Entities that are considered 'non-profit' can be exempt from paying income tax in Australia if they meet certain elegibility criteria set by tax legislation.
Aside from charities, eligibility can be self assessed annually by the members of the entity and therefore there is no requirement to confirm 'non-profit' status via a Government department or organisation (such as the Australian Taxation Office (ATO)).
As the general duty of a strata company / body corporate is to control, manage and maintain the common property (as opposed to making a profit for distribution), owners often wish to explore whether their strata company is eligible to take advantage of these attractive concessions. Unfortunately however, strata companies are not eligible.
Why are strata companies not eligible?
A non-profit company is defined in subsection 3(1) of the Income Tax Act 1986 (ATA 1986) and means, among other things, a company that:
- is not carried on for the purpose of profit or gain to its individual members; and
- is, by the terms of its constituent documents, prohibited from making any distribution, whether in money, property or otherwise, to its members.
Unfortunately, a strata company does not satisfy the second requirement because, under the various State and Territory strata title legislation, a strata can make distributions to its members in certain circumstances. The main example cited in ATO legislation is upon winding up.
What if we establish a by-law preventing distribution to members?
The by-laws of a strata title body are made under, and are subject to the operation of, its governing State or Territory legislation. Consequently, a by-law worded to prohibit a distribution to members cannot be created to override or limit the strata company's ability to distribute in circumstances specifically permitted by the legislation. In short, the by-law cannot override the legislation.
For more information, please contact the Ascend office via your strata manager.
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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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