Body Corporate Finances Explained: Administration Fund vs Sinking Fund
Two of the most important concepts in body corporate management are the Administration Fund and the Sinking Fund. Understanding the difference helps lot owners see where their levies are going and why.
What is the Administration Fund?
The Administration Fund covers the day-to-day operating costs of running the scheme. This includes things like insurance premiums, strata management fees, cleaning and gardening of common areas, utility costs for common areas, and general maintenance and minor repairs.
Levies collected from lot owners for the Administration Fund are calculated each year at the Annual General Meeting based on a budget that estimates the scheme’s expected expenses for the coming year.
What is the Sinking Fund?
The Sinking Fund is a long-term savings account for major capital expenditure. It is designed to cover the cost of significant repairs, replacements, and improvements to the common property over time, such as repainting the building, replacing the roof, resurfacing the car park, or upgrading lifts.
Unlike the Administration Fund, which covers regular operating expenses, the Sinking Fund is built up gradually over years so that when a large expense arises, the funds are available without the need for a special levy.
How are sinking fund contributions calculated?
Queensland legislation requires bodies corporate to undertake a Sinking Fund Forecast, which projects the expected major expenditure for the scheme over a 10-year period. The forecast helps determine appropriate annual contributions to ensure the fund is adequately maintained.
A poorly managed sinking fund can leave a scheme in financial difficulty when major works are needed. It can also affect property values and make lots harder to sell, as buyers and their solicitors routinely review the financial health of a scheme before purchase.
What if the sinking fund is short?
If a major expense arises and the sinking fund does not have sufficient funds, the body corporate may need to raise a special levy from lot owners or take out a body corporate loan. Both of these options can cause financial stress for owners, which is why proactive sinking fund management matters.
Getting your scheme’s finances right
Holmac Strata manages financial administration for Gold Coast bodies corporate, including levy collection, budget preparation, and fund management in line with BCCMA requirements. If you have questions about your scheme’s financial position, we are happy to help.