On 25 November 2015 the ATO issued Taxation Ruling No. TR 2015/3. While it may not sound exciting, Owners Corporations should ensure that their executive committees, strata managers, lot owners and accountants are aware of the new ruling as it contains both legally binding rules and non-binding  guidelines setting out how income tax applies to owners corporations and lot owners.

What type of schemes does the taxation ruling cover?

It covers strata title schemes governed by the Strata Schemes Management Act 1996 (NSW), the Unit Titles (Management Act) 2011 (ACT), the Body Corporate and Community Management Act 1997 (Qld), the Owners Corporations Act 2006 (Vic), the Community Titles Act 1996 (SA) and Strata Titles Act 1988 (SA), the Strata Titles Act 1985 (WA), Strata Titles Act 1998 (Tas) and the Unit Titles Act (NT).

How is an owners corporation treated for tax purposes?

An owners corporation is treated a company for tax purposes and the Taxation Commissioner has the discretion to treat it as a public company. It will not be taxed as a non-profit company even if it includes non-profit clauses in its by-laws.

Generally, levies that form part of a fund used for day to day expenses, general maintenance and repair of the common property are considered mutual receipts and are not assessable to the owners corporation. In addition, generally interest on levies is not assessable but fees to inspect strata records (such as in section 108 inspection fees) are assessable. Any income derived through personal property held by the owners corporation such as interest or dividends through the investment of funds is generally assessable income.

How is common property treated for tax purposes?

Common property can be used to generate income by a) the proprietor of a lot granting the right to use the common property to a tenant of their lot or b) by the common property being leased separately to a lot.

The second type of income is covered by this taxation ruling. Generally, where the common property is used to generate income independently of a lot the income is not assessable income of the owners corporation in its capacity as a trustee. An owners corporation is not entitled to tax deductions in respect of the common property but its lot owners can claim tax deductions in proportion to their unit entitlements.

*This is a general note regarding the new taxation ruling. For detailed taxation advice you should speak to your accountant or tax advisor.