Reform of micro strata title company deposit funds
The Real Estate Institute of Australia proposes change to tax legislation to provide a minimum tax -free threshold for strata title companies consistent with the tax-free threshold for individual tax payers (currently $6,000).
Strata title schemes are lot management schemes for residential communities. Most schemes comprise a small number of lots. In Western Australia, for example, the estimated number of strata plans registered as at July 2002 was 36,897 of which 84% or 31,035 were small lot plans comprising 5 or less lots. Typically, strata plan schemes are managed under a strata company structure most often involving retired and elderly citizens. Strata companies are encouraged to accumulate some reserve funds for the maintenance of their buildings and these funds are held in a deposit account that creates a tax liability. The tax liability incurred from bank interest on the accumulated funds seldom exceeds $500 and more often is in the vicinity of $5 to $100.
The taxation laws need to be amended to allow small strata title companies that manage 5 lots or less, to be eligible for the same tax-free threshold that applies to individual taxpayers (currently $6,000) for the following reasons:
| a. |
Most strata title companies of this size usually have a very low tax liability primarily incurred from bank interest that seldom exceeds $500 on accumulated funds for building maintenance. |
| b. |
Most strata title companies of this size are usually managed by older, retired citizens and they are primarily responsible for the well being of the residents and the up-keep of the properties as distinct from management for profit. |
| c. |
There is a comparative inequity for a strata plan company that incurs a very small tax liability on accumulated funds for building maintenance whereas a similar level of funds accumulated by an individual taxpayer for the maintenance of a single residence does not incur a tax liability. |
| d. |
The cost to the company of preparing a tax return where the assessable income is very small (say $15 - $20). |
| e. |
Australia would incur substantial net benefits by freeing up ATO officers from costly assessments of Income Tax returns from micro strata title companies with small tax liabilities of $500 per year or less. |
For further information contact the REIA Secretariat at
reia@reiaustralia.com.au
May 2003
