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Topic
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andebrook is in Victoria – Whale
Hi all,
I am hoping that the FLAT CHAT community can help me out with some info on Maintenance Plans and Funds but also Strata Fund Managers obligations with regards to interest earned on Maintenance Funds.
Recently our owner’s corporation held our AGM meeting where it was decided that a maintenance plan and maintenance fund would be established to take care of works required.
The meeting minutes have now been circulated where it states that the maintenance fund will be established and quarterly payments from owners altered accordingly and that a maintenance plan would not be established.
Regarding the maintenance plan:
Putting aside the fact I personally disagree with the minutes on the interpretation of the maintenance plan decision (I will discuss with the committee), according to the Owners Corporation ACT 2006 it states that you cannot have a Maintenance Plan without a Maintenance Fund, but it does not advise whether a Maintenance Fund can exist without a Maintenance Plan.
Is anyone able to shed some light on whether the fund can exist without the plan?
On a separate note, I queried our Strata Manager on the % rate of interest the Maintenance Fund will earn and how often this interest would be paid back into the fund.
Their response was that:
- The income earned on interest would be classified as taxable income and as such;
- Would require a yearly tax return and quarterly activity statement;
- Of Which would cost $800 to $1200 in addition to the fees we pay for their strata services
- And as such there would be no value in setting up an interest bearing account given that the cost to do (1), (2) and (3) would outweigh the interest earned per annum.
Is anyone able to comment on the legitimacy of (1), (2) and (3) in addition to whether or not the usual fees paid to the strata fund should cover tax return and activity statement preparation rather than an additional payment to the strata being required?
Finally, if the owners corporation do not seek interest earnings on the maintenance fund, is the strata fund allowed to earn interest on the money in the fund?
Thanks all!
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Our sinking fund money is invested and earned $861 in interest in the last financial year. We paid $324 in income tax and our strata management charged $165 to do the tax return. So we came out ahead, even if not by much. It’s still worth us investing.
You can do the tax return yourselves, it’s not hard.
@scotlandx said:
You can do the tax return yourselves, it’s not hard.I would add one thing to scotlandx’s reply. To work out what is the best course of action do some sums.
1. How much could you earn in interest?
2. How much tax would have to be paid on that interest (30% of interest earned).
3. How much would it cost you to get your tax return done and lodged. Scotlandx is right it is easy and I would ring the tax office and ask for “Strata title body corporate tax return” (the tax office will post you at no cost) and have a look at it.
We’d like to invest part of our sinking fund. I’m in NSW. Is this something the Exec Committee can approve, or does it need an OC approval?
Marvin – as it’s the Owners Corporation’s funds (i.e. all Owners) then I believe that the investment of those in an authorised deposit-taking institution, the amount, the term, actions on maturity, and the signatories to the account/s should all be decided at a General Meeting.
Whale – the EC is elected by the OC and has certain powers to commit OC funds on behalf of all owners. Is there some legislative requirement covering the decision to invest OC funds? I’m aware that the EC is limited in how much it can spend on behalf of the OC, but I would have thought that investing is different to spending.
Marvin – an E/C’s ability to commit expenditure is limited to those items and matters that the O/C has approved in its respective Budgets, and similarly its ability to invest O/C funds is limited by the terms of a resolution made by the O/C at a General Meeting in accordance with Sect 73 of the NSW Strata Schemes Management Act (1996)
Irrespective of whether an E/C is spending .or investing, the funds involved are those of the O/C – that is all Owners and they should have a say in both instances.
I am treasurer of our OC. I generally don’t put details about investment to the AGM for a decision. Instead the financial statements each years show amounts in an ‘at call’ account and other amounts in several ‘investment accounts’ with staggered maturity dates. I regard that as sufficient. If any owners care to ask about what rates we are getting, or any other financial matter, I get an answer for them.
Occasionally, the managing agent will ask if it is OK to move some cash as an investment account matures if we are running a bit short in the ‘at call’ account. Other times I will notice we have more than sufficient and could move some the other way to get a higher interest rate and I ask our managing agent to do it without reference to anyone else.
However, if by ‘investment’ you mean putting all the owners’ money into an emu farming venture, then I would agree that the decision should be made at a general meeting!
When our EC proposed to put some money into a solar electric array on the roof of a carport on common property for both environmental reasons and to reduce the OC’s electricity costs, ultimately with a decent financial return on the investment, that was put to a general meeting to decide.
The relevant Legislation in the ACT is silent on the subject isn’t it?
I’m sure you can handle it Peter, but it sounds about as rigerous a process as our Federal Governments use to invest our tax receipts; wouldn’t pass muster in NSW where my reading of Sect 73 requires the O/C to make such decisions.
I’m Treasurer of our O/C and there’s no way that I’d be making a decision about how and where to invest our Owners’ hard-earned without first putting it to them at a General Meeting.
Marvin – is there some reason why your E/C wants to make such investment decisions autonomously?
@Whale said:
The relevant Legislation in the ACT is silent on the subject isn’t it?I’m sure you can handle it Peter, but it sounds about as rigerous a process as our Federal Governments use to invest our tax receipts; wouldn’t pass muster in NSW where my reading of Sect 73 requires the O/C to make such decisions.
I’m Treasurer of our O/C and there’s no way that I’d be making a decision about how and where to invest our Owners’ hard-earned without first putting it to them at a General Meeting.
In the ACT the Act says the OC must open and maintain an account with 1 or more authorised deposit-taking institutions, pay all amounts received into that account and pay all amounts it spends out of that account. (An OC with 2 or 3 units may resolve by unopposed resolution to exempt itself). An OC may invest its money as it considers appropriate, subject to any direction by special resolution. (However, it must not invest in a mortgage of land and cannot ‘carry on a business except in the exercise of its functions’.
The Act also says that an EC can exercise the functions of the OC as it considers appropriate unless the act states that the decision must be made a particular way at a general meeting or a general meeting has directed the EC to act a particular way.
Putting all that together, if a general meeting passed a special resolution to invest the money a particular way then the EC would have to follow. However, in the absence of such a direction from a general meeting the EC can act as it considers appropriate. I would regard the AGM’s acceptance of the (audited) financial statements (showing several bank accounts and interest earned) as ample endorsement to continue with having several bank accounts, some earning higher interest and one working account with sufficient cash more readily available.
But that is the ACT, not NSW. I don’t know what the NSW Act has.
@Whale said:
Marvin – is there some reason why your E/C wants to make such investment decisions autonomously?Just for efficiency. EC members own 50% of the units (and > 50% unit entitlement). EC members have the right skills & experience to make such decisions.
But I understand (now) that we don’t have the power to do this legally in NSW, so we’ll do it by the book.
Marvin – the only way to go I recon., but given the relevant skills and experience of the current E/C perhaps place a Motion on the General Meeting Agenda whereby the O/C may delegate its authority under Sect 73 to that E/C, with reporting of investment outcomes at each AGM.
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