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Risks to lot owners
As a lot owner, you risk financial and legal consequences through poor financial management of your owners corporation (formerly body corporate).
An owners corporation is responsible for actions taken on its behalf by delegates, such as a professional manager or committee member. It can pass on costs incurred by these actions to members by raising fees. As a lot owner, there is no limit to your financial and legal liability for actions of your owners corporation or its delegates.
Your owners corporation should seek professional help to manage its financial responsibilities.
Your owners corporation has the power to:
- set fees to cover general administration, maintenance and insurance
- levy special fees for extraordinary expenditure
- establish a maintenance fund to cover the cost of works in the maintenance plan
- borrow money
- invest money
- recover money owed
- charge penalty interest
- operate a bank account.
A prescribed owners corporation must also:
- audit financial statements after the end of the financial year
- establish a maintenance fund to cover the cost of implementing the maintenance plan.
Your owners corporation must:
- use an approved form called a ‘fee notice’ to give notice of fees and charges
- use an approved form called a ‘final notice’ to give final notice of fees and charges
- pay remuneration to managers and employees
- pay insurance premiums
- keep financial records
- prepare annual financial statements
- have a tax file number. Australian Business Number (ABN) and register for goods and services tax (GST) with the Australian Taxation Office if income meets or exceeds $75,000 a year
- pay income tax
- withhold tax from suppliers who fail to provide their ABN
- lodge business activity statements (BAS) with the Australian Taxation Office.
Financials for prescribed owners corporations
Prescribed owners corporations must:
- prepare financial statements in accordance with standards set out in the Owners Corporations Regulations 2007
- have these financial statements audited at the end of the financial year.
An owners corporation must keep financial records that:
- cover all its income, expenditure, assets and liabilities
- enable it to make true and fair reports of its financial situation
- record and explain all financial transactions for income tax and GST purposes (Australian Taxation Office requirements).
Your owners corporation can keep financial records in hard copy or in an electronic form. The Australian Taxation Office has a free e-record system on their website.
The financial records must be kept in a safe and secure place.
If the financial records are kept on a system owned by a third party, such as the manager or secretary, the committee and lot owners can inspect those records for free and make copies for a reasonable fee.
The basic information that an owners corporation should keep includes income, expenditure, and assets and liabilities records.
Income records include:
- invoices, statements and receipts of invoices paid
- invoices and statements issued, including tax invoices
- credit card statements, if relevant
- bank deposit books and bank account statements.
Expenditure records include:
- purchase/expense invoices, including tax invoices
- purchase/expense receipts that include an ABN
- cheque butts and bank account statements
- credit card statements, if relevant.
Assets and liabilities records include:
- the asset register
- depreciation schedules
- taxation returns
- lists of debtors and creditors
- unpaid invoices.
For further information, contact the Australian Tax Office.
Financial statements at annual general meetings
Your owners corporation must present its financial statements at each annual general meeting. Financial statements should give a summary of all transactions during the financial year, including income, expenditure, assets and liabilities records and penalty interest charges.
Auditing financial statements
Prescribed owners corporations must have their financial statements audited at the end of each financial year. If your owners corporation is not prescribed, lot owners can decide at the annual general meeting whether to get the financial statements audited.
Consumer Affairs Victoria recommends that all owners corporations have their accounts audited.
Statements must be audited by either
- a registered company auditor
- a firm of registered company auditors
- a person who is a member of CPA Australia, the Institute of Public Accountants or the Institute of Chartered Accountants in Australia
- any other person who is approved by the Director of Consumer Affairs Victoria.
Last updated: 19/11/2013