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QLD: Q&A Body Corporate Financials, Audits and Tax

The LookUpStrata Team
body corporate financials

This Q&A is about the body corporate financials including audits and how to account for tax.

Table of Contents:

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Question: Can the body corporate cancel our ABN and not do any further tax returns?

Answer: It is a requirement that a CTS has an ABN.

A body corporate or CTS is taxed as a public company using the common law principle of mutuality. Companies do not get a tax free threshold. If a CTS derives $1.00 of non-mutual income, an income tax return has to be prepared and lodged.

If a CTS has no non-mutual income, it is still prudent to advise the ATO that an income tax return is not required. If this is not done, often a couple of years later, the ATO will demand a return is lodged. If this is not done within 30 days, the ATO imposes a fine of $900 for failing to lodge. It is impossible to determine if a CTS will derive assessable non-mutual income in future years. Once issued, it is not possible to cancel a Tax File Number.

To avoid failure to lodge penalties in the future, we recommend the body corporate lodge a client update over the ATO’s Business Portal, advising that a return is not required for a particular year.

If an entity is carrying on an enterprise, as defined in the A New Tax System (GST) Act 1999, it is required to have an ABN. If you invoice another business and cannot quote an ABN, the other business is required by law to withhold 46% and remit this to the ATO. It is a requirement that a CTS has an ABN.

Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660

This post appears in the September 2024 edition of The QLD Strata Magazine.

Question: A majority voted to produce general-purpose financial statements in 2024 at the recent AGM. A majority of the committee disagreed and proposed to call an EGM to revoke it. Are they allowed to do this in an attempt to overturn the AGM’s democratic decision?

A majority voted to produce general-purpose financial statements in 2024 at the recent AGM. Arguments for and against were aired with lot owners before the AGM.

Most of the committee disagreed and proposed to call an EGM to revoke it. They continue to claim lot owners were misled, which is the same argument they used before the AGM, and that they should have been informed of any indirect costs other than the accountant’s, such as a new asset valuation, to prepare the financial statements. The most recent valuation has insufficient details.

The valuation would be used to compile an asset management plan, assess the adequacy of the sinking fund, improve financial forecasting and budgeting, and provide input for the financial statements. The valuation is not a direct cost of preparing the financial statements, and it will provide multiple benefits for a relatively small cost that is well within the committee’s spending limit.

They have already incurred costs for other projects since the AGM, which were much higher than this, were not disclosed in the AGM agenda and have not been disclosed to lot owners since.

Are they allowed to do this in an attempt to overturn the AGM’s democratic decision?

Answer: The committee is obliged to follow through with the legal decisions made.

That’s an unusual set-up.

In terms of the basic question of whether the committee can unilaterally overturn the decisions of the body corporate made at the AGM, the answer is no. The committee is obliged to follow through with the legal decisions made.

In this case, they have said they want to call an EGM, at which the decision could be reviewed.

That’s OK. If owners choose to reverse the decision, so be it. I’m not sure how such decisions fit with the timeline, but it sounds like there is a complicated set up here. A reasonable meeting focused on this one issue where both sides were presented may be a good thing for the scheme.

Generally, though, it is hard to understand what is happening here. Body corporate accounts don’t usually include assets, although the anticipated costs of the maintenance and upkeep are factored into the sinking fund plan and should, therefore, be in the sinking fund budget. The scheme doesn’t sound any different to any others in this respect.

If you have a body corporate manager, what advice are they providing? From the outside, I think the situation seems fairly resolvable.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in Strata News #692.

Question: A group of owners are collecting bottles to raise gardening money. It is not a committee organised activity. Should the money in and out be shown in committee records? Should the committee be involved?

A group of owners do most of the gardening in our scheme. They’ve dedicated a bin to collect bottles, cans etc for Containers for Change. They are raising money for gardening. A simple accounting system has been set up to show money in and out and keep receipts.

