Financial responsibilities of an owners corporation
An owners corporation has a legal responsibility to administer the finances and common funds of the group of owners. Even if you are not a member of the committee, as a lot owner, you should be aware of the financial status of your owners corporation at all times as you risk financial and legal consequences through poor financial management.
An owners corporation is a legal entity similar to a board of directors. Just as each director is responsible for the actions of other directors, so too are owners that are part of an owners corporation. An owners corporation is also responsible for the actions taken on its behalf by its delegates such as the owners corporation manager and its committee members.
Here are 6 key areas of financial responsibilities for an owners corporation that you should be informed of:
- Financial powers and duties of an owners corporation
- Issuing fee notices
- Financial record keeping responsibilities of an owners corporation
- Financial statements at annual general meetings
- Trust accounts
- Auditing financial statements
Financial powers and duties of an owners corporation
Your owners corporation has the power to operate a bank account, set fees to cover running costs, set special levies for extraordinary expenditure, establish a maintenance fund to cover the cost of works in a maintenance plan, borrow money, invest money, recover money owed, charge penalty interest and operate a bank account.
The 12 key financial duties of an owners corporations are:
- Issuing fee notices and final fee notices to members of the owners corporations
- Keeping of books and preparing financial statements of accounts
- Processing and paying all invoices on behalf of the owners corporations
- Providing receipts for all payments to the owners corporations
- Operating and reconciling the owners corporation’s bank account
- Preparing and lodging BAS returns
- Preparing and lodging tax returns
- Withholding tax from suppliers who fail to provide an ABN
- Paying remuneration to managers and employees
- Paying insurance premiums
- Following up with owners who are in arrears
- Holding a tax file number, ABN, and registering for GST if income exceeds $75,000.
An owners corporation that has more than 100 lots or collects more than $200,000 in fees (known as a “prescribed owners corporation”), must also prepare financial statements in accordance with standards set out in the Owners Corporations Regulations 2018, ensure their financial statements are audited at the end of each financial year, and establish a maintenance fund.
Issuing fee notices
One of the most important financial obligations of the owners corporation is to set annual fees to cover administration, maintenance & repairs, insurance and other obligations of the owners corporation. If the owners corporation has an approved maintenance plan, the annual fees must include fees that are sufficient to allow the maintenance plan to be implemented. The fees set must be based on lot liability. Generally, the function of budgeting is delegated to an owners corporation manager who will forecast a budget and set out each lot’s contribution for consideration at the AGM. It is ultimately the owners corporation’s decision whether to accept the proposed budget and lot contributions.
It is also the function of the manager to send out fee notices in the prescribed form as well as final notices and will organise the follow up of any debt arrears.
Financial record keeping responsibilities of an owners corporation
An owners corporation must keep financial records that cover all its income, expenditure, assets, and liabilities, record and explain all financial transactions for income tax and GST and provide fair and true reports of its financial situation. The basic information that an owners corporation should keep includes income, expenditure, and assets and liabilities records. 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.
An owners corporation that has an approved maintenance plan must also keep separate accounts and records for its maintenance fund.
Financial statements at annual general meetings
The financial statements must be presented 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. These are generally prepared by the manager and sent out with the meeting agenda.
Trust accounts
All fees levied by an owners corporation must be paid into a bank account of the manager or provider, or the owners corporation. The manager holds all money in trust for the owners corporation and must account separately for the money held for each owners corporation. If money is held in trust or for the benefit of another person, then general law duties arise, including:
- Inquiring into the terms and state of the trust
- Obeying the terms of the trust
- Not making a personal profit or advantage from the trust
- Accounting for and providing information on the trust
- Keeping accurate and up-to-date records
– Administering the trust personally
– Exercising reasonable care not to mix trust monies
– Acting impartially.
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.
The audit is an opportunity to ensure that those entrusted with the smooth operation of the owners corporation are delivering that service; specifically, it provides an independent review of the annual financial transactions of the owners corporation managed by the registered manager.
The benefits of an owners corporation audit are:
- Obtaining an independent, expert opinion regarding the truthfulness and fairness of the financial statements.
- Detecting any errors.
- Ensuring compliance with accounting principles & standards.
- Detecting & preventing any fraudulent activity.
Common examples of what can be discovered by an audit are:
- The building is underinsured
- Overpayment or double payment of expenses
- Unclaimed insurance items
- Unclaimed GST
- Insufficient funds to operate.
If you’d like to find out more on managing the financials for your owners corporation, download our FREE Community Living guide. Or ask a question at StrataFAQ.com.au.