Strata schemes sit at an unusual intersection of property law, trust accounting, and tax compliance. The bookkeeper's role in a strata management practice is not just to record receipts and payments — it is to maintain two legally distinct fund structures, ensure levy income is correctly classified for GST, and keep the trust account reconciled to the cent. Getting this wrong creates regulatory exposure for the strata manager and potential liability for lot owners.
The Two-Fund Structure: Administrative vs Capital Works
Every strata scheme in Australia (with minor variations between state strata legislation) must maintain two separate funds:
Administrative fund: Covers day-to-day operational costs — building insurance, common area electricity, garden maintenance, cleaning, strata manager fees, and minor repairs. Funded by administrative levies raised on lot owners according to their unit entitlement (or as specified in the scheme's by-laws).
Capital works fund (called the sinking fund in some older state legislation — the terminology differs between NSW, Victoria, Queensland, and Western Australia): Covers major capital expenditure — roof replacement, lift refurbishment, external painting, structural repairs, and other works with a long useful life. Funded by capital works levies, guided by a 10-year capital works fund plan (required under most state strata acts).
Mixing the two funds is prohibited under strata legislation in most jurisdictions. A strata manager who transfers money from the capital works fund to cover operational shortfalls without a proper owners corporation resolution has breached the legislation, regardless of the intent. Your chart of accounts must enforce this separation absolutely — separate bank accounts for each fund, separate income accounts for each levy type, and separate expense accounts matched to the relevant fund.
| Aspect | Administrative fund | Capital works fund |
|---|---|---|
| Covers | Day-to-day operational costs | Major capital expenditure |
| Examples | Insurance, electricity, cleaning, manager fees, minor repairs | Roof replacement, lift refurbishment, external painting |
| Funded by | Administrative levies | Capital works levies |
| Planning | n/a | 10-year capital works fund plan |
| Bank account | Separate | Separate |
| Mixing funds | Prohibited without OC resolution | Prohibited without OC resolution |
Levy Income: GST Classification
The GST treatment of strata levies depends on the nature of the strata scheme:
Residential strata: Contributions (levies) raised from lot owners for residential strata schemes are generally GST-free. The supply is one of real property used for residential accommodation, and the levy is consideration for that supply. Under GSTR 2012/5, the ATO has confirmed that levies for residential strata schemes do not attract GST. The owners corporation does not charge GST on levy notices and cannot claim input tax credits on expenses funded by those levies — unless it is registered for GST and making some taxable supplies (e.g., the scheme has commercial components).
Commercial or mixed-use strata: Levies raised for commercial strata (office buildings, retail centres, industrial schemes) are taxable supplies if the owners corporation is registered for GST. The levy notice must include GST, and the owners corporation claims full ITCs on related expenses. Mixed-use schemes — part residential, part commercial — require an apportionment methodology, typically based on floor area or unit entitlement ratios.
This distinction changes the entire bookkeeping approach. For a residential scheme, code levies as GST-free income. For a commercial scheme, ensure levy invoices show GST and claim ITCs on all eligible costs.
Strata Manager as Agent vs Principal
The legal relationship between the strata manager and the owners corporation affects how revenue and expenses flow through the books. Under the standard management agreement, the strata manager acts as agent for the owners corporation. This means:
- Levy receipts collected by the strata manager are not the strata manager's income — they are held on trust for the owners corporation.
- Payments made to contractors from the trust account are disbursements on behalf of the owners corporation, not the strata manager's expenses.
- The strata manager's only income is the management fee charged under the management agreement.
If the strata management practice is maintaining its own books (as a business), the trust receipts and disbursements do not appear on the practice's profit and loss statement. Only the management fee income and any commissions or rebates received appear as revenue. The trust account is a balance sheet item (liability: funds held in trust; asset: cash in trust bank account).
Coding Levy Receipts and Arrears
When a levy is raised, create the debit (charge) on the lot owner's debtor account and credit the relevant income account (admin levy income or capital works levy income). When payment is received, debit the bank account and credit the debtor.
Levy arrears require careful tracking. Overdue levies accrue interest under state legislation — typically the rate specified in the scheme's by-laws or a default statutory rate. Interest income on arrears is separate from levy income and has its own GST treatment (interest is input-taxed, meaning no GST charged and no ITC claimed on related expenses). Do not mix interest recovered from overdue levies with regular levy income — they belong in separate accounts.
Partial payments from lot owners in arrears should be applied according to the strata scheme's by-laws or a resolution of the owners corporation. Some schemes specify that payments apply to oldest debt first; others apply to interest before principal. Establish the rule before posting and apply it consistently.
Capital Works Fund Plan and Contributions
Most state strata legislation requires a 10-year capital works fund plan (or sinking fund forecast) prepared by a qualified quantity surveyor or estimator at prescribed intervals (typically every 5 years in NSW, with annual updates). The plan projects expenditure on major capital items and the levies required to fund them.
The bookkeeper's role is not to prepare the plan but to ensure the actual capital works fund balance at any point in time is consistent with the plan's projections. If the fund has been drawn down by unexpected expenditure, flag it to the strata manager — a special levy to lot owners may be needed to restore the required balance.
Capital expenditure from the capital works fund should be capitalised if it meets the definition of a capital asset (replacing or materially improving a component), or expensed if it is a repair. Under state strata legislation, the fund can only be used for capital purposes — so if a repair is funded from the capital works fund, there should be a resolution of the owners corporation authorising the departure from the plan.
GST on Strata Manager Fees
The strata management fee is a taxable supply (assuming the manager is GST-registered, which they should be if annual turnover exceeds $75,000). The fee appears on the owners corporation's accounts as an administrative expense (coded to the admin fund). The owners corporation claims an ITC on the fee if it is a commercial scheme registered for GST. If it is a residential scheme (GST-free), no ITC is available.
Insurance commissions received by the strata manager from the scheme's insurer require separate treatment. Historically, managers received commission from insurers for placing strata insurance — disclosure obligations under state fair trading legislation have increased transparency here. If the strata manager retains a commission, it is income of the strata management business, not of the owners corporation. If it is returned to the owners corporation, it is credited to admin fund income. The GST treatment follows the character of the underlying supply.
Reconciling the Strata Trust Account
The trust account reconciliation is a regulatory obligation in most states, not merely a bookkeeping best practice. The strata manager must be able to demonstrate at any time that the trust account bank balance equals the total of all scheme fund balances held in trust.
Run the reconciliation monthly at minimum. The reconciliation steps are:
- Confirm the bank statement closing balance for each trust bank account.
- Confirm the general ledger balance for each scheme's fund accounts.
- Identify any timing differences (deposits in transit, unpresented cheques or unprocessed EFTs).
- Confirm the adjusted ledger balance matches the adjusted bank balance.
Any unreconciled difference must be investigated immediately. Common causes include posting a payment to the wrong scheme's account, duplicate payments, or a levy receipt posted to the wrong fund. Strata trust account discrepancies can trigger a complaint to the relevant state regulator (e.g., NSW Fair Trading, Consumer Affairs Victoria) if they are not resolved promptly.