When it comes to return on investment everyone has their own rules for maximising tax advantages/profit whether renting or selling their unit.
That said – most strata owners are not familiar with how to unlock the income which may be available through the property shared by all owners – that is – the scheme’s “common property”.
This is Part 2 to our first instalment (which you can access here: https://www.hbcm.co/getting-the-most-out-of-your-common-property-part-1/ and today we cover
The Body Corporate’s Cash At Bank – Investing for Return
While a Body Corporate cannot carry on a business, a Body Corporate can invest amounts of money not immediately required for its purposes in a way that a trustee may invest trust funds as described in the Trusts Act 1973.
It is not uncommon for a Committee to look at funds sitting in the Body Corporate’s bank accounts and resolve to put a portion of those funds aside into a term deposit to earn interest (upon which, tax is payable).
However, it is also open to a Committee to seek advice from a licensed financial planner on what the Body Corporate’s investment options are. The Committee must act reasonably and must act like a trustee when investing the trust funds. Depending on the amount to be dealt with – a general meeting motion may be required.
Whilst legislation does not determine what types of investment are acceptable and each case must be assessed on its own merits – there are limitations. For example from this case: http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/qld/QBCCMCmr/2022/346.html?stem=0&synonyms=0&query=invest#fn25 it seems creating a company to purchase a units within the body corporate’s own scheme were not “prudent person” decisions.
Additionally if advice from a financial advisor is provided that advice should be implemented. It would not be wise for the Committee to ignore that advice and follow its own investment strategy.
The Body Corporate’s Income – Selling an Income Stream for a Lump Sum
In our first article, we discussed the body corporate entering into a lease with a telco to allow that telco to place a small piece of infrastructure on the common property in return for a regular rental income to offset levies.
Did you know that it is possible for a body corporate to sell the income from that lease in return for a lump sum payment?
Without going into the complexities of the documents involved, much like entering into the lease the owners must vote at a general meeting by resolution without dissent in order for the assignment of the right to the income to be approved.
The main reason why a body corporate might consider selling the right to that income is to immediately access a lump sum in order to undertake important capital works which the sinking fund falls short on.
Like all commercial decisions – there are drawbacks to selling the right to the income stream – for example – forgoing the option to renegotiate the lease for a higher rent prior to its expiration and being certain the body corporate is not selling the asset for less than it is worth given the asset can only be sold once.
Do you have questions or want to know more about what might help your common property generate a return for all owners – email here: [email protected]