The Owners Corporation is the legal entity that holds the legal ownership of common property as well as any bank accounts that the OC may operate.
Owners Corporations in the course of owning common property and maintaining bank accounts may encounter ATO tax implications. So Committees, Owners Corporations, and OC Managers should be across the question – Is an Owners Corporation obligated to file a tax return?
The ATO classifies Owners Corporations ‘non-profit’ entities and the formula to calculate taxable remains the same as any other entity type:
Understanding the Tax Obligations of Owners Corporations
There are certain types of financial activities of Owners Corporations that may trigger tax obligations, these include:
- Interest income including interest earnt from term deposits
- Investment income
- Common property transactions i.e. the sale or leasing of common property to café/restaurant for outdoor seating
- Income from insurance rebates
- Rental income from leasing of common area to telecommunications provider
Activities that an owners corporation undertakes such as earning interest and engaging in other financial transactions are likely subject to taxation whilst collecting levies is not.
Exemptions and Thresholds
Committees and OC Managers should also be aware that the Australian Tax Office (ATO) does also provide for certain exemptions and thresholds that may apply to Owners Corporations.
Potentially some Owners Corporations may meet the criteria and conditions to exempt them from the hassle and cost of lodging an annual tax return to the ATO.
The following ATO tax exemptions may be applicable to your Owners Corporation:
- Special Exemptions for Mutual Income – owners corporation fees and levies classified may be exempt . Generally levy contributions received by the Owners Corporations from lot owners are used to operate the building and can be considered as ‘mutual income’.
- Annual Income Threshold – annual incomes below a certain thresholds may meet ATO exemptions from reporting obligations and tax requirements.
- Low or No Assessable Income – the ATO when it comes to Owners Corporation is no different in that their concern relates to ‘Assessable Income’. Owners Corporations with low or no assessable income and meeting certain criteria may also be exempt for that taxation year.
[In the 2021-22 income year, the threshold to lodge a tax return for ‘non-profit’ entities was for taxable income greater then $416]
- Exemptions for Specific Revenue Streams – contributions and levies collected in relation to the Owners Corporation’s maintenance fund may exempt from taxation obligations. Additionally, if the Owners Corporation leases or licenses common area for a peppercorn lease amount to an owner for their private enjoyment then exemptions may also apply.
Committees should always check with their Owners Corporation Manager and tax professionals in navigating the intricacies of tax regulations.
Steps for Compliance and Best Practices
Owners Corporations should ensure compliance with tax regulations by:
- Understanding the legislation including all applicable tax legislation and ATO rulings
- Maintaining proper systems and records
- Maintaining sound accounting and reporting software and process
- Timely preparation and lodgment of tax returns
- Timely payment of any tax obligations to the ATO.
- Seeking professional advice from accountants or tax experts to navigate any complexities related to Owners Corporation taxation.
Additionally with regards to OC records, Section 144 of the Owners Corporation Act 2006 stipulates that the Owners Corporation (and Owners Corporation Manager) must maintain proper and adequate records:
Owners Corporations in Victoria have certainly become a lot more complex in the preceding decades. With the larger buildings being built, more complex multi-OC set-ups, and more facilities and amenities – one thing is clear there has never been more legislation that impacts the operation of Owners Corporation. This is also true when it comes to Owners Corporation and tax obligations.
Whilst many smaller and often older apartment blocks might get away with being ‘self-managed’, the majority of Owners Corporation need to have professional management. Professional OC management companies who are established operators know tax legislation better and have a better network of specialised tax accountants.
We know better than most that the OC industry in Victoria and whether it’s addressing tax obligations or anything else – our view is that it start with good, professional OC management.