09 September 2025
Budgeting for Strata Income Tax
From time to time, we are asked how much a strata company should allow for income tax when preparing its budget. A common approach is to simply carry forward the prior year’s actual tax expense, in much the same way as other budget line items.
While that can work in some years, income tax is largely driven by the level of assessable income earned, which can vary from one budget to the next. Because that income is already reflected in the budget, estimating tax based on what the strata expects to earn is often a more reliable approach.
This article outlines a small number of practical principles that strata managers can apply when budgeting for income tax, without needing to delve into detailed tax calculations.
Interest and Investment Income
Interest earned on term deposits and other investments is the most common source of assessable income for strata companies. While the headline company tax rate is currently 30 percent, the actual tax payable is usually lower once deductions are taken into account.
Strata companies can generally claim deductions for:
1. The cost of preparing the prior year income tax return
2. A portion of strata management fees
3. A portion of accounting and compliance costs.
Once these deductions are allowed for, a simple and practical rule of thumb is to budget around 25 percent of the expected interest income as an income tax expense. For most schemes, this provides a reasonable estimate without overcomplicating the budget.
Status Certificate Fees
Status certificate fees are assessable income to the strata company. However, in the vast majority of cases, they are offset by a matching fee paid to the strata manager.
Because the income and expense effectively cancel each other out, there is generally no need to budget a separate income tax expense for status certificate fees. Using last year’s tax expense can sometimes result in tax being budgeted for these fees unnecessarily, which is another reason an income based approach is often more accurate.
Other Income Sources
Some schemes earn assessable income from less common sources such as utility markups, container return schemes, or other small profit-making activities. In these cases, the focus should be on the net profit (budgeted receipts less budgeted expenses), not the total amounts collected.
For example, if a scheme budgets $5,000 for common electricity costs and expects to recover $7,000 from owners, the assessable profit is $2,000. Applying the same general approach, budgeting around 25 percent of that expected profit as income tax is usually reasonable.
This principle can be applied consistently to any similar income stream where the strata company expects to make a surplus.
Which Fund To Budget The Tax To?
From a technical perspective, income tax should be budgeted to the fund that generates the assessable income. If interest is earned on reserve fund investments, the tax expense should be budgeted to the reserve fund. If assessable income arises in the administrative fund, the tax expense should be allocated there.
In practice, this is not always done, and some schemes place all income tax expenses in a single fund for simplicity. However, budgeting the expense to the relevant fund provides useful guidance to your trust accountant when allocating the final tax payable at year end.
It is also worth keeping in mind that the timing of income tax payments rarely aligns neatly with the budget period. Tax relating to income earned during one year may not be payable until many months later. Budgeting is therefore about estimating the cost over time, rather than matching the exact payment date.
Quick Takes
- Income tax is best budgeted based on expected assessable income, not last year’s tax bill
- A 25 percent rule of thumb works well for interest and other profit based income
- Status certificate fees usually do not incur tax due to the deductible fee paid to the strata manager
- Allocating tax to the fund that earns the income can simplify trust accounting