The Strata Manger's Role in Owners Corporation Finances

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Information about The Strata Manger's Role in Owners Corporation Finances

Published on March 5, 2014

Author: teyslawyers



strata act, strata mediation, body corporate fees, owners corporation fees, levy recovery, levy collection, strata title, building and construction law, strata negotiation, mediation strata, company title law, strata law, strata lawyers, building defects, by-laws, bylaws, litigation, strata, nsw strata law, victorian strata law, ACT strata law, company title

The Strata Manager’s Role in Owners Corporation Finances © Copyright 2012 Teys Lawyers

Nobody likes surprises? © Copyright 2012 Teys Lawyers

A Building Somewhere • 15 res apartments • Part of a mixed use stratum (separate OC’s) • Balance commercial and retail lots • Onsite management • Res OC levies $1,550 per quarter • 4 years old © Copyright 2012 Teys Lawyers

Are the Savings in Line With the Plan? Year Plan Reality 2007 - - 2008 - $ 20 000 2009 - $ 30 000 2010 $ 44 572 $ 26 000 2011 $47 742 - Balance end 2010 $87 358 $ 61 249 © Copyright 2012 Teys Lawyers Compliance (under 41.6%) ( short $ 26,107) ( 29.8 %)

Are Defects Covered by the Budget? • Reasonable steps • Best endeavors • Reasonable care … All fail the test of strict liability for repair and maintenance of common property in NSW; Seiwa’s case. © Copyright 2012 Teys Lawyers

Are the Levies Too Low? Deficits Neglect Crisis © Copyright 2012 Teys Lawyers • Administration fund goes into deficit • Sinking fund not expended “just in time” • Sinking fund balance short of plan

Is the Administrative Fund Budget Correct? • Provision for bad debts and recovery costs? • Watch for rampant increases for electricity and insurance • Look for a small surplus each year of about 10% of income © Copyright 2012 Teys Lawyers

Is the Sinking Fund Budget Realistic? • Following the sinking fund plan + / - 10%? • Spending according to the plan? • Saving according to the plan? • Not having a plan is negligence • Not following the plan is negligence © Copyright 2012 Teys Lawyers

Are Levy Arrears Within Benchmark? $ Levies > 90 days Annual admin budget No. months YTD / 12 © Copyright 2012 Teys Lawyers

What the Arrears Rate Means? Delinquency performance ratio Performance Guide 0% This mob are all over those levies! But don’t assume this rate will last for ever – hard times hit owners 5% Not bad – this is the average – this is a well run OC within striking distance of out-performing the industry 10% Warning bells – this is too high and the committee should be asking hard questions about the strata manager’s recovery processes (or lack thereof) 15% + © Copyright 2012 Teys Lawyers This building is in strife – this will involve some serious committee attention to pull back from here if you get on the committee you will have to collect debts and re-educate your owners immediately

Developers’ Hate Paying Levies • Strata managers can be soft on developers • Serious arrears puts financial pressure on the remaining owners • Consider winding up proceedings that will come to the attention of the developer’s bank © Copyright 2012 Teys Lawyers

Signs of Good Levy Management 1. Measurement of delinquencies 2. Written levy collection policy in place 3. Policy followed consistently 4. Interest charged on outstanding levies 5. Discount offered for early payment © Copyright 2012 Teys Lawyers

Are There Hidden Tax Liabilities? • Income tax ruling 2505 • Strata entities are treated as ‘public companies’ • Taxed at corporate rate of 30% • Taxed as a ‘for profit’ company NOT • Principal of mutuality applies © Copyright 2012 Teys Lawyers

Tax is Not Assessable on Mutual Income • ‘One cannot make a profit out of oneself’ • Where there are identical contributors and participants in surplus, there is not assessable income • Can apply to strata entities © Copyright 2012 Teys Lawyers

What Is Mutual Income? • Administrative fund, sinking fund and special levies • Rent by a lot owner for common property • Interest for late paid levies © Copyright 2012 Teys Lawyers

Examples of Non-Mutual Income ie Assessable • Interest from a bank • Access fees from non owners eg occupants • Rental income from external parties • Profit on the sale of assets to external parties • Fees paid on the transfer of management rights where the rights are held separately to the manager’s lot © Copyright 2012 Teys Lawyers

Have the Expenses Been Apportioned? Non-mutual income Total income © Copyright 2012 Teys Lawyers Apportionable expenditure

Mobile Phone Carrier Installation • Licence fees paid by external party • Strata scheme registered in NSW • Common property held as agent • Income assessable in the hands of the individual owners – not assessable to strata entity © Copyright 2012 Teys Lawyers

Development and Sale of Common Property • Common property developed to produce new penthouse lots in NSW • Common property is vested in the strata entity as agent for individual owners • CGT provisions should apply to individual unit holders • Income assessable to individual unit holders © Copyright 2012 Teys Lawyers

Selling Solar Generated Electricity to Defray Levies • Generates assessable income • Associated costs are deductible expenses • Individuals pay tax not the strata entity if Acquired by OC because common property is held as agent for owners (ATO private ruling 1011739693623 – May 2011) • Assessable to owners corporation rather than individuals if equipment acquired on trust (ATO private ruling 1011830631407 - June 2011) • No GST © Copyright 2012 Teys Lawyers

About the Presenter About the webinar presenter - Michael Teys is the Founder and Principal Lawyer of TEYS Lawyers. He has a Bachelor of Laws and practices exclusively in the area of strata title law. He is a Fellow of the Australian College of Community Association Lawyers. He was formerly an Adjunct Lecturer with Charles Sturt University. He appears weekly on SKY News Business Channel's Property Success with Margaret Lomas and is a regular panellist for the property edition of Your Money, Your Call for the same channel. You can read Michael’s blog at and follow him on Twitter at Teys Lawyers practice nationally in strata title law representing owners corporations, bodies corporate and apartment owners. The firm’s practice groups include building defects, strata community disputes, strata titles property law, by-laws and levy collection. Subscribe for their free e-newsletter StrataSpace and find out more about them at © Copyright 2012 Teys Lawyers

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