This article is about the income from body corporate common property.
Table of Contents:
- QUESTION: If the body corporate uses sinking fund monies to purchase shares in a Pty Ltd company, who then are the shareholders in the case of a body corporate?
- QUESTION: Can a body corporate sell advertising space on a wall facing a busy road? I am not questioning if it’s possible with council etc, but more is the body corporate restricted from generating any income?
- ARTICE: Income from Body Corporate Common Property
Question: If the body corporate uses sinking fund monies to purchase shares in a Pty Ltd company, who then are the shareholders in the case of a body corporate?
If the body corporate uses sinking fund monies to purchase shares in a Pty Ltd company, who then are the shareholders in the case of a body corporate?
If all owners are deemed to be shareholders in the company (and NOT just the committee), do all owners then have a vote in relation to company matters?
Answer: Despite being in plain black and white for 25 years, the biggest secret in the Body Corporate and Community Management Act 1997 is that Bodies Corporate can invest, in the same way that a trustee may invest.
Shh…. It’s a secret! Despite being in plain black and white for 25 years, the biggest secret in the Body Corporate and Community Management Act 1997 is that Bodies Corporate can invest, in the same way that a trustee may invest. There are limitations in the BCCM Act, including that the amounts invested are not immediately required and it’s the Body Corporate doing the investing.
So what can a ‘trustee’ invest in? Well, under the Trusts Act 1973, a trustee may, unless expressly forbidden by the instrument creating the trust (i.e. the BCCM Act is not an instrument but has its own limitations), invest funds in any form of investment. So, it’s possible for a Body Corporate to invest funds not immediately required by purchasing shares in a company.
Enterprising committees should however beware! The Pty means propriety – this means the shares cannot be readily traded and as such the shares may be an illiquid asset. The Ltd means limited – this means the shareholders liability (to the company) is limited to the (unpaid) value of the share.
This is where things start to get interesting – if a body corporate buys or is issued part paid shares that are liable to be forfeited if the ‘call’ for the balance is not met, is that company mortgaging a body corporate asset? What level of approval is required for that? What about a requirement in the shareholders agreement, for that Pty Ltd company, that shareholders must provide guarantees to help secure business loans for the company?
Because the body corporate is the shareholder, it is the body corporate who would be obliged to provide the guarantee? Fortuitously, because the body corporate is making the investment and holds the investment directly (it has trustee’s powers of investment, but does not hold investments as trustee), it is the lot owners or rarely the committee who will make investment decisions, according to the limitations in the BCCM Act. Investment decisions are spending decisions, but they are also decisions about acquisition and disposal of body corporate assets (being property which is not ‘real property’).
When investing as if it were a trustee, the body corporate’s powers are likewise limited by its obligations, including as to the proper assessment of potential investments. Which is of course, the reason that 99% or more of body corporate funds are held in boring old fixed terms deposits (aside from the preferential terms which the banks concerned offer the body corporate managers who bank with them). As for decisions made by shareholders in that Pty Ltd company, it would be the body corporate making them …. which of course sounds dangerously like the body corporate engaging in business decisions, in the management of a business for its own profit; i.e. carrying on a business contrary to s96(1) of the BCCM Act.
Michael Kleinschmidt Bugden Allen Graham Lawyers E: michael.kleinschmidt@bagl.com.au P: 07 5406 1280
This post appears in Strata News #594
Question: Can a body corporate sell advertising space on a wall facing a busy road? I am not questioning if it’s possible with council etc, but more is the body corporate restricted from generating any income?
Answer: The Body Corporate may grant a lease or licence over an area of its common property
Answer: The Body Corporate may grant a lease or licence over an area of its common property
William Marquand
Yes, the Body Corporate can generate income by leasing space for advertising or other purposes such as housing telecommunications equipment.
There will be a number of factors to consider in any such agreement including:
- The area to be used.
- How that area is to be maintained.
- Length of lease.
As such, a legal representative will probably be required to advise on the process and any proposal will need to be voted on by the body corporate. A by-law may be required to confirm the use of the space.
You will also need to consider any accounting implications and may need to review how the income is managed with your accountant.
Alanna Hill
The Body Corporate may grant a lease or licence over an area of its common property (see s.184(1)(a) of the Body Corporate and Community Management (Standard Module) Regulation 2020 (‘Regulation’)).
The Regulation does not prevent the Body Corporate from including a term which requires the payment of a fee in exchange for the lease or licence. The lease or licence must be approved by the Body Corporate, with the resolution required dependent on the length of the lease or licence (see s.184(2) of the Regulation). We recommend that the Body Corporate obtain legal advice before granting a lease or licence to ensure that adequate terms are included to protect the Body Corporate’s interests.
Please note that the Body Corporate is prohibited from carrying on a business (s.96(1) of the Body Corporate and Community Management Act 1997 (‘Act’)). While we are not aware of any cases which indicate that a lease or licence granted for profit to an external entity would contravene s.96(1) of the Act, it is possible that an owner may challenge the lease or licence in the Office of the Commissioner for Body Corporate and Community Management if it believed that s.96(1) of the Act is being contravened.
William Marquand Tower Body Corporate E: willmarquand@towerbodycorporate.com.au P: 07 5609 4924
Alanna Hill Mathews Hunt Legal E: alanna.hill@mathewshuntlegal.com.au P: 07 5555 8000
This post appears in the September 2021 edition of The QLD Strata Magazine.
ARTICE: Income from Body Corporate Common Property
Does your body corporate receive income from public car parking, payments for the use of common property to convene functions/conferences and the like, or payments from telecommunication companies and other businesses which erect communication towers on the roof of your complex or affix advertising signage to the common property?
If so, Taxation Ruling No. TR 2015/3 “Income tax: matters relating to strata title bodies constituted under strata title legislation” issued by the Australian Taxation Office, probably applies to such income. The effect of this Ruling is that the ATO will apply a consistent approach across strata schemes in all States and Territories, notwithstanding the different ways in which strata title legislation describes how common property is held.
Most importantly, the ruling determines that the income received from the common property is taxable on the income tax return of the owners, not the Body Corporate.
To the extent that a body corporate may not have done so since TR 2015/3 was released, this will in future require that end-of-financial-year statements be issued to each lot owner which set out the owner’s proportions of income from common property (based on their lot entitlement) and associated deductions – which each lot owner then needs to include in their annual tax return.
This article is a brief summary of Taxation Ruling No. TR 2015/3 which is quite lengthy and complex. If you are a lot owner in a strata scheme/body corporate that derives income from sources such as those mentioned above, you should, if you have not previously done so, alert your tax agent, and if considered necessary, seek independent financial advice about the possible tax consequences this Ruling may have on your personal financial circumstances.
The full text of Taxation Ruling No. TR 2015/3 can be found here.
Tower Body Corporate E: kelly.borell@towerbodycorporate.com.au P: 07 5609 4924
This post appears in Strata News #391.
Have a question about income from body corporate common property or something to add to the article? Leave a comment below.
EmbedThis article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.
Read next:
- QLD: Q&A Can a Common Property Asset be Repurposed?
- QLD: Q&A Body Corporate Rules for Cars on Common Property
- QLD: Is Your Body Corporate Overcharging?
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