Rates Rebate (Retirement Village Residents) Amendment Bill. Department of Internal Affairs report to Local Government and Environment Committee

Transcription

1 Rates Rebate (Retirement Village Residents) Amendment Bill Department of Internal Affairs report to Local Government and Environment Committee 20 June 2017

2 Contents Introduction... 3 Comment... 3 Summary... 3 Background... 4 How much rates do retirement village residents pay?... 5 What rebate entitlements would retirement village residents have?... 5 Issues with proposed Bill... 6 Qualifying criteria... 6 Issues with amending the definition of ratepayer... 6 Options to address the residential property criterion... 7 Alter the Rating Valuations Act Alter the Local Government (Rating Act) Extend the Rebate Act s company flats mechanism... 8 Implementation Issues... 9 Compliance costs Regulations would probably be required Cost to the Crown Increase in eligibility Household income data Level of rates payable Uptake of the scheme Cost estimate Conclusion Recommendation Rates Rebate (Retirement Village Residents) Amendment Bill Page 2 of 16

3 Introduction 1. The Rates Rebate (Retirement Village Residents) Amendment Bill (the Bill) proposes to amend the Rates Rebate Act 1973 (the Rebate Act) to recognise retirement village residents with occupation right agreements (ORAs) as ratepayers, so they can then obtain rates rebates under the Rates Rebate Scheme. An overview of the Rates Rebate Scheme is attached as Appendix A. The nature of ORAs is further explained in Appendix B. 2. The Bill proposes to amend the Rebate Act by replacing the definition of ratepayer, in that Act, to also recognise residents of retirement villages who pay rates indirectly in connection with their ORAs. Comment 3. As outlined in our initial briefing to the Committee, the Department of Internal Affairs (the Department) considers that the Bill as introduced would not achieve its stated purpose. Additional and complex amendments would be required to do this. Summary 4. The Department s research indicates that while all retirement village residents contribute to rates through their administration charges, many do not pay the full rates that could be attributed to their unit, with some retirement village operators absorbing part of the rates charged. 5. Even if the full rates were passed through to residents, the evidence suggests that retirement village rates are often appreciably lower than the rates paid by homeowners. The consequence of this is that, if rates rebates were extended to retirement village residents, few married residents would qualify for a rebate. Most single residents would qualify for a rebate, but it is likely a large proportion would not be eligible for a full rebate. 6. Finding an administrative mechanism to transparently apportion rates to retirement village residents and to facilitate a simple process for both claiming and receiving a rebate is challenging and needs thorough discussion with relevant stakeholders. The administration of rates is now more complicated than when the Rebate Act was first passed, with residents now potentially receiving three accounts that make a total rates charge a territorial authority rates assessment, a regional council rates assessment, and a territorial authority metered water bill. In Auckland, the change in structure to have water services delivered by a council-controlled organisation has had the effect of transforming a rate that could be included in a rebate calculation into a utility charge that cannot be included in a rebate calculation. 7. Extending rates to retirement village occupants does not deal with other existing anomalies and may create new perceived anomalies. The Department is aware, for example, that some people with life tenancies of what has been their family home may not qualify for a rebate if the home has been placed into a family trust. Rates Rebate (Retirement Village Residents) Amendment Bill Page 3 of 16

