This time of year presents a great opportunity to set yourself up financially and budget for expenses you don’t often think about — like body corporate fees.
Blogger: Grant Mifsud, senior body corporate manager, Archers Body Corporate Management
If you own an apartment or are looking to invest in one, you are required to pay body corporate fees, commonly known as levies, which cover the costs of maintaining common areas, and general management.
These fees are generally split into two funds; an administration fund and a sinking fund. The administration fund covers general administration, maintenance, insurance and other ongoing costs, while the sinking fund is used to pay for the maintenance or replacement of big ticket items, such as painting, lifts or structural repairs to common property. There can also be what is called a special levy which is usually a one-off levy to pay for unplanned major works, or a major expense required.
Body corporate fees range in price depending on the complex features and amount of maintenance required. They can be less than $1,000 per year, and as high as $25,000 per year. Regardless, they are a significant cost worn by the owner not the tenant, and should be budgeted for from the outset.
Here are my top tips for budgeting for body corporate.
1. Break down the cost
This one may sound like a no-brainer, but the best way to prepare an effective budget is to split expenses into increments. A pen and paper (and maybe a calculator) is all you need to do this. Start by determining how much your admin and sinking fund levies are per year, then break this cost down into an amount each week. Set this money aside as you go, so when you receive the levy, you’re not scrambling for the cash.
2. Communicate openly with your body corporate
While body corporate correspondence may not always be the most exciting, the best thing you can do is stay updated! Attend general meetings (or have a representative attend), read through the committee minutes, and regularly check your email and mailbox to ensure you know of any changes to the body corporate budget, or any large projects that need to be completed. This way you are one step ahead of the game when it comes time to make a decision!
3. Thoroughly review the budgets
To comply with legislation and ensure the ongoing financial health of the body corporate, budgets must be prepared for each financial year. A budget is required for both the administration fund and the sinking fund. If you believe the proposed budgets are unreasonably high and do not adequately reflect the required costs, you can vote against any motion to approve the budget, or seek a reduction of up to 10 per cent (subject to conditions). If this isn’t successful, you can apply for dispute resolution, during which you will have to explain which budget items you object to and why. However, you should try other ways to resolve your dispute before this, such as proposing alternative budgets that you believe are reasonable and necessary, with supporting documentation on proposed costs.
4. Consult your accountant
It is important to remember that, like many fees associated with a designated investment property, most body corporate fees are tax deductible on investments. Consult your accountant to learn more about which body corporate fees you can claim, and how. As a general rule, the ATO considers money paid for admin and sinking funds as tax deductible, while the special purposes levy must be traced to see what the actual funds were raised for.