Navigating the complexities of the Australian tax system, particularly in relation to strata management, can be daunting for most property owners. A common question that arises is whether the Goods and Services Tax (GST) is charged on strata levies in New South Wales. Strata levies, raised by the body corporate or owners corporation to fund the management of common property within a strata scheme, are a mandatory fee for unit owners and often a significant part of managing such properties. This article will look at whether these fees or levies on unit owners include GST.
To do that, we’ll address:
- The basics of GST
- Why you might care about GST on strata levies (and why you might not!)
- Whether an Owners Corporation has to register for GST
- Will this actually hurt the Owners Corporation?
A Simple Explanation of GST
Most people in Australia are familiar with GST as a concept.
But before we leap in, it’s worth just doing a quick GST 101 explanation in case you’re new to the idea.
Here’s how GST works in a nutshell:
- If you run an enterprise in Australia and have a turnover above a particular threshold, you might have to “register” for GST.
- If you are registered for GST, you have to charge GST on most goods and services that you provide and pay that amount to the Australian Taxation Office. You can also claim input tax credits for the GST you have to pay to others to supply your own goods and services. These credits reduce the amount you might otherwise have to pay to the ATO;
That’s the simplified version, at least. Of course, being tax law you can rightly imagine that there are any number of ifs and buts.
GST on Strata Levies – Does it Matter?
So why do we care whether you have to charge GST on strata levies?
Well, it’s going to have a number of practical effects:
- First, your strata levies are going to go up by 10% – the amount of the GST;
- Second, your owners corporation will need a system in place to issue tax invoices to the owners who are paying the levies;
- Third, the owners corporation will have to implement a system of book-keeping so that its business activity statements are prepared, and the relevant GST is paid to the ATO;
- Finally, the owners themselves, depending on their situation, may then have an entitlement to claim input tax credits from the GST they are now paying on their strata levies (more likely in commercial units than residential).
So in short: it’s going to have an impact.
So is GST payable on Strata Levies or Not?
Let’s work through the process, knowing what we know.
The first question is whether the owners corporation needs to register for GST.
Does an owners corporation carry on an enterprise? Well, it maintains and repairs property, and manages the finances of the scheme. So in tax terms, the owners corporation is “carrying on an enterprise”.
Therefore, it must register for GST if:
- Its turnover (which includes levies themselves) is more than $75,000 for an owners corporation that is not non-profit.
- Its turnover is more than $150,000 for a non-profit owners corporation.
Yes, it is possible for an owners corporation to count as a “non-profit” in some circumstances, but you’re best to get some specific advice on that topic.
If the owners corporation has to register for GST, then it will:
- Have to start charging GST on its fees and levies and issuing tax invoices accordingly; and
- Be able to claim GST credits for purchases.
Will Collecting GST on Strata Levies Actually Matter?
In practical terms, will it make any real difference if there is GST on strata levies?
There are going to be two main practical impacts:
Firstly, the owners corporation is going to have greater administrative burden because of the requirements to issue formal tax invoices, record GST collected and GST paid, and complete periodic business activity statements for compliance purposes.
Second, some owners are effectively going to have 10% greater levies, since they will be required to paid the GST and have no ability to claim the GST credits back from the government. They are in the same position as every consumer who has to pay GST on their goods and services in that respect, but given that levies can be quite high in some cases, this could have a real impact on cash flow for some owners.
If your owners corporation needs help with compliance in this or any other area, don’t hesitate to get in touch and we’ll steer you in the right direction.