Interest Calculation in South Australia's Local Government Rates

When it comes to local government rates, interest calculation can vary significantly between different regions. In South Australia, the approach to handling interest on overdue rates is somewhat unique compared to the more standard daily calculation method seen elsewhere. Let's explore how interest is applied in South Australia and the legislative nuances behind it.

The South Australian Approach: Monthly Interest Application

In South Australia, legislation dictates that interest on overdue rates is applied in bulk for the previous month rather than being calculated daily. According to the South Australian Local Government Act, specifically section 181.8.C:

"On the expiration of each full month from that (instalment due) date, interest at the prescribed percentage of the amount in arrears (including the amount of any previous unpaid fine and including interest from any previous month) accrues."

To break this down, if a property has an outstanding rates of $1000 in any given month, let's say September, the interest for that month cannot be applied until the following "full" month. This means that interest for the month of September will be applied at the beginning of November, after a complete calendar month, October, has passed.

The Standard Approach: Daily Interest Calculation

Contrastingly, the more standard approach to interest calculation is on a daily basis. Under this method, interest is applied to all outstanding debt daily, which can be more straightforward but requires precise daily calculations. While some systems might not implement this daily calculation correctly, CouncilWise ensures accurate daily interest application where legislated.

Legislative Interpretation Challenges

The phrasing of the legislation can lead to different interpretations. For instance, if a rate instalment is due on the 3rd of September and remains unpaid, some might interpret that interest should start accruing from the 3rd of October, as one full month has passed. However, since the Act refers to "each full month," it can be argued that a full calendar month has not passed until the end of October, meaning interest would start accruing from November.

Fines and Payment Prioritization

In South Australia, failing to pay rates on time also legislatively incurs fines. And while fines (sometimes referred to as penalties) are not unique to SA they are less often applied to things such as outstanding debts. However, as all legislation states there is a specific order in which payments are to be applied, and while this order is somewhat common across jurisdictions it can be a source of confusion for ratepayers.
If we look at section 183 of the Local Government Act, it states:

"If a council receives or recovers an amount in respect of rates, the amount will be applied as follows:

1. firstly—in payment of any costs awarded to, or recoverable by, the council in any court proceedings undertaken by the council for the recovery of the rates;
2. secondly—in satisfaction of any liability for interest;
3. thirdly—in payment of any fine;
4. fourthly—in satisfaction of liabilities for rates in the order in which those liabilities arose."

This order means that payments must first cover any legal costs, then interest, followed by fines, and finally the rates themselves. This can be frustrating for ratepayers who wish to allocate their payments directly to their outstanding rates, as councils are legally obligated to follow this sequence.

So what does this have to do with software?

I've all too often heard about ratepayer X who insists that they only wish to pay for the rates as they are contesting the interest or fine on their property. We then tell our customers "While this is possible to do, it does go against your legislation, so the software will allow you to do it but will warn you a lot as it's trying to force you to follow legislation. We suggest you go back to your ratepayer and let them know about the legislation or if you want to go ahead this is how you do what you're after"

Now do we expect our users & their ratepayers to know the legislation in and out, no, of course not. However, with a vast lack of formal government qualifications, we do try our best to know the legislation as best as we can, and not only point our users in the right direction if we feel they may not know of their obligations but most importantly to have the software know the legislation.

So when our system applies a payment it will automatically break down the payment across all outstanding debts correctly following the legislation of the council at hand.
It turns out that computers are good at flowing instructions, so we try our best to handle your legislative requirements automatically.

Conclusion

South Australia's method of interest calculation and payment prioritization underlines the complexities and regional differences in local government legislation. Over the coming months, we will explore unique legislative aspects around Australia in more detail, highlighting how various regions handle similar issues differently. Understanding these nuances can provide valuable insights for both ratepayers and professionals in the local government sector.

Stay tuned for more insights into the intriguing world of local government legislation!