These Q&As outline the process to repurpose common property assets in Queensland Body Corporate complexes. What is the procedure and are there any tax implications for lot owners if the assets are then sold?
Table of Contents:
- QUESTION: If we repurpose unused common property into a single bedroom unit for sale, what are the tax implications for lot owners and how would they be distributed?
- QUESTION: Our body corporate wants to create 6 extra visitor car parks. These car parks will be very close to our unit. What can we do?
- QUESTION: We recently bought a top floor unit and where told to be extremely careful about the waterproof membrane on the roof above. Now body corporate wants to turn this space into a rooftop entertainment area for all. What rights do we have?
- QUESTION: In a Standard Format Plan, what procedure is required to re-purpose common property?
- QUESTION: What legal capacity is there for a common property asset (a tennis court) to be re-purposed by a limited number of unit owners?
Question: If we repurpose unused common property into a single bedroom unit for sale, what are the tax implications for lot owners and how would they be distributed?
Our 51 unit complex is in Airlie Beach. In addition to the units, there is a Garden Room of about 18m x 4.5m. This space is for the use of all lot owners. It has hardly been used over the past 14 years, so the committee has suggested the common property asset be repurposed by converting the space into a one-bedroom unit to be sold. Quotes and costings indicate that it would be sold for a substantial profit.
What are the tax implications, if any, for the owners and if there are tax considerations how would they be distributed?
Answer: The sale of the unit would be subject to income tax and this income tax would be payable by the owners in accordance with their unit entitlements.
This is quite a common issue we come across these days. There are significant income tax and GST issues associated with proceeding with this course of action that should be considered. The CTS is planning on altering the roll by including common property as a new unit. As the unit would qualify as new residential property, the sale of the new unit would attract GST. The sale of common property is addressed in the ATO ruling on bodies corporate. In that ruling, the ATO express the long held view that common property is held by the CTS as agents or trustees for the owners. Accordingly, the sale of the unit would be subject to income tax and this income tax would be payable by the owners in accordance with their unit entitlements. The cash would stay inside the CTS.
How this transaction will be taxed in the hands of the owners will depend on the motivation of the CTS in developing and selling the unit. If there is a profit motivation, it is possible the gain on sale will be on revenue account and no CGT discount would apply. If there was no profit motivation, then it would be assessed on capital account and it is possible a CGT discount could apply if owners have owned their units for more than 12 months.
The transaction is taxable to owners despite not receiving the proceeds on the basis a benefit is received in the form of lower future levies. If the CTS wanted to distribute this gain to owners, if it was the result of a profit or gain, this could be considered an appropriation of profits or a dividend. There are sections in the Income tax act that prevents double taxation.
Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660
This post appears in the February 2022 edition of The QLD Strata Magazine.
Question: Our body corporate wants to create 6 extra visitor car parks. These car parks will be very close to our unit. What can we do?
Our body corporate wants to use common property in our entrance courtyard to create 6 extra visitor car parks. These car parks will be very close to our bedroom windows and will cause noise issues of a night with visitors coming and going.
Is there a rule about how close visitor parking can be to private space? Visitors using these spaces will be able to look directly into our bedrooms. We are very distressed with this potential issue.
Answer: You are entitled to vote ‘no’ to the motion and to encourage others to do the same.
The body corporate legislation does not regulate how close visitor car parks can be to lots.
We recommend that you:
- liaise with your local Council to determine whether there are any rules which would restrict how close visitor car parking may be to a residential lot; and
- write to the body corporate to express your concerns about the proximity of the proposed visitor car parks to your lot.
If the committee puts forward a motion to owners in respect of the additional visitor car parks, you are entitled to vote ‘no’ to the motion and to encourage others to do the same. In the event the motion is passed, you may challenge the reasonableness of the decision in the Commissioner’s Office, including seeking interim orders that the motion is not implemented until such time that the requested final orders are considered by an adjudicator.
Hayley Gath Mathews Hunt Legal E: hayley.gath@mathewshuntlegal.com.au P: 07 5555 8000
This post appears in the May 2021 edition of The QLD Strata Magazine.
Question: We recently bought a top floor unit and where told to be extremely careful about the waterproof membrane on the roof above. Now body corporate wants to turn this space into a rooftop entertainment area for all. What rights do we have?
We bought our top floor unit in September 2020. At the time, the estate agent insisted the rooftop common area was sealed with a special waterproof membrane and we had to be careful not to damage it. We were not to place sharp objects on it to cause penetration of the membrane, wear high heel shoes when walking on it, take our BBQ up there, or place chairs or tables up there with legs that may damage the membrane.
Now the body corporate wants to construct a rooftop entertainment area above our unit. We are concerned about water leaks into our unit caused by breakdown of membrane and also noise problems from possible gatherings.
The body corporate is yet to put it to a vote, but indications are that the majority of owners want the rooftop area to be constructed. What rights do we have?
Answer: The body corporate may make an improvement to the common property if authorised by the appropriate resolution.