Two of these owners are committee members, however, this is not a committee organised activity. Should the money in and out be shown in committee records and be part of the audit process? Are there any legal ramifications we should be aware of?

Answer: Adjudicators tend to take a very dim view of the use (or receipt) of body corporate funds that are not correctly authorised and approved.

Your query is a good one: it highlights how, in strata, legislation coincides – sometimes, not very comfortably – with practicality and good intentions.

The general rule of thumb here is that body corporate funds must only be spent on body corporate business and that if income is derived from a body corporate source – such as common property or a body corporate asset – then that income must also be documented in the body corporate accounts. A body corporate also cannot conduct a ‘business’.

Does your scenario fit within these generalities? Quite possibly, it does: if a common property bin is being used, from common property, even though it might sound overly officious or technical, that really does need formal documentation and approval. Whether the committee can approve this or not is another matter: there is an argument they should not be. And there is a further argument that the use of common property to derive an income would need general meeting approval.

This is, in short, a grey area not specifically covered under legislation. However, I do know from experience that adjudicators tend to take a very dim view of the use (or receipt) of body corporate funds that are not properly authorised and approved (or utilised). Things can also be approved in retrospect. Really though, if this matter is looking like a concern for the committee, you or other owners should seek qualified legal advice. I realise that sounds drastic and costly – sometimes, though, ‘drastic and costly’ are the outcomes of legislative ambiguity. And strata legislation is notorious for such ambiguity!

Chris Irons Strata Solve E: chris@stratasolve.com.au P: 0419 805 898

This post appears in the November 2023 edition of The QLD Strata Magazine.

Question: If we put available funds into a no-interest bank account, thus having no assessable income, do we need to lodge an annual Tax Return?

Our Body Corporation consists of 14 strata title units. We are under the Standard Regulation Module.

Owners pay a total of $104,720 in levies which includes GST of $9,520.

The only other income is a small amount of bank interest which would not exceed $1,000 pa.

Does a GST income cap of $75,000 apply to our units? Is this only assessable income, or does it include mutual income, which I assume would apply to our levies?

Do we have the option not to be involved in GST return and payment etc?

If we put available funds into a no-interest bank account, thus having no assessable income, do we need to lodge an annual Tax Return?

Answer: If the CTS turnover is less than $150,000, the CST can de-register for GST but can also continue to be registered for GST.

An owners corporation or CTS is allowed to utilise the not-for-profit GST registration threshold, which is $150,000. If the CTS turnover is less than $150,000, the CST can de-register for GST but can also continue to be registered for GST. It makes no difference as GST is a consumption tax borne by the individual proprietor, and this is so whether registered for GST or not. This turnover threshold is only applicable for GST purposes.

A CTS is taxed as a public company, and accordingly, if $1.00 in assessable income (non-mutual income) is derived, an income tax return must be prepared and lodged. We recommend all CTS either lodge a tax return each year if required or lodge a “no need to lodge” notification to the commissioner if you are not required to prepare a tax return. In our experience, if this is not done, the ATO will “require” the CTS to lodge a return in a couple of years, even if it is Nil. If this is not done by the due date, the ATO will apply a $900 late lodgement penalty for each year.

You can find out more on the ATO website here: About the tax return and instructions.

Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660

This post appears in Strata News #659.

Question: Our treasurer insists our volunteer maintenance person provides a Tax file number and ABN before the body corporate can reimburse them. Is this correct?

We own and live in a Queensland apartment. Last year the committee reappointed a volunteer maintenance person who often worked outside normal work hours. They did a great job. He presented his work hours etc to be reimbursed and the amount was approved by the committee. The treasurer insists that, under ATO laws, the volunteer had to provide a Tax file number and an ABN before he could be reimbursed. He refused to comply and has not been paid. Is this correct?

Answer: Is the maintenance person being reimbursed for the materials used or their labour?

William Marquand, Tower Body Corporate

It’s not quite clear from the question, but is the maintenance person being reimbursed for the materials used or their labour?

