Sinking fund

A body corporate must have a sinking fund if it is registered under the:

• Standard Module
• Accommodation Module
• Commercial Module
• Small Schemes Module.

Schemes registered under the Specified Two-lot Schemes Module do not need formal budgets. They may, though, agree on certain body corporate expenses to ensure good financial planning.

Money paid into the fund

A body corporate must have an administrative fund as well as a sinking fund. Money cannot be transferred between the funds. Money paid into the sinking fund includes:

• owners’ contributions to the sinking fund
• interest received from the fund’s investments
• money from insurance pay outs (for major, capital items that are destroyed or damaged).

Money spent from the fund

Money in the sinking fund can be spent on:

• big or one-off items, like painting or structural repairs to common property
• replacing major items, like common property fences or carpets
• other items that should reasonably be met from capital, like pool furniture.

Budgets

The body corporate must prepare a sinking fund budget (and an administrative fund budget) each financial year. The sinking fund budget must:

• provide for necessary and reasonable spending for the financial year
• reserve an amount to meet likely spending for at least 9 years after the current financial year.

In the 10 year period, it must allow for:

• likely spending of a capital or non-recurrent nature (e.g. painting of a building)
• replacement of major capital items (e.g. replacing a boundary fence)
• other costs that should reasonably be met from capital.

The fund must decide the amount to be raised from contributions to cover the expected capital costs.

See body corporate budgets for more information.

Planning ahead

A body corporate needs to budget for major capital spending for the current financial year and the next 9 years. A body corporate may ask a professional to prepare a sinking fund forecast for it. However a body corporate does not have to get a professional sinking fund forecast. The committee or an owner can estimate the likely spending requirements. This is a matter for each body corporate.

Sinking fund investments

The body corporate can invest money from the sinking fund if it’s not needed immediately. This is similar to the way a trustee can invest funds.

See section 96(2)(b) of the Body Corporate and Community Management Act 1997 for more information.

It is up to the body corporate to decide how to manage and invest its funds.