Question: Should the cost of a sinking fund forecast be paid from the sinking fund or the admin fund?
Answer: As long as the payment allocations are consistent, in line with the budget and make sense to owners.
Reports like this are usually budgeted into and paid for from the admin fund.
However, it is not an absolute rule. You may hear differing opinions on allocations to each fund if you speak to different managers. There’s a certain logic in paying for the sinking fund report from the sinking fund.
The key thing is that payments are allocated consistently, align with the budget, and make sense to owners.
This post appears in Strata News #718.
William Marquand
Tower Body Corporate
E: willmarquand@towerbodycorporate.com.au
P: 07 5609 4924
A body corporate receives interest from investment into term deposit of sinking fund. May be there any Income tax expense related to that interest received from term deposit to be paid from sinking fund instead of from administrative fund? I do not mean tax agent fees for tax return preparation.
Hi Helen
The Q&As on this article may assist: QLD: Q&A Body Corporate Financials, Audits and Tax
Sinking fund has Income from Investment. (Interest form term deposit), it is in the budget of the previous financial year. Annual budget also shows Item of Expenditure as Income tax, that is MORE than Income. I am concerned, what that Expenditure as Income tax may be?
Administrative fund budget has also Expenditure as tax return.
May be there any explanation why Expenditure are in both funds?
Hi Helen
The following response has been provided by Rod Laws, Tinworth Accountants:
Without seeing the financial statement, it is difficult to provide a precise answer. Interest income is only one source of income that is assessable as non-mutual income for an Owners Corporation. It is also conceivable the Owners Corporation has paid income tax instalments in the previous period that has been shown in the report as income tax paid. It is possible a refund could be forthcoming once the current years income tax return as been lodged.
I would suggest that Mr. Garsden has not fully addressed the second question. He states that he assumes it is an unbudgeted expense. The legislation as I understand it makes no provision preventing a body corporate manager/committee from expending sinking fund moneys on an unbudgeted item, in the circumstances where the sinking fund has more than sufficient funds. Refer adjudicator’s decision in Mountainview [2003] QBCCMmr 308 (27/6/2003) The same decision refers to the transfer or funds between admin.and sinking funds.
Lexie
Hi Lexie
The following response has been provided by Todd Garsden, Mahoneys:
Yes that’s correct – but we also don’t know from the original question if there is sufficient funds available. One way or the other any difference between what was budgeted for and what was actually spent is a matter that can be addressed at the next general meeting. This is why I have suggested it can wait for the AGM as there is no urgency to go to general meeting straight away (just like in Mountainview).
The body corporate manager has paid an admin cost out of our sinking funds and this has not been rectified. We are only a smaller entity – 37 Lots where most expenses are for mowing grass and spraying weeds in a rural environment. This amount was not budgeted for in last year’s figures so upsets both admin and sinking fund budgets. It amounts to 1/3 of our costs.
What is the best course of action, as requests from the BC manager appear to be ignored.
Hi Prue
Todd Garsden, Mahoneys has responded to your question in the above article.