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

Sinking Funds – Queensland


SSKB Strata Managers looks at Capital Works funds, Maintenance Funds and Sinking Funds

A bodies corporate 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 strata scheme, this often includes large or one-off items, such as painting the external 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, 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 kept and administered by a Community Management company such as SSKB, on behalf of a bodies corporate.

Bodies corporate 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, bodies corporate committees must prepare a sinking fund budget (mention this is usually carried out by the Community Manager).  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.

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.

A bodies corporate can appoint a quantity surveyor or committee member to provide a sinking fund forecast every 10 years which assists the body corporate to plan for future financial sinking fund expenditures.  It is our responsibility as your Community Managers to keep track of any future repairs or maintenance required and confirm with the committee on behalf of the body corporate.

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.

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

2 Comments

Bill On March 20, 2019 | Reply

Just a question. Our Sinking Fund is now being milked dry with non recurrent expenditure, most inadequately budgeted, on electrical cabling, electronic gate repairs, plumbing leaks etc. Peviously these were Admin Fund items. Off course the motive seems to be to hide these expenditures and make the Admin Fund look good in a surplus. Sadly that too is being milked dry with ever increaisng enhanced recurrent cleaning and gardening expenses. Seems like nothing can be done about this! Non recurrent in Body Corporate Speak is such a loose term that it can include all sorts of repairs eg a plank on a bridge, repair to light fitting etc. It is non ending for the creative mind. So many complexes I suspect are being stripped of their funds in this way. The attitude of the BCCM is that as long as it is budgeted it is all OK. That is easier said than policed for in reality once its been done there is nothing much one can do about it. Is there a motion that can be passed at the AGM to enhance financial good practice ongoing. Ignorance being blissful at least such a motion might actually be a wake up call to owners that there is something amiss. I wonder how it could be worded. Any examples that you are aware off?

    Emma Smith On April 23, 2019 | Reply

    Good afternoon Sir,

    Your issue is not uncommon and I appreciate the creativity that can be used around the use of the term non-recurring expenditure. The spending and allocation of which fund an expense is paid from is generally a decision / directive of the Body Corporate Committee and Committees come and go like federal governments.

    I note that a budget is not the basis of approval for spending. For example any Contract / Agreement must be approved at a General Meeting and then the related expenditure is budgeted for, normally from the Administration Fund. If expenditure is undertaken, then any such expenditure is to be approved in advance by the Committee or if there is a Caretaker at your scheme, then there is generally a clause within the Caretaker Agreement which identifies the Caretaker can spend up to a specified dollar limit per instance.

    What I am leading to is that there are many ways an expense can be classified or spent with or without formal approval (or ratification after the event in the event of an emergency), however the BCCM Act specifies that every scheme must have a Sinking Fund Forecast for the current year plus an additional 9 years.

    The Sinking Fund Forecast is the third party provided report that can be used by the Committee in establishing the annual Sinking Fund levies. In summary, regardless of the classification of an expense, from the Administration or Sinking Fund, the balance of the Sinking Fund at the end of each financial year should be in accordance with the balance as suggested within the Sinking Fund Forecast. For example, if $3,000 was spent on cleaning of the garage lighting and was funded from the Sinking Fund, I think it is a safe bet that most Sinking Fund Forecasts will not allocate such cleaning as a Sinking Fund expense. So at the end of the year in this example, the Sinking Fund balance would by $3,000 less than the suggested Sinking Fund balance, so therefore, the Sinking Fund levies for the next financial year should be budgeted with an additional $3,000 in the Sinking Fund levies.

    However, while the BCCMA requires every Body Corporate to have a 10 year Sinking Fund Forecast, the BCCMA does not require the Sinking Fund Forecast to be adopted in the establishment of the Sinking Fund levies.

    During any sale of a Lot within your Body Corporate, the BCCMA also requires fore the Seller of the Lot to disclose the balance of the Sinking Fund to any purchaser so that the purchaser can make a value judgement on the level of funds held by the Body Corporate while using the Sinking Fund Forecast (which must be available to be searched by any purchaser or their Agent) as a benchmark of the required future spending for the Body Corporate. This way, a new Owner cannot claim that they were not aware of an upcoming Sinking Fund expense.

    May I suggest that you raise this with the Committee with a view to them adopting the current Sinking Fund Forecast during the next budget establishment process (prior to the Annual General Meeting) or getting a new Forecast prepared to ensure the finances of the Body Corporate are preserved for the current and future owners.

    I hope this has been of some assistance for you and if you require any further assistance in this matter please contact our office. Our subsidiary business, Star Building Management Services would also be happy to provide to you a quotation to prepare a Sinking Fund Forecast if this is required.

    Regards

    SSKB.

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