Sinking Funds Explained - Queensland - SSKB - Strata Managers | Community Experts

Sinking Funds Explained – Queensland


SSKB looks at Sinking Funds/Maintenance Funds for Strata Communities

What is a sinking fund?

A body corporate’s sinking fund is effectively a deposit which exists to allow a body corporate to pay for repairs and maintenance of a building.

The money in a sinking fund can be spent on several different things.  Firstly, it can be spent on anticipated capital expenditure, or non-recurrent items.  In a large strata scheme, this often includes large or one-off items, such as painting the building or major structural repairs to common property.  The sinking fund can also be used to replace major capital items in a scheme.  This might include items such as common property fences, or carpets in a lobby.  Sinking funds can then also be spent on any other reasonable expenses which should be reasonably met from capital, such as pool furniture.

The sinking fund is raised through three main avenues:

  • Owners’ contributions to the sinking fund
  • Interest received from the fund’s investments
  • And money from insurance pay outs (for major or capital items which have been destroyed or damaged)
  • The sinking fund levy (owner’s contribution), is often kept and administered by a Community Management company such as SSKB, on behalf of a body corporate.

Body corporates are also required to raise an administration fund.  This is used for regular maintenance of common property, such as gardens, as well as insurance charges, and administrative expenses – including secretarial fees and postage.  Money cannot be transferred between the sinking fund and the administrative fund, and vice versa.

Every financial year, body corporate committees must prepare a sinking fund budget.  This is to ensure the sinking fund has sufficient finances to provide necessary and reasonable spending for the upcoming financial year, on the items listed above.  This is also necessary to ensure an amount is reserved to cover likely spending for at least 9 years after the current financial year.  Building up financial funds reduces the likelihood of having to ask lot owners to make a large, one-off payment to sinking fund levies – although it does not totally removed the possibility of this occurring.

A proposed sinking fund budget must accompany the Annual General Meeting notice when it is distributed to lot owners every year.  After the sinking fund budget has been prepared, a committee is able to determine what amount will be levied to lot owners for the sinking fund levy.

Payments from the sinking fund for repairs or major expenditure can only be made if there is either a written request for payment in the form of a tax invoice, or written evidence of payment, including a receipt.  All payments from the sinking fund must be made from the financial institution account.

Bodies corporate can ask an independent company such as Star BMS to prepare a sinking fund forecast for it, or have a committee or lot owner estimate the likely spending requirements.

If your strata scheme is looking for advice on what a sinking fund is, and how best to manage it, talk to SSKB.  We can provide you with expert advice and tailor it to the details of your individual scheme to ensure you get the best outcome.



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Recent Comments

16 Comments

Colin Mapar On June 1, 2016 | Reply

Hi, I have some questions. If an owner after 13 years wants to sell his/her house, what will happen to all the money he/she paid as sinking funds (part of Levy) to body corp? does the new owner get benefit of that investment? can it be added to the sale price of the house?
Note that the complex never had any major repairs or painting.
By the way, who can give the details of the total received fund and expenditure and final balance of this sinking funds to existing owner? also who is controlling the interest received as the funds being banked in term deposit acc. Can the chairperson, treasurer or the secretary of the committee transfer the sinking funds or the interest of that funds into an account outside the body corp and committee?
Is it possible for Body corp companies give a commission to committee members of a complex because of been elected to be new body corp of a complex?
Thank you for your reply.
C.Mapar

    SSKB On June 3, 2016 | Reply

    Good afternoon,

    When a lot owner sells, regardless of the length of their ownership, all levies paid into the sinking fund remain with the Body Corporate. There is no provision in the legislation for a lot owner to ‘withdraw’ their portion. The new lot owner, along with the existing lot owners, have the funds available for future repairs / replacements.

    The total assets owned by the Body Corporate (all lot owners) is represented in the financial statements. If there are any amounts held on a term deposit, any interest earnt is placed in the sinking fund.

    If your building is under the Body Corporate & Community Management Act (BCCMA), it is strictly prohibited from transferring money from sinking fund to admin fund. Similarly, the committee have no authority to transfer funds into a separate account outside of the Body Corporate – all accounts and term deposits are in the name of the Body Corporate.

    With regards to your last point, Body Corporate companies do not provide ‘commissions’ to newly elected committee members. A lot owner who nominates for the committee, can seek, as part of their nomination, a request to be reimbursed a $ amount. If they are elected, the Body Corporate would then pay the committee member in accordance with that request.

    For example – if you nominated as chairperson and requested the Body Corporate pay you $300 per year as a reimbursement for their time or office costs (telephone etc), and were elected, you would submit a tax invoice to the Body Corporate for reimbursement.

    Thank you for your query – I hope this response helps.

Leigh On April 4, 2017 | Reply

There are 3 Buildings on one Lot, each with building has its own Electrical Box. Does the Sinking Fund pay for the installation of one of the buildings Safety Switch if it didn’t have one?

Gina On August 14, 2017 | Reply

Hi, I am looking for a specific answer. Body Corporate have 43 owners, and we are in Community Titles Scheme. The most of lots are rented. There live approx. 13-16 owners only. One of the residents, non-owner has an abnormal number of plants and he uses common property for his gardening (vegetables). He uses a lot of water, takes donation form residents for some vegetable and he started to sell vegetables to other residents. Our By-Law doesn’t states anything about exclusive use area, he uses and that area isn’t directly by a lot. Committee meeting minutes aren’t sent to owners in time and there is the power of the Chairman, who is the secretary. There are more problems, so I started to read Body Corporate and
Community Management Act and Accommodation Module and I started to “push” committee to fix problems to get minutes on time. The resident, mentioned above, applied committee for some permission, but I do not know detail… Just am waiting for committee meeting minutes, that is there. My question is, whether committee can do it like that? Thank you.

