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Bodies Corporate and GST Threshold

Monday, 25th October 2010

Senior Client Director at Kelly+Partners Accountants, Peter Dawkins admits that it is not the most exciting subject in the world, but it is something we all need to know. The Australian Taxation Office ("ATO") has recently conducted a review of bodies corporate (also known as owners corporations) in relation to the GST threshold.

The result of this review is that the GST threshold for bodies corporate has increased from $75,000 to $150,000 where a body corporate is considered to be a non-profit body.

The ATO's announcement states that "bodies corporate are now considered to be non-profit bodies for GST purposes, provided they do not have an intention to distribute interest or other income to members".

To assist in the practical application of this announcement guidance can be taken from GST Ruling 2000/11 wherein the ATO states "that where the law or the constituent documents do not prohibit distributions, it is a question of fact in each case as to whether the body is not carried on for purposes of profit or gain to the individual proprietors.  Factors that we consider relevant include whether distributions have been made, whether there is a stated or demonstrated policy to make or not to make such distributions and whether winding-up is contemplated.  Where it is clear from the objects, policy statements, history, activities and proposed future directions of the body that there will be no distributions to individual proprietors, we accept that the non-profit test has been satisfied."

The ATO considers that the circumstances in which profits will be available for distribution by a body corporate to its proprietors will be limited since in most cases the only assets that a body corporate will hold in its own capacity will be limited to the balance of the sinking fund and administration fund and any personal property such as washing machines, driers and lawn mowers etc. which are necessary for the basic purposes of the strata scheme.

Furthermore, where distributions are contemplated the source of the distribution is important.  For instance the distribution of members' own funds will not amount to a distribution of profits but will be considered a return of capital thereby not affecting the non-profit status of a body corporate.  However, the distribution or intention to distribute interest income or other income such as rental income from common property may well disqualify the body corporate from being a non-profit body.

Bodies corporate which are currently registered for GST and which have a GST turnover of $150,000 or less will therefore need to consider the following courses of action:

  • Cancel their GST registration or
  • Remain voluntarily registered and report annually or
  • Continue with their current GST registration and reporting and lodgement oblications
At this stage it may well be prudent for a body corporate to continue with its current GST registration arrangements until further information becomes available.

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