ACT Commercial Rates Revenue: Impact of Tax Reform and Property Values

This report analyzes the factors contributing to the increase in commercial rates revenue in the Australian Capital Territory (ACT). The ACT's shift from stamp duty to general rates has significantly impacted commercial rates, accounting for a substantial portion of the revenue growth. The report highlights that the rise is also influenced by the increasing number and value of commercial properties. Data from government figures and insights from industry experts like the ACT Property Council are included, which reveal the complexities of the tax reform and its effects on businesses, including specific examples of rate increases for certain properties. The report also discusses the role of wage price index increases and land valuation processes in driving up rates. It emphasizes the importance of understanding these elements for businesses operating in Canberra, and it concludes by referencing the upcoming public hearings on commercial rate rises by the ACT Legislative Assembly's public accounts committee.

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SE News
HD Commercial rates revenue windfall
BY Katie Burgess Katie Burgess Assembly Reporter
WC 850 words
PD 12 January 2019
SN Canberra Times
SC CANBTZ
ED First
PG 1
LA English
CY (c) 2019 The Canberra Times
LP
The ACT's switch from stamp duty to rates drove almost half of this year's rise in commercial rates
revenue, despite government attempts to play down the impact of the taxation reform on businesses.
Forty-four per cent of the increase in commercial rates revenue came down to the reform, while 37 per
cent was due to the growing number and value of commercial properties in 2018-19, new government
figures show. Since 2015-16, total commercial rates revenue has grown by about 30 per cent, with 58
per cent of that increase attributed to the reform.
TD
The numbers came as the ACT Legislative Assembly's public accounts committee prepares to hold its
first public hearings into commercial rate rises next month. Commercial rates are tipped to hit $190
million as the ACT government moves into its seventh year of slowly replacing stamp duty with higher
general rates. Coupled with residential rates, that will take the total general rates take to a predicted
$539 million, although an updated figure is expected in next month's mid-year budget update.
The year before the tax reform began the total rates take was $209 million, although taxes such as
insurance duty (which raked in nearly $45 million in 2011-12) have been abolished and stamp duty has
been reduced year on year.
The territory also abolished stamp duty for commercial property transactions under $1.5 million last year
as part of the tax reform, which meant an estimated 70 per cent of commercial property sales no longer
incurred stamp duty.
But more than 300 Canberra businesses were hit with a double-whammy last year after the ACT
Revenue Office revalued properties in Phillip, Civic, Turner, Braddon and Fyshwick.
Some rates rose by $100,000, while one car dealer in Phillip said his rates tripled over the past year.
ACT Property Council executive director Adina Cirson said commercial properties on land valued above
$600,000 now paid rates at 5.1675 per cent, which meant owners were paying the equivalent of a
stamp-duty-like charge every year.
The Property Council has found commercial rates are around nine times higher than residential rates,
with the highest marginal tax rate for commercial properties more than double what it was in 2012.
"Of greatest concern is the lack of visibility on which rates will be payable at the end of the 20-year
reform plan," Ms Cirson said.

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"Commercial properties above $1.5 million also remain subject to a 5 per cent flat stamp duty rate and
there are no plans to further reduce the top rates for commercial properties within the current budget
forecast period."
The government has repeatedly tried to play up the impact of rising property prices and the growing
number of commercial properties on the rates revenue increases.
In an answer to a question on notice, acting Treasurer Yvette Berry said growth in the number and value
of new properties contributed about a third of the increase in total commercial rates revenue in 2018-19.
A separate answer showed 2018-19 saw the largest jump in the number of commercial properties in four
years, up 93 to 6146. In the past 10 years, nearly 900 extra business premises have opened.
ACT Chief Minister Andrew Barr told the Assembly last October there were about 2000 more businesses
operating in Canberra than there were three years ago. Mr Barr said at the time commercial rates would
grow by an average of 6 per cent each year across Canberra from 2017-18 to 2021-22, "giving certainty
to the commercial property sector".
But the tax reform, property values and property numbers are not the only factors pushing up rates.
Government figures also show about 18 per cent of the 2018-19 increase was due to wage price index
increases that would have occurred in the absence of tax reform. Around 21 per cent of the increase
since 2015-16 was due to wage price index increases.
Rates laws mandate an annual land valuation based on a property's unimproved value on January 1
each year.
The new valuation takes effect following a determination by the commissioner for ACT revenue on July 1
of the same year.
The valuation approach is a "direct comparison", where commercial land sales are looked at and a
broad adjustment to all properties is made if there is evidence of a change in general commercial
property values across the ACT.
There has not been a blanket increase in unimproved values across commercial properties for the last
five years though, as there have been too few sales to justify the rise, the government said through the
question on notice. However, pockets like Braddon and Phillip have been adjusted as "unimproved
values of some properties in these areas were out of alignment with market values, relativities within the
precinct, and in comparison with properties outside of the precinct".
■ The ACT Assembly inquiry public hearings will be held on February 6-8, with another hearing on
February 25 to be confirmed.
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AN Document CANBTZ0020190111ef1c0000n