WA: Q&A Strata Management Charges, Bank Accounts and Audits

This Q&A is about strata management charges in WA in relation to bank fees and whether you require a yearly audit.

Table of Contents:

• QUESTION: We are a small complex of eight units. We’ve built up a sizeable sinking fund of $80k. Should we earn interest on the balance of our funds? Is our strata manager required to audit their bank account?
• QUESTION: Why do levies attract GST? How is this represented in the accounts?
• QUESTION: We are a small self managed scheme. We are looking to change our banking system from a cheque based system. What system works best to ensure ease of use and transparency for all owners?
• QUESTION: If our strata scheme is managed by a strata manager, do we need to obtain a yearly audit?
• QUESTION: Should we be paying strata management charges such as bank fees in relation to a trust account established by the strata manager on behalf of the strata company?

Question: We are a small complex of eight units. We’ve built up a sizeable sinking fund of $80k. Should we earn interest on the balance of our funds? Is our strata manager required to audit their bank account?

Answer: The interest earned on a strata company’s ADI trust account is often less than the cost of preparing a strata company’s tax return.

A strata manager is required under section 148 of the Strata Titles ACT 1985 to pay all monies received on behalf of a strata company into an ADI trust account. ADI refers to an authorised deposit-taking institution, meaning a body corporate authorised under section 9 of the Banking Act 1959 to conduct banking business in Australia. The trust account can be a separate ADI trust account for the strata company, a pooled ADI trust account in which funds for all strata companies under management are held or an ADI trust account belonging to the strata company to which the strata manager has been given authority to use.

Section 148 Operation of accounts also requires that:

2. If a strata company has a volunteer strata manager, the strata company must have an ADI account and the volunteer strata manager must pay all money received on behalf of a strata company into an ADI account of the strata company.
3. A strata manager must be able to account separately for money that the strata manager is paid or receives on behalf of a strata company.
4. A strata manager may pay out of an account mentioned in subsection (1) an amount payable by the strata company on whose behalf money is received.
5. Money paid into a trust account is not available for the payment of the debt of any creditor of the strata manager and cannot be attached or taken in execution under an order or process of any court at the instance of a creditor of the strata manager.
6. The regulations may provide for other matters relating to the operation of trust accounts by strata managers.

Section 149: Accounting information of the ACT outlines the requirements for the provision of information about the account to the strata company. This section provides that the strata company can, by written notice, require the strata manager to provide:

1. The name and number of each account operated by the strata manager on behalf of the Strata Company and the identifying number of the ADI;
2. The balance in each account;
3. Particulars of cheques drawn or amounts transferred out;
4. Particulars relating to the payment of money to, or the receipt of money by, the strata manager on behalf of the strata company;
5. Particulars relating to the manner and time of disposal of money paid to, or received by, the strata manager on Strata Titles Act 1985 Part 9 Strata managers on behalf of the strata company that is not still held by the strata manager;
6. Particulars relating to a specified transaction that has been entered into by the strata manager on behalf of the strata company.

Your account may or may not be interest-bearing. In my experience, the interest earned on a strata company’s ADI trust account is often less than the cost of preparing a strata company tax return. If the strata company does not earn any other non-mutual income (assessable income earned by the strata company that is received from non-owners), it is not worth earning the interest.

Regulation 101 requires that the ADI trust account must be an account that cannot be overdrawn and must contain the words “trust account” in the name of the account. Regulation 101 states that the account MAY be an interest-bearing account.

Many strata companies consider term deposits an option to earn sufficient non-mutual income to make the exercise worthwhile. The strata company should consider its circumstances and seek any necessary financial advice from a person licensed to provide such advice.

Regarding auditing your ADI trust account, there is no statutory requirement for the account to be audited under the ACT. It is worth noting that if the strata manager is a licensed real estate agency, there are auditing requirements under the Real Estate and Business Agents Act 1978.

Strata companies can choose to have an audit of their account or an audit on their financials carried out. Many strata companies pay for an audit of their financial year records so that the audit can be considered when the financial statement is presented at the Annual General Meeting. Section 150 of the Strata Titles Act 1985 sets out the requirement for a strata manager to assist a strata company auditor and provide the auditor with the required documents to perform the audit.

Luke Downie
Realmark
E: [email protected]
P: 08 9328 0999

This post appears in Strata News #670.

Question: Why do levies attract GST? How is this represented in the accounts?

When reserve fund levies are collected, the strata manager includes a GST component on the invoice. Why do levies attract GST? They are neither a good nor a service. They are simply a contribution by the owners into a bank account.

If the strata company collects $10000 + 10% GST = $11000 in levies from owners, should the reserve fund balance be $10000 or $11000? If it’s $10000, where does the $1000 go?

Answer: The strata plan is carrying on an enterprise as defined in the GST act.

The strata plan is carrying on an enterprise as defined in the GST act and thanks to an amendment to the GST Act in 1999, strata levies are included as a taxable supply that attracts GST. Prior to this amendment, a strata levy did not qualify as a taxable supply as there was no consideration involved, as you correctly point out. I obtained a private ruling in 1998 confirming GST did not apply to levies. As a result, the Government changed the GST Act to include levies as a taxable supply.

