Ascend News

 

Legal Considerations - Can Strata Buildings Participate?

 

In some states, strata legislation prohibits strata buildings from conducting a business. However, a container deposit scheme is typically seen as an incidental cost-offset measure rather than a commercial enterprise. The proceeds generally go towards common property maintenance via the administrative fund, and the scheme operates passively, without employees or advertising.

While strata legislation in some jurisdictions allows for necessary business activities to support the proper functioning of the building, individual by-laws may impose stricter restrictions. Strata managers should review their governing documents and seek legal advice if unsure about whether their strata building can lawfully participate.

That being said, if a dispute arose and the scheme was challenged, the worst-case scenario would likely be that the container deposit scheme is discontinued... the relatively low downside risk therefore should be a consideration (This is not to be taken as legal or financial advice)

 

GST Implications:

For GST-registered strata buildings, the proceeds from the container deposit schemes are considered taxable supplies. This means:

• The income from the scheme contributes to the strata building’s GST turnover threshold. While many strata buildings remain under the $150,000 threshold for GST registration, those close to the limit should be mindful that this scheme could push them over.
• If the strata building is already registered for GST, it must remit 10% of the proceeds to the ATO. In practical terms, this means 9 cents of every dollar collected is lost to GST, leaving only 91 cents per dollar for use by the strata building.

Income Tax Implications:

Income received from a container deposit scheme is not considered mutual income because it comes from an external third party rather than from owners. As a result, it is subject to income tax, similar to bank interest.

• If the strata building is not registered for GST, the full amount received from the scheme is assessable income for income tax purposes.
• If the strata building is registered for GST, it must first remit 9 cents of every dollar to the ATO for GST. The remaining 91 cents per dollar is then assessable for income tax.

Additionally, if the strata building does not already have taxable income, earning income from the scheme may create an obligation to lodge a tax return, which could result in additional accounting fees.

 

Recording the Income & Alternative Approaches

Some strata buildings have considered directing the income to a supplier, such as a cleaning company, instead of depositing it into the strata’s bank account. However, this does not change the tax outcome—the income remains assessable to the strata building and should be declared in such circumstances.

An alternative approach is for owners to run the scheme privately, treating it as a hobby rather than strata income. This would reduce the risk of a tax liability, and owners could instead contribute more through levies if needed. However, this method adds complexity, particularly in splitting income fairly among owners, and there is a greater risk of mismanagement or 'sticky fingers' if the process is not carefully administered.

For strata buildings that do establish a container deposit scheme, income should be recorded consistently. It can be allocated to an "Other Income" or "Miscellaneous Income" account, or a separate "Recycling Income" account could be created for transparency.

 

Quick Takes

• If a strata building is registered for GST, it loses 9 cents of every dollar collected through a container deposit scheme to GST, and the remaining 91 cents is subject to income tax.
• If a strata building is not registered for GST, the full amount received is subject to income tax.
• The income must be declared, even if it is directed to a supplier instead of the strata building’s bank account.
• Owners could consider running a private scheme instead, which would not create tax obligations for the strata building.

 

If you require assistance in regards to the tax obligations of a strata you manage, please reach out to our admin team.

 

Links:

- Strata Income Tax Matters - FAQs

- Income Tax Recording - Best Practice

 

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The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above.  Please contact our office for more information.

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