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Can someone explain what impact GST has on OC funds. Of course, we have always paid GST on the goods and services provided and paid for by the strata manager. However, now that the OC income from levies (thanks to a special levy) is exceeding $150,000 this year, the strata manager has advised that the OC needs to be registered for GST. What impact does this have?
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I am not so sure your Strata manager is correct. Levys aren’t income for taxation purposes but they may be included as part of the turnover that would put you over the GST threshold.
Moving from paying the GST (as your Strata does at the moment) and being required to deduct and remit GST to the tax office is a large administrative burden.
Get a opinion in writing from the Tax Office it won’t cost you a cent and then you have it in writing. The letter should just ask the question:
Is our Owner’s Corporation liable to register and pay GST? If so on what amounts?
Set out the facts ie amount of levys both admin and sinking, interest income and any other income eg rent from leasing common property.
I stumbled upon this discussion and thought I would add my 2 cents.
This link to some ATO guidance will be useful for answering your question: https://www.ato.gov.au/printfriendly.aspx?url=/Business/Bus/Property-and-Construction-Industry-Partnership—issues-register—section-01—bodies-corporate-owners-corporations-and-strata-managers/#1.1.1
In brief, strata body corporates (or Owners Corporations) must be registered for GST if their turnover exceeds AUD75,000 in any 12 month period (NOT AUD150,000 as the ATO does not generally consider Owners Corporations to be not-for-profits).
This means there will be an obligation to lodge quarterly business activity statements and charge GST on levies. However, at the same time, your Owners Corporation will also now be able to claim any GST on costs (e.g. maintenance, contractors, electricity etc). Your strata manager should be able to advise on how this should affect your budget.
The fact that Owners Corps have been “dragged” into the GST net by the ATO’s interpretation is unfortunate and probably should have been excluded outright (this is the case in other jurisdictions with a value added tax or similar).
Hope this and the link to the ATO website helps.
I think it still might be worthwhile making enquires with the ATO or someone qualified to give advice. Registering and subjecting any Strata to the GST is not something to do unless you are sure you have to.
The whole issue, to my mind, hinges upon what a Strata’s turnover is. If your turnover is more than $75,000 you will be subject to the GST business requirements.
However from this ATO site:
https://www.ato.gov.au/Business/GST/Registering-for-GST/Working-out-your-GST-turnover/
turnover is defined as (emphasises added):
“Your GST turnover is your gross business income (not your profit), excluding any:
- GST you included in sales to your customers
- sales that are not for payment and are not taxable
- sales not connected with an enterprise you run
- input-taxed sales you make
- sales not connected with Australia.”
My view is that Levys are not income (taxable) and anyway would qualify as being excluded from the definition of turnover under “sales that are not for payment and are not taxable”.
Most Stratas don’t carry on a business and unless they receive considerable income from other activities eg interest or renting out common property I don’t think they would be caught.
I am quite happy to be corrected on this as it is a very relevant and important issue for Stratas that have levys approaching the threshold.
I might refer to the link here https://www.ato.gov.au/Business/Bus/Property-and-Construction-Industry-Partnership—issues-register—section-01—bodies-corporate-owners-corporations-and-strata-managers/? page=6#1.1.3_Do_bodies_corporate_make_taxable_supplies? where the ATO considers that Owners Corporations make taxable supplies for which admin and sinking fund levies are payable by the individual owners.
The definition of GST turnover in the GST Act includes all taxable and GST-free supplies made by the entity. Hence – if levies raised by an Owners Corporation exceeds AUD75,000 in any 12 month period, there is an obligation for the OC to register for GST and charge GST on their levies.
Not the ideal outcome as I personally think that it creates an unnecessary GST burden on OCs. In other jurisdictions, particularly in Europe, they are carved out of their VAT law.
I looked at this issue a few years ago when our Owners Corporation was first incorporated and I noticed that our strata manager had registered us for GST. I had a particular interest as in my day job, I work as a senior GST lawyer in a top tier accounting firm. (However – please do not take this as the provision of tax or legal advice.)
It would be definitely be beneficial if the ATO could issue a simple fact sheet for strata organisations, especially given that many strata bodies do not have expertise in this area.
thanks jeff,
I do stand corrected! The reference you make would appear definitive that the GST regime does indeed apply once levys get over the threshold.
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