As a result of this, the strata plan, if registered for GST, becomes a tax collector for the ATO. The Strata plan has a liability account on its balance sheet where it records GST collected and GST paid. The net balance at the end of each quarter is remitted to the ATO or refunded by the ATO. So the income account always shows the amount excluding GST with the GST going to the ATO liability in the balance sheet.

Rod Laws
TINWORTH & CO
E: [email protected]
P: 02 9922 3660

This post appears in the March 2023 edition of The WA Strata Magazine.

Question: We are a small self managed scheme. We are looking to change our banking system from a cheque based system. What system works best to ensure ease of use and transparency for all owners?

We are a small complex of 3 units. We managed our own building. Currently for our banking system, all owners must sign cheques to pay for ad-hoc services, but cheques are cumbersome and not widely accepted. In most cases, one owner pays and a cheque is raised as reimbursement. That’s not the way it should work.

We have been trying to find a suitable bank and account which allows each owner access to view records and make necessary payments electronically in line with contemporary practices. It is proving difficult. Do any such accounts exist?

What can we do to ensure, whilst we each have access to the account, none of the owners will misuse Council funds or abuse the freedom of working without 3 signatures on a cheque?

Answer: Any bank account that allows the ability to make online payments would suffice.

Any bank account that allows the ability to make online payments, such as BPay and direct transfer, would suffice. Segregation of duties is the key to eliminate misuse of funds.

In my view, the segregation of duties is the key to eliminate misuse of funds. Ask the bank if it is possible to put a limited amount spent per transaction and if it exceeds, the transaction must require TWO signatories to approve payment using a token or password.

• Owner 1: Book-keeping only and maintaining monthly account reconciliation.
• Owner 2: Signatory 1 to make ALL online payment of invoices.
• Owner 3: Signatory 2 to approve payment if the transaction is over a certain limit.

The person who should be receiving the invoices and approves for payment can be Owner 1 or Owner 3 who then sends to Owner 2 for payment.

Ivy Ling
Realmark
E: [email protected]
P: 08 9328 0999

This post appears in Strata News #554.

Question: If our strata scheme is managed by a strata manager, do we need to obtain a yearly audit?

Answer: The simple answer is no.

The simple answer is no.

The purpose of an audit is to ensure that the financial report of an organisation is an accurate representation of the financial situation of that organisation. However, what some people don’t understand about an audit is that this is based on only the selected samples they scrutinise. They do not necessarily check every figure in a financial report

Really what should be happening is your Strata Manager should be carrying out a number of the secretarial and accounting functions that see the financials are kept accurate.

On top of this, the AGM of the Strata Company is exactly that opportunity for all owners to essentially ‘audit’ the Strata Company accounts at their own peril when they are presented by the Strata Manager or Strata Council.

If you have reason to believe the Strata Manager or the Strata Council has failed to accurately record the financials then you may deem it necessary for the Strata Company to complete an audit. However, this won’t necessarily bring these concerns to light.

If you do pursue the accounts to be audited please ensure you have clarified what that actually means by the auditor or go with an industry specific auditor such as Ascend Strata.

Jordan Dinga
Abode Strata
E: [email protected]
P: 08 9368 2221

This post appears in Strata News #495.

Question: Should we be paying strata management charges such as bank fees in relation to a trust account established by the strata manager on behalf of the strata company?

Our signed SCA strata management agreement does not include a schedule of charges for services referred to elsewhere in the document as applicable. Is the strata manager entitled to charge for and paid for those services and at what rate?

Is a strata company obligated to pay charges that are not visible in strata records eg alleged bank fees and charges which do not appear on statements issued by a bank in relation to a trust account established by the strata manager on behalf of the strata company.

Answer: The agreement will normally provide for all of the fees and charges.

With regard to charges, my understanding is that the agreement will normally provide for all of the fees and charges however the Strata Company may not necessarily utilise all of the services/charges available to them.

If a Strata Manager operates a trust account in the name of the Strata Company then the Strata Company would be liable for all fees and charges on that account because it is a Strata Company account. It is worth noting that the Strata Company may also have a separate Reserve Fund account which may also incur fees/charges.

You indicate there are bank fees being charged for an account that is not a Strata Company account, but a Strata Management account.

Some Management Companies operate one trust account for all of their managements and would then on-bill for any fees and charges they incur to that trust account, over all of their managed Strata Companies.

If that is the case then you may be billed an apportioned charge for bank fees however this should be reflected in the Management Contract and clearly defined. These would normally be contained in the annual budget also.

Shelley Fitzgerald
Emerson Raine
E: [email protected]
P: 9330 3959

Note: this general information about strata council member problems is an opinion only and suitable specialists in these areas should be sort for clarification and assistance on all points.

This post appears in Strata News #318.

Please note: this response was provided prior to the proclamation of the new strata title amendments.

Have a question about strata management charges for items such as bank fees? If you have something to add to the article, please leave a comment below.

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Read next:

• WA: Relationship between Strata Manager and Strata Council
• WA: Strata Manager’s Duties under the Strata Titles Act Amendments
• WA: Q&A Where can I make strata manager complaints in WA?
• Strata vs real estate trust accounts in Western Australia: what’s the difference?

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