Late SMSF Tax Returns
Owner’s Corporation Tax Return – Strata Title Body Corporate Tax Return:
What is a strata title body corporate or owner’s corporation tax return?
A strata title body corporate operates under an arrangement of principle of mutuality. The Australian Taxation office treats a strata title body corporate or an owner’s corporation as a public company for the purpose of taxation even though such an organization is not setup with an intention to carry on a business activity or profitability. Given this view of the Australian Taxation office an owner’s corporation tax return needs to be lodged and taxes paid on eligible income thus generated. The Owner’s corporation’s income is assessed based on two principles: Principle of mutuality (the defined purpose of the OC) and of non mutuality (Income created out of an opportunity – Assessable Income).
What is the principle of mutuality or mutual income?
When a group of people come together to contribute to a common fund and is also controlled by the same group of people for a common purpose, any income derived from the use of the common fund is not considered to be income. Here the income is referred to as ‘surplus’ since this is not taxable and arises due to the common interest between the members and the fund thus setup. The principle of mutuality is based on the concept that the organization cannot derive income from itself (its members). The organization’s activities are carried out for the benefit of its members collectively as they share a common purpose. Similarly expenses incurred in the course of operating, maintaining, administering and developing the common fund are not an expense since the organization is dealing with its own members and for the common purpose of why it was setup. The income derived into these funds would be via contributions by members/lot owners and contributions would be generally apportioned based on the plan of subdivision of the original lot. Given this, all incomes classified as mutual under the principle of mutuality will be non-taxable in an owner’s corporation tax return.
What is the principle of non-mutuality or non-mutual income?
It is also possible that the common property generates income and also incurs some costs that are beyond the purpose of the common fund establishment and such types of income and expenses are assessable for tax purpose. This income would form the part of a tax return. These types of income and expenses are considered as non – mutual and hence become assessable.
Does an Owner’s corporation pay income tax?
Yes, the strata title body corporate has to also file a tax return each year if they earn any income as part of their non mutual activities (assessable income) which would be taxed as per company tax rates. The public officer is responsible to lodge the annual tax returns and is liable for penalties for late lodgements. Owner’s corporations are also liable to pay stamp duty, GST if the income exceeds $75000 (including fees) and capital gains tax depending upon the nature of investment activities. Similar to companies, they can also claim tax losses and capital gain losses from previous years.
Strata title body corporate have to be very cautious as any red flags could be investigated by ATO and this can open taxpayers to scrutiny. Ensure that the deductions are claimed only in relation to non mutual income and records maintained for both mutual and non mutual income. If you are a body corporate/owner’s corporation and unsure of your income and deductions and/or the Owner’s corporation tax return then feel free to contact us to have an obligation free discussion. Give us a call today on 03 8609 1889 or email us on info@a1accountants.com.au and one of our friendly staff will be able to assist you with your queries.
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