BY ALL ACCOUNTS
Advertising profit:
To include or not include? charged as a percentage of gross room revenue, usually between two and five percent.
By Jonathan Hanaghan, Principal, Count Gold Coast
For as long as I can remember, any profit from advertising and marketing services has been excluded from the net operating profit (NOP) calculation in the purchase or sale of a management rights business within Australia. There has been a long-held belief that all funds derived by the operator should be fully expensed on behalf of the complex generally, and in particular, the unit owners within the letting pool. There is also a special conditions clause in each purchase or sales contract that states any funds held on trust for unit owners must be handed over to the purchaser on settlement. This is very rare but still worth noting. I have only seen, on very limited occasions, Form 6 agreements on permanent complexes that allow regular marketing amounts charged by the manager to be included in a purchase or sale transaction. On every occasion, the amount has been immaterial in nature. However, on medium to large holiday complexes, the amount of advertising and marketing net income can be material and often in excess of $50,000. This is generally
The old school of thought was that the manager would market the building with pamphlets and advertising in tourism magazines such as Qantas. The prevailing view was that these funds were not meant to be a profit source for the manager. In reality, this is not the case. On short-term holiday management rights, I regularly see annual profits from this income stream of up to $100,000. Most advertising and marketing is now done online, with the vast majority relating to setting nightly rates through various websites and managing those listings. This begs the question: should net profit from this service be included in the NOP for purchase and sale purposes? I know a well-respected lawyer in the management rights industry who believes it should be. I can’t argue with his logic, as it makes complete sense. Some points to consider on the positive side of including advertising and marketing NOP are: •
•
Both income and expenses are taxed the same by the ATO as any other profit and loss items.
Some points to consider on the negative side of including advertising and marketing NOP are: •
It has never been included before.
•
It is not meant to be a profit centre for the manager.
I have seen another accountant in the industry move from excluding this in sales numbers to including it within the past two months. It appears the tide is turning, but you would be a brave professional accountant or valuer to do this without total and complete agreement within the industry. Why? Consider these situations: •
How would recent vendors feel after selling and leaving $500,000 or more
ǨƮļǠǵǨǵǠļǵļϭŘƺƮ
In summary, I think it is too early to move on this without industry consultation and agreement. I will take this matter up with ARAMA to see if we can start the process. I am not sure how long this may take, but I think it is a worthwhile conversation we need to have as an industry. As always, please feel free to consult with your own industry professional accountant or valuer if you have any input.
ļŗŘƮϭŘƺƮ
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ƹƤĀƹĀϕ žŲŲǁŴŒƹǟϕ.ģǁĜĀƹŒžŴϕīŲŒŴĀƤϕ ĜƹžěīƤϕ̄̂̄̇ ǁŴƬōŒŴīϕ žĀƬƹϕёϕGžũģϕ žĀƬƹϕёϕrĀĜŦĀǟϕёϕ ƤŒƬěĀŴīϕёϕ ĀŒƤŴƬ
The income stream is ongoing in nature.
ǠŧǝļƎǠǨϮхǽǝƁǠļşŧǨϮхƺǠхƎƮǝǠƺȔŧƮŧưǵǨхƎưхțƺǽǠ
•
It is a valuable and essential service.
ưƺȕхƎǨхǵƉŧхǵƎƮŧхǵƺхƁŧǵхŘƥļǠƎǵțϭхdƺƎưхǽǨхƀƺǠхļư
•
A number of managers have been bundling their remuneration to include all income and expenses for some time, occurring for approximately 10 years.
ļưşх.ȚŘƥǽǨƎȔŧхÁǨŧхх ƺưƀǽǨŧşх ļŗƺǽǵх ȕƉƺЩǨх ǠŧǨǝƺưǨƎŗƥŧх ƀƺǠ ǨǵǠļǵļх ǨŘƉŧƮŧϴх ßƺǽЩǠŧх ưƺǵх ļƥƺưŧх Кх ļưş ƎưƀƺǠƮļǵƎȔŧхǨŧǨǨƎƺưхşŧşƎŘļǵŧşхǵƺхǽưǝļŘƢƎưƁ
A labour component must be included in quantifying any net income derived.
How would a recent purchaser feel if their accountant or valuer disagreed when they sell later, after spending $500,000 or more for this income stream on acquisition?
ƥļǠƎƀțƎưƁхrļƎưǵŧưļưŘŧхҸхTƮǝǠƺȔŧƮŧưǵх ŗƥƎƁļǵƎƺưǨ
ƺƮƮƺưх ¢ǠƺǝŧǠǵțϮх hƺǵх ƺǽưşļǠƎŧǨ
•
•
¢Ǡƺǽşƥț ¢ļǠǵưŧǠŧşхÙƎǵƉ
Form 6 (or PAMDA 20a) agreements allow for the charges to owners.
•
on the table because of a recent trend?
ƺưŧх ƺƀх ǵƉŧх ƮƺǨǵх ƮƎǨǽưşŧǠǨǵƺƺşх ļưş şƎǨǝǽǵŧşхļǠŧļǨхƎưхǨǵǠļǵļхŘƺƮƮǽưƎǵƎŧǨϭхºƉƎǨ ŧȔŧưǵхȕƎƥƥхǝǠƺȔƎşŧхǵƉŧхǝǠļŘǵƎŘļƥхƢưƺȕƥŧşƁŧ
rļǠƎƺх.ǨŧǠļ ¢ļǠǵưŧǠ OÙhх.ŗǨȕƺǠǵƉхhļȕțŧǠǨ
ǠŧưǵƺưхŘƉƺŘƉ ¢ļǠǵưŧǠ GǠļŘŧхhļȕțŧǠǨ tƎƁŧƥхOļƥŧǨ ¢ļǠǵưŧǠ rƎƥƥŧǠхOļǠǠƎǨхhļȕțŧǠǨ
ƎƮǝǠƺȔŧƮŧưǵǨхȕƎǵƉхŘƺưƀƎşŧưŘŧϭ
ºƺşşхGļǠǨşŧư ¢ļǠǵưŧǠ rļƉƺưŧțǨхhļȕțŧǠǨ
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dŧǨǨƎŘļх ļưưƺư ¢ļǠǵưŧǠ ƉļƮŗŧǠǨх¥ǽǨǨŧƥƥхhļȕțŧǠǨ
țƺǽх ưŧŧşх ǵƺх ƮļưļƁŧх ƮļƎưǵŧưļưŘŧх ļưş
MANAGEMENT
September 2025
15