4 8. The retirement village industry is responding to customer demand by developing a variety of accommodation types supported by ranges of services to meet their residents needs. The Department was not able to confidently satisfy itself that all accommodation subject to ORAs would have the characteristics normally associated with a home. Extending rates rebates to all occupation right holders in retirement villages may simply create a new set of anomalies. 9. Establishing the likely cost to the Crown of extending rates rebates to retirement village residents is difficult. There is little information on the income of retirement village households. A very high level estimate suggests a possible annual cost range of between $3.0 million and $5.0 million. To refine this estimate the Department would need: better information on: the number of units within retirement villages on unit title and crosslease titles, that are therefore already eligible for a rates rebate; the number of households within retirement villages with income in addition to national superannuation, and some idea of how much additional income those households had; and to consider the likely take up by residents, given that some residents may not bother to claim small rebates and others may choose not to claim a rebate. 10. Given all these issues, the Department considers that a more comprehensive review of all aspects of the Rebate Act would be preferable. However, even if future work were limited to the eligibility of retirement village residents for a rebate, a thorough consultation process with stakeholders prior to commencing law drafting would be desirable to achieve a good outcome for all parties. Background 11. A retirement village is defined as containing two or more residential units to provide residential accommodation and/or services or facilities predominantly for people who are retired, and those people agree to pay a capital sum to live there. 12. A retirement village resident s right of occupation may be provided by way of freehold or leasehold title, cross lease title, unit title, lease, licence to occupy, residential tenancy, or other form of assurance, for life or any other term Unit titles and cross lease titles are registered titles and create separate rating units. The registered owner of the title would be the ratepayer for the property. A retirement village resident with that form of title who was the registered owner of the property would meet the qualifying criteria to apply for a rebate. Some retirement villages use those forms of title and residents in those units are already ratepayers. Where their incomes meet the qualifying tests, those residents are successfully claiming rebates. 1 Retirement Villages Act 2003 S6 (1)(a) Rates Rebate (Retirement Village Residents) Amendment Bill Page 4 of 16

5 How much rates do retirement village residents pay? 14. The Department has been assisted by the Society of Local Government Managers (SOLGM) to gather information on rates paid by retirement villages. The Department wishes to record its thanks to SOLGM and to the rates officers in the various councils who have invested time in this work. 15. The Department has combined this sector information with information from the retirement villages register to estimate the rates per dwelling unit in those villages. There are important caveats with this information: it may not be representative. Because of the tight time constraints, we were able to obtain information from only 20 councils. There are some significant councils for which we were not able to gather information; and the data has not been validated. Some data we have recorded seems highly improbable. This may be because of our own errors in data entry, or because of misunderstandings in the data collection. Ideally we would reflect our findings back to the local authorities for their review and discuss particular outliers to ensure that errors were corrected or that we understood the circumstances of those cases. Time has precluded that process. 16. Overall, we ended up with data for 157 villages from 20 councils. However, 40 of the villages are located within Christchurch City Council boundaries. On the assumption that total rates are divided equally between all units, we found a wide range of rates per dwelling unit, as shown in Table 1. Table 1: Average rates per dwelling unit in retirement villages Quartile Rates per dwelling unit ($) Lower Quartile 1,194 Median 1,530 Upper Quartile 2,274 What rebate entitlements would retirement village residents have? 17. Appendix C provides examples of rates rebate eligibility. Table 2 shows that married superannuitants in retirement villages could only expect to obtain a rebate in limited cases. Having even a modest amount of additional income would likely disqualify most married superannuitants from obtaining a rebate. Single superannuitants with no other income would be eligible for a rebate, and in many cases would likely qualify for the maximum rebate. Having a modest amount of additional income would significantly reduce rebate entitlements for many of these people. Rates Rebate (Retirement Village Residents) Amendment Bill Page 5 of 16

