The Supreme Court has recently considered the question of whether a contribution required to be paid under a condition of planning approval is a tax or a financial impost. The relevance of this question is that subject to limited exceptions, a local government does not have the power to impose taxation and a tax sought to be imposed by a local government may be unlawful.
The plaintiff in Carbone Bros Pty Ltd v Shire of Harvey [2014] WASC 284 had obtained a number of planning approvals associated with its extractive industry operations. These planning approvals all contained conditions that required the plaintiff to pay to the Council a specified levy on every cubic metre of material that it extracted. The conditions specified that the levy had been imposed for the purpose of the Council maintaining the roads used by the plaintiff in the course of its operations.
The plaintiff applied to the Supreme Court, arguing that because the Council had sought to calculate the contribution by reference to the amount of material actually extracted, the contribution amounted to being a tax. The plaintiff argued that if the contribution is a tax, then the condition of planning approval requiring the contribution is unlawful, as a local government does not ordinarily have the power to impose taxation.
The Supreme Court in this case rejected the argument that the contribution required by the Council was a tax. The Supreme Court found that the contribution was not imposed simply for the purpose of the Council increasing its revenue, but was imposed by the Council to ensure that roads used by the plaintiff in the course of its operations would be maintained. The Supreme Court commented that there was an obvious connection between the levy and the activities of the plaintiff and that the condition of planning approval should therefore stand.
Although the Supreme Court in this case held that the particular contribution was not in the nature of a tax, it is conceivable that other developer contributions required by conditions of planning approval could be in the nature of taxes and therefore subject to challenge. This may be the case, for example, where a contribution amount required to be paid by a condition of planning approval is applied to an expense that is not related to the development in question or is not applied to any expense incurred by the Council at all.
On this note, if a contribution required by a condition of planning approval is in the nature of a tax, then it is likely that the condition would also be susceptible to legal challenge on the basis of having an insufficient “nexus” with the underlying development.
If a condition of planning approval requires a monetary payment to be made to the Council, the condition should be diligently reviewed by the developer to ensure that the contribution is reasonably attributable to the costs likely to be incurred by the Council as a result of the development being undertaken. If this is not the case, the developer should consider the merits of challenging the condition in question.
If you have any questions about the lawfulness of conditions of planning approval, please contact the Lavan Legal Planning, Environment and Land Compensation Team.