If it is for the materials, they should probably be reimbursed provided all expenses have been reasonably recorded and receipts supplied.

If it is for the labour, the treasurer may have a point.

According to the ATO website:

If the supplier does not provide an ABN and the total payment for goods and services is more than $75 (excluding GST) you generally withhold the top rate of tax from the payment and pay it to us.

If a supplier has applied for an ABN you can offer to hold payment until they have obtained and quoted their ABN.

If the payment is withheld, the contractor can then claim the tax back when they make their tax filing.

In practice, this can cause some problems as contractors doing very small jobs may not want to get an ABN. And, even if they would be reimbursed the full amount by the tax office, they may not want to wait for the full payment. If they refuse to get an ABN and you refuse to make payment without one, you might lose a good contractor. In those circumstances some body corporates might opt to just pay the contractor the full amount and leave it to them to declare their income. If they do, there could be a problem with the ATO or perhaps the issue will be picked up in an audit. Committee members may be in breach of the code of conduct. Body corporates are supposed to follow the law, but some might see this as an acceptable risk.

See the ATO website for more information: Withholding if ABN not provided .

Rod Laws, TINWORTH & CO:

I am not sure as to the actual facts of this case as you talk of volunteers, but then getting reimbursed for time. It sounds as if this is a contractor and the normal requirements for quoting an ABN apply. If not quoted as part of a business to business transaction, ABN withholding tax of 47% applies and should be remitted to the ATO. At the end of the year, a summary should be provided to the contractor showing gross payments and ABN withholding.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660

This post appears in the July 2023 edition of The QLD Strata Magazine.

Question: Our body corporate only issues lot owners with a spreadsheet as a levy notice. The property is rented so is this a sufficient invoice for claiming levies at tax time?

I own a rented strata unit in Far North Queensland. Our body corporate only provides levy information to lot owners in the form of spreadsheets without issuing formal invoices. For claiming my levies in my tax return, I am concerned the Australian Tax Office (ATO) may not consider a spreadsheet an acceptable invoice. Having proper invoices would enable my managing agent to handle all strata items. What are the rules regarding the format of a strata levy notice, and what information should be included?

Answer: The invoice should contain the ABN of the strata plan and whether the invoice contains GST – if it does, it must be a tax invoice as defined.

The requirement for levies is not dissimilar to any business invoice. If the building was registered for GST, the GST Act requires a tax invoice be obtained prior to claiming any input credits on the manager’s fees and charges. At a minimum, the invoice should contain the ABN of the strata plan and whether the invoice contains GST – if it does, it must be a tax invoice as defined.

Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660

This post appears in Strata News #651.

Question: When we receive the refund of the GST for the administration and the sinking fund, which account should the money be deposited into?

We are registered for GST. When we receive the GST refund for both the administration and the sinking funds, the total is deposited into the administration fund.

Can it be left in the administration fund or should the GST generated by the sinking fund be transferred to the sinking fund?

Answer: It should be apportioned correctly between the admin and the sinking fund.

The answer to the questions is yes. It should be apportioned correctly between admin and the sinking fund, but the strata manager’s software will determine how easy this is to achieve. Most software packages allow for the allocation between the different funds when refunds are received or payments made to the ATO.

Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660

This post appears in the May 2023 edition of The QLD Strata Magazine.

Question: Our solar rebate covers the solar loan repayments. How do we ensure this is accounted for correctly in our body corporate financials?

Our Principal Body Corporate took out a loan to pay for solar panels. The solar credits are used to cover the solar loan repayment (principal and interest). Fortunately, the solar rebates are covering this cost. When the loan is paid off, the solar rebates will be used to cover our common area electricity.

There seems to be some confusion around the accounting entries in our financials. ie the interest expense and the cost of the solar panels. How do we ensure this is accounted for correctly in our financials?

Answer: Please follow the below instruction.

