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ACT: Q&A Sinking Fund and Admin Fund

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Sinking Fund and Admin Fund

This ACT article is about the sinking fund and admin fund.

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Question: Our executive committee collects levies for the sinking fund, but we don’t have a sinking fund plan, and there is no transparency about how we use the funds. Should there be more accountability on how the money is spent?

The executive committee of our CTS collect a sinking fund contribution from all owners, however, we don’t have a sinking fund plan or a sinking fund report. The committee has stated there is no requirement for them to do so.

At the recent AGM, they doubled the contribution with no details on planned expenditure. The budget for the last financial year lists money spent from the sinking fund as miscellaneous.

If levies are collected for the sinking fund, should there be full transparency, governance and accountability on what the money is for and how it is spent?

Answer: Any expenses should be accountable, and a description should be noted on the financials.

Does the CTS acronym mean Community Title, not a Units Plan? The legislation differs. The Community Titles Act 2001 is outdated legislation and has not kept up with the Unit Titles Legislation.

Each entity (still called a Body Corporate) would have its own management statement. This should form part of the contract of sale and may have by-laws noting the management of the finances.

Any expenses should be accountable, and a description should be noted on the financials. The committee is elected at each AGM. Any owner can attend and nominate. Also, request that a separate sinking fund be established and a sinking fund forecast obtained. This could be a motion at the meeting. The by-laws may need to be changed accordingly.

Below is the standard wording in the current legislation. There is no mention of a sinking fund, but can have separate allocations. We refer to section 45 and section 46 of the Community Titles Act 2001.

45 Administrative fund

  1. A body corporate must keep a fund for meeting its financial obligations under this Act.

  2. All income must be paid into the fund and all expenditure must be made from the fund.

  3. If the body corporate considers it appropriate, the fund may be subdivided into separate parts, one related to recurrent expenditure and the other related to capital expenditure.

  4. The fund must be kept at a level sufficient to meet reasonably foreseeable expenditure to be incurred by the body corporate.

46 Contributions

  1. The body corporate may from time to time levy contributions in relation to the lots in the scheme to raise an amount the body corporate decides to be necessary to meet expected expenditure.

  2. The contributions must be levied on a basis fixed by the management statement registered under this Act.

  3. A contribution must be paid by a day fixed by the body corporate and notified to the owner of the lot by written notice of the amount payable.

  4. The day fixed by the notice must be—
    1. not earlier than 14 days after the owner is given the notice; and

    2. not later than 28 days after the owner is given the notice.

  5. The owner of the lot on the day by which the amount is payable is liable for the contribution and a person who later becomes an owner before the contribution is paid becomes separately and collectively liable for the payment.

Jan Browne Bridge Strata E: jan@bridgestrata.com.au P: 02 6109 7700

This post appears in Strata News #665.

Question: Can Executive Committees use term deposits with funds from the Sinking Fund? Is there a need to complete a tax return for interest accrued?

Can Executive Committees use term deposits with funds from the Sinking Fund? We are considering one-year term deposits and reactivating each year.

Is there a need to complete a tax return for interest accrued? What is the the difference in term deposit interest being paid compared to being accrued?

Answer: Strata Plans are taxed as public companies and accordingly are required to lodge a return when more than $1.00 in income is derived.

Strata Plans are taxed as public companies and accordingly are required to lodge a return when more than $1.00 in income is derived. On the basis the interest on the term deposit is physically paid to the OC, then yes a return will be required to be prepared under the mutuality principle outlined in TR 2015/3. If the interest is accrued but not paid, no return will be required.

If a term deposit is lodged on 1 February 2022 for 12 months with interest payable at the maturity of the investment. As at 30 June 2022, an amount of interest earned but not paid for the period 1 Feb – 30 June 2022 can be accrued in the accounts. As interest is assessable on a receipts basis, there is no requirement to prepare a tax return on this information alone for the 30 June 2022 year.

Rod Laws TINWORTH & CO E: RodLaws@tinworth.com P: 02 9922 3660

This post appears in Strata News #612.

Question: Our OC’s General (Admin) Fund is in deficit and the strata manager has been paying day-to-day and reoccurring costs (including their monthly strata management fees) from the Sinking Fund. The EC has agreed to this arrangement, but the OC hasn’t agreed. Is this legal and what can be done about it?

Answer: The most appropriate course of action is to review the cause/s of the budget shortfall and address these appropriately.

The actions detailed within the question are improper, to the extent they are in contravention of the Act.

Sections 82 and 83 define the purposes for which the Sinking Fund can be used.

Specifically, Section 83 states;

83 Sinking fund plan—meaning of expected sinking fund expenditure

  1. For this division, expected sinking fund expenditure means expenditure for the following purposes that the owners corporation reasonably expects will be necessary to maintain in good condition the common property and any other property it holds:
    1. the painting or repainting of any building (or any part of a building) that forms part of the common property;

    2. the acquisition of new property or renewal or replacement of property that it holds;

    3. the renewal, replacement or repair of fixtures and fittings that are part of the common property;

    4. the renewal, replacement or repair of anything else on the common property;

    5. for a building containing class A units—any purpose mentioned in paragraph (b), (c) or (d) that relates to defined parts of the building;

    6. for a building on a class B unit—any maintenance mentioned in paragraph (b), (c) or (d) that is authorised by a special resolution under section 24 (1) (g);

    7. any other capital expenses for which the corporation is responsible.

Section 83 of the Act precludes the use of the Sinking Fund for Administrative Fund (day to day expenses), regardless of Executive Committee or Owners Corporation resolutions.

The most appropriate course of action is to review the cause/s of the budget shortfall and address these appropriately. It may be as simple as cashflow timing, however if the problem is larger than an issue of timing, consideration should be given to convening a General Meeting for the purposes of raising a special levy to recover the deficit and allow for adequate administrative funds to operate under the provisions of the Act.

Nina Cannell Signature Strata E: nina@signaturestrata.com.au P: 02 6185 0347

This post appears in Strata News #594.

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