State and territory taxes
Council rates
Council rates are charges levied by local councils on property owners to fund local services, they are not administered by the ATO, and they are GST-free.
Council rates are charges that local government authorities impose on property owners, usually annually or quarterly, to help pay for local services such as roads, waste collection, parks and libraries. They are administered by local councils, not the ATO or the state revenue office, and the amount depends on the council area, the property's valuation and the council's own rating policy.
The amount is often based on the value of the land, the use of the property, or a combination of a fixed charge and a variable charge. Some councils charge separate amounts for waste, water or stormwater services. Because each council decides its own rates within the framework of state legislation, two similar properties in different council areas can have very different rates.
From a GST perspective, council rates are generally GST-free. Taxes, fees and charges imposed by government are typically not subject to GST. This means there is no GST on a rates notice, and a business cannot claim a GST credit on the rates. However, other charges from a council that are not taxes, such as certain fees for services, may include GST, so read each notice carefully.
For income tax, council rates on property that produces income, such as a rental property or business premises, are generally deductible in the year they are incurred. Council rates on your home are not deductible unless part of it is used to earn income, in which case a reasonable portion may be claimed. Where rates relate to vacant land that is not producing income, deductibility is generally restricted.
For a landlord, the arrangements in the lease or tenancy agreement determine who pays. In commercial leases, the tenant often reimburses the landlord for rates as an outgoing, and that recovery may be subject to GST if the landlord is registered and the lease is a taxable supply, whereas in residential leases the rent is input-taxed. Check how outgoings are treated in your agreement.
A common mistake is trying to claim GST credits on council rates, or deducting rates on a private home. Another is forgetting that rates are separate from land tax, which is charged by the state. This is general information only, so confirm your situation with your local council or a registered tax professional.
Worked example
A landlord owns a rental property and receives an annual council rates notice of $2,400. The notice shows no GST because the charge is GST-free, so there is no GST credit to claim. The landlord deducts the $2,400 against rental income in the income tax return, assuming the property was available for rent throughout the year, and keeps the rates notice as evidence.
Practical tips
- Do not expect GST on a rates notice, as council rates are generally GST-free and there is no credit to claim.
- Rates on your private home are not deductible, unless part of it earns income.
- Check your lease to see who pays rates and whether any recovery from a tenant includes GST.