Edited version of private advice

Authorisation Number: 1051600620278

Date of advice: 29 November 2019

Ruling

Subject: Sale of common property by a strata body corporate.

Question

Will you be assessed on the moneys received from the sale of the renovated caretaker's unit as the agent for the proprietors?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20xx

Year ending 20 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

You are a strata body corporate and are registered under the relevant state strata legislation. You administer, control and manage Strata Plan number xxxx (the Property).

You are registered for GST.

The property has a retirement village with dwellings constructed in the late 19X0's.

The complex also has a caretaker's unit which was required in the original development application. This unit is a common property to the proprietors.

In accordance with the relevant state strata legislation, you hold the common property as the agent for the proprietors as tenants in common in proportions equal to their lot entitlements.

You applied to the Council for the caretaker's unit to be renovated. The Council approved the development application.

You will renovate the caretaker's unit and sell it as a standard residential unit.

The caretaker's unit is proposed to undergo the following changes:

·        enlarged bedroom

·        enlarged bathroom

·        new wardrobe

·        new laundry cupboard

·        new kitchen

·        conversion of kitchen to general storage area as part of common kitchen

·        removal of brick pier and some internal walls

·        replace sliding door with new entry door and window

·        repair or replace all floor linings or floor finishes where necessary

The estimated renovation is estimated to gain some profits.

The Strata Committee will use the profits from the sale to fund outstanding repairs and maintenance of the common property.

The sold renovated unit will be converted to another stratum unit.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 subsection 6-5(4)

Income Tax Assessment Act 1997 subsection 6-10(3)

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 subsection 104-10(1)

Income Tax Assessment Act 1997 subsection 104-10(2)

Income Tax Assessment Act 1997 subsection 104-10(3)

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 118-20

Reasons for decision

Summary

The income to be derived from the sale of the renovated caretaker's unit is not assessable income of the strata title body and is assessable income of the proprietors.

Detailed reasoning

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.

Paragraph 40 of Taxation Ruling TR 2015/3 states:

Each strata title legislation is different in its description of how common property is held. Notwithstanding these differences, the Commissioner will accept, in relation to strata schemes registered under all the State and Territory Acts, that it is the proprietors, rather than the strata title body, that are entitled to the deductions under Division 40 and Division 43 of the ITAA 1997 and who are assessable on any income from common property under section 6-5 of the ITAA 1997.

Accordingly, income from common property is not assessable income to a strata title body and is assessable income of the individual proprietors.

The Commissioner's view is that the amount of revenue to be generated from the sale of the common property is not your assessable income. This is considered to be so even where the money will be paid directly into the strata body's funds for outstanding repairs and maintenance of the common property. To the extent money is applied or dealt with for the benefit of the proprietor, subsection 6-5(4) of the ITAA 1997 would apply to include these amounts as assessable income of the proprietors.