6 Table 2: Rates thresholds for rebate access financial year Single superannuitant Other income Other income Married couple Other income Other income Nil $5,000. Nil $5,000 Minimum rates to obtain any rebate ($) ,158 3,095 Minimum rates to obtain the maximum rebate ($) 1,090 1,767 3,088 4,025 Issues with proposed Bill Qualifying criteria 18. There are two criteria that must be met in order to be eligible for a rates rebate (apart from income thresholds): The applicant must be a ratepayer. Currently ORA holders do not meet this criterion. The Bill proposes to address this by amending the current definition of ratepayer. The applicant must be a ratepayer for a residential property. Most ORA holders do not meet this criterion: A residential property is defined in the Rebate Act as a rating unit under the Local Government (Rating) Act Rating units are defined on the basis of land ownership and land titles. Issues with amending the definition of ratepayer 19. Extending the definition of ratepayer to just this group of residents carries some risks, as concepts of home ownership evolve in New Zealand. This group of people do not in all cases meet the full rates bill that ordinary homeowners confront, and because of the tenure arrangements that apply, often pay somewhat less rates than ordinary homeowners with similar homes would pay. In addition, they are not exposed to the legal risk of a rating sale that ordinary homeowners are if they fail to pay their rates, although the Department acknowledges that rating sales are rare. 20. The Department considers that if the concept of ratepayer is to be extended beyond those who have a legal obligation to pay rates, then this should be approached in a principled way, considering other groups that might similarly be affected. One such group is people who, after the death of one partner, are provided with a life occupancy in a family home held in trust for surviving children. Currently, if the surviving partner is not named as a trustee, it appears that they are not entitled to a rebate, even though they frequently have to pay the property s rates. Rates Rebate (Retirement Village Residents) Amendment Bill Page 6 of 16

7 Options to address the residential property criterion 21. The Department identified three options for addressing the residential property criterion: alter the Rating Valuations Act 1998 and its supporting regulations to enable units with an ORA to be a separate rating unit; or alter the Local Government (Rating Act) 2002 so that ORA properties could be treated as if they were a rating unit for the purposes of the Rebate Act; or adapt the current mechanism in the Rebate Act that provides for occupants of company flats to be able to apply for a rates rebate, so that it can be extended to retirement village residents with ORAs. Alter the Rating Valuations Act Land Information New Zealand administers the Rating Valuations Act It has provided the Department with advice on this option. 23. The criteria for what constitutes a rating unit under the Rating Valuations Act 1998 are deliberately premised on an ownership interest in land rather than an occupation interest. Introducing ORAs as a qualifying criterion would contradict the ownership principle and risk opening the way for other forms of occupation to creep back into district valuation rolls after they have been deliberately excluded. 24. There is strong acceptance of the benefits of ownership based district valuation rolls which have brought a high degree of certainty around what the unit of tax is for rating purposes and resulted in a significant reduction in litigation from the previous occupation based rolls. 25. For the above reasons, LINZ is not in favour of this option. 26. The Department concurs with LINZ advice on this option. Alter the Local Government (Rating Act) The Local Government (Rating Act) 2002 could be altered so that a rating account for each retirement village occupancy was created and treated as if it were a rating unit. Under this option, a rating unit could have multiple rating accounts. The occupier of the unit would have the initial liability for rates, with residual liability resting with the owner the retirement village operator. 28. A mechanism would be needed to allocate rates between the multiple rate accounts for the overall rating unit (the village). Local authorities would allocate rates to each occupant s rating account. The occupier would receive their rates assessment and invoice directly from the council and pay their rates directly to the council. 29. The Department notes that this option has been used in the Te Ture Whenua Māori Bill, currently being considered by the House, to extend eligibility for rates rebates to homeowners on multiply owned Māori freehold land. Rates Rebate (Retirement Village Residents) Amendment Bill Page 7 of 16

