This page provides details on what village budgets and financial accounts should include and how they should be executed.
Retirement village operators need to prepare quarterly and annual accounts of the income and expenditure of the village, and a village budget may also be required to let the residents know how their ongoing charges will be spent.
Budgets
The village budget lets residents know how their recurrent charges will be spent in the coming year.
A village budget is compulsory unless the total amount of the recurrent charges during the financial year is $50,000 or less.
In villages where a budget is required, the village operator must:
- prepare a proposed budget each year itemising how the recurrent charges will be spent during the next financial year
- include a report relating to capital maintenance for major items of capital, including shared major items of capital, for a three-year period commencing on the financial year to which the annual budget relates
- give each resident a written notice with a copy of the proposed budget at least 60 days before the start of the financial year.
The written notice must state:
- brief reasons for any changes in expenditure from the previous year
- that the residents’ consent for the budget is required
- that a special resolution of the residents is required for any variation in the village services or facilities that causes a change in expenditure, and
- that the operator has the option to apply to the NSW Civil and Administrative Tribunal if the residents do not consent to the budget.
Reviewing the village’s asset management plan will give you an indication of upcoming costs you may need to pay.
More information can be found in the Secretary's guidelines for asset management plans.
Liability for payment of recurrent charges from vacant residences
Once a retirement village resident leaves a village, after a certain period of time, they no longer have to pay recurrent charges. The Retirement Villages laws provides that an operator has the obligation to meet the cost of recurrent charges for vacant units once the obligation on the departed resident ceases and until the vacancy is on-sold.
This operator obligation needs to be contributed into village funds on the same basis as other residents are required to do (in most cases, by monthly instalments which is called the recurrent charge).
Clause 26AA allows the operator to be reimbursed by residents for that outlay in Year 1 if they approve such provision in the village budget for that year or until someone else acquires that liability (the incoming resident) during Year 1.
This explains the options to deal with the liability for payment of recurrent charges after an exiting resident’s liability ends.
Under clause 26AA of the Retirement Villages Regulation 2017, an operator may seek approval to increase the recurrent charges for the forthcoming financial year to take into account the fact that there were fewer residents contributing to the recurrent charges in the previous financial year. Clause 26AA takes effect if the former resident’s liability ceased after 1 January 2021.
If an operator wants to increase the recurrent charges for the forthcoming financial year to take into account residents who have left, this must occur by way of a budget approved by residents.
If an operator does not want to seek to recover the costs associated with departing resident by increasing recurrent charges for the forthcoming year, the following options are available:
- continue to meet the recurrent charges as operator,
- change the service available to residents and/or the expenditures budgeted.
Note that certain variations of service require the process in s60 of the Act to be followed (including a special resolution of residents).
Example
In the 2020/21 financial year, (Year 0) Village A has 80 units paying $400 a fortnight in recurrent charges ($10,400 annually per resident). This would produce $832,000 in recurrent charges if all properties paid 12 months of recurrent charges. In Village A, the operator prepares a budget (based off $832,000 being recovered from recurrent charges) which sets out the services that will be provided.
During that financial year, Village A has 5 residents cease paying recurrent charges, causing the operator to collect only $812,000 rather than $832,000 in recurrent charges. The operator is required to pay the recurrent charges of $20,000 for the 2020/2021 financial year (Year 0).
In preparing the budget for the 2021/22 financial year (“Year 1”), the operator can:
- propose a budget that provides services up to $780,000 (based off 75 units paying $400 - the same recurrent charges as the year before), which will result in either a reduction of indirect costs and/or a drop in the quality or amount of services bringing into play the requirements of S. 60 of the Act and the procedures to be followed if necessary.
- propose a budget that provides services up to $832,000 (based off 75 units paying $426.67 a fortnight to retain the same standard of service as provided in the previous year).
- propose a budget with an indexed recurrent charges figure based on one of the scenarios above (or elsewhere in the Retirement Villages Regulation) where the residents’ contract allows for this indexation to occur (or a fixed formula increase in other cases).
If Village A has not filled the vacant units in the 2021/22 financial year (Year 1), the operator is liable to meet the recurrent charges in any following year in respect of those vacant units, unless the operator has added those vacant unit charges as a line item in the next year's budget and this has been approved by residents.
There are many possibilities in regard to the timing of vacant possession but for the sake of simplicity and transparency those units becoming vacant in one financial year (year 0 – operator paying the charges) and remaining vacant at the start of the next financial year (year 1) should be clearly identified as a separate budget line item and the assumptions of continuing vacancy clearly outlined in the budget for Year 1.
Whether the operator pays, or residents pay, for vacant units in year 1 will be decided by voting under the budget process.
If the assumption is that the units remain vacant for all of year 1 and recurrent charges fixed on that basis and it subsequently turns out that they become occupied during that year, there will be a surplus of charges paid in respect of those units that year.
Common questions
What must be in a proposed annual budget?
