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Auckland bed tax declared invalid

Auckland bed tax declared invalid

Auckland bed tax declared invalid

Tuesday 21 December, 2021

What seemed like a good idea when Auckland council-controlled organisation, ATEED, needed funds to assist with its expenditure on visitor attractions and major events has been found by the Court of Appeal to be an invalid imposition of a targeted rate. 

Grounds of appeal 

Before COVID-19 turned many Auckland hotels into MIQ facilities tourism was booming, and since Auckland Council did not have power to target visitors directly through a bed tax or visitor levy it decided to do so indirectly through an Accommodation Provider Targeted Rate (“APTR”). Unsurprisingly the scheme was suspended in 2020 with the arrival of COVID-19, but it applied to 236 commercial accommodation sites in the 2017/2018 rating year and was extended to include informal providers on platforms such as Airbnb in the 2018/2019 rating year. A group of those providers applied first to the High Court challenging the imposition of the APTR claiming Council did not properly assess the mandatory relevant considerations in section 101(3) of the Local Government Act 2002 (“LGA”) when deciding to make the rate.  When the High Court found against them the matter went on appeal to the Court of Appeal (“the Court”): CP Group Ltd v Auckland Council [2021] NZCA 587

It was asserted that Council failed to assess the benefit of the funding with any rigour because it was assumed that the cost would be passed onto guests, notwithstanding that four other categories of ratepayers benefit from ATEED’s activity to a significantly greater extent than the targeted group. The appellants also argued the Council’s decision was unreasonable, since it targeted a small group to fund an activity that principally benefited others and failed to treat like cases alike leading to an unreasonable outcome for the targeted group. However, the High Court rejected all aspects of the appellants’ claims finding the Council could not have done more to comply with its obligations under section 101(3) LGA.

Basis of rate 

On appeal the Court of Appeal determined that the remit of ATEED is broad and intended to benefit all Aucklanders. In accordance with this, the 2015 – 2025 long-term plan identified ATEED’s funding to be sourced primarily from general ratepayers. In the 2017/2018 year, ATEED received total funding of approximately $51 million that year with $13.45 million intended to be raised by the APTR. The Court noted that though this amount was not particularly material to Council, the monetary impact on the small group of targeted ratepayers was indisputably significant unless the assumption that the cost could be passed on to visitors was correct. 

However, the submissions made to Council before it determined to make the targeted rate suggested that assumption was not correct for a variety of reason. 

Notwithstanding these submissions the staff report presented to Council assessing the section 101(3) considerations in relation to the proposed APTR continued to assert that commercial accommodation providers derived direct benefit from the expenditure and could decide whether to absorb the increased cost or pass it on to their customers. Even so, based on its considerations of submissions for the 2017/2018 rating year, the Council set the targeted rate at 50% rather than 100% of ATEED’s budgeted expenditure on visitor attraction and major events; applied the rate on a differential basis to three tiers and three geographical zones; and introduced a rates remission scheme to cater for special cases.  

The following year the Council adopted the APTR with further amendments after an updated assessment against the statutory criteria in s 101(3) LGA that noted the extension of the scheme to online accommodation providers to address the benefits they received from the ATEED activity. Beyond this, the report simply accepted that while all accommodation providers received an immediate direct benefit “other businesses also benefit, as does the wider community.” 

Court of Appeal Assessment 

In considering the appellants’ claim alleging non-compliance with section 101(3) LGA the Court noted that it lists mandatory relevant considerations that local authorities must take account of in relation to each activity to be funded. While the Local Government (Rating) Act 2002 (“LGRA”) provides flexible powers to set rates, rating decisions must be made in a transparent and consultative manner. The Court concluded that Council intended throughout to create a new source of revenue and thereby free up ratepayer funds for other activities, and in the absence of any power to impose a visitor levy or bed tax it decided to achieve a comparable outcome by a targeted rate. Consequently, the Court concluded: 

  • the assumption that the cost could be passed onto visitors was central to the design of the scheme. 
  • because the true target was the visitor, not Auckland ratepayers, the APTR was not formulated based on the statutory criteria..  
  • the assumption that the cost could be passed onto visitors (irrespective of whether it held true) was not a relevant consideration in setting a targeted rate in accordance with the Act and corrupted the analysis.  

While the High Court considered it enough for Council to conclude “there was a connection between ATEED’s spending and a future, albeit incalculable, benefit to the commercial accommodation sector”, the Court of Appeal did not agree. In circumstances where only 0.5% of ratepayers were being required to pay by way of the APTR half of the expenditure of an activity intended to benefit the whole of the Auckland community, it was not enough simply to show a connection between the spending and the benefit to the target group. 

“Taking account of the significance of the decision for the targeted group, there needed to be a meaningful assessment, even if necessarily broad and imprecise, of that benefit to the targeted group in comparison with others.” 


The Court found that Council’s failure to adequately consider neither the benefit of the funded activity to the targeted group, nor the distribution of the benefits across the community, was an error of law that rendered the relevant rating decisions in both years invalid. 

Although the case was effectively determined by the above finding, the Court also considered and dismissed the appellants’ claim that the matters set out in section 101(3)(v) LGA concerning the costs and benefits of funding the activity distinctly from other activities had not been properly addressed. On the question of reasonableness, which the Court also found it unnecessary to determine, the Court said: 

”To the extent that visitor spend can be equated to benefit (Council’s working assumption), we consider it was unreasonable to target a very small group that receives 10 per cent or less of this supposed benefit and exclude all other groups, despite them receiving a far greater share of that benefit. Had it been necessary for us to determine this ground, we would have concluded that a finding of unreasonableness was inevitable given the combination of (1) the failure to consider adequately the distribution of benefits and (2) the imposition of such a disproportionate burden on the targeted group. 

The Court allowed the appeal making declarations that the decisions to impose the APTR in the 2017/2018 and 2018/2019 rating years were invalid and set aside those decisions. 


While targeted rates allow a wide range of options to local authorities in search of funding for specific activities, they are not without limits and careful attention needs to be applied to the considerations set out in section 101(3) LGA.

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