8 30. The Department has not fully explored the practicality of this mechanism. SOLGM s submission on the Bill promoted the third option adaptation of the company flats mechanism as its preferred means of implementing the Bill and the Department has focussed its attention primarily on that option. Issues 31. To be administratively workable, the arrangement would probably have to apply to all units in a retirement village, and could therefore affect all occupants irrespective of whether they were eligible for a rebate or not. 32. For councils to create separate rating accounts only for those units where the occupier applies for a rebate, and charge the rest to the operator would impose significant additional costs. In particular, as occupants changed, there would be the cost of creating and remerging the different parts from and to the parent rating unit. There would also be potential difficulties where unit s changed hands during the middle of a rating year, since rates are set at the beginning of the year on rating units that exist at that point in time. 33. It would require local authorities to develop a mechanism to allocate rates to occupants rating accounts. This would incur costs and may give rise to disputes between the local authority, the village operator, and individual residents. Extend the Rebate Act s company flats mechanism 34. Section 7 of the Rebate Act provides for an owner-occupier of a company flat who contributes towards outgoings of the flat to apply for a rebate. A flat or office owning company is defined in section 121A of the Land Transfer Act 1952 as a company the constitution of which provides that the registered holder of specified shares in the company is entitled, by virtue of being the holder of those shares, to occupy or use a specified residential flat or office forming part of a building owned by the company. 35. The Department has been exploring whether this mechanism could be extended to retirement village residents with ORAs. 36. Officials have identified two possible scenarios for this option: a) Rebate made to the retirement village operator the retirement village operator advises the council of the rates it charges to its occupant(s); the occupant fills in the rates rebate application form, and lodges it with the council for processing; the council: o credits the retirement village owner/operator s rating account; and o advises the retirement village owner/operator of the credit amount; the retirement village owner/operator credits the occupant s account. b) Rebate made to occupant Rates Rebate (Retirement Village Residents) Amendment Bill Page 8 of 16

9 the occupant fills in the rates rebate application form, with the appropriate certification from the retirement village operator as to the amount of rates paid or charged, and lodges it with the council for processing; the Council assesses the application and makes the appropriate refund direct to the occupier. Implementation Issues Calculation of rates charged to retirement village residents 37. Retirement village occupants pay a weekly fee that covers outgoings, including a rates component. The level of rates paid by each resident would depend on how the retirement village apportions its rates bill for the entire village complex and grounds to each resident. This is a private business decision and arrangements may be many and varied, with differing effects on residents. 38. A method would be needed to accurately split out the rates components for rest home care/hospital facilities, land being developed, and held for future development. Such rates should not properly be attributed to occupants of existing ORA units for the purposes of calculating a rates rebate entitlement. 39. Many villages have a variety of unit types two bedroom townhouses, one or two bedroom independent apartments, one bedroom serviced apartments; studio serviced apartments. Whether rates charges are or should be varied between different types of unit would also need to be considered. Effect of fixed fees on impact of rates rebate 40. The Department understands the two largest retirement village operators, Ryman and Metlifecare (which account for approximately 33 % of the sector 2 ), both have weekly fees that are fixed for the life of the resident. Others (for example Summerset, the third largest operator) cap fee increases at the rate of increase in National Superannuation during any year, which does not necessarily equate to the increase in Council rates. 41. This weakens the link between rates charged by councils and the amount on-charged to residents. While residents clearly contribute to rates, in these cases they do not pay all the rates. For example, where fees are fixed, a resident that has been in his or her unit for 15 years will only be paying two-thirds of the rates, if rates have increased by three per cent per year over the period. 42. The combination of all these issues means that determining what rates any individual resident should be able to use as the basis for a rates rebate claim is difficult. 2 JJL New Zealand Retirement Village Database White Paper May 2015 Rates Rebate (Retirement Village Residents) Amendment Bill Page 9 of 16

