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Edited version of your written advice
Authorisation Number: 1051266130386
Date of advice: 9 August 2017
Ruling
Subject: Assessable income from strata title fund
Question 1
Is the income/distribution of surplus received by you as a member to the strata fund, from a special use levy paid by another member for exclusive use of common property, considered assessable income as per section 6-5 of the Income Tax Assessment Act 1997?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2004
Year ended 30 June 2005
Year ended 30 June 2006
Year ended 30 June 2007
Year ended 30 June 2008
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
The scheme commences on:
1 July 2003
Relevant facts and circumstances
You are the owner of a lot in a strata plan.
There are XX lots in total in the strata plan.
A special resolution was passed by owners of the strata plan in 200X that the owner of one lot would pay an additional contribution in the form of a special use levy to the strata title fund for their exclusive use of a specified common property area.
This resolution was passed into a special by law in 200X.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 6-10.
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.
Under section 6-10 of the ITAA 1997, assessable income also includes statutory income.
The Commissioner's view on the assessability of money contributed and received by proprietors/members of a strata title is set out in Taxation Ruling TR 2015/3 Income tax: matters relating to strata title bodies constituted under strata title legislation (TR 2015/3), and previously in Taxation Ruling IT 2505 Income tax: bodies corporate constituted under strata title legislation (withdrawn).
The assessability of moneys received in respect of the common property varies according to the relevant State strata title legislation. In a relevant State, the ownership of common property is vested in the body corporate as agent for the proprietors as tenants in common in proportions equal to their lot entitlements.
When determining if the income received in respect of common property by you as proprietor is assessable we must consider the principles of mutuality. A mutual receipt is not ordinary income or statutory income. Therefore, the mutual income of a body corporate or its members is not assessable 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.
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. Although not all owners 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).
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. Any surplus becomes part of the body corporate general funds and thus the recipients are 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.
In your situation the contributor of the special use levy is a strata plan member in their own right and the recipients of any surplus will be strata plan members acting in their own right. As there are no third parties involved or none of the members are acting in any capacity other than as members in the strata plan the derivation of income is considered to be from inside the group.
Although not all proprietors contribute to the special levy for exclusive use of the area, 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 use levy raised in relation to the exclusive use of the area and consequently any distribution of surplus to the members will not form part of the assessable income of the members.
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