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

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

Table of Contents:

• 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?
• 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?
• 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?
• 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?
• QUESTION: When we receive the refund of the GST for the administration and the sinking fund, which account should the money be deposited into?
• QUESTION: Our solar rebate covers the solar loan repayments. How do we ensure this is accounted for correctly in our body corporate financials?
• QUESTION: I am at odds with our financial statements. Is there any training for understanding these accounts?
• 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?
• QUESTION: Our levy notices are titled Tax Invoice. As a tax invoice, should a tax receipt be issued upon payment of the Invoice?
• QUESTION: When a body corporate changes auditors, what information should be noted on the correspondence list for the next committee meeting?
• 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?
• 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?

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: [email protected]
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: [email protected]
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: [email protected]
P: 07 5609 4924

Rod Laws
TINWORTH & CO
E: [email protected]
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: [email protected]
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: [email protected]
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

• Dr Solar panel (asset)
• Cr Bank loan (liability)

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

• Dr Loan liability
• Dr Interest expense
• Cr Solar rebate income

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

• Dr Depreciation expense
• Cr Accumulated depreciation

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

• Dr Electricity expense
• Cr Solar rebate

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

Rod Laws
TINWORTH & CO
E: [email protected]
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: [email protected]
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: [email protected]
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: [email protected]
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:

• the fee proposal from the auditors pre their appointment
• the communication advising of their appointment
• the communication advising the previous auditors that they hadn’t been reappointed
• the usual engagement letter issued by the successful auditors
• the usual representation letter required by the auditors before signing off on the financial statements
• any letter often issued by an auditor post completion of the audit advising of internal control issues and/or matters requiring attention

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: [email protected]
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: [email protected]
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:

• must be included in the agenda for the meeting; and
• must include the name of the auditor proposed to be appointed; and
• is not voted on if, it is resolved not to have the statement of accounts audited.

The motion for a special resolution must be:

• in the form ‘that the body corporate’s statement of accounts for the financial year (state the financial year concerned) not be audited’; and
• accompanied by a note ‘NOTE: If you want the accounts to be audited, vote ‘no’; if you do not want the accounts to be audited, vote ‘yes’.’.

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:

• CPA Australia or
• the Institute of Chartered Accountants in Australia; or
• the Institute of Public Accountants; and
• have a total of 2 years auditing experience.

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:

• stating whether the statement of accounts gives a true and fair view of the body corporate’s financial affairs; and
• if the statement of accounts does not give a true and fair view of the body corporate’s financial affairs— identifying any deficiencies in the statement; and




• a copy of the auditor’s certificate must accompany the notice of the next annual general meeting held after the certificate is given.

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:

• Standard Module
• Accommodation Module
• Commercial Module

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: [email protected]
P: 07 5609 4924

This post appears in Strata News #379

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Read More:

• QLD: Q&A Can I Access Body Corporate Records
• QLD: Q&A Privacy and Correspondence within Body Corporates

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