Many owners are confused about Body Corporate Funds - particularly the difference between the Administrative Fund and the Sinking Fund, and what they're used for.
As an owner within a body corporate scheme, it is important that you to understand these differences and be financially prepared. After all, whether you live in it or rent it out, your lot is a valuable investment, and you want to ensure it's well taken care of.
The legal requirements
In Qld, it is required that certain monies are to be paid into a Sinking fund, and that any other money received is paid into an Administrative fund. The Body Corporate Manager or Committee needs to prepare two budgets each year, and these must be approved at the Annual General Meeting by an ordinary resolution with a majority of voters:
- The Administrative Fund Budget
- The Sinking Fund Budget
What is the administrative fund used for?
The Administrative Fund is for the everyday expenses of the body corporate; for example:
- building insurance
- building and pool maintenance
- gardens and grounds maintenance
- body corporate management fees and caretaker fee, if applicable
- common property electricity
- pest control
- regular fire servicing
- any other non-capital expenditure
It is important that the levies raised in the Administrative Fund are enough to cover the total of the expenses for the year. This is to ensure that the balance of the Administrative Fund does not end with a deficit at the conclusion of the body corporate’s financial year.
If the balance of the Administrative Fund is in deficit at the end of the year, money will need to be raised in the following year to clear the deficit.
Note: the legislation does not allow for the Body Corporate to transfer money from the Administrative Fund to the Sinking Fund, or vice versa.
What is the sinking fund for?
The Sinking Fund is for the capital expenses of the body corporate; for example:
- internal and external painting of the building
- replacement of the roof
- replacement of lifts
- replacement of common area carpeting
- replacement of pool equipment and pool refurbishment
- replacement of fencing
- acquisition of amenities for the benefit of the owners
- any other capital expenditure
The legislation around Sinking Fund Queensland requires bodies corporate to have a 9-year sinking fund forecast in place at all times. The forecast estimates what works will need to be carried out in forthcoming years, and calculates what levy contributions will be required each year to cover those expenses as they become due.
Sometimes unexpected costs may arise during the year, which were not considered at the time that the Administrative Fund and Sinking Fund budgets were completed. If this happens, a Special Contribution Fund may need to be established for any irregular issues with a fixed spending amount. Any Special Levies must be approved at a General Meeting by ordinary resolution.
For more information about Queensland Body Corporate Funds, please see the Queensland Government page - Budgets and Funds.