Please note: strata terminology differs from state to state. When we mention the owners corporation, this also references the body corporate or the strata company. The committee is also the strata council or council of owners.
Every strata community must make decisions about how to fund capital works. How that moment is met matters – not just for the existing owners but for future owners as well.
The options have always been drawing on a capital works (sinking) fund, raising a special levy or the corporation taking out a strata loan.
Of the three, the benefits of a strata loan are clear, but not always well understood.
A correctly-structured, straightforward strata loan is typically:
- the lowest cost after tax for most owners,
- the fairest way to share the cost of capital works among current and future owners, and
- an excellent way to spread the cost over the life of the asset.
For the 60–70% of owners who are investors, the levy that repays a strata loan should be 100% tax deductible. Special levies and capital works fund contributions are not.
A strata lender will not ask for personal financial disclosure or guarantees. There is no impact on individual credit profiles or borrowing capacity.
Some strata loan products are incredibly complex. Greater complexity increases risks for owners. Before owners are asked to vote, the committee should have the loan structure reviewed by an independent strata lawyer or accountant with expertise in strata funding. The adviser should be able to identify the risks, the gaps and what the lender has not been upfront about. Pay particular attention to any loan structure that asks owners to commit capital upfront.
Ensure that your strata lender has the strength to support you and your community for the life of the loan. Strata loans can extend for up to 15 years – will your proposed lender last the distance or leave you stranded with no access to funds as happened recently?
Before any committee tables a loan structure, two conversations need to happen — one with the lender and one with a strata-experienced independent adviser.
Ask Your Strata Lender
| Question | What You Should Hear | Why It Matters |
|---|---|---|
| Do you pay commissions to strata managers or anyone else? | No – confirmed in writing and verified unambiguously in the loan contract. | The person introducing or recommending a lender should have no financial interest in the outcome. Any commission is a conflict of interest and breach of fiduciary duty. The only exception is an accredited finance broker. |
| How long has your company been lending? | Years of operation. | Lenders have entered this market, made some loans, and then left clients with little or no service or support. |
| Are all fees disclosed upfront – not just the interest rate? And what is the impact of those fees on total costs when converted to an interest rate? | Full written schedule: application, establishment, drawdown, administration, early repayment and importantly a comparison rate. | The headline interest rate is never the whole story! |
| Will you attend our general meeting and answer owner questions directly? | Yes – with state-specific support documentation. | Owners need direct answers, not marketing material via a strata managing agent. |
| Who is our dedicated contact for the life of the loan? | A real person with the required expertise, not a concierge or call centre. | Committees change. The relationship with your lender lasts the entire term of the loan. |
Ask Your Accountant, Lawyer, and Financial Adviser
| Question | What You Should Hear | Why It Matters |
|---|---|---|
| Does this structure comply with strata legislation in your state? | Yes – with relevant state-specific information. Any grey areas on compliance with strata legislation in your state means greater risk. | If the product is non-compliant, for example relying on journalling levy credits or offsets, then the committee will have to oversee work to remedy the problems which ensue. |
| Does the loan structure create new risks for owners? | A clear explanation of all risks for the owners corporation and individual owners. If the structure creates different classes of owners, those differences and their implications must be fully explained clearly. | If the strata loan is not straightforward, you need to understand the risks that complexity introduces. |
| How are levy repayments and levy credits treated under tax law? | How the structure qualifies for tax deductions for eligible owners, on what legislative basis, and with what certainty. | 60–70% of owners in most buildings are investors. Tax treatment of the levies is critical. |
| If the loan structure involves levy credits (e.g., “hybrid” or “participating” strata loans), does it have an Australian Tax Office (ATO) product ruling? | ATO Product ruling PR 2024/2 is the only product ruling currently issued for a loan structure where the owner ‘pays upfront’. | A product ruling is ATO confirmation of tax treatment and can be obtained quickly. Owners who rely on the claims of others are at risk of non-compliance and a desk audit. |
| Does the product comply with the existing ATO product rulings and how are upfront contributors taxed under the ruling? | A specific answer, including tax treatment of any upfront remittances by lending owners. | ATO Product ruling PR 2024/2 states that upfront contributors under one structure will be taxed on their interest (even if a levy credit means that they never actually receive the cash). Owners and advisers should read the ruling itself, not a lender’s summary. |
If the answers to any of the questions above fall short, ask why your lender has not been upfront with you. Transparency, stability and long-term service aren’t extras – they’re the baseline.
Take a closer look: Get the advice. Ask the questions. Then decide.
For a full comparison of funding options and tax treatment watch the following webinars:
- The Principles of Corporate Finance and Tax
- Tax Traps for Strata Owners and Committees
This article provides general information only and does not constitute legal, financial, or tax advice.
Paul Morton and Gemma Davey
Lannock Strata Finance
E: paul@lannock.com.au
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