Are council rates paid in advance or arrears?

Quick answer: Victorian council rates are levied for the coming financial year (1 July – 30 June). In other words, they are raised in advance, even though most households choose to pay them off through quarterly instalments. If those instalments fall overdue, the balance becomes "in arrears" and attracts penalty interest. That distinction between the legal position and the practical payment rhythm sits at the heart of many settlement adjustments and budget headaches for Melbourne property owners.

Below we unpack exactly how the system works, why it matters at settlement, and what to do if you inherit or create a rates debt.

The fundamentals: how council rates work in Victoria

Rates are a property tax collected by Victoria's 79 local councils to fund roads, rubbish collection, libraries, parks, maternal-and-child health services, and a host of community programmes.
Every February the Victorian Minister for Local Government sets a rate-capping limit (2.75 % for 2024-25) that restricts each council's total rate revenue growth.
Councils then strike a rate in the dollar against each property's capital-improved value and issue annual notices covering the next financial year, 1 July to 30 June.
Most Greater Melbourne councils mail or email these notices in August.

Key takeaway: The liability relates to the year ahead. From the council's perspective, your entire 12-month charge is technically due the moment the notice issues.

Understanding "advance" versus "arrears"

Advance means a charge is raised before the service period is fully enjoyed. That is exactly what happens with rates: the amount on your notice represents the cost of the upcoming fiscal year. By contrast, arrears describes amounts that should already have been paid but have not.

If you pay nothing by the first instalment date (30 September for 2024-25), the whole amount is still considered levied in advance, but the portion now past its due date sits in arrears and begins accruing 10 % penalty interest under s 172(2)(a) of the Local Government Act 1989.

Your payment rhythms: annual or quarterly

Single lump-sum: Pay the full year by mid-February to avoid any further notices.

2024-25 due date: 15 Feb 2025

Quarterly instalments: Automatic schedule once you pay the first instalment by 30 Sept.

2024-25 due dates: 30 Sept 2024 | 30 Nov 2024 | 28 Feb 2025 | 31 May 2025

*Dates vary slightly between councils, but the above is the statewide framework adopted by Mansfield, Greater Dandenong and most metropolitan shires.

Tip: Put the instalment dates in your phone calendar the moment the notice arrives to dodge penalty charges.

Why the timing matters at property settlement

Because rates run 1 July–30 June but houses can settle on any date, conveyancers adjust the figures so that each party pays only for the days they own the property.

Example (simplified):

Settlement: 31 October 2025 (123 days into the rating year)
Annual rates invoice: $2,000 (already issued)
Vendor's share: 123 / 365 × $2,000 = $674.52
Purchaser's share: $1,325.48, usually credited in the adjustment sheet

Even if the vendor has not physically paid the bill, the adjustment occurs as if the full year was paid in advance.

This system protects buyers from inheriting someone else's debt while ensuring councils still receive their money.

What if rates are already in arrears?

Arrears appear on the rates notice as a separate line, complete with accumulated interest. Councils will not approve a land information certificate for settlement unless all arrears and interest are cleared. Your conveyancer therefore withholds that sum from the vendor's balance and pays it at or immediately after settlement.

Left unattended, arrears can trigger:

Further interest at the penalty rate (10 % for 2025).
Debt collection fees or legal action.
Ultimately, a council charge over the property.

Concessions and instalment flexibility

Pensioners, veterans and low-income earners may be entitled to rebates of up to $253.20 on their general rates in 2025. Many councils also offer:

Fortnightly or monthly direct-debit plans.
Deferrals for ratepayers experiencing hardship.
Early-payment discounts (rare but worth asking about).

Always contact your council's revenue team before missing a due date arranging a payment plan is cheaper than letting arrears snowball.

Budgeting tips for Melbourne households

Use instalments even if you can pay in full. Keeping the money in an offset or redraw account between instalments can shave interest off your mortgage.
Sync rates with rent. Investors often align instalment due dates with incoming rent cycles to keep cash flow neutral.
Create a "property fund". Set aside 8–10 % of your gross rent or 1 % of your home's value annually for rates, water, insurance and maintenance.
Re-estimate after a revaluation. Capital improved values move every year, so revisit your budget each August.

Frequently asked questions

Do I have to pay the whole year if I sell mid-year? No. Your conveyancer will debit only your portion up to settlement. The purchaser covers the remainder, but the adjustment assumes the bill was paid in advance.

Can I get a refund if I move councils part-way through the year? When you buy elsewhere you begin paying that council's rates too, but you are credited via the settlement adjustment on your sale, so you are not out of pocket twice.

What happens if I ignore a rates notice? Your council will send reminder letters, then debt collectors, then apply a court order if necessary. Unlike private debts, unpaid rates legally "run with the land", so they must be cleared before any sale.

Key takeaways

Rates are raised up front for the next financial year.
You can pay in one hit by February or via four instalments.
Amounts unpaid after a due date fall into arrears and accrue interest.
At settlement the figures are pro-rated between vendor and buyer.
Stay on top of due dates and speak to council early if you hit hardship.

Need help working it all out?

Understanding the advance nature of council rates is crucial when buying or selling property in Melbourne. A miscalculation can cost hundreds or even delay settlement.

Pearson Chambers Conveyancing specialises in accurate adjustment sheets and can demystify any rates issues before you sign a contract. For expert advice and a free Section 32 contract review, get in touch today:

Phone: 03 9969 2405 Email: contact@pearsonchambers.com.au

Call now and settle with confidence.