The ACT Chief Minister announced a package of initiatives to provide economic stimulus for the ACT building and construction industry earlier this year. The supporting legislation has now been implemented and in this article we consider whether the new law delivers against the promised measures.
Of particular interest were the promised increased remissions (ie. discounts) for the lease variation charge (LVC) regime and significantly reduced extension of time (EOT) commence and complete fees.
Changes to the Lease Variation Charge (LVC)
What was promised
The ACT government agreed for the next two years:
- to freeze the current rate and remissions levels (ie discounts) for codified variations;
- for non-codified variations increase the remission rate from 25% to 50%; and
- to allow an additional 25% remission on the amount of LVC otherwise payable for developers who incorporate high standards of sustainable design and/or adaptable housing in their projects.
What was delivered
The Planning and Development (Remission of Lease Variation Charges – Economic Stimulus and Sustainability) Determination 2014 (No1) (ACT) (New Determination), implements the chargeable variations LVC initiatives. It commenced on 6 March 2014 and will cease to have effect on 5 March 2016. It delivers against the promises, other than the New Determination does not freeze the remission levels for codified variations. Whether this was deliberate and is to be the subject of a separate determination is yet to be seen.
Freezing rates and remissions for codified variations
The New Determination does not impact on codified variations. Codified variations are calculated in accordance with the requirements of section 276E of the Planning and Development Act 2007 (ACT) (Planning Act) and are generally related to variations of a Crown lease to increase the number of residential dwellings permitted on a block of land.
Despite the promise that the remission levels for codified variations would be frozen for the next two years, it appears that the Planning and Development (Remission of Lease Variation Charges) Determination 2011 (No 1) (DI2011 – 197) has not yet been amended. Unless a new determination is made:
- from 1 July 2014 - the remission will decrease from 55% to 40%; and
- from 1 July 2015 - the remission will decrease further from 40% to 25%.
The government’s commitment not to increase the codified LVC rates for the next two years requires no legislative changes to be made. To date, the rates imposed on codified variations set out in thePlanning and Development (Lease Variation Charges) Determination 2011 (No 1) (DI2011 – 198) has not been amended. We would expect that DI2011-198 will be maintained for the next two years.
Increasing remissions for chargeable variations from 25% to 50%
Chargeable variations under section 277 of the Planning Act generally apply to variations of commercial or industrial Crown leases.
The ACT government has reduced the LVC (that would otherwise be payable under section 277 of the Act) by a further 25% of the increase in value of the property that results from the variation (Economic Stimulus Remission).
But take note this only applies to development applications approved on or after 6 March 2014 and the approval also has to relate to the development of a building on the land under the Crown lease. This means that if you:
have a pre-existing development approval for a development that you have not progressed; or
submit a development application to merely vary the Crown lease for another purpose, such as to regularise a use that is currently not permitted under the purpose clause,
you will not be entitled to the Economic Stimulus Remission.
Up to a further 25% remission on LVC for sustainable developments
The ACT government has demonstrated its strong support for sustainable development in the Territory under the New Determination by delivering further remissions for projects that meet particular Green star or NatHERS ratings or provide adaptable housing that meets the relevant Australian Standard.
Click here to view the table.
he maximum total remission available for sustainable developments is 25%. For example, if the building is nominated for a NatHERS rating of 7.5 and 100% of the building will comply with AS 4299 Adaptable housing (Class C), the total amount of remission available is still only 25%.
The remission is a further 10% or 25% off the amount of the LVC that is otherwise payable under section 277 of the Act and is not calculated against the increase in value as is the case with the Economic Stimulus Remission.
Example: How is it calculated?
The amount of LVC payable for a proposed variation to the Crown lease is 75% of the increase of the market value of the Crown lease. The applicable formula is (V1 – V2) x 75%.
If we use the example of a development where:
- the development application was approved on or after 6 March 2014;
- relates to a sustainable development that involves the construction of a building on the land; and
- will increase the value of the Crown lease by $100,000,
- the amount of LVC, (before taking into account the Economic Stimulus Remission and any sustainable development remission) would be $75,000 (Initial LVC).
The Economic Stimulus Remission will reduce the Initial LVC by another 25% of the increase in value of the Crown lease so that the LVC payable becomes $50,000.
- the developer qualifies for a 10% sustainable development remission (for example, the building is designed to a 5 star Green Star rating) this equates to a further reduction of $7,500 (total LVC of $42,500); or
- the developer qualifies for a 25% sustainable development remission (for example, 100% of the building will meet the AS for adaptable housing) this equates to a further reduction of $18,750 (total LVC of $31,250).
When will you obtain your LVC remissions? How is it enforced?
The LVC remissions are calculated at the time a notice of assessment in relation to the development application of the chargeable lease variation is given to the Crown lessee.
