What is a Sinking Fund? Why am I being charged?

What is a Sinking Fund?

A sinking fund is a dedicated account set up to save money regularly for specific future expenses. It is similar to having an emergency fund or a savings account for a specific purpose.

A sinking fund is a legal requirement as set by the South Australian government for Community Titled properties (that is, those properties established under the Community Titles Act 1996) to build funds toward their future maintenance.

A sinking fund helps with managing unexpected expenses and can be especially useful for paying for common property maintenance within a body corporate, such as common property fences, driveway maintenance works and other works on common property. By contributing to a sinking fund, corporations can plan for future expenses, avoid financial strain when large expenses arise.

What are sinking funds for?

The idea of the sinking fund is that the owners of the property contribute over time for the anticipated future maintenance such as painting, roof/gutter replacements, lift and garage door replacements etc over the lifetime of the property rather than keeping levies low and then raising large “special levies” when works are carried out (as was commonly the case in the mid 1990s when the South Australian government was reviewing the successes and failures of the Strata Titles Act 1988 which resulted in the Community Titles Act 1996 which is the legislation that your property is governed by).

Is a sinking fund mandatory?

A community corporation must establish a sinking fund (for non-recurrent expenditure only) and an administrative fund (for all other expenditure) [ss 116(1)-(2)].

What is non-recurrent expenditure?

Non-recurrent expenditure is expenditure for a particular purpose that is normally made less frequently than once a year [s 3(1)]. Recurrent expenditure is expenditure for a particular purpose that is normally made every year or more frequently [s 3(1)].

Money received by a corporation, including contributions of lot owners, must generally be credited to the sinking or administrative fund according to the purpose for which the money will be used [s 116(4)].

How much should go into a sinking fund budget?

The levies for your corporation are determined by the owners at each Annual General Meeting and then set at those levels for the next 4 quarterly payments until the next Annual General Meeting.

While all owners are invited to attend meetings, we recommend attending and participating in the decision-making process for your corporation where you will hear first hand what is important to your fellow owners and understand why they have set the levies at the amount they have selected.