One of the benefits of living in an Owners Corporation is that each Owner contributes to the future upkeep of the property. It is important as an Owner, to understand your Owners Corporation expenses. In this article, we will guide you through the financial obligations of your Owners Corporation.
An Owners Corporation is responsible for actions taken on its behalf by an Owners Corporation Manager or Committee Members. It can pass on costs incurred by these actions to members by raising fees. As a Lot Owner, there is no limit to your financial and legal liability for the actions of your Owners Corporation or its delegates.
What are the financial obligations of the Owners Corporation?
It is important that Committees understand how to set budgets and levies, the different funds and insurance, and what to do if something goes wrong.
Your Owners Corporation must:
- Use an approved form called a ‘fee notice’ to give notice of fees and charges
- Use an approved form called a ‘final notice’ to give final notice of fees and charges in arrears
- Pay remuneration to managers and employees
- Pay insurance premiums
- Keep financial records
- Prepare annual financial statements
- Have a tax file number, Australian Business Number (ABN) and register for Goods and Services Tax (GST) with the Australian Taxation Office if income meets or exceeds $75,000 a year
- Pay income tax
- Withhold tax from suppliers who fail to provide their ABN
- Lodge business activity statements (BAS) with the Australian Taxation Office.
What are the financial responsibilities for a Tier One Owners Corporation?
Under s7 of the OC Act 2006, a ‘Tier One Owners Corporation’ is:
- an Owners Corporation that consists of more than 100 occupiable lots and is not a services only Owners Corporation.
A Tier One Owners Corporation must, after the end of each financial year, have its financial statements audited. An Owners Corporation may apply in writing to the Director of Consumer Affairs Victoria for an exemption from the requirements of this subsection (s35A OC Act).
What is a Maintenance Plan and Fund?
A Maintenance Plan is discretionary for a Tier 3, 4 and 5 Owners Corporations however is mandatory for a Tier 1 or Tier 2 Owners Corporation (s36 OC Act). Once approved, an Owners Corporation must establish a maintenance fund and pay into that fund any part of the annual fees levied for the purposes of the Maintenance Plan.
An approved Maintenance Fund is equivalent to what is commonly known as a ‘sinking fund’ or ‘reserve fund’. Subject to any prior conditions, money may be paid out of the maintenance fund at any time in accordance with the approved Maintenance Plan.
A Maintenance Plan is approved by ordinary resolution of the Owners Corporation (s 38(1)) at a General Meeting, or by the Committee. Implementation of the plan must be reported to the Lot Owners at the next Annual General Meeting.
What Financial Records must be kept?
An Owners Corporation must keep financial records that:
- Cover all its income, expenditure, assets and liabilities
- Enable it to make true and fair reports of its financial situation
- Record and explain all financial transactions for income tax and GST purposes (Australian Taxation Office requirements).
Financial Statements at Annual General Meetings
Your Owners Corporation must present its financial statements at each Annual General Meeting. Financial statements should give a summary of all transactions during the financial year. This includes:
- Assets and liabilities records
- Penalty interest charges
To improve the value of your investment, it is imperative that you understand your financial responsibilities of your Owners Corporation. At SSKB, we help make the entire process of being part of an Owners Corporation as easy and seamless as possible for Lot Owners. Click here to make the switch to SSKB today.