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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2010-11-10 Daily Xml
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LAND TAX

The Hon. J.A. DARLEY (17:03): I move:

That the regulations under the Retail and Commercial Leases Act 1995 concerning exclusions, made on 26 August 2010, and laid on the table of this council on 14 September 2010, be disallowed.

This is a motion to disallow regulations under the Retail and Commercial Leases Act, as gazetted on 26 August 2010. The changes take effect from April 2011. Section 30(1) of the Retail and Commercial Leases Act provides that a retail shop lease cannot require the lessee to pay land tax or to reimburse the lessor for the payment of land tax. Section 30(2) further provides that the lessor's liability for land tax in respect of the premises may be taken into account in the assessment of rent.

Those sections need to be read in conjunction with section 4 of the act, which provides that the act does not apply to a retail shop lease if the rent payable under the lease exceeds $250,000 per annum or, if a greater amount is prescribed by regulations, that other amount. Therefore, at present the act explicitly prevents lessors from passing on land tax to their tenants, except in instances where the rent payable under the lease exceeds $250,000. So, if the rent payable under a lease exceeds $250,000, the land tax payable for the premises can be passed on to the lessee.

The changes to the regulations will increase the rent threshold from $250,000 to $400,000; that is an increase of $150,000. The effect of that will be that lessors who have previously passed on land tax to their tenants under existing leases, with a rental over $250,000 but under $400,000, potentially could no longer be able to do so, at least not in an open and transparent manner. Instead, this change will result in those landlords passing on land tax as increases in rent at the time of renegotiating leases, normally at three or five-yearly intervals. It will result in a significant shift in who falls under section 30(1) and who falls under section 30(2) of the act.

I should highlight that in most, if not all, instances, lessees are already paying land tax indirectly through rental increases, anyway. Instead of creating a more open and transparent system, the increased threshold will force more landlords to essentially hide land tax liabilities by passing them on as rental increases. These changes are a huge blow not only to tenants but to landlords as well. The reality is that many landlords, including those at the bigger end of town, are struggling to meet their land tax liabilities.

This will be compounded by having to cope with the additional burden of land tax, which they will not be able to recover until such time as a rent review arises. Of course, at the end of the day, all of these costs ultimately will be passed on to consumers, who will have to pay more in order to meet the increased costs of the lessee. This situation will not be resolved unless the government seriously considers further reducing the rate in the dollar in the scale of land tax under the Land Tax Act.

There is also some concern about the lack of any transitional provisions regarding the implementation date of the regulations. It is not clear whether the changes will apply to new leases entered into from 4 April 2011 or whether they will apply to existing leases that were entered into before that date. I imagine that this may be left to the courts to decide. I am strongly of the view that the Retail and Commercial Leases Act is in need of review in order to clear up a lot of this uncertainty and to make things clearer; in effect, to unmuddy the waters for tenants and landlords alike. Tenants ought to have the benefit of knowing what they are paying in rental as opposed to rates and taxes.

Debate adjourned on motion of Hon J.M. Gazzola.

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