The Australian Taxation Office requires that an owners (strata) corporation to:

• have a tax file number
• get an Australian Business Number (ABN) 
• register for GST (If the owners corporation’s income (including fees) exceeds $75,000 in a year, it must register for GST. If the total income is less than $75,000, the Owners corporation may opt to register for GST

Income Tax Implications

 

The Australian Taxation Office (AT0) may mandate an Owners corporation to obtain following:

• Apply for a tax file number if it earns one dollar or more of assessable income.
• An Australian Business Number (ABN)
• Register for GST
• Lodge its annual income tax return end of every financial year ending 30th of June
• Not having tax-free threshold – treated or taxed at the company tax rate of 30%

 

Because Owners corporations are being treated as public companies for tax purposes, even if it includes non-profit clauses in its by-laws.

Technically speaking, the Owners corporation must lodge a tax return for any year in which it receives assessable (non-mutual) income which may include:

• income from leasing common property
• interest from investments
• fees for issuing owners corporations certificates 
• Issuing copies of the register and records
• sale or rentals of common property or even personal property
• Any fees received fore for servicing lots.

 

Tax obligation:

• If an Owners corporation earns income from common property, it must report this income to each lot owner of their portion of the assessable income by 14 July. 
• Each lot owner would then be obligated to include this amount in lot owners’ personal tax returns.
• If an Owners corporation has no assessable income to be disclosed for any particular year, it must disclose this to ATO

 

What is mutual income 

Levies that form part of a fund used for day-to-day expenses, general administration or maintenance and repair of the common property are considered mutual income and are not assessable in the eyes of the ATO. 

On the contrary, any income derived through personal property held by the Owners corporation such as interest or dividends through the investment of funds is generally assessable income.

 

How is common property treated for tax purposes?

Income from common property (not limited to)

• Leasing roof space designated as common property to a telecommunications company to house a mobile phone tower in return for an income
• An area designated as common property may be leased out to be used as a commercial premises, e.g., restaurants or shops etc. 
• Leasing out the exterior wall of a building as an advertising space.

The ATO has recently implemented Taxation Ruling TR 2015/3 “Income tax: matters relating to bodies corporate constituted under strata title legislation”(“the Ruling”).

As of now, lot owners can make tax returns and claim deductions on the basis that they have the legal and beneficial ownership of the common property.

• income from common property is assessable in each owner’s hands, according to their individual lot entitlements
• it is not assessable income of the Owners corporation and
• each lot owner (and not the Owners corporation) can claim deductions relating to the common property, even though, the common property is used for an income-producing purpose.
• Accordingly, strata managers should prepare end-of-financial-year statements for each lot owner which shows the owner’s proportions of income from common property and associated deductions. 
• Then, each lot owner has the onus to include those amounts in their annual tax return

GST Implications 

Interesting enough, the Owners corporation is conducting it’s affairs as an enterprise, it must register for GST if:

• it is considered to be a non-profit body and its turnover is more than $150,000, including levies on unit owners. An Owners corporation may be considered to be a non-profit body, if there’s no intention to distribute interest income or profits from rental or other activities to the members.
• it is not considered to be a non-profit body and its turnover is more than $75,000 including levies on unit owners.

If an owners’ corporation is registered for GST:

• the fees or levies it charges members will include GST for all ongoing maintenance or administration costs. 
• It can also claim GST credits on purchases made relating to maintaining and administering the property held in common including electricity, landscaping/cleaning, admin/management and all other repair and maintenance activities.
• Owners of commercial units registered for GST may be entitled to an input tax credit if the unit is used for the business.

Disclaimer:
The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. 

You and your Owners corporation should get professional advice about its taxation and GST obligations. For more information about the taxation matters below, contact the Australian Taxation Office (ATO).