Whale said:
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Then I found out that all income other than that from Proprietors' contributions was not covered by the ATO's ruling under the principle of mutuality, and that we should have been submitting Company Tax Returns for years. So much for audits !!….
Audits; most people in my SP think because we get an audit every year that everything is fine but the audit is not about how well the OC complies with legislative and tax obligations.
The auditor basically looks at a percentage of all the financial transactions, checks they exist and then extrapolates that result to say that everything is in order, i.e. the auditor checks that the Treasurer is not squirreling away money for a trip to Spain. The auditor does a equity report (financial position), does an income and expenditure report and then sends us a bill.
On an income/expenditure report it is clear if an OC is getting non mutual (and / or business venture) income but the auditor is generally not commissioned to say an OC should be paying tax, or that the levy interest is not calculated properly, or that the accounts are not as specified by the SSMA or PSBA or that the OC needs to strike a special levy to repay money it transferred from the sinking fund to the admin fund – the auditor just checks that money is accounted for.
There are 3 types of strata income*
mutual – tax free
non mutual – OC pays tax on it
business venture – each owner needs to declare their share on their individual tax return
Most OC's need only worry about the first 2 types of income and most do not bother with the non mutual stuff because most OC's do not make a lot of non mutual income anyway. Most SPs are relatively small consisting of less than 20 units, not a lot of tax is being avoided. Once larger SPs become more common then the ATO might come looking for its tax money. One day legislation might require large OC's to submit financial reports like “mum and dad” incorporated clubs have to. It is funny how the local sport club with its $1500 bank balance needs to submit annual financial reports (form A12) to OFT but OC's operating budgets of hundreds of thousands of dollars do not.
The point is that audits are just a paper trail check and have little to do with legislative or tax obligations.
*See chapter 9 of NSW Strata and Community Schemes Management and the Law for more details on the 3 types of income and how to deal with them – available from any good library