the strata manger's role in owners corporation finances

© Copyright 2012 Teys Lawyerswww.teyslawyers.com.au

The Strata Manager’s Role in Owners Corporation Finances


Nobody likes surprises?


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


Are the Savings in Line With the Plan?

Year Plan Reality Compliance

2007 - -

2008 - $ 20 000

2009 - $ 30 000

2010 $ 44 572 $ 26 000 (under 41.6%)

2011 $47 742 -

Balance end 2010 $87 358 $ 61 249 ( 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.


Are the Levies Too Low?

Deficits

• Administration fund goes into deficit

Neglect

• Sinking fund not expended “just in time”

Crisis

• 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


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


$ Levies > 90 days

Annual admin budget

No. months YTD / 12

Are Levy Arrears Within Benchmark?


What the Arrears Rate Means?Delinquency performance

ratioPerformance 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% + 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


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


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

• Principal of mutuality applies

NOT


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


What Is Mutual Income?

• Administrative fund, sinking fund and special levies

• Rent by a lot owner for common property

• Interest for late paid levies


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


Have the Expenses Been Apportioned?

Apportionable expenditure

Non-mutual income

Total income


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


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


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


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 www.michaelteys.com and

follow him on Twitter at @MichaelTeys.com

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

www.teyslawyers.com.au

About the Presenter

http://www.teyslawyers.com.au/

the strata manger's role in owners corporation finances

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