The proper accounting would be as follows:

The solar panel should be recorded as an asset on the balance sheet with the loan account owing

The solar rebate should be grossed up as income and then applied against the loan and the interest component – the loan repayment needs to be split between capital and interest amounts like a mortgage

The solar panels should be depreciated over their useful life of 20 years

Once the loan is repaid and the rebate is applied against common area electricity the entry would be as follows to gross up the income and the true electricity cost

Please note the above does not include the GST treatment on relevant items.

Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660

This post appears in the February 2023 edition of The QLD Strata Magazine.

Question: I am at odds with our body corporate financial statements. Is there any training for understanding these accounts?

I am at odds with our body corporate financial statements. The spending of the Admin Fund exceeds the budget. How are these expenses paid? The Sinking Fund has liabilities. I thought it was an asset.

Is there any training for understanding these accounts?

Answer: Most people in the industry are helpful and interested in helping people who want to learn.

Body Corporate management can be pretty confusing at times. If it makes you feel any better body corporate managers are constantly looking at and discussing the implementation of the legislation – it’s rarely as black and white as the words on the page.

In terms of training there are some resources that can assist.

The Commissioner’s office has a series of training modules that provide a good guide to body corporate affairs: Online body corporate training

Strata Community Australia also offer some training sessions: Owner Education and Events in Queensland

You could also ask your body corporate managers – they may be happy to put on a session for you and other owners.

Then there are some private options that you can find with a Google search.

A new version of the body corporate law handbook has just been publish and you might want to check that out – the last one was an invaluable resource: Body Corporate Law Handbook (Qld)

Hopefully, too, the responses on these pages can help provide practical information about how schemes really operate.

It can take time to understand and at times it can be hard to work out what is right. Generally though I find most people in the industry to be helpful and interested in helping people who want to learn – so if you ask you should be able to find some answers.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in the October 2022 edition of The QLD Strata Magazine.

Question: Is it possible for a body corp to raise money to reduce levies by renting a small area of common property to another entity? Are there implications on lot owner’s tax?

Is it possible for a body corp to raise money to reduce levies by renting a small area of common property to another entity? This entity would then donate any profits associated with the use of the common property to the body corp.

I’m also interested in the taxation aspects. If the profits are donated back to the body corporate, do the owners need to declare this as income individually? The lease would consist of a peppercorn rent to cover costs.

Answer: This agreement can be entered into, however as suggested, the income tax implications could make the transaction less appealing.

Yes this agreement can be entered into, however as suggested, the income tax implications could make the transaction less appealing. The common property is held by the OC as agents or trustee for the proprietors. Accordingly, the rental of common property sees the income paid to the OC but the income tax liability fall to the proprietors in accordance to their units of entitlement.

The profit donated back to the OC would constitute assessable income of the OC as non-mutual income as it does not represent directly income from common property.

Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660

This post appears in Strata News #583.

Question: Our levy notices are titled Tax Invoice. As a tax invoice, should a tax receipt be issued upon payment of the Invoice?

Answer: This should only be tax invoice if it is registered for GST, as this is a minimum requirement for GST registered buildings. But no there is no need for tax receipt, no such concept exists in GST law.

Caren Chen Tinworth Accountants E: Caren.Chen@tinworth.com P: (02) 9922 3660

This post appears in Strata News #498.

Question: When a body corporate changes auditors, what information should be noted on the correspondence list for the next committee meeting?

A body corporate (Qld standard module) changed auditors last year.  None of the following have been noted on a correspondence list that is always tabled at the next relevant committee meeting:

Are these communications body corporate records and if so, are they required to be kept and for how long?

Answer: Whether all of that information should be included as part of a Committee meeting notice is really up to the Committee

The correspondence mentioned relating the appointment of the auditor would be part of the body corporate records and copies of this should have been kept and be available to owners. You could request this from your body corporate manager or access via a search of the books and records.