    SSKB On September 4, 2017 | Reply

    Hello Gina,
    There is a lot to unpack in your question. In this forum we can only give general advice, but you are welcome to contact us directly and speak to any one of our community managers.

    On Common Property: Common Property cannot be used on an “exclusive” basis by an occupier of a lot unless the area has been specifically allocated to that lot and recorded in the Community Management Statement of the Body Corporate.

    On Committee Meeting Minutes: Minutes of Committee Meetings and Annual General Meetings must be given to each lot owner within 21 days of the meeting.

Josephine Quintero On December 19, 2017 | Reply

Are body corporate rules the same in all other states in Australia? Is it compulsory for management committee to submit minutes of their meeting everytime? I am aware that MINUTES OF MEETING AT AGM must be submitted to all unit owners but not so sure about management committee meeting.

    SSKB On January 16, 2018 | Reply

    The strata rules vary from state to state. The best thing to do is contact your community manager or the Fair Trading Office in your state for information on the applicable strata rules. The Strata rules also vary within a stage that has different legislation, such as in Qld BUGTA does not have a requirement to send committee minutes but BCCM does.

Robert On March 7, 2018 | Reply

Hi,

We are looking at investing $10,000 into a bank account but noticed that the interest rate is so low we would be better buy shares in the bank and receiving their dividends.
Is this a legal investment for a body corporate committee or must we keep to savings accounts and term deposits?
I checked the State legislation and it is vague, it simply states that we must invest funds with the same care as a Trustee.

    SSKB On March 19, 2018 | Reply

    Hello Robert,
    Thank you very much for your interesting question. We’ve spoken to our chief financial officer and has advised us of the following:
    Yes, the QLD legislation does not prohibit share investment by body corporate, and yes, we are currently in a remarkably low interest rate environment.

    Generally, share investment comes with capital risk. e.g. CBA & WBC have both had 20% fluctuations in share price in the past year alone. If you “bought in” at the high, your $10,000 is only worth $8,000 at the low.
    A dividend yield of 6% will not compensate in this scenario.

    SSKB only manages term deposits investments on behalf of the body corporate. If the committee resolve to manage other types of investments, the individuals on the committee must take responsibility for management and reporting.

    SSKB recommends against this kind of investment as reasonable internal control, i.e. segregation of duty, is not able to be maintained to protect the body corporate’s asset.

Ross On May 15, 2018 | Reply

What are the developers’ responsibilities regarding the establishment of sinking funds for unit/strata developments ? My daughter is purchasing a unit/townhouse and to date all the sinking fund contributions shown in disclosure statements/glossy brochures etc for the various developments she has looked at, are ridiculously low. I am a construction estimator and I am familiar with these funds and maintenance costs and planning.

    SSKB On June 20, 2018 | Reply

    Hi Ross,
    In Queensland, the Developer/Original Owner is to provide a Sinking Fund Forecast for at least a 10 year period prior to the timing of the First Annual General Meeting. The First AGM is held after 50% of the Lots are sold OR 6 months after establishment of the scheme, which ever comes first. We suggest that initial estimates at the point in time you are referring are only best estimates.

clare Taylor On June 27, 2018 | Reply

I own a townhouse in a complex, if the sinking fund exists for repair & maintain the buildings, and have a concern with my house (cracks appearing) ? foundation issues. Is it the Body Corp I approach to deal with this? Any advise would be greatly appreciated.

    SSKB On July 25, 2018 | Reply

    Good morning Clare,

    In short we cannot provide a conclusive response as we would need to know whether the Body Corporate in QLD was registered under a Standard Format Plan (SFP) or a Building Format Plan (BFP).

    The Body Corporate may be responsible for the exterior of your townhouse is registered under a BFP, but not if registered under a SFP. If registered under a SFP, the Body Corporate levies generally reflect a cheaper contribution by each Lot owner and the Sinking Fund Forecast which all schemes must have, would also reflect this reduced level of Body Corporate responsibility.

    We suggest you obtain the following details and documents from your Body Corporate Manager / Community Manager to assist you with this matter:-

    1. Copy of the registered plan – BFP or SFP. If the complex is older than 1997 then a GTP or a BFP;
    2. Copy of the Sinking Fund Forecast;
    3. Copy of the Administration & Sinking Fund budgets

javed ahmed On October 2, 2018 | Reply

Hi,
What happened to the land when apartments reaches its life say after 80 Years? will lot owners get money at that time how does it work than? So for example on a project there are 8 apartments already completed there life. Now body corporate decided to demolish or make new Apartments what will apartment owners get at that time?

    SSKB On October 4, 2018 | Reply

    Hi Javed,
    The scenario you describe will become more relevant in the future as complexes age and the value of the land increases. In our experience, the catalyst for a Unit Complex / Body Corporate to be terminated is an economic issue, either from the perspective of excessive maintenance costs or large increases in land value.

    There are many scenarios that can give rise to the Body Corporate Lots and land being sold, however the final sale price of the whole site is distributed amongst the Owners of those Lots at the time of the termination of the scheme in accordance with the Interest Lot Entitlements. The Schedule of Contribution and Interest Lot Entitlements can be found within the Community Management Statement (CMS) for the Body Corporate. We also advise that any termination and sale of a Body Corporate is subject to approval of Owners via a General Meeting and suggest that the Body Corporate should engage a Body Corporate Solicitor to advise the Body Corporate during this process to ensure the best interest of the Owners are maintained.

    We hope this answers your query.

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