increases in rates for next two years.
• Apportionment of UV $ value applied - the need to separate out the components for residential, commercial and for an individual.
• Legislative changes – Changes will need to be made to accommodate apportionment as currently the ACT states that property is 100% residential.
• Review of the progression of of tax reform – to ensure that the reforms are not disproportionally impacting on the commercial and industrial markets at a time when rents are not increasing at the same rate.
• Retrospective Rates – The ACT Government needs a fair and equitable policy approach to be adopted which includes a 1-year maximum retrospectivity for recovering rates.
• Impact on capital values – The dramatic increases in rates across all areas of the ACT are having a negative impact on capital values, even where all other issues remain unchanged.

We of course will be making a submission to the inquiry, and welcome members feedback on this important issue for our sector.