Hypothetical:- A Body Corporate has $20,000 in its Sinking Fund. They want to paint all the common areas (quote $20,000) and also replace the tiles on the roof (quote $20,000). Which is better: 1. Pay for the roof replacement first out the Sinking Fund, raise $20,000 via a Special Painting Levy and then use these funds to do the painting. 2. Pay for the painting first out the Sinking Fund, raise $20,000 for a Special Roof Replacement Levy and then use these funds to replace the roof tiles. I understand from a tax perspective that Option 1 is better.
Use $10k towards each (painting and roof replacement) and raise $30K via a special levy to fund the balance of the works and to keep a working float in the account.
Option 2 provides a tax deductible repair and is more correct. Option 1 would be incorrect as capital expenditure isnt deductible and you cant classify a capital expense as deductible. The correct approach is that the general (admin) fund is for repairs and ordinary maintenance ie painting although this may also be a sinking item but perhaps a special fund needs to be setup using allocations from the admin fund. These levies are tax deductible as a result. Special levies are used for capital works and non-deductible for that reason. If you blend them then this taints ALL deductions. That not clever as it renders ordinary levies as non-deductible. Strata laws allow multiple funds to be established for specific or general purposes. An administration fund or general levy fund is not same as a sinking fund which is intended for capital works AND major unbudged works (which may also be repairs . the ATO view is the nature of that levy must be determined. So dont mix them up !! I think is clearly explained here : Sinking or maintenance funds | Smart Blocks ATO explains it here : Payments you make to body corporate administration funds and general purpose sinking funds are considered to be payments for the provision of services by the body corporate and you can claim a deduction for these levies at the time you incur them. However, 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. Similarly, if the body corporate levies a special contribution for major capital expenses to be paid out of the general purpose sinking fund, you will not be entitled to a deduction for this special contribution amount. This is because payments to cover the cost of capital improvements or repairs of a capital nature are not deductible Getting advice from a strata pro would be wise as sometimes a independent manager will be able to address concerns and give recommendations to avoid a rebellion in the common areas if you get it wrong ! Prior to the roof replacement seek a QS view also as scrapping may flow through to unit owners. The new roof would be a common area and also provide enhanced Div 43 write off thereafter as well....All possible benefits to some (investors) owners and of zero benefit to owner occupiers.
I love it when one presents two options (out a field of many to keep things simple) and ask people to choose but people a third .