A common misconception about Strata Companies is that they are considered a not-for-profit and are therefore not required to submit income tax returns to the Australian Tax Office (ATO). This is not true, a Strata Company is treated as a public company capable of carrying on a business for income tax purposes, meaning they must lodge an income tax return each year whether or not they earn any income.
Any assessable income earned by the Strata Company must be included in your tax return for the financial year. But what exactly is considered assessable income?
Assessable income includes all income earned by the Strata Company that is received from non-owners – this is called non-mutual income. Common types of assessable income include:
- Interest earned on any investments of money
- Income earned from ownership and use of personal property
- Laundry collections
- Funds received for providing status certificates
Common property of your Strata Company may provide you and your fellow owners with an income. However, as common property belongs to the owners not the Strata Company, you are not required to lodge a tax return for common property leasing income – however each individual owner may be required to lodge income earned through their personal tax returns.
Is there any income exemption when lodging a strata tax return?
You may have heard a new strata industry ruling introduced by the Australian Tax Office which changes taxation requirements for Strata Companies. The new ruling, known as the principle of mutuality, exempts certain types of income from requiring a tax return at the end of a financial year. Simply put, the principle of mutuality applies to any income paid and received by owners of a strata title. Some examples include:
Owner levies
The Australian Tax Office considers owner levies to be mutual income as it is a contribution paid by a member to ‘itself’. A Strata Company does not make a profit from levies, meaning it is not assessable for income tax purposes.
Owner contributions
The principle of mutuality also applies to owner contributions. If there is a surplus of contributions, and these are returned to owners, they are not considered assessable income.
You can rely on your Strata Manager to lodge your Strata Company’s tax return at the end of the financial year. If you have any specific questions about the legislation or process for lodging, we recommend directing your questions to your Strata Manager.
If you haven’t engaged a Strata Manager for your Strata Company, or feel as though you aren’t receiving sufficient service from your current Strata Management Company, reach out to our team. Give us a call on 08 9362 1166 or email us at info@esmstrata.com.au – we are always happy to help! You can also learn more about strata by visiting the News and Resources page on our website.
