Non-Mutual Income Tax


Last year, the Australian Tax Office replaced the old strata industry ruling which has been in force for nearly three decades.  The new ruling clarifies the taxation requirements relating to non-mutual income – i.e income from non- owners.

The new ruling is particularly important to strata entities that lease a part of their common property. For example where the strata entity receives income from mobile phone towers or advertising signage.

The ruling reinforces previous ATO positions as follows:

  • A body corporate is within the definition of a company and therefore taxed at the corporate tax rate of 30%.
  • A body corporate does not qualify as a non-profit entity.
  • The “principle of mutuality” applies to all strata entities, meaning that income received from owners is not subject to income tax. However, all other income (“non-mutual income”) is subject to income tax.
  • Non-mutual income from common property is generally taxable on the owner, not the body corporate.
  • Costs attributable to earning the non-mutual income is deductible.

In the past we have obtained your instruction to treat the income as taxable on the body corporate (at 30%). However, the new ruling has reinforced the ATO’s requirement that the non-mutual taxable income derived from common property must be taxed in the hands of the lot owner (based on individual lot entitlement).

The new ATO ruling TR 2015/3 is clear and we recommend that committees comply with the ATO’s requirements.

Body corporate income tax returns will be prepared in accordance with the new ruling unless there has been written instructions to the contrary.  A summary of the tax information required by owners will be posted on the SSKB portal and posted to all owners soon after the financial year end.  The owners should submit this information, together with their levy notice, to their tax professional.

The above change may result in a significant saving in tax payable by the body corporate.  However it may also result in additional costs to the individual owners.  If you direct us not to comply with the tax ruling we will prepare the body corporate tax return treating the non-mutual income as taxable in the hands of the body corporate, your decision will be recorded in the minutes of the body corporate, and any future liability with the ATO will be with the body corporate.

If you have any queries regarding the above, the following links will provide further detailed information:

Should you require more information on the ATO ruling, click here for direct access to the ATO website.

GST REGISTRATION

Does your body corporate meet the ATO threshold that requires you to register for GST purposes?

The below letter from the ATO outlines the stipulations under which a body corporate would be required to register for GST:

ATO Letter

The letter states that “bodies corporate are now considered to be non-profit bodies for GST purposes provided they do not have an intention to distribute interest or other income to members.” Further information regarding this ruling can be found by clicking here.

For further information on GST and how to register, click here for direct access to the ATO website’s GST registration page.

 

 



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