Tax Time – Best Practice and Non-mutual Income
June 18, 2021
BAS and Tax Agent Requirements
Tax time is here so it is important to be mindful of the obligations of the schemes, as well as compliance responsibilities for agents.
Bodies corporate obligations
Bodies corporate are required to lodge tax returns if they have $1 or more in assessable income which is not considered “mutual income.” In this instance, mutual income refers to levies from owners.
A tax return will also be required where the body corporate has more than $1,000 in carried forward losses, where PAYG instalments have been paid or when instructed to lodge by the ATO.
Non-mutual income includes bank and investment interest and is taxable in the hands of the body corporate and likely to be taxed 30%, however we encourage you to read LCR 2019/5 to see if you may qualify for a lower rate.
Notably, non-mutual income derived from common property e.g. from 3rd party rental agreements or exclusive use arrangements are taxable in the hands of the individual lot owners. Individual lot owners should be encouraged to seek their own tax advice.
Read more about mutuality here.
So, what is considered mutual and non-mutual income in a body corporate?
Mutual (income from owners) – NON-TAXABLE
- Levies, interest on arrears, recoveries
Non-mutual (income from non-owners) – TAXABLE IN HANDS OF INDIVIDUAL LOT OWNERS
- Income from communications tower lease
- Rent from common property apartment
- Income from advertising billboard
Non-mutual (income from non-owners) – TAXABLE IN HANDS OF BODY CORPORATE
- Interest from cash at bank or term deposits
- Monies collected from coin operated laundry facilities (derived from tenants or public)
Kelly+Partners have provided a Tax Decision Tree for reference.
Body corporate manager obligations
Some business may bundle in the lodgement of tax returns for the schemes they manage into their agreements. This means, regardless of the intent of the Administration agreement, in the eyes of the law, managers are acting as Tax Agents per the Tax Agent Services Act 2009. If your business prepares tax returns for the schemes you administer, you must have at least one person qualified as a tax agent.
A person practicing as a tax agent needs to meet a strict criterion, including:
- Meeting the qualifications and experience required to provide tax agent services;
- Meet the requirements of the Tax Practitioners Board to be classed as a “fit and proper person” to perform tax agent services; and
- Have appropriate professional indemnity insurance.
The penalties for performing tax agent services while unregistered are quite severe. These penalties may be a fine up to:
- $277,500 for providing tax agent services;
- $55,500 for advertising tax agent services; and
- $55,500 for representing as a tax agent.
We encourage all members to ensure if they are providing tax agency services to ensure they have a suitably qualified employee or are suitably qualified to do so. For questions contact Strata Community Association (Qld), the Tax Practitioner Board or Kelly+Partners.
This article was contributed by Strata Community Association (Qld) and Kelly+Partners.