Many strata managers mistakenly believe registering for GST automatically means a 10% jump in levies. This article debunks that myth, clarifying how GST credits significantly offset costs, making the actual impact surprisingly minor.
When Does a Strata Company Need to Register for GST?
Strata properties are generally treated as not-for-profit entities for Goods and Services Tax (GST) purposes*. This unofficial classification means their compulsory GST turnover threshold—at which GST registration becomes mandatory—is double the usual amount of $75,000. Specifically, strata entities must register for GST if levies approved at an AGM or EGM result in total levies exceeding $150,000 for the coming 12 months. Practically speaking, GST registration is required from the date these levies are formally approved.
The Misconception: A 10% Increase in Levies
A common concern among strata managers and lot owers alike is that registering for GST automatically results in a 10% increase in levies. This assumption overlooks the GST credits that strata companies can claim back from their expenses and is fundamentally incorrect.
The Reality: GST Credits Offset Levy Increases
It's true - upon GST registration, strata companies must add 10% GST to levies charged to unit owners, but they can simultaneously also claim GST credits on most expenses, reducing overall costs. Here's the process:
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Expense Reduction - Many expenses, such as maintenance and administration services, include GST. Once registered, companies reclaim 1/11th of these costs as GST credits from the ATO.
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Levy Adjustment - Lower expenses due to GST credits mean reduced levies required.
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Addition of GST to Levies - After adjusting levies downward, adding 10% GST typically results in an overall increase of only about 1-2%.
The Bottom Line
While GST registration initially appears daunting, the financial impact is far less significant than commonly feared. In reality, once GST credits are factored in, the actual increase in levies tends to be modest and manageable.
Quick Takes:
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GST registration is mandatory for strata companies exceeding the $150,000 levy threshold.
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GST credits significantly offset the 10% GST added to levies.
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Actual levy increases are modest, usually around 1-2%.
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Transparent budgeting and clear communication ease the transition to GST registration.
*Strata Properties are treated as not-for-profit entities for GST purposes provided they meet certain criteria, primarily showing no intention of distributing excess funds to unit owners.
If you require assistance in regards to GST registration, please reach out to our admin team.
Links:
- Strata Titles and Not-For-Profit Status
- GST Credits - How Small Commercial Properties Can Benefit
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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