In our video series Michael Vumbaca, General Manager at Jamesons Strata discusses the changes that have been made to sinking funds.
The first change to be aware of is that the Sinking Fund is now called the Capital Works Fund. If you hear those two terminologies being intertwined, you now know that the correct terminology is now the Capital Works Fund.
Each year at your AGM, you set levies for your administrative fund and your Capital Works Fund. It’s important to make sure that the levies you raise to the Capital Works Fund are accurate and meet the forecast that’s been prepared by your Strata plan’s external provider. This will determine when things might be payable, like painting the building or making major repairs to the roof.
The reason you have this Capital Works Fund is to avoid the need for potential special levies. This means that monies can be accumulated in the Capital Works Fund to pay for major expenses as they arise. That’s not to say that special levies may not be required at certain stages in the life cycle of your building; there are always going to be unforeseen circumstances that arise like major roof works or something along those lines that does call on the need for you to put in extra money into your Capital Works Fund.
Another component of the new legislation is that you can now raise a special levy into the Capital Works Fund. Formerly, you could only raise a special levy into the administrative fund. This means that the monies raised into that fund are specifically used for major capital items like painting or major roof repairs.
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As an Owners Corporation, you still have a responsibility to have a Capital Works Fund Plan and for it to be updated every five years. This means you will have to engage, in most cases, an external company to come to the building and review all of the assets in the building. The external company will schedule a plan for the replacement or upgrade of those assets over a period of time. This is the plan that’s used to help you set the budget for your Capital Works Fund annually.
In summary, Owners Corporations now have more of a responsibility to make sure that the amount of money in their Capital Works Funds is accurate and meets the requirements as stipulated in their Capital Works Fund Plans. There may be penalties handed down by fair trading for those schemes who are deliberately not raising enough money to their Capital Works Fund, as it shows that they’re not acting in the best interest of their Strata scheme.
For advice on how much money needs to be in your Capital Works Fund, it’s always important to speak to your Strata manager, liaise with your Strata committee, and work with an external provider to make sure that your plan is very accurate.
Jamesons are a family run business that have provided Sydney residents with strata management services for over 50 years. If you would like more information regarding strata management, please contact Jamesons Strata Management on (02) 8969 3400.