Every quarter, owners in a strata scheme pay their levies. It is easy to think of it as one bill. It is actually two. Your levies are split between two separate funds, each doing a different job, and understanding the split is one of the most useful things a committee member or owner can learn.
Get the two funds right and your scheme stays solvent, well maintained and free of nasty surprises. Get them wrong and you store up trouble. Here is how they work in New South Wales.
The administrative fund: day-to-day running
The administrative fund pays for the ordinary, recurring costs of running the scheme. Think of it as the household budget for the building. It typically covers things like:
- Insurance premiums for the building and common property.
- Cleaning and gardening of common areas.
- Electricity and water for shared spaces.
- Minor repairs and routine maintenance.
- Strata management and administration fees.
These are the predictable bills that arrive every year. The administrative fund is sized to cover them, and levies into it are set to match the expected spend for the coming year.
The capital works fund: planning for the big jobs
The capital works fund is the savings pool. It used to be called the sinking fund, and many owners still use that name. Its job is to build up money over time so the scheme can afford major and long-term works when they fall due, without hitting owners with a sudden bill.
That covers the big, infrequent jobs: repainting the building, replacing a roof, upgrading lifts, major waterproofing, resurfacing driveways. These cost a lot and only come around every several years, so the fund saves steadily in between. A well-planned capital works fund is the difference between a scheme that handles a roof replacement calmly and one that panics.
Why the two are kept separate
The funds are deliberately separate so that long-term savings are not quietly spent on day-to-day bills. If a committee dips into the capital works fund to cover running costs, the savings for major works shrink, and the scheme is caught short when a big job arrives. Keeping them apart keeps the planning honest.
This separation is one of the things good governance protects. We cover the wider point in our guide to good strata governance and common mistakes, where underfunding the capital works fund is one of the costliest errors a committee can make.
How levies are set and raised
Levies are not set by the committee alone on a whim. The committee and the strata managing agent prepare a budget for each fund, estimating the year ahead. That budget, and the levies needed to fund it, are put to the owners corporation at a general meeting, usually the annual general meeting. The owners vote to approve them.
Each owner generally contributes in proportion to their unit entitlement, the share assigned to their lot. The exact process, the voting rules and how unit entitlements apply are set out in the Strata Schemes Management Act 2015 and can change, so confirm the current detail with NSW Fair Trading or your strata managing agent before you rely on a figure. If you want a walk-through of how the budget gets approved at the meeting, see our guide to running a strata AGM in NSW.
Special levies and why to avoid them
Sometimes a scheme needs money it does not have in either fund, often for a major repair the capital works fund cannot cover. The owners corporation can raise a special levy, a one-off additional charge, to make up the gap. Special levies are decided at a general meeting.
Owners dislike special levies because they arrive without warning and can be large. The best defence is a properly planned capital works fund that saves ahead for the works the building will need. A committee that funds maintenance steadily protects owners from the sudden bill.
What this means for committee members
If you are on the committee, you help shape the budget and recommend the levies that owners then approve. That makes understanding the two funds part of the job. You do not need to be an accountant. You do need to know the difference, why the capital works fund matters, and why keeping levies realistic now saves owners pain later.
Our pillar guide to strata committee members in NSW sets the role in context, and Archer Institute Strata Members CPD covers the funds, levies and budgeting in plain English.
Your next step
Whether you are an owner trying to understand your levy notice or a committee member setting the budget, the two funds are worth learning properly. Browse the Strata Members CPD course or call our Australian-based team on 1800 069 273, and we will explain how the course covers strata finances.
