This article has been taken from he commissioner for the Body Corporate and Community Management Act and looks at spending limits in a body corporate – both committee spending limits and major spending limits.
Treasurer: 7 top tips
In this series of articles, we will be looking in detail at each role, with the aim of supporting our committees and helping each member understand the roles on the committee.
Round two – Treasurer
The treasurer of the body corporate often plays a leading role in the committee and the body corporate community more generally. It is a volunteer position which can be very rewarding but also can take an investment of time and effort from the member. <br><br>
Owners who become elected as treasurer often come into the role with:
- A professional financial or accounting background
- A good understanding of the numbers
- A commitment to being an active participant in the committee governance
- Sometimes – just because no other owners put their hand up for the job
Even though the role typically attracts individuals with a particular skill or passion for numbers, there are no pre-requisites for the job. Every new building needs a treasurer, and every treasurer has a first time in the role.
Working with our strata management team at BCsystems means you will have an experienced and friendly person at the end of the phone or email who can provide you with as much guidance and support as you need.
Whether you are an experienced hand or a beginner, this article is aimed to improve your experience as treasurer and get the best outcomes for your entire body corporate.
What does the treasurer role involve?
The body corporate has strict duties in relation to financial management including:
- Operating bank account/s in the name of the body corporate
- Preparing annual budgets for each fund type
- Forecasting future capital costs
- Calculating and issuing levies
- Monitoring the balance of every lot at all times
- Issuing information certificates upon request
- Maintaining a balance sheet
- Maintaining income and expenditure statements for each fund
- Ensuring no transfers occur between fund types
- Calculating and applying levy discount
- Calculating and applying penalty interest
- Recovering overdue levies
- Calculating and recovering levy recovery costs
- Processing incoming payments
- Approving outgoing payments
- Paying creditors
- Recording contracts
- Providing financial statements to owners annually
- Providing levy statements to owners upon request
- Accounting for GST (if GST registered)
- Lodging business activity statements (BAS)
- Maintaining an ABN
- Appointing a public officer for ATO purposes
- Accounting for mutual and non-mutual income types
- Advising owners about non-mutual income entitlements
- Recovering insurance premium contributions from owners
- Lodging an income tax return
- Investing surplus funds in the way a trustee may invest funds
- Keeping and making available records for audit
- Operating an embedded cost recovery system for bulk utilities
- Administering optional or opt-in mutually funded projects
1. Rely on expert support
In the 1990s it was very rare for bodies corporate to operate beyond a typical group of 6 apartments. Now it is increasingly common for bodies corporate to operate annual budgets exceeding $1Million. BCsystems has an accounting department which manages these functions in conjunction with the individual strata manager, and each committee. Our accounting team comprises a mix of skills, including:
- Degree qualified accountants
- Registered BAS agent
- Accounts payable team
- Levy arrears manager
- Insurance manager
2. Track spending
It is best practice for the treasurer to approve all outgoing creditor payments, to ensure that the body corporate is paying accurately for the work it has undertaken. You can leave the GST considerations to our accountants, instead focus on whether the work has been done and the payment can be released. The treasurer generally undertakes this function jointly with the caretaker or building manager. BCsystems offers a no-cost online invoice approval system which allows the relevant approver authorities to conveniently view and approve invoices online before payment. This system is very flexible, allowing:
- Single approver
- Multi-step approver (e.g. caretaker first, treasurer second)
- View the PDF invoice copy
- View the data entry we have completed
- View the expense account code
- History of approved invoices for 3 months
3. Understand incomes
Bodies corporate generally have multiple income streams, which are reported on separately, and often have different taxation treatments:
This is always the main type of funding for a body corporate. Levy income is set by the body corporate and collected from each lot owner. This is mutual income, meaning it is not considered a taxable income or ‘profit’ when the body corporate reports income tax. Levy income is reported on an accrual basis, with any levy arrears or levy pre-payments by owners shown as assets shown on the balance sheet.
Though interest rates are at a historic low, most bodies corporate have one or more term deposit income accounts. Income generated on term deposit investments is non-mutual income derived from a body corporate asset (money), and this is reportable income for the body corporate when it comes to income tax time.
Whilst a body corporate is legally barred from conducting business activities as a substantial function, a body corporate is entitled to receive other income to offset body corporate expenses. Some other income types may include:
- Exclusive use payments by benefitted lot owners
- Lease fees from a telephone tower on the roof of the building
- Lease fees from a sea-bed or marina lease
- Transfer fee arising from the sale of caretaker/management rights
- Payment for resumed land (e.g. for road-widening or tunnel construction)
- Pay to operate equipment (e.g. communal washing machines)
4. Consider the purpose of levies
Certainly, when considering many of the individual costs by a body corporate (e.g. pool servicing) – the goal is to achieve the best service outcome at the lowest cost. In other words, to get value for money.
Body corporate levies also serve a ‘savings’ purpose – by putting money away into the sinking fund to provide for future capital repairs and building improvements.
Unlike fine art and wine, buildings do not get better with age. Even a premium building starts to show its age as new developments go up around it – the best way to combat that gradual decline in appeal is by maintaining and improving your building.
Whilst owners certainly appreciate low levies in the short term – reducing levies does not do anything to your costs, many of which are fixed costs. Fixed costs that are not covered by levies often require special levies or loans, both of those quickly un-do the benefits of low levies. We don’t have the answer as each scheme is different and each committee has different priorities. Our advice is to:
- Think first about value for money in your services and building repair and improvement projects
- Set levies to achieve those goals
- Communicate this methodology to owners
5. Give owners confidence
By now you probably gather that body corporate financial management is pretty complex. The body corporate has an obligation to give copies of financial statements to owners each year – but that alone does not do a good job of communicating your goals, priorities and challenges.<br><br>
Great treasurers often:
- Write a cover note about the financials, budgets and levies to send out with the AGM papers; and
- Make some comments at the AGM for owners who are in attendance
This does not need to be an onerous task, and if you have generally kept up to date with the finances throughout the year – you might be confident to speak off the cuff at the meeting.
This is something that your strata manager can help you to prepare. We can assist with a record of what big projects or goals you have achieved, changes to your sinking fund forecast, general levy trends across other similar buildings and really assist you to brainstorm the best way to communicate with your owners.
In our experience owners are much more willing to accept budgets and levies if they hear from the treasurer that some thought and work went into setting them, and that the levies are not an arbitrary decision.
6. Don’t worry too much about levy arrears – we have that covered
Levy arrears management is extremely consistent at BCsystems. We have a dedicated full-time levy arrears manager (Emma) who has worked with us for over 11 years. The body corporate legislation is very prescriptive about levy collection, including:
- Number of days required for distribution of levy notices
- Number of days between notice and levy due date
- Penalties for late payment
- Interest which accrues on late payments
- The method of accrual of interest
- Maximum interest rates
- The calculation of interest on individual days
- The sequence of application of payments against debts
- The maximum timeframe before legal debt collection is initiated.
7. Ask questions
If you are unsure about something, don’t be afraid to ask questions. These financials are routine to our team, and we are generally well-practiced at answering any questions about body corporate accounting.
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