If you plan to purchase an investment property with a body corporate or strata community in place, keep in mind that you will have to pay body corporate fees—these are levies that the body corporate uses to manage and maintain the property. But not all these amounts are immediately deductible.

Body corporate fees are pooled to fund building insurance, common area maintenance, and building works and repairs. The fees you and other owners pay annually form the body corporate budget, distributed between an administrative fund and a sinking fund for capital works. A special-purpose fund may also be created.

There are three main funds that a body corporate use:

– Administrative fund: This is used to cover day-to-day expenses to maintain and manage the body corporate building. This fund is for things such as common water, common insurance, and management of the body corporate itself.

– General purpose sinking fund: This fund is used to cover non-routine expenses such as major repainting or a roof replacement. The fund is done so that unit owners will not be surprised with a one-off expense that may be large.

– Special purpose fund: This is usually a fund with owners making one-off payments for major works or repairs.

What can you claim a tax deduction for?

You generally can claim a deduction for body corporate fees and charges incurred for your rental property, according to the Australian Taxation Office (ATO).

You can claim a deduction if:

The payments are in relation to administrative funds and general-purpose sinking funds, as they are considered payment for the provision of services by the body corporate

However, you cannot claim a deduction if:

The body corporate requires you to make payments to a special purpose fund to pay for capital expenditure, these levies are not deductible and must be treated as capital expenditure.

The body corporate levies a special contribution for major capital expenses to be paid out of the special purpose fund. Payments to cover the cost of capital improvements or repairs of a capital nature are not immediately deductible. However, you may be able to claim a capital works deduction for the cost of capital improvements or repairs of a capital nature once the cost has been charged to the special purpose fund.