If you plan to purchase an investment property that is owned with a body corporate or strata building, keep in mind that you have to pay for body corporate fees—these are levies that the body corporate uses to manage and maintain the property.
Body corporate fees fund building insurance, common area maintenance, and building works and repairs. The fees you and other owners pay annually form the body corporate budget, distributed between an administrative fund and a sinking fund for capital works. A special-purpose fund may also be created.
- Administrative fund. This is used to cover day-to-day expenses to maintain and manage the body corporate building. This fund is for things such as common water, common insurance, and management of the body corporate itself.
- General purpose sinking fund. This fund is used to cover non-routine expenses such as major repainting or a roof replacement. The fund is done so that unit owners will not be surprised with a one-off expense that may be large.
- Special purpose fund. This is usually a fund with owners making one-off payments for major works or repairs.
How much to pay
Your body corporate fee is determined by several factors such as:
- The onsite facilities that need maintenance such as gardens, gyms and pools
- The size, structure, and age of the building
- The number of units you own within the complex
- The fees the body corporate charge for their management service
The fees you have to pay to your body corporate may vary, as the total amount required for the strata’s maintenance and management is budgeted annually and then divided up between the owners.
The proposed budget is presented during the Annual General Meeting where the owners have the opportunity to agree or disagree with the figure. Once the majority of owners agree on a suitable budget, the fees by each unit can then be computed.
On average, body corporate fees can be as low as $30 a week—and as high as $600 a week, according to Metropole Properties in Brisbane director Brett Warren. However, the figure may change in the future, especially if major capital works are undertaken.
Body corporate fees can be paid monthly or yearly, depending on the agreement. An annual body corporate fee may require a higher one-off payment, while paying on a monthly basis may be easier to pay because they are smaller.
To know more about body corporate and fees on your state, visit the following websites:
You may be able to claim a deduction for body corporate fees and charges incurred for your rental property, according to the Australian Taxation Office (ATO).
You can claim a deduction if:
- The payments you make to body corporate administrative funds and general purpose sinking funds, as they are considered payment for the provision of services by the body corporate
However, you cannot claim if:
- The body corporate requires you to make payments to a special purpose fund to pay for particular capital expenditure, these levies are not deductible
- The body corporate levies a special contribution for major capital expenses to be paid out of the general-purpose sinking fund, because payments to cover the cost of capital improvements or repairs of a capital nature are not deductible. However, you may be able to claim a capital works the deduction for the cost of capital improvements or repairs of a capital nature once the cost has been charged to either the special purpose fund or if a special contribution has been levied, the general-purpose sinking fund.
- If the body corporate fees and charges you incur are for things like the maintenance of gardens, deductible repairs and building insurance. For example, you cannot claim a separate deduction for garden maintenance if that expense is already included in body corporate fees and charges.
Body corporate fees are NOT council rates
Some investors may think body corporate fees are the same as council rates, but it’s not the case. These two fees are different from each other. In essence, you pay the body corporate fee to your body corporation, while the council rates should be paid to your local council or municipality.
Council rates are paid to your local council to help fund and maintain infrastructure. Councils use property values as the basis for distributing the rating burden across the municipality. The rates vary from state to state.
If you want to know more about council rates in your area, visit the following websites:
Similar to body corporate fees, you may be able to claim a deduction for your council rates. Provided that:
- The local council in which your rental property is located imposes an annual emergency services levy
- Where you fail to pay local government rates and charges for the property by the due dates and you become liable to pay interest charges under the relevant state law, you can claim the late interest charges as a tax deduction.
Now that you have more knowledge about body corporate fees and its difference with council rates, it may be a good idea to take these into account when looking at your next rental property investment. You may talk to a professional, like your accountant, to further discuss what body corporate fees and council rates are and how you can claim them for a tax deduction.
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