What are the tax treatments when a strata earns money from laundry and vending machines?
The placement of pay-per-use machines such as laundry equipment and vending machines on common property is becoming a more regular means for lot owners to supplement their levy contributions... but there are tax implications:
When we speak of 'laundry income' or 'vending machine income', there can be two scenarios - each with a different tax outcome:
In scenario 1, there is no direct income tax consequence for the strata company but the owners each need to declare their share (split by unit entitlement) of the income in their own tax returns.
In scenario 2 though, the income is assessable for income tax purposes to the strata company. Any income derived from non-owners must be declared in full on a company tax return. Strata companies are entitled to claim a deduction for any expenses incurred that are directly related to earning that income under section 8.1 (1) of the Income Tax Assessment Act 1997. Examples include the costs of stocking and re-stocking, repairs and maintenance to the machines, depreciation (if the assets were purchased) etc. They’re also entitled to claim a portion of other, more generic expenses like strata management fees. The general rule of thumb is to base the aportionment on a suggested formula provided by the ATO in Taxation Ruling 2015/3 - basically whatever proportion of total income (including levies) that the vending machine / laundry income makes up, then the same percentage can be applied to the ‘apportionable expenses’*. The net profit (ie: assessable income less deductions) is then subject to 30% tax**.
*It is worth noting however that the Ruling states that the method of apportionment simply needs to be 'fair and reasonable' this formula as provided by the ATO is given as an example.
**In some cases, the strata will be eligible for the small business tax rate of 25%… but it depends upon how much, if any, income they receive from bank interest or status certificates in any given year.
For more information, please contact the Ascend office via your strata manager.
The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above. Please contact our office for more information.
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