10 Compliance costs 43. Implementing either of these options would result in compliance costs for retirement village operators and local authorities. 44. The Department was concerned to understand what the compliance costs might be for retirement village operators. Through the Retirement Villages Association we were able to get feedback from a small number of operators about how they would handle refunding rebates credited to the village. Operators indicated that their preferred approach would be to direct credit the rebate received in full to the claimant s bank account. They indicated their systems could handle such transactions now, but transactions would need to be manually processed by them. Their preference would be for the local authority to refund the rebate directly to the claimant. The Department wishes to thank the Retirement Villages Association for its assistance in obtaining this feedback. 45. Councils would face increased administration and transaction costs. If refunds are made direct to claimants, the current standard methodology (crediting rates account) is not available, because claimants have no rates account. Councils would have to create the claimant as a creditor within the rating process, and manually process refunds. This would introduce a level of complexity into the rebate process, with ongoing additional administration and transaction costs. 46. If village operators are responsible for refunding residents, councils can credit an existing rating account. However, councils would have still have increased transactions with retirement village operators. They would need to notify both the operator and the resident when the rebate was credited to enable the operator to correctly transfer the rebate and to provide assurance to the resident that their rebate claim had been correctly processed. Regulations would probably be required 47. The principle of ORA eligibility could be established in the Rebate Act, but it is likely regulations would be needed for implementation, to enable clear oversight that public money is being spent appropriately. Regulations may need to cover: allocation of rates - to ensure that all retirement village operators calculate and allocate rates on a transparent and consistent basis, to avoid inequities for residents between different operators. Regulations would likely need to specify what rates are to be included or excluded for the purposes of a rebate, for example exclude rates for care/hospital facilities, land being developed, or held for future development. Regulations may also need to specify how rates are to be allocated between units, where there are significant differences in the size or standards of accommodation provided in the same village. Finally, where administration fees are fixed or capped, regulations may also need to address a mechanism for determining transparently the proportion of rates actually being paid by the village resident. Rates Rebate (Retirement Village Residents) Amendment Bill Page 10 of 16

11 transfer of rates credits under scenario (a), there would be a level of risk involved if the retirement village owner/operator were to receive an occupant s rates credit and be responsible for transferring that credit to the occupant. The Council can request that this is done, but has no authority to instruct or otherwise enforce such action. Regulations may be required to confer such enforcement power. 48. The Rebate Act is a narrowly-focussed piece of legislation and does not contain a power to make regulations. The Retirement Villages Act 2003 is consumer protection legislation; its primary purpose is to protect the interests of residents and intending residents of retirement villages. To this end the Retirement Villages Act sets out residents rights, operators duties and responsibilities, provides for external oversight of retirement villages together with disputes resolution mechanisms and monitoring regimes. It is not clear that the regulation-making powers under the Retirement Villages Act would extend to regulations to enforce a rates rebate scheme. Cost to the Crown 49. The drivers of the extra cost to the Crown if the proposals are implemented are the: number of extra eligible people; level of rates each extra eligible person has to pay; household income level of each extra eligible person; and uptake of the scheme by newly-eligible people. Increase in eligibility 50. To be eligible, a person must be a retirement village resident and have an ORA for their unit. 51. The number of people in retirement villages with ORAs is estimated at 22,800 (see table below). Table 3: Estimated number of retirement village households not currently eligible for the rates rebate. Number of RVA villages Number of RVA residents 34,000 Estimated number of units ,500 % of RVA villages operating an ORA regime 80% Approx total number of ORAs 22,800 Approx number of units that are not ORAs 5,700 3 Since this data was prepared, further retirement villages have been registered. The Department has been advised by the Ministry of Business Innovation and Employment that the current number of registered retirement villages is 399. Rates Rebate (Retirement Village Residents) Amendment Bill Page 11 of 16

12 52. These estimates have been derived by the Department based on information provided by the Retirement Villages Association (which represents approximately 95% of the retirement village sector in New Zealand), and the Ministry of Business Innovation and Employment. The Department considers that it is unlikely to be able to get more accurate data. Household income data 53. To date the only information found on the incomes of residents in retirement villages is that contained in the Retirement Commissioner s 2011 monitoring survey 4. This found that up to 50% of retirement village residents have superannuation as their only source of income. No more current information is available on this issue. There is no data on the number of such residents who have ORAs, or on the household income level of residents with income from other sources. Level of rates payable 54. Data on this is contained in paragraphs 14 to 16. Further work would be desirable to refine this information, both to validate the data the Department has recorded and to ensure the representativeness of the data. What is clear is that there is a very wide range of rates charges across different villages and it appears that for many villages rates are appreciably lower than for comparable stand alone residences. Uptake of the scheme 55. It is difficult with the present scheme to know how great the uptake is. An additional question for retirement villages is whether the uptake would be proportionately greater. This could be influenced by the degree to which individual operators assisted or encouraged eligible residents to apply. Cost estimate 56. Taking the above factors into account, the Department considers a very high level estimate suggesting a possible annual cost range of between $3.0 million and $5.0 million. 57. This compares with actual expenditure of $49.54 million under the scheme in 2015/6, of which approximately $36 million was to superannuitants. 4 Retirement Commission. Retirement Villages Act Monitoring Project Residents Perspectives. (2011) Rates Rebate (Retirement Village Residents) Amendment Bill Page 12 of 16

