OC fee category, payment timing

[Burramys]

My OC manager has issued a special levy for "Concrete repairs and tree works", payable in April 2015. It appears that as this is a repair it is an immediate deduction. Is this correct?

An IP invoice for an immediate deduction item is received in June and paid in July. Is this deducted in the June FY or the July FY? TIA.

 

[Paul@PFI]

Special levies to fund capital works are not deductible. You may be entitled to a proportionate share of the total capital works expense over 40 years however.

Read about Body Corporation levies here : https://www.ato.gov.au/Individuals/...ublications/Rental-properties-2012-13/?page=9

 

[Burramys]

Thanks for that advice. The ATO advises that:
"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."

The item in question is a special levy but there is no sinking fund. The levy goes into our only OC bank account and will be paid to the contractors from
there.

TR 97/23 says:
"13. The word 'repairs' has its ordinary meaning. It ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property.

"19. Work done partly to remedy or make good defects, damage or deterioration does not cease to be a repair if it is also done partly - even largely - to prevent or anticipate defects, damage or deterioration (in a mechanical or physical sense) in property or in rectifying defects in their very early stages. Repairs are not confined to rectifying defects, damage or deterioration that have already become serious. Work done to property not in need of repair, however, is not repair work and any expenditure for the work in these circumstances is not deductible under section 25-10.

"20. Some kinds of maintenance work are 'repairs' in terms of section 25-10, for example, painting plant or business premises to rectify existing deterioration and to prevent further deterioration."

The levy is to pay for repairs and maintenance, albeit quite expensive to undertake. It seems to me that whilst the distinction between capital works and repairs may be a fine one, a repair is an allowed deduction, regardless of the cost. The OC invoice uses the word "repairs". The word "capital" is not stated. Hence, as a repair the levy seems to be an immediate deduction. Comments would be valued.

 

[jrc]

Was the concrete in need of repair when you purchased?

 

[Burramys]

I cannot recall what it was like then, ages ago, but I suspect note. I know the issue was raised at an OC AGM a few years ago, and last year it was decided to fix the paths. Is pre-existing or not at the time of purchase a factor? The TR cited above seems to turn on "repair". The new concreting will bring the paths to a desirable standard, as they were when made and should be. This appears to fall within the definition of repair.

 

[Paul@PFI]

Like capital expenditure that exceeds $400... Or an initial repair.

Both are non-deductible as capital expenditure is not deductible. Ditto if trees removal is part of the fix its part of the fix. Its possible its a Div 43 capital allowance item and you may claim your share over 40 years.

PS a sinking fund is the term given to the general pool of funds retained for general operational costs such as mowing, repairs etc. A special purpose fund is what they are alluding to. The Strata doesn't need to keep a specific bank account. The OC way of not keeping maintenance separate from capital expenditure is not clever.