Edited version of private ruling

Authorisation Number: 1011496290177

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Ruling

Subject: special levy

Question

Will the amounts received from the car parking levy constitute assessable income?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

The building consists of several units with only half the units supported by undercover parking spaces.

The allocated undercover parking lots were leased to their holders for a number of years after which possession returns back to the owners corporation.

On the common property there are some uncovered parking lots which are used by the other tenants at no charge, giving priority to owner occupiers.

The owners corporation is considering raising a special one off levy on a number of proprietors in return for the use of one of the uncovered car parks.

The offer will be made to the owners without a permanent undercover parking space.

The successful applicants will get a lease similar to that enjoyed by the existing undercover car park holders and will run for the remainder of the original X years.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 6-10.

Reasons for decision

Summary

It is considered that the mutuality principle would apply with respect to the receipts from the car parking levy and therefore these receipts would not constitute assessable income.

Detailed reasoning

It is considered that the mutuality principle would apply with respect to the receipts from the car parking levy and therefore these receipts would not constitute assessable income.

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Under section 6-10 of the ITAA 1997, assessable income also includes statutory income.

The Commissioner's view on the assessability of money received by body corporates is set out in Income Tax Ruling IT 2505. The assessability of moneys received in respect of the common property varies according to the relevant State strata title legislation.

A mutual receipt is not ordinary income or statutory income. Therefore, the mutual income of a body corporate is not assessable income and no deduction is allowed for expenses in relation to the earning of the mutual income.

The principle of mutuality applies when a number of persons associate together for a common purpose and contribute to a common fund in which all are interested. The principle of mutuality recognises that one cannot make a profit out of oneself and that income can only be derived from sources from outside oneself. This principle does not extend to include income that is derived from sources outside that group.

In the case of corporate entities, the principle recognises that contributions by proprietors are not in the nature of income because 'income consists of moneys derived from sources outside' of the taxpayer (The Bohemians Club v. Acting Federal Commissioner of Taxation (1918) 24 CLR 334 at 337).

For mutuality to apply there must be complete identity between the contributors to the fund and the participants in the surplus (Municipal Mutual Insurance Ltd v. Hills (1932) 16 T.C. 430). This does not mean there must be individual identity between contributors and participants, but in the identity as a class. At any given moment in time the persons who are contributing must be identical to the persons who are entitled to participate (Faulconbridge v. National Employers' Mutual General Insurance Association Ltd (1952) 33 T.C. 103).

The Court in Federal Commissioner of Taxation v. Australian Music Traders Association (1990) 90 ATC 4536 supported the principle that there must be a reasonable relationship between contributions and benefits.

Mutual income of a body corporate includes amounts of subscriptions or levies imposed by the body corporate to enable it to carry out functions on behalf of its members. These functions are mainly to manage and administer the common property, to maintain and repair the common property and to insure the buildings and common property.

There are exceptions to the principle of mutuality where receipts from members may constitute income for the purposes of section 6-5 of the ITAA 1997. The principle will not apply to activities that are considered to be in the nature of trade. Nor will it apply where there is a distinct disparity between the identity of the contributors and the recipients of any surplus.

In this case, the activities and levy in relation to the car parking privilege do not suggest a trade. The levy is a one off payment for the benefit of the owners.

Although not all owners will pay the levy, this is not crucial to the mutuality principle (Royal Automobile Club of Victoria v. FC of T 73 ATC 4153; (1973) 4 ATR 567).

Any surplus becomes part of the body corporate general funds and thus the recipients are all the members of the body corporate. Consequently, a reasonable relationship exists between the contributors and the participants in any surplus.

The Commissioner accepts that amounts, contributed by the owners in a strata plan to the body corporate in respect of special levies, are not assessable income.

The car parking system involves the use of common property. The body corporate does not derive assessable income from the use of the common property.

Contributions by proprietors for a car parking privilege are mutual income. The proprietors are the owners of the common property and there is complete identity between the contributors and the participants in any surplus. Not all proprietors contribute to the parking system, however, the class of contributors and participants are the same. The contributors and participants in any surplus are the proprietors.

The mutuality principle will apply to the special levy raised in relation to a car park privilege and consequently any such receipts will not form part of the assessable income of the body corporate.

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