When you receive your quarterly strata levy notice in New South Wales, you might notice the total amount is split into two distinct categories: the administrative fund and the capital works fund. For many apartment and townhouse owners, the difference between these two accounts is a frequent source of confusion. Understanding the distinction between the administrative fund vs capital works fund in NSW is essential for protecting your property investment and ensuring your owners corporation remains financially stable.
This comprehensive guide unpacks how the Strata Schemes Management Act 2015 governs these funds, the expenses they cover, and what upcoming legislative reforms mean for your strata levies.
What is the difference between an administrative fund and a capital works fund?
The primary difference is that the administrative fund covers day-to-day operational expenses, while the capital works fund pays for major, long-term building maintenance and structural repairs.
Every owners corporation in New South Wales (with the exception of certain two-lot schemes) is legally required to establish and maintain both of these funds. They are designed to operate parallel to one another, ensuring that immediate bills are paid on time without compromising the long-term structural integrity of the building.
The table below outlines the key distinctions between the two funds:
| Feature | Administrative Fund | Capital Works Fund |
|---|---|---|
| Primary Purpose | Day-to-day operations and recurring expenses | Long-term maintenance, renewals, and major repairs |
| Governing Legislation | Section 73, SSMA 2015 | Section 74, SSMA 2015 |
| Examples of Expenses | Insurance premiums, cleaning, minor plumbing, strata management fees | Roof replacement, lift upgrades, structural repairs, painting |
| Planning Horizon | 12-month annual budget | 10-year Capital Works Fund Plan |
| Levy Predictability | Generally stable but influenced by annual insurance and utility costs | Variable, highly dependent on the lifecycle of building assets |
Understanding this division is the first step to accurately reading your financial statements. When an owners corporation attempts to pay for everything out of a single pool of money, they risk breaching NSW strata legislation and leaving the building dangerously under-funded for critical future repairs.
What expenses are covered by the administrative fund?
The administrative fund pays for the recurring services, utilities, and insurance policies necessary to keep the building functional, compliant, and legally protected.
Under Section 73 of the Strata Schemes Management Act 2015, owners corporations must maintain an administrative fund strictly for these regular outgoings. You can think of this as the general operational account for your building. The budget for this fund is forecasted for a 12-month period and is approved annually at the Annual General Meeting (AGM).
Typical expenses drawn from the administrative fund include:
- Insurance premiums: The single largest expense for most buildings, covering building replacement, public liability, and voluntary workers insurance.
- Utility bills: Electricity for common areas, common property water usage, and gas.
- Maintenance contractors: Routine cleaning, lawn mowing, pool servicing, and minor day-to-day repairs (like replacing a broken door handle or a blown light bulb).
- Professional fees: Strata management fees, building manager salaries, and routine legal or accounting advice.
Recent industry data highlights a critical challenge for administrative funds. According to market research covering the 2025/26 period, strata insurance premiums in NSW have risen by an average of 15% to 25% over the past 18 months, driven by increased climate risks and higher rebuild costs. Consequently, many strata schemes are experiencing an unavoidable 5% to 10% annual increase in their administrative fund levies simply to maintain their existing level of coverage and services. NSW Government resources confirm that owners corporations have a strict legal duty to budget sufficiently for these rising costs.
How does the capital works fund operate in NSW?
The capital works fund accrues money over time to pay for large-scale building upgrades and structural repairs, guided by a mandatory 10-year forecast.
Previously referred to as the “sinking fund,” the capital works fund is governed by Section 74 of the Act. Unlike the administrative fund, which is spent down to near zero each year, the capital works fund is designed to accumulate a healthy balance. It acts as a long-term savings account for the building’s future life cycle.
Common capital works fund expenses include:
- Replacing the roof or gutters.
- Full exterior building painting.
- Upgrading or replacing elevators.
- Replacing common property carpets or flooring.
- Major structural repairs to concrete spalling or retaining walls.
The 10-Year Capital Works Fund Plan
To determine how much money needs to be collected, Section 80 of the Act requires every owners corporation to prepare a 10-year Capital Works Fund Plan and review it at least every five years. This plan outlines when major building components will likely fail and how much it will cost to replace them.
Significant regulatory updates are arriving for NSW strata schemes that will standardise how these funds operate. Commencing 1 April 2026, all new and reviewed 10-year plans must utilise a standardised NSW Government form. As PBL Law Group notes, this reform aims to prevent developers or strata committees from hiding long-term maintenance backlogs and ensures consistency in financial reporting across the state. Additionally, developers of new buildings will be required to provide an initial maintenance schedule in this standard form, giving the owners corporation a realistic starting