EVERYTHING YOU NEED TO KNOW ABOUT BODY CORPORATE FEES

What is a Body Corporate?

A Body Corporate is the managing body that administers common property or common areas in multi-unit developments. Common property or common areas can include things such as the driveway, facilities, foyer and stairwell, gym, pool or any other common area in the building. When buying an apartment, townhouse, or duplex the owner is automatically part of the Body Corporate. A treasurer, secretary, and chairperson are then elected, and these spots can be filled by any owner.

What does a Body Corporate do?

A Body Corporate can be responsible for things such as maintaining, managing, and controlling common property on behalf of the owners. This includes gardens, pools, gyms, common and shared spaces such as hallways, and elevators.

The Body Corporate is also responsible for calculating body corporate fees and resident payment schedule, making and enforcing body corporate rules (called ‘by-laws’) about what residents can and can’t do, and managing and controlling body corporate assets. The Body Corporate is also responsible for the insurance of the building. Decisions about these items are raised at general meetings, which happen at least once a year (AGM), where all owners are given the opportunity to attend.

What are Body Corporate fees?

They are the cost of managing the common property or common areas on behalf of all the owners in the complex.

There are three main types of body corporate fees in Australia

1. Administration Levy – this is a levy to cover the day-to-day running of the complex (e.g. common water, common insurance, maintenance of lawns, management of the Body Corporate, etc).

2. General Purpose Sinking Fund Levy – this is a levy that is imposed to cover non-routine expenses (e.g. tile replacement or major repainting). It usually accumulates in a separate fund and is done so that owners are not hit with a large “one-off” expense for major works.

3. Special Purpose Levy – this is usually a one-off levy on the owners to pay for major works or a major expense required.

Body Corporate fees must be paid by anyone who owns a property within a larger building complex that is under a strata title. They are paid by the property owners, not the tenants.

If you want to avoid having to pay high body corporate fees then purchase a property with fewer common areas to maintain. For example, owners in complexes with facilities such as a pool, gym, or elevators will have to pay significantly more than those without any of those amenities. Before purchasing an apartment in an existing building ask to look at the previous years’ body corporate minutes check for any upcoming works, for how much money is in a sinking fund for future repairs (if any), and for any ongoing disputes between the owners or with other tenants.

How to calculate Body Corporate fees?

The total amount required to maintain and manage the building for each year is calculated by the managing body and then divided up between the owners.

In some property complexes governed by a body corporate, each of the properties has the same entitlements and therefore has an equal responsibility to pay these fees. In other buildings, some properties are larger than others or have access to additional facilities which may mean they incur higher fees. For example, a penthouse apartment would pay a higher body corporate fee than other smaller apartments in the same building.

At the Annual General Meeting, the Body Corporate will present its proposed budget and owners will have the opportunity to agree or disagree with the calculation. Once a majority of owners are in agreement on a suitable budget, the quarterly levies payable by each lot can be calculated. I recommend to all my clients to sit on the body corporate committee to ensure fees are kept at a minimum.

Are Body Corporate fees tax deductible for investors?

Many investors who either own or are planning to buy a strata property are unsure as to whether they can claim body corporate fees as a tax deduction.

The answer depends on the type of Body Corporate Fee charged.

According to the ATO, expenses are deductible depending on what the fees are ultimately spent on (either a capital item or a deductible item).

The ATO has accepted the following general rules:

Administration Fund Levies that are for the general running expenses of the complex are deductible when incurred.

Sinking Fund Levies that are imposed on a regular basis are deductible and the owner does not need to differentiate based on what happens to the funds (i.e. whether spent on deductible expenditure or capital expenditure).

Special Purpose Levies must be traced to see what the actual funds raised were used for. If they were to repaint the entire complex or replace the entire driveway, they would be capital expenses and not deductible.