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 recurrent charges will be spent.
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, and
- 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.
What must be in a proposed annual budget?
- the amount of recurrent charges residents will pay during the year
- the method by which the recurrent charges have been calculated
- the total expected income from recurrent 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.
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 apportioned 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.
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;
- 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).
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?
Copies of the audited annual accounts must be given to the residents committee, as well as any resident who asks for a copy, 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.
Copies of the quarterly accounts must be given to the residents committee within 28 days after the end of the quarter. After the 28 days, a resident may ask the operator for a copy of the quarterly accounts, and the operator must provide this within seven days.
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
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.
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.