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Edited version of your written advice
Authorisation Number: 1051218608246
Date of Advice: 28 April 2017
Ruling
Subject: Licence fee
Question
Is the income received from licensing the airspace above the unit complex assessable income for the body corporate?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2017
The scheme commenced on
1 January 2017
Relevant facts
The body corporate is registered under the relevant authority.
The body corporate has entered into a crane airspace licensing agreement with the developer of a nearby development. The crane airspace agreement allows the developer over a specified period to swing the crane jib over the airspace directly above the unit complex.
Under the agreement, a lump sum compensation amount is to be paid.
The airspace is part of the common property of the unit complex.
The compensation will be paid into the body corporate accounts and may be applied against the levies contributed by the proprietors. Alternatively, the body corporate may utilise the funds for various repairs and/or modifications to the common property, subject to agreement from the proprietors.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Reasons for decision
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.
In working out whether you have derived an amount of ordinary income, subsection 6-5(4) of the ITAA 1997 states that you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
The Commissioner's view on the assessability of money received by body corporates is set out in Taxation Ruling TR 2015/3 Income tax: matters relating to strata title bodies constituted under strata title legislation.
The assessability of moneys received in respect of the common property varies according to the relevant State strata title legislation. The ownership of the common property in state A is vested in the proprietors as tenants in common in proportions equal to their lot entitlements.
The licence fee the body corporate receives is considered to be income from common property and is regarded as ordinary assessable income under section 6-5 of the ITAA 1997. However, as the body corporate receives the money on behalf of the proprietors, the income is not assessable income for the body corporate.
Rather the income received from the use of common property should be included as assessable income for the individual proprietors. Please see below for further details.
Other information
The income earned by co-owners of a property must generally be shared according to their legal interests except where they can establish that their equitable interests are different.
The income derived from the use of the common property constitutes assessable income to the individual proprietors. The proprietors will receive a benefit in either reduced levies or for future work to the common property or some other benefit.
The payment will be paid into the body corporate account. As the money will benefit the proprietors, it is considered that the money is applied or dealt with on behalf of the individual proprietors. Accordingly, the portion of income that relates to their ownership is assessable income to each proprietor.
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