Owners corporations must pay company tax on all income apart from members fees. Interest charged on outstanding fees is capped. Prescribed Owners Corporations must have their accounts audited annually and must have a 10-year maintenance plan. Money may be paid out of maintenance funds or sinking funds in line with a maintenance plan without a special resolution by members.
An owners corporation is considered a company by the Tax Office and must pay tax at the current company rate on all income exceeding $1.00. Income means income earned (such as bank interest) and does not include fees paid by members, which are regarded as mutual funds.
The ability to charge interest on outstanding fees is capped at the maximum rate of interest payable under the Penalty Interest Rates Act 1983 (Vic) (s 29 OC Act). It is not necessary to pass a special resolution to apply penalty interest.
The decision to charge interest must be authorised at a general meeting. This removes decision-making flexibility by the committee or by ballot. The owners corporation must report to the annual general meeting explaining any decision to waive or not to waive the imposition of interest.
The notice of any fees and charges due and payable by the lot owner must allow at least 28 days for payment and must state the applicable interest rate and details of the dispute resolution process under the Rules in respect of disputed fees and charges (s 31). A final notice must be provided thereafter as a prelude to legal action (s 32).
Professionals (e.g. estate agents) can hold member’s funds in their statutory trust accounts. A separate bank account may be opened for each owners corporation or held in a manager’s pooled or trust account (s 27). An owners corporation that has an approved maintenance plan (see “Maintenance plans and funds”) must keep separate accounts for its maintenance fund (s 33(2)). This does not require a separate bank account.
Borrowing money in excess of the current annual fees of the owners corporation requires a special resolution (s 25 (1)(b) OC Act).
Prescribed owners corporations
Under regulation 5 of the OC Regulations, a “prescribed owners corporation” is:
a an owners corporation that levies annual fees in excess of $200,000 in a financial year; or
b an owners corporation that comprises more than 100 lots including any accessory lots (car park or storage area).
A prescribed owners corporation must, after the end of each financial year, have its financial statements audited (s 35(2) OC Act). An owners corporation may apply in writing to the Director of Consumer Affairs for an exemption from the requirements of this subsection (s 35(6)).
A prescribed owners corporation must prepare a maintenance plan setting out certain requirements, such as major capital items anticipated to require repair or maintenance within the next 10 years (s 37(1)(a)), and the estimated cost (s 37(1)(d)). At present, the only prescribed items of a capital nature are lifts, air conditioning or heating plant. It is significant to note that whilst a prescribed owners corporation must prepare a maintenance plan under section 36(1), there is no compulsion to approve the plan under section 38.
A maintenance plan is discretionary for non-prescribed owners corporations (s 36(2) OC Act).
The prescribed maintenance fund (ss 40, 41) is equivalent to what is commonly known as a “sinking fund” or “reserve fund”. Subject to any prior conditions, money may be paid out of the maintenance fund at any time in accordance with the approved maintenance plan (s 43). Money may also be paid out of the maintenance fund if the owners corporation, by special resolution, approves the payment (s 44). Money may also be paid out of the maintenance fund without a resolution of members for urgent matters described in section 45(2).
Approval of the maintenance plan is by ordinary resolution of the owners corporation (s 38(1)).