Question: Can funds from a special levy held in the administrative fund be transferred to the capital works fund to cover related expenses, and would this be treated as a loan?
A special levy of $110,000 was raised four years ago and deposited into the administrative fund. In the first two years, $80,000 of that levy was spent from the administrative fund. In the third year, $15,000 was spent from the capital works fund for expenses related to the special levy.
Should $15,000 of the remaining $20,000 in the administrative fund be transferred to the capital works fund to reimburse that spend? I believe this may be treated as an inter-fund loan under Section 76 of the Strata Schemes Management Act 2015.
Answer: Your situation is not uncommon.
When a special levy is raised, there is typically a specific purpose and amount assigned to that levy, which is noted in the minutes and on the levy notice. In an ideal world, there would be an income item for the special levy and a matching expense line item for the associated expenditure, all within the same fund. However, this is rarely achieved, and your situation is not uncommon.
The Strata Schemes Management Act 2015 does not require special levy income to be isolated for that specific expenditure over multiple years. In this instance, the remaining $20,000 from the special levy may have been consolidated into general revenue and expenses in the administrative fund.
Therefore, it comes back to what expense the special levy covered – if it was capital in nature, the owners corporation is not wrong to pay this from the capital works fund. Likewise, if the expense was administrative, it should be moved to the administrative fund (no Section 76 resolution is required).
If the balance of the special levy funds were depleted by consolidation into general revenue, then a transfer of the expense from the capital works fund to the administrative fund may cause the administrative fund to go into deficit. The remedies available for this are to make a transfer under Section 76 to replenish the administrative fund or raise a special levy.
Summary
- If there are special levy funds remaining in the administrative fund then the expense should be put in the administrative fund on the accounting principle of income and expense matching.
- If the expense is administrative in nature, then it should be paid from the administrative fund. If special levy income has been depleted then a Section 76 transfer resolution or further special levy may be appropriate.
- If the expenses is capital in nature and there are no special levy funds remaining then the expense should remain in the capital works fund.
This post appears in the August 2025 edition of The NSW Strata Magazine.
Hugh McCormack McCormacks Strata Management E: Hugh.McCormack@mccormacks.com.au P: 1300 991 825