NSW: How does an owners corporation decide which fund pays for expenses?

Question: What expenses should an owners corporation pay from the administrative fund versus the capital works fund?

How does an owners corporation decide whether to pay an expense from the administrative fund or the capital works fund? How should we handle expenses such as repairs or upgrades?

Answer: The correct allocation depends on the nature of the work.

There is a clear legislative framework outlining what expenses should be paid from the administrative fund and the capital works fund, as set out in Sections 73 and 74 of the Strata Schemes Management Act 2015 (NSW) (the Act). However, it does not prescribe a strict list of expenses. In practice, the correct allocation depends on the nature of the work.

The administrative fund is the scheme’s operating account and is used for recurrent, day-to-day expenses required to run the building. This typically includes cleaning, gardening, utilities for common areas, strata management fees, insurance premiums, minor repairs, and routine maintenance.

The capital works fund, on the other hand, is more of a savings account. It is a forward-looking fund used for major expenditure and designed to fund the repair, replacement or renewal of common property assets over time. This includes items such as painting, roofing works, lift replacement, major remedial works, and upgrades to building infrastructure.

As a general rule:

• If the expense is recurring or operational, it is paid from the administrative fund
• If the expense is non-recurring, capital in nature, or part of long-term renewal, it is paid from the capital works fund

73 Administrative fund and 74 Capital works fund

Extract from section 73 of the Act:

1. An owners corporation must establish an administrative fund.
2. Contributions and other prescribed amounts are to be paid into that fund.

Extract from section 74 of the Act:

1. An owners corporation must establish a capital works fund.
2. Contributions and other prescribed amounts are to be paid into that fund.

Why this issue matters

Incorrect allocation between funds is a common issue in strata schemes and can lead to underfunding, cash flow problems, or disputes between owners. Using the administrative fund to cover capital items may create short-term relief but can leave the scheme exposed when major works arise. Conversely, overfunding one fund at the expense of the other can distort levy contributions and planning.

Clear financial management ensures the scheme remains compliant, financially stable, and prepared for future works.

What are your next practical steps?

If your scheme is unsure how to allocate expenses, there are several practical steps to take.

1. Review your capital works fund plan. This document should forecast major expenditure over a 10-year period and guide what should be funded from the capital works fund.
2. Check how expenses are currently being allocated. Your strata manager or treasurer should be able to provide a breakdown of recent invoices and confirm which fund they were paid from.
3. Seek clarification early. If an expense is unclear, it is always better to confirm allocation before payment rather than reclassify it later.
4. Ensure your budgets are aligned. Both the administrative and capital works fund budgets should reflect the scheme’s actual needs, including anticipated repairs, maintenance, and long-term upgrades.

Finally, adopt a consistent approach. Clear guidelines agreed by the committee and manager help ensure expenses are allocated correctly in the future and reduce confusion or disputes. A proactive and well-structured approach to fund management helps ensure the scheme can meet its day-to-day obligations while remaining financially prepared for major works in the future.

This post appears in the May 2026 edition of The NSW Strata Magazine.

Leanne Habib
Premium Strata
E: info@premiumstrata.com.au
P: 02 9281 6440