Whether all of that information should be included as part of a Committee meeting notice is really up to the Committee – if the Committee need those documents included at a formal meeting, or a record of receipt, they should request that. The question mentions that the information was made available at previous meetings, but perhaps there has been a change of direction in terms of how the meeting notice is created. Depending on your agreement, the body corporate will likely be paying for the distribution of meeting notices to some extent, particularly if they are lengthy. The more documents included in the notice the greater the cost and there may have been some attempt to limit that. Alternatively, the information may have been made available in any motion to appoint the auditor and it may have been felt it was unnecessary to repeat this.

Otherwise, there is no obligation to list every communication of the body corporate on a meeting notice and from a management perspective it is probably better to keep the volume of information included in a notice at a reasonable level. Do you really need to see the email of confirmation from the auditor to the body corporate manager acknowledging that they have received the work order from the manager to conduct the audit? It suggests a wider issue if that is the case, but perhaps something like that could be managed by cc’ing the Committee into the body corporate managers emails to the auditor.

In terms of the audit itself, it is not clear from the question if this has been received or not. Certainly, you would expect the full report, including any advice from the auditors, to be sent to the committee when complete. This would then be part of the next committee meeting notice or annual general meeting as appropriate. The report would also be available to all owners as part of the records and should be provided on request. If it is not then there may be an issue.

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in Strata News #484.

Question: If a Body Corporate has never had an income, do they need to lodge a tax return every year to declare no income or would a single notice informing there will never be an income suffice?

Answer: It is probably best to lodge an annual zero-income notice.

Strata title bodies corporate are treated as public companies under the tax law and must lodge a tax return for any year in which they derive assessable income over $1.

Income from levy payments and contributions are exempt from income tax. If levy payments and contributions are the only income that the entity has received, there is no requirement to lodge. However, income does include factors such as interest received from a bank account and most body corporates would derive sufficient income from this item alone to necessitate a tax lodgement.

It may be possible to lodge a permanent exemption application but in that instance it could be difficult to change back if income is earned and you need to lodge. It is probably better to lodge an annual zero-income notice.

For further information please see the ATO web page on strata tax: Taxation Ruling

William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924

This post appears in Strata News #453.

Question: Are we required to have an audit of our body corporate accounts carried out? If so, how often and who should conduct the audit?

Are we required to have an audit of our body corporate accounts carried out? If so, how often?

If this is requested to be done at an AGM, our we best to use our current accountant or should this be done by another company suitably qualified?

Also, once complete, are we able to ask to see the result of the audit?

Answer: Unless the body corporate has resolved by special resolution at the AGM not to have the statement audited, the body corporate must have its statement of accounts for each financial year audited by an auditor.

The body corporate must keep proper accounting records and each financial year, prepare a ‘statement of accounts’ showing the income and spending of the body corporate for the financial year. A copy of the statement of accounts must accompany the notice of the Annual General Meeting (AGM) after the end of the financial year for which the accounts have been prepared.

Audit

Unless the body corporate has resolved by special resolution at the AGM not to have the statement audited, the body corporate must have its statement of accounts for each financial year audited by an auditor.

The motion relating to the appointment of an auditor:

The motion for a special resolution must be:

Who may perform the audit?

The body corporate audit may NOT be audited by a committee member, body corporate manager or any associate of these persons.

The person undertaking the audit must be a member of:

Audit results

On completion of the audit of the body corporate’s statement of accounts for a financial year, the auditor must issue a certificate:

Relevance

Body Corporate/Strata Property auditing requirements vary from state to state.

The above information is relevant to schemes registered under the Queensland Body Corporate and Community Management Act:

Schemes registered under the Small Schemes Module do not have strict auditing requirements and it is not compulsory for a motion about the audit to be on the agenda of the AGM.

Schemes registered under the Specified Two-lot Schemes Module are not required to maintain a bank account and therefore do not need an audit.

The information herein is general information only and is not intended to constitute, legal, financial or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.

Tower Body Corporate E: kelly.borell@towerbodycorporate.com.au P: 07 5609 4924

This post appears in Strata News #379

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