13 Conclusion 58. Extending access to the rates rebate scheme to retirement village residents is more complex than might appear at first sight. The Department s view is that rather than just addressing this one issue, if work is to be done in this area, a more comprehensive review of all aspects of the Rebate Act would be preferable. However, even if future work were limited to the eligibility of retirement village residents for a rebate, a thorough consultation process with stakeholders prior to commencing law drafting would be desirable to achieve a good outcome for all parties. Recommendation 59. The Department recommends that the Bill is not progressed further. Additional information and research is required to fully understand the nature and scale of the problem that the Bill is aiming to address, and to scope out potential solutions and implications. Rates Rebate (Retirement Village Residents) Amendment Bill Page 13 of 16

14 Appendix A: Rates Rebate Scheme The Rates Rebate Act 1973 established the Rates Rebate Scheme to provide a subsidy to low-income homeowners on the cost of their rates. Rebate entitlements are calculated on the basis of income thresholds (which are adjusted on the basis of the number of dependents) specified in the Rebate Act and the total rates bill. The current income abatement threshold for the 2017/18 rating year is $24,790; the maximum rebate for that year is $620. Individual rates rebates applications are processed by territorial authorities. The amount of rates owing on the ratepayer s account is adjusted accordingly by the territorial authority. However there is provision for ratepayers to pay their rates in full and apply for a refund of any rebate entitlement. Central government reimburses the territorial authority. The Department of Internal Affairs manages the Rates Rebate Scheme through Vote Internal Affairs. The appropriation for 2017/18 is $57.5 million. Rates Rebate (Retirement Village Residents) Amendment Bill Page 14 of 16

15 Appendix B: Occupation Right Agreements The Retirement Villages Act 2003 is administered by the Ministry of Business Innovation and Employment. Residents purchase a right to occupy, or an occupation right agreement. The purchase is based on the payment of a capital sum and is a form of tenancy. A capital sum can be a one-off lump-sum payment, but can also mean periodical payments, if the payments are substantially more than would be paid to cover rent for such services or facilities. Occupation Right Agreements An Occupation Right Agreement is defined in the Retirement Villages Act 2003 as: any written agreement or other document or combination of documents that (a) (b) confers on any person the right to occupy a residential unit within a retirement village; and specifies any terms or conditions to which that right is subject. Occupation Right Agreements in relation to retirement village properties do not have any standing under the Land Transfer Act. Rates Rebate (Retirement Village Residents) Amendment Bill Page 15 of 16

16 Appendix C: Examples of Rates Rebate eligibility The following examples are for the 2016/17 rating year. Example 1 A couple where both partners qualify for New Zealand Superannuation (estimated income of $34,916 in 2015/16), and received no other income in 2015/16, would be eligible for a rebate as shown below: Level of rates per annum Estimated rebate per annum $1,900 $0 $2,150 $21 $2,400 $187 $2,650 $354 $2,900 $521 $3,050 $610 (maximum) N.B. These figures correct figures supplied to the Committee in the Department s report dated 7 February Example 2 A single person receiving New Zealand Superannuation, living alone (estimated income of $23,058), and who received no other income in 2015/16, would be eligible for a rebate as shown below: Level of rates per annum Estimated rebate per annum $600 $293 $800 $426 $1,000 $560 $1,100 $610 (maximum) Rates Rebate (Retirement Village Residents) Amendment Bill Page 16 of 16