The body corporate may make an improvement to the common property, such as installing an entertainment area on the rooftop, if authorised by the appropriate resolution.
The body corporate is responsible to maintain all waterproofing membranes that provide protection for lots and/or the common property in a building format plan scheme. Accordingly, in the event the waterproof membrane is damaged, the Body Corporate will be responsible to repair the waterproof membrane and any damage caused, including to your unit.
We recommend that you write to the body corporate and express your concerns about the proposed rooftop entertainment area, including as to safety, noise and the potential for the waterproof membrane to be damaged.
If the committee put forward a motion to owners in respect of the rooftop entertainment area, you are entitled to vote ‘no’ to the motion and to encourage others to do the same. In the event the motion is passed, you may challenge the reasonableness of the body corporate’s decision in the Commissioner’s Office, including seeking interim orders that the motion is not implemented until such time that the requested final orders are considered by an adjudicator.
If the proposal is approved, occupiers still need to comply with s.167 of the Body Corporate and Community Management Act 1997 and the by-laws regarding nuisance/unreasonable interference from the use of the rooftop entertainment area.
Hayley Gath Mathews Hunt Legal E: hayley.gath@mathewshuntlegal.com.au P: 07 5555 8000
This post appears in the May 2021 edition of The QLD Strata Magazine.
Question: In a Standard Format Plan, what procedure is required to re-purpose common property?
In a Standard Format Plan, what procedure is required to re-purpose common property?
Our AGM is forthcoming and a motion (ordinary resolution) is being put forward by the committee to reduce the footprint of the tennis court and use the vacated area for an alternate purpose.
In the motion, 3 quotes are being provided to resurface the court and move the fence in order to reduce the total area that the tennis court currently occupies but there are no quotes being provided for the alternate purpose ie a deck nor design details included as to what this deck will look like.
Is a special resolution required for this as common property is being re-purposed and is it required to include all costs and details of both components so that all owners are able to make an informed choice.
Answer: Section 163 of the Standard Module sets out the level of approval required
This amounts to an improvement to the common property.
Section 163 of the Standard Module sets out the level of approval required – which is based on the cost of the works and number of lots in the scheme. Our prior article explained this in a little more detail: QLD: Body Corporate Spending Limits During COVID-19. In summary this is:
- If the spending is less than $300 for each lot in the scheme – the committee can authorise the spending (but only if the committee spending limit is not reached).
- If the spending is less than $2,000 for each lot in the scheme – an ordinary resolution can authorise the spending but only once each financial year.
- If the spending is more than $2,000 for each lot in the scheme or the body corporate has already passed an ordinary resolution to authorise improvements – a special resolution is required.
A concern however is the lack of detail around the proposed deck. If insufficient detail is included in the motion, the motion may only be sufficient to give an indication of the body corporate’s preference – particularly if the cost is not included as it is not possible to then ascertain the type of motion required. In that case the body corporate would then later need to fully approve the deck with consideration of full quotes.
This post appears in Strata News #411.
Question: What legal capacity is there for a common property asset (a tennis court) to be re-purposed by a limited number of unit owners?
The tennis court is overdue for refurbishment and we have the funds in our sinking fund to pay for the new court but:
- we are getting pushback from some committee members and
- there are some owners who feel that because the court is not utilised by all owners that we should look at re-purposing the court space.
A general email has been sent out by our Chairman at the request of an individual owner (the committee were unaware) asking all owners to submit their wish list as to whether:
- they wanted the court to remain or
- they wanted to re-purpose the court into another use.
Based on the feedback, these 2 options would formulate a motion.
As a committee, we had discussed that the court refurbishment would be included in the upcoming budget at our AGM. We have all been paying levies based on the sinking fund schedule and the capital assets listed.
What legal capacity is there for a common property asset to be re-purposed by a limited number of unit owners? Given that re-purposing the court area will devalue all owners’ units and the complex itself, what means do I and the others who want to refurbish the tennis court, have to protect our investment.
Answer: A body corporate can choose to repurpose the facilities at the scheme as long as it is approved correctly as an “improvement”.
Yes – A body corporate can choose to repurpose the facilities at the scheme as long as it is approved correctly as an “improvement”. The way this would be approved is included in this article: Body Corporate Spending Limits During COVID-19. There is no obligation to comply with the previous sinking fund forecast or what has been budgeted for expenditure.
However, in the meantime, until such time that the body corporate properly authorises the repurposing of the tennis court, it would be obliged to maintain the tennis court in good condition. This is a statutory maintenance obligation that cannot be ignored.
If the body corporate is considering these two options at the general meeting as alternatives, it needs to be careful that the motions are drafted correctly, and by the correct threshold.
This post appears in Strata News #374.
Have a question about repurposing of common property assets or something to add to the article? Leave a comment below.
EmbedTodd Garsden Mahoneys E: tgarsden@mahoneys.com.au P: 07 3007 3753
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