At present there does not appear to be any legislative procedure for repayment of any LVC remission if the building does not comply with the nominated NatHERS rating, Green star rating or AS 4299-1995 Adaptable Housing (Class C) as nominated in the development application.
The ACT government has flagged though that it will implement enforcement measures through conditions on the DA and will require the Crown lease to be varied to contain building and development provisions that will arguably oblige the Crown lessee to construct a sustainable development.
We also note that division 9.6.3 of the Planning Act is treated as a tax law for the purposes of theTaxation Administration Act 1999 (ACT). LVC is therefore a tax liability and there is the ability of the Commissioner to revisit an assessment under section 9 of the Taxation Act so long as it occurs within 5 years of the initial assessment.
Changes to the extension of time fees
What was promised
The ACT Government promised that:
- EOT fees accrued between 1 July 2012 and 31 March 2014 would be waived and if paid, refunded;
- from 1 April 2014:
- EOT fees – where payable – would reduce to one times the annual rates;
- EOT fees would only be charged on failures to complete where the delay in completing had continued for four years; and
- new Crown leases would no longer include commence dates (ie a date by which the development must have commenced) and the standard periods a Crown lessee would have to complete a complying development (the completion covenant) will be:
- 24 months for a standard single residential lease
- 48 months for all other leases.
What was delivered
The Planning and Development (Extension of Time) Amendment Bill 2014 (ACT) (EOT Act) was passed by the Legislative Assembly on 6 May 2014. The EOT Act amends the Act.
The EOT Act prescribes:
- for all Crown leases, the commence dates are extended indefinitely without any fee payable;
- for Crown leases which have completion dates on or after 1 April 2014 (or which have been previously extended to end on or after 1 April 2014):
- EOT fees – where payable – would reduce to one times the annual rates; and
- EOT fees would only be charged on failures to complete where the delay in completing had continued for four or more years.
- Crown lessees will be automatically billed EOT fees if they have not obtained their certificate of occupancy within 4 years of the required completion date and will be charged this amount at the end of each year, or part of year of the period of extension the Crown lessees fail to complete the works. Pursuant to section 382 of the Planning Act, the Territory may terminate the Crown lease (after providing a n opportunity to the Crown lessee to make submissions) if the Crown lessee fails to pay the billed charge; and
- for all Crown lease which have completion dates before 1 April 2014, EOT fees are calculated as follows:
Click here to view the table.
The period of extension is calculated from the complete date noted on the Crown lease. The clock is not restarted at the commencement of each ‘relevant time period’ or extension of time previously granted.
Refunds and waivers for EOT paid/incurred between 1 July 2012 and 31 March 2014
In relation to the Government’s promise that EOT fees accrued between 1 July 2012 and 31 March 2014 would be waived and if paid, refunded, the refund and waiver forms are available fromhttp://www.actpla.act.gov.au/publications_forms/forms.
Applications will only be accepted until 31 March 2015
The EOT Act does not legislate the waiver or refund of EOT fees. Refunds instead are being offered as an act of grace under section 130 of the Financial Management Act 1996 (ACT), which provides that a directorate may only provide those refunds if authorised by the Treasurer to do so. Waivers are being made under section 131(1)(a) of the Financial Management Act 1996.
We can only assume the directorate holds the necessary authorisation from the Treasurer to process the refunds as it has not been made publicly available.
Unexpected changes: Criteria for waiver and hardship applications
Under the EOT Act, the ACT government is also seeking to clamp down on waiver requests.
Owners whose Crown leases have completion dates on or after 1 April 2014 (or which have been previously extended to end on or after 1 April 2014) will only (with limited exceptions) be able to apply to ACTPLA for a reduction or waiver of a required fee for an extension of time to complete works if the Crown lessee is an individual and a hardship reason applies. This change was unexpected and could cause difficulties for those owners who own land by way of a family trust structure using corporate trustees.
Hardship reasons are limited to:
- the Crown lessee, or someone on whom the lessee is financially dependent, has a medical condition that prevents full-time employment;
- the lessee, or someone on whom the lessee is financially dependent, is unemployed;
- the lessee, or someone on whom the lessee is financially dependent, is bankrupt or personally insolvent; or
- someone on whom the lessee is financially dependent has died.
Under the new regime, a Crown lessee may only apply for one fee reduction or waiver for hardship reasons at a time and the application will only be considered if the Crown lessee has not received a fee reduction or waiver in the last 5 years.
A Crown lessee (whether an individual or company) may also apply for a waiver for:
- ‘external reasons’ which have been limited to particular instances where the Crown lessee is unable to complete the works where the Territory has not provided adequate services or infrastructure or approvals (not caused by the Crown lessee); and/or
- Leases transferred or assigned in special circumstances (such as by order of the Family Court or due to insolvency/bankruptcy or death of the lessee).