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Utility infrastructure such as solar panels, embedded networks, and bulk utility purchasing agreements is becoming increasingly common in strata. These arrangements often result in income or financial benefits to the strata company, and the tax implications can vary widely based on the specifics of the situation. The below guide provides a structured, step-by-step process to help strata managers navigate these complexities effectively.

Two Categories of Utility Income:

When dealing with utility infrastructure, there are generally two sources of assessable income: payments from external suppliers and payments from owners / tenants. Each of these sources requires a distinct approach to determine its tax treatment. The steps outlined below are designed to help you identify what income, if any, is assessable and whether any exclusions, such as the agency or mutuality principles, can apply to reduce the potential tax burden.

Step by Step Guide:

Part 1: Income from External Suppliers

1. Identify if there is income from an external supplier. This may include:
• Fixed payments for the use of infrastructure (e.g., solar panels, embedded networks); or
• Revenue-sharing arrangements where the supplier pays a percentage of income generated.
2. Determine the nature of the payment.  If income is received from an external supplier, assess whether it is:
• Payment for the use of common property: Such income is assessable to the individual owners in proportion to their unit entitlements.  
• Payment for strata-owned assets or supplies: Income from strata-owned infrastructure (eg: solar panels purchased with strata funds) or supplies (e.g: solar generated electricity) is assessable to the strata company.
3. Declare remaining income and claim deductions.  Income derived from common property is assessable to individual lot owners in proportion to their unit entitlements, and the strata company’s role is limited to notifying owners of their responsibility to declare the income.  Income dereived from strata-owned assets or supplies is assessable to the strata company, which must report it on its annual company tax return and may claim relevant deductions such as electricity generation, utility purchase costs, infrastructure depreciation, and consulting / management fees.

Part 2: Income from Owners and Tenants

1. Determine if income is received from owners or tenants for the supply of the utilities provided.  
2. Assess if the agency principle applies.  If the strata passes on costs exactly as billed by the utility provider based upon per lot actual usage, the agency principle may apply, meaning the strata is acting as an intermediary with no income tax consequences.
3. Consider the mutuality principle for owner-occupier payments.  If the agency principle does not apply, determine if a portion of the income can be excluded under the mutuality principle. Payments from owner-occupiers to the strata company may be treated as mutual and therefore not assessable.
4. Declare remaining income and claim deductions.  Any remaining assessable income should be reported in the strata company’s tax return, with potential deductions similar to those listed above for Part 1 being available.

Utility income can be complex, and accurately assessing its tax treatment requires a thorough understanding of the nature of payments and the relationships involved. Carefully reviewing contracts and internal agreements is the logical starting point to clarify the tax treatment in combination with the above steps.

 

Quick Takes

• Utility income can come from external suppliers or from owners/tenants, each requiring different tax treatment.
• The agency principle may apply to pass-through costs, while the mutuality principle may exclude owner-occupier contributions.
• Any assessable income to the strata should be declared, with deductions claimed for eligible expenses.
• A structured process helps strata managers identify obligations and explore exclusions to reduce tax liability.

 

Seeking professional advice is highly recommended if you're ever unsure. If you require assistance for any strata property you manager, please reach out to our admin team.

 

Links:

- Strata Income Tax Matters - FAQs (This article explains the Mutuality Principle)

- GST & Reimbursements (This article explains the Agency Principle in simple terms)

- ATO: GST Ruling 2000/37 (GST: Agency Relationships and the application of the law)

- Common Property Depreciation

 

 

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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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