- the amount of recurrent charges residents will pay during the year
- the method by which the ongoing charges have been calculated
- the total expected income from ongoing charges for the year
- the total proposed expenditure of the village for the year
- all proposed categories of expenditure and the proposed expenditure in each category
- the proposed and actual expenditure in each category in the approved budget for the current year
- the method or calculation for sharing any item of expenditure between the village and the operator’s other villages or businesses (if applicable)
- the method or calculation for sharing recurrent charges between residents (only if some residents are paying significantly higher recurrent charges than others)
- the expected surplus or deficit for the year and its effect
- in relation to the proposed maintenance and repairs of each major item of capital:
- an estimate of the costs, dates and type of proposed maintenance, and
- an estimate of the costs and type of any proposed repairs.
- the amount of recurrent charges set aside in the capital works fund for capital maintenance.
A major item of capital means:
- an item of capital for which the operator of a retirement village is responsible that has a purchase price of $1,000 or more, or
- is part of a group of similar items of capital of the same effective life and acquisition date and have a combined total purchase price of $1,000 or more.
It excludes any item that is a consumable used in the operation of an item of capital or in the day-to-day operation of the village. For example paper used in a printer, lawn mower blades.
Reviewing the village’s asset management plan will give you an indication of upcoming costs you may need to pay.
If the proposed budget includes some of the operator’s head office costs or management or administration fees, these must be itemised and approximate cost added. Operators must also provide details about how head office costs or fees have been allocated between villages (where the operator owns two or more villages).
The budget can provide for contingencies up to a maximum of $1.
A model budget is provided for residents and operators to better understand the types of items that could be included in a village budget. The model budget is not compulsory, and does not have to be used by a village operator.
What must NOT be in the budget?
The following expenses cannot be paid for from the money raised from recurrent charges:
- fees for the operator’s membership of industrial or professional associations
- overseas travel by the operator or their agent or employees
- the cost of marketing vacant units
- some payroll tax amounts – see below for more information
- head office costs that do not relate to services provided to the residents of the village
- any other items for which the operator is financially liable under the legislation.
Payroll tax can only be included in the budget if:
- the wages paid to operate the village (including any wages apportioned to the retirement village by the operator’s head office) are more than the tax threshold set under the Payroll Tax Act 2007, or
- before 1 March 2010, the residents had consented to pay payroll tax from the recurrent charges and that consent has not been revoked.
If the village wages are below the threshold, but payroll tax has been included in an approved budget prior to 1 March 2010, the operator can propose that payroll tax be included in a subsequent budget and it is up to the residents whether or not to consent to including the charge in the budget.
Section 115 of the Retirement Villages Act 1999 provides that, if the residents do not agree to the proposed budget, the operator or a resident may apply to the NSW Civil and Administrative Tribunal (NCAT) for an order in respect of the proposed expenditure. The Tribunal is required to make its decision on each application based on the evidence provided.
There is no power under the act for NSW Fair Trading to make a binding ‘ruling’ about the meaning of clause 26 of the Regulation, or any other matter under the act. Any statement by NSW Fair Trading on the meaning of clause 26 would not prevent the parties to a dispute from exercising their right to apply to the Tribunal.
Any questions regarding how payroll tax is calculated should be directed to Revenue NSW.
Do residents need to consent to the proposed budget?
Resident consent is not needed if:
- the recurrent charges have not been changed, or
- the recurrent charges are being changed by a fixed formula, or
- the recurrent charges are being changed other than by a fixed formula and the change is within the Consumer Price Index (CPI) variation.
If the residents’ consent is not required, they must still be given written notice and a copy of the budget.
How is residents' consent to the proposed budget given?
If the residents’ consent is required, then within 30 days after receiving the operator’s request for consent, residents must:
- hold a meeting
- consider the proposed budget
- vote on whether to consent to the budget
- advise the operator that they consent or do not, and
- specify which items in the budget they do not agree with (if there are any they disagree with).
The meeting will be arranged by the residents committee, if there is one, or by the operator.
The vote is by majority – more than 50 percent of votes cast (in person or by proxy) need to agree with the budget for it to be accepted (give consent). Voting can be by a ballot, the post or show of hands.
The residents committee can ask the operator to provide any additional information needed to help them consent to the proposed budget. If there’s no residents committee, residents can request it themselves. An operator must provide this information within 10 business days.
If the residents do not advise the operator of their decision within 30 days, they are taken to have refused consent to the budget.
It should be noted that once the budget is approved, if there is a difference from what is in the Asset Management Plan, then the Plan must be updated within 28 days from when the budget is approved. This is to ensure that the Plan remains consistent with the three year report.
Resolving a dispute about a proposed budget
If the residents do not agree with any items in the proposed budget, there are a number of steps which can be followed.
Firstly, the residents committee can ask the operator for more information, such as copies of quotes for proposed work and services. If there is no residents committee, any resident can ask the operator for information.
The residents or residents committee and the operator could also discuss ways of reducing expenses. If a change to the proposed budget is agreed, the operator can prepare an amended budget.
If the residents and operator are not able to agree, Fair Trading can help mediate a solution, but we cannot force either party to take a particular course of action.
