Tips for the new Financial Year
June 28, 2022
As we head into a new financial year and Christmas rapidly approaches it is important to set yourself up financially and budget for expenses you don’t often think about – like body corporate fees.
If you own an apartment or are looking to invest in one, you are required to pay body corporate fees, commonly known as Levies, which cover the costs of maintaining common areas, and general management of the scheme.
These fees are generally split into two funds; an administration fund and a sinking fund. The administration fund covers general administration, maintenance, insurance and other recurring expenses, while the sinking fund is used to pay for the maintenance or replacement of less frequently incurred expenses which are generally more significant in cost and nature, such as painting, roof replacements or structural repairs to common property. There can also be what is called a special levy which is usually a one off levy to pay for unplanned major works.
Body corporate fees range in cost depending on the complex features and amount of maintenance required. They can be less than $1,500 per year, and as high as $30,000 per year. Regardless, they are a significant cost payable by the owner, and should be budgeted for from the outset.
See below our top five tips for budgeting for body corporate levies:
Chat with your accountant
It is important to remember that, like many fees associated with a designated investment property, some body corporate fees are tax deductible on investments. Consult your accountant to learn more about which body corporate fees you can claim, and how. As a general rule, the ATO considers money paid for admin and sinking funds as tax deductible, while the special purposes levy is generally not tax deductible.
Communicate openly with your body corporate
While body corporate correspondence may not always be the most exciting, the best thing you can do is stay updated! Attend general meetings (or have a representative attend), which can easily be done with the availability of current video technology and electronic voting, read through the committee minutes, and regularly check your email and mailbox to ensure you are aware of any changes to the body corporate budget, or any large projects that may need to be completed. This way you are one step ahead of the game when it comes time to make a decision!
Itemise the cost
This one may appear very simplistic in nature, however in such uncertain economic times is a must. The best way to prepare an effective budget is to split expenses into increments. A pen and paper (and maybe a calculator) is all you need to do this. Start by determining how much your admin and sinking fund levies are per year, then break this cost down into an amount each week. Set this money aside as you go, so when you receive the levy notice you are not scrambling for money to fund it, or putting the cost on costly forms of finance, such as credit cards.
If you are more comfortable with an IPAD or Smart Phone as opposed to a pen and paper the technological world of free applications available and budgeting tools readily available within your banking institutions internet platforms can make budgeting simpler by tracing your income and expenses automatically. These types of tools can potentially identify spending habits that you may, or may not be aware of, that you can either eliminate, or reduce, leaving funds for the necessities in life.
Thoroughly review the budgets
To comply with legislation and ensure the ongoing financial health of the body corporate, budgets must be prepared for each financial year. A budget is required for both the administration fund and the sinking fund. If you believe the proposed budgets submitted to your AGM are unreasonably high or low and do not adequately reflect the required costs, you can vote against any motion to approve the budget, or seek a variation of up to 10 per cent (subject to conditions).
This article was contributed by Aaron Margaritis. Aaron is a Partner at Archers and is responsible for overseeing the Strata Accounting Division, Company accounting function and is the Company Secretary of the Archers group of companies.