You were part of the discussion about raising the budget to what you believed was a sensible, but affordable amount.
Then you got your latest levies, and they were higher than you anticipated.
How did this happen?
Welcome to pro-rata levies.
Every year at your Owners Corporation’s AGM, you will review the previous financial year’s figures before discussing a new budget for the new financial year.
Whatever you and your fellow owners decide to raise will be your new budget, and this new amount has to be raised before the end of the financial year, which ends on June 30.
More often than not, your Owners Corporation’s AGM will take place after this date.
That’s because Strata Plan needs the financial year to end so that our Accounts teams can complete all relevant reports for your Owners Corporation to consider in full at your next AGM when deciding how much you need to raise for the new financial year.
These reports show how much your Owners Corporation raised against how much it spent and are crucial to our Accounts Team and your fellow owners when it comes to determining your new budget for the next financial year.
This often means your Owners Corporation does not have a full four quarters to raise the amount over and has to play catch up.
Let’s use our mock 10-lot Owners Corporation from 123 Smith St to explain.
This Owners Corporation has decided on a budget of $13,000 for the 2016-17 financial year. This is ratified in June, BEFORE the end of the financial year.
This means that there will be four quarters of the year over which the budget will be raised.
The $13,000 is split between all 10 owners, who conveniently share equal lot liability, meaning each owner will contribute $1,300 to the Owners Corporation over the financial year.
This $1,300 is split into four equal payments, due on July 1, October 1, January 1 and April 1.
Each lot owner’s quarterly payment equals $325.
The financial year runs its course and by June 30, the Owners Corporation has raised its budgeted $13,000.
As the Owners Corporation has not had an AGM before the end of the financial year, the budget of $13,000 carries over to the 2017-18 financial year.
As a result the first quarter of levies for the 2017-18 financial year are due on July 1 and are struck in accordance with the budget of $13,000. That means all 10 lot owners contribute $325 each to raise $3,250 out of the $13,000 budget.
On August 1, the Owners Corporation for 123 Smith Street has its AGM. After reflecting on the finances, the owners decide they need to raise $16,000 for the financial year.
The new budget is resolved at the AGM and will kick in just in time for the second quarterly payment.
The new budget total of $16,000 must be raised by June 30, 2018, but there are only three quarters left to raise it in.
In calculating the levies for the remaining three quarters, we must first take into account what has already been paid.
The 10 owners have already contributed $3,250 thanks to their first-quarter payments.
We take the $3,250 out of the $16,000 budget meaning that there is $12,750 left to raise.
This is divided by the 10 owners, meaning each owner must pay $1,275 over the remaining three quarters.
This amount is split into three $425 payments, due by all owners on October 1, January 1 and April 1, by when the full $16,000 has been raised.
If the budget was to continue into the new financial year and no change was made to the budget at the next AGM, the quarterly payments would go down to $400 per quarter, as the amount of $16,000 is being raised over four quarters instead of three.
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