What is the difference between an administration fund and a sinking fund?

The administration fund covers everyday running costs of the body corporate — things like insurance, grounds maintenance, management fees, and common property electricity. The sinking fund is a reserve for major capital expenses such as painting the building, replacing the roof, refurbishing lifts, or replacing pool equipment.

Is a sinking fund mandatory in South Australia?

Community titled groups (except 2-lot corporations) are required to establish a sinking fund under sections 113 and 116 of the Community Titles Act. Strata titled groups are not legally required to have one, but medium and large groups must still prepare longer-term sinking fund budgets.

What are the mandatory sinking fund budget requirements for larger groups?

Medium groups of 7 to 20 lots or units must prepare a 3-year sinking fund budget, reviewed every 3 years. Large groups of over 20 lots or units must prepare a 5-year budget, reviewed every 5 years. Groups of 6 or fewer are exempt.

Administration and Sinking Funds Explained

Q: What happens if my administration fund runs into deficit?

If the administration fund balance is in deficit at the end of the financial year, the shortfall must be raised in the following year's levies to clear the deficit. It's important that annual levies are set high enough to cover total recurrent expenses.

Many owners are confused about body corporate fund, particularly the difference between the administration fund and the sinking fund, and what they're used for. As an owner within a body corporate scheme, it's important to understand these differences and be financially prepared. Whether you live in your unit or rent it out, it's a valuable investment, and you want to ensure it's well taken care of.

What is the administration fund?

The administration fund covers the everyday expenses of the body corporate. These are the regular, recurring costs of running and maintaining the common property. Examples include:

Building insurance
Building and pool maintenance
Gardens and grounds maintenance
Body corporate management fees and caretaker fees (if applicable)
Common property electricity
Pest control
Regular fire servicing
Any other non-capital expenditure

It's important that the levies raised in the administration fund are enough to cover the total recurrent expenses for the year. This ensures the fund doesn't end up in deficit at the end of the body corporate's financial year.

If the administration fund balance is in deficit at year end, the shortfall will need to be raised in the following year's levies to clear it.

What is the sinking fund?

The sinking fund (sometimes called a reserve fund) is for major capital expenses on the common property. These are the larger, less frequent costs that go beyond day-to-day maintenance. Examples include:

Painting of the building
Replacement of the roof
Replacement or refurbishment of lifts
Replacement of common area carpeting
Replacement of pool equipment and pool refurbishment
Replacement of fencing
Acquisition of amenities for the benefit of owners
Any other capital expenditure

A well-funded sinking fund means owners are less likely to face unexpected special levies when major works are needed. Without adequate reserves, a corporation may need to raise a large one-off amount at short notice, which can be a significant financial burden on individual owners.

Strata vs Community titled: what's required?

In South Australia, community titled groups are required to have a sinking fund. This is not the case for strata titled groups, where a sinking fund is optional under the Strata Titles Act.

Specifically, apart from 2-lot corporations, all community corporations must establish a sinking fund for irregular maintenance or capital works and make annual estimates (budgets) of future spending, under sections 113 and 116 of the Community Titles Act 1996. Contributions can, however, be set at negligible levels.

Mandatory sinking fund budgets

To improve long-term planning and encourage proper sinking fund management, the Statutes Amendment (Community and Strata Titles) Act 2012 (effective 28 October 2013) introduced mandatory forward budgets for maintenance and capital works. These requirements apply to strata and community corporations above a certain size:

Medium groups (7–20 lots or units): must prepare a 3-year sinking fund budget, reviewed every 3 years
Large groups (over 20 lots or units): must prepare a 5-year sinking fund budget, reviewed every 5 years

Exempt groups: Corporations with 6 or fewer lots or units, and community corporations with common property insurance cover of $100,000 or less, are exempt from these longer-term budget requirements.

How to estimate your sinking fund contributions

The starting point is a simple question: what major works will the common property need over the next 5–10 years, and roughly when?

Work through the common property asset by asset: roof, external paint, fencing, driveway, pool equipment, lifts (if applicable) and estimate:

What it will cost to repair or replace (get quotes for anything significant, or use rough industry benchmarks as a starting point)
When it's likely to be needed based on the age and condition of each asset
What's already in the fund and how that tracks against upcoming costs

Once you have a rough picture of total expenditure over the forecast period, divide that by the number of years and the number of lots to get an indicative annual contribution per lot. Adjust for lot entitlements if your scheme uses them.

For example: if a corporation anticipates $120,000 in capital works over 10 years across 12 lots, that's roughly $1,000 per lot per year - before accounting for anything already in the fund or interest earnings on reserves.

There's no percentage-of-property-value formula that reliably works across different building types and ages. The only accurate method is working from the actual assets and their expected lifecycle.

For larger or more complex schemes, it's worth commissioning a formal sinking fund forecast from a quantity surveyor or strata specialist. This produces a defensible, year-by-year plan and is especially useful when contributions have been historically low and need to be brought up to an adequate level.

Why does this matter?

A healthy sinking fund protects your investment. Without one, a corporation may struggle to fund necessary repairs, leading to deferred maintenance that reduces property values and creates safety risks. Forward budgets help corporations plan ahead, spread costs over time and avoid sudden financial shocks for owners.

If your group has no substantial sinking fund, we suggest raising the topic at your next general meeting. A properly prepared budget, even for groups where it's not mandatory, is good governance and good financial sense.

Get in touch

If you have questions about your corporation's funds or need help preparing a sinking fund budget, get in touch with Acacia Collective. We're happy to provide guidance on financial planning for strata and community titled groups.

Call us on 1300 792 255 or email hello@acaciacollective.com.au.