Over the years municipal rates on immovable property have been collected by local governments through provincial ordinances.
Local governments have a constitutional obligation to address service delivery, promote their own economic and financial viability, and to counter poverty through economic growth within their jurisdiction. Hence local governments or municipalities require sufficient sources of revenue.
Property taxes are easy to collect, fixed in terms of location, difficult to hide or conceal and thus provide a predictable and stable income. Therefore property rates were identified as an important source of income as a means to achieve local government goals. In addition, such taxes could also be used to address the historical imbalances and rates burdens faced by the poor.
The Local Government: Property Rates Act 6 of 2004 (the "Rates Act") aims to facilitate the necessary reform. At the same time it attempts to deal with requirements of equity, transparency and accountability as well as to enhance and improve certainty, uniformity and simplicity in the rates structures and policies across the country.
The Rates Act was approved by Parliament and came into operation on 2 July 2005. A transition period of four years was granted for municipalities to implement the Act. The deadline for implementation and full compliance by all municipalities across the country has been set for 1 July 2009, although on 7 September 2006 the City Council of Johannesburg resolved to implement the new Act on 1 July 2008.
In terms of the Rates Act there are some significant changes and requirements of which the following may be of interest to owners of sectional title units:
1. Previously rates were levied on the value of the land only. In terms of the Rates Act rates are now leviable on the market value of the land, which includes the value of the land as well as the improvements. Section 11(1) of the Rates Act states:
"(1) A rate levied by a municipality on property must be an amount in the Rand—
(a) on the market value of the property."
The market value is defined as "the amount the property would have realised if sold on the date of valuation in the open market by a willing seller to a willing buyer."
2. In so far as sectional title schemes were concerned, property rates were levied on the land value on which the sectional title scheme was established and in turn were charged to and collected from the body corporate. The body corporate then collected payment from the owners as part of their liability for levies. In terms of the Rates Act sectional title units are now to be valued individually and owners of sectional title units are individually liable for payment of rates. This of course entails the valuation of all sectional title units and the incorporation of all sectional title schemes within the register which municipalities are obliged to keep of all properties within their jurisdiction – an exercise which has not been altogether successfully completed at least as far as Johannesburg is concerned!
3. In terms of Section 25 of the Rates Act, a rate levied by the municipality against a sectional title unit must be paid by the owner of the unit and the municipality is not entitled to recover the rate on a sectional title unit from the Body Corporate. The Body Corporate may not collect rates from the owner of the sectional title unit.
4. It is important to note that a ratepayer will be liable for payment of rates whether or not an account has been received and if an account has not been received, the onus then rests on the ratepayer to establish the amount due and to pay that amount to the Council. The Council is further empowered, in terms of Section 28 of the Rates Act, to recover any unpaid rates from the tenant or occupier of the property but the amount recoverable is limited to the amount of rent due and payable to the owner which has not yet been paid by the tenant.
5. In terms of Section 29 of the Rates Act the Council may also recover outstanding rates due on the property from the agent of the owner but this will be limited to the amount of rent received on behalf of the owner, less any commission.
6. The Rates Act also requires that different tariffs must be applied to various categories of property. In terms of section 8 properties are to be grouped according to different categories which may be based on permitted use (zoning) of the property, actual use of the property or the geographical area in which the property is situated. Accordingly, different assessment rates may be levied against different categories of property in terms of the Rates Act.
7. Of further interest is Section 15 of the Rates Act which enables a municipality to grant owners of a specific category of properties exemptions from rates levied on their properties or rebates or reductions in rates with regard to their properties. Previously the full value of residential property was subject to assessment rating but in terms of Section 17(h) of the Rates Act the first R15k of the market value of all residential property is not rateable. Thus a rate may only be levied on the reduced value of the residential property and the residential exclusion (of at least R15k) will also apply to any sectional title unit which is categorised as residential.
In summary, and in so far as owners of sectional title units are concerned:
- Individual sectional title units are to be valued at market value for the purpose of levying rates.
- An exclusion from the market value (of at least R15k) will apply where the unit is categorised as residential.
- Each owner will be billed individually for rates.
- The Body Corporate is no longer liable for outstanding rates relating to individual units.
By Richard Codron and Jameel Patel from the law firm Knowles Husain Lindsay Inc
Source: Aengus Urban Investor News
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