If the majority of residents still do not consent to the proposed budget, the operator or a resident can apply to the Tribunal. The Tribunal can:
- make an interim order about items that are not in dispute
- make orders to help the parties to reach agreement, such as an order to hold a meeting or prepare new costings
- make recommendations about the costs and services to be provided
- approve the proposed expenditure in the budget
- approve different items of expenditure or different amounts, and
- make other relevant orders about expenditure and liabilities.
If the dispute is not resolved by the start of the financial year and an application has been lodged with the Tribunal, the operator can only spend money to meet the reasonable and necessary costs to ensure the village continues to be properly managed.
Voting on a budget when there's an increase in recurrent charges above CPI
The vote to increase recurrent charges must be done separately to the vote to approve the proposed budget
This means that:
- if recurrent charges are being increased by more than the CPI variation, the affected residents must vote to consent;
And then:
- a separate vote for all residents is held to consent the proposed budget.
What happens to a surplus or deficit?
Generally, any surplus carries over to the next financial year. Alternatively, the residents can give consent to spend the whole or part of the surplus, or distribute the whole or part of the surplus to existing residents in equal shares.
A proposal can be made by the operator or the residents committee. If there is a budget deficit at the end of each financial year, the operator must pay it from their own funds. With some limited exceptions, a deficit cannot be carried forward or be paid for from recurrent charges or the capital works fund. The exceptions relate to costs of essential services that may increase unexpectedly during the year.
Residents can be asked to fund a deficit only if it is caused by increases in: utilities (except telephones), rates and taxes, award wages and salaries, urgent maintenance public liability insurance, or workers compensation insurance (capped at no more than 50 percent of the increase in the ‘experience premium’ component from the previous year).
Financial accounts
The quarterly accounts must detail the income and expenditure of the village. The operator must provide the residents committee (if any) a copy of the quarterly accounts within 28 days of the end of each quarter.
The annual accounts must include:
- details of the income and expenditure of the village during the financial year, including income and expenditure of the capital works fund (if any)
- the balance of the capital works fund, if there is one
- amounts received from certain claims on the village’s insurance
- details of any interests, mortgages, and other charges affecting the village property (other than property owned by residents)
- a statement that specifies whether payments owing to former residents were paid in full and on time, and, if not – the details of, and reasons for, the delay
- a statement from the auditor or operator about the operator’s capacity to meet village liabilities in the following financial year.
The operator must provide residents with copies of the audited accounts within four months of the end of the financial year.
The format of the accounts should match the layout of the proposed annual budget and only contain details of the income and expenditure of the village (details of nursing homes and hostels should be excluded).
An operator who operates two or more villages can provide consolidated accounts but, when providing the accounts to residents of a particular village, must include a separate statement of income and expenditure for that village.
Appointing an auditor
Operators must obtain residents’ consent each year before appointing a person as the auditor of the accounts of the retirement village.
For most villages, approval of the auditor will be sought at the same time as the village budget.
Where residents do not agree with the auditor suggested by the operator, they may suggest an alternative.
This will help to ensure residents have a say in who examines how the operator is using the money that residents pay as recurrent charges.
Where the operator does not agree with the alternative auditor suggested by the residents, the operator will need to apply to the Tribunal for an order.
However, the Tribunal cannot make an order in the operator’s favour unless it considers there are exceptional circumstances for doing so.
Who gets copies of the accounts?
Annual accounts
The operator of the village must provide residents of the village with copies of audited accounts, within four months after the end of the village’s financial year.
If there is no residents committee, a copy of the annual accounts must be displayed on a notice board in a common area for at least one month. It must be provided to any resident who requests a copy.
Quarterly accounts
The operator of the village must provide residents of the village with copies of audited accounts.
In some smaller villages, the residents have the option to choose not to receive a copy of the quarterly accounts. This is only an option if the total amount of the recurrent charges collected during the financial year was $50,000 or less.
What should residents do after receiving the accounts?
The accounts should be checked to ensure that expenditure is in line with the approved budget for the period, other than minor variations. Residents can discuss any concerns with the operator and raise questions at the annual management meeting (which must be held within four months.
For strata and community scheme villages
Budgets
The budget processes under the two sets of laws are different.
Under the strata and community scheme laws, a notice of the proposed annual levies for the scheme is sent to owners before being voted on at the annual general meeting.
Under the retirement village laws, the operator must give each resident a copy of the village's proposed annual budget at least 60 days before the start of the village's financial year. If residents need to approve the budget, then it should be voted on at a meeting.
This cannot be done at the owners corporation or community association annual general meeting.
Financial accounts
In a strata or community scheme retirement village, there must be two separate sets of annual accounts: the retirement village accounts and the owners corporation or community association accounts.
In strata schemes, owners also receive a 'statement of key financial information' in relation to the administrative fund, the capital works fund, and any other funds administered by the owners corporation.
The retirement village accounts generally have to be audited. Auditing is optional for the owners corporation or community association accounts except in the case of a strata scheme of more than 100 lots.
There should be no duplication between the two sets of accounts and the strata or community scheme accounts cannot include income from recurrent charges or expenditure on services funded by them.