As part of the strata reforms that commenced on 1 May 2020 a new definition of financial year for a strata company was inserted in section 3 of the Strata Titles Act 1985 as follows:
Financial year for a strata company means –
(a) If the scheme by-laws are silent on the matter, the period of 12 months ending on 30 June; or
(b) If the scheme by-laws specify a period of 12 months ending on a different date as the financial year for the scheme, the period specified in the by-laws.
This reform was part of the suite of reforms designed to improve the management of strata companies. The provision provides certainty, transparency, and accountability on the period for which the strata company’s budget must be prepared for approval at the annual general meeting of the strata company.
The provision also determines the period for which the strata company’s financial statements are prepared showing the assets, liabilities, income, and expenditure of the strata company at the end of the financial year. The financial statements must be included as an item of business on the agenda for each annual general meeting of a strata company.
Recognising that the introduction of the provision could impact the way that strata companies and their strata managers currently operate a transitional provision was inserted in the Strata Titles (General) Regulations 2019 (regulation 175) that delays the operation of the meaning of financial year for a transitional period of 5 years from 1 May 2020 and concluding 30 April 2025.
During the 5-year transitional period, the financial year for a strata company is taken to be —
(a) if a financial year is specified in the scheme by-laws of the strata company — that period; or
(b) if paragraph (a) does not apply — the period of 12 months used by the strata company as its financial year before the commencement day; or
(c) if neither paragraph (a) nor (b) applies — the period of 12 months ending on the day before the anniversary of registration of the strata titles scheme, or the period of 12 months ending on 30 June, whichever period the strata company chooses.
A strata company that during the transitional period uses or chooses a period of 12 months for its financial year ending on a different date to 30 June may make a scheme by-law by ordinary resolution specifying that period as its financial year.
A strata company that by the end of the transitional period has not made a by-law specifying a financial year defaults to a financial year period of 12 months ending on 30 June. The strata company may need to undertake additional administrative processes and hold an extra strata company meeting to appropriately transition to the 30 June end date, which may incur additional costs.
Developers, lawyers who draft scheme by-laws, strata companies and their strata managers should take note of the transitional provisions for the financial year of a strata company in regulation 175 of the Strata Titles (General) Regulations 2019 and take appropriate action if they do not want the financial year for the scheme to end on 30 June.
Below is the part on page 2 of the Scheme By-laws (SB) form relevant to creating the by-law during the transitional period:
By ordinary resolution passed on ______________ a by-law specifying a period of 12 months ending on a different date to 30 June was made as detailed here and taken to be a governance by-law in accordance with Strata Titles (General) Regulations 2019 regulation 175(4).
[Insert Governance by-law addition and by-law number here]
General information about scheme by-laws can be found in section 13 of Landgate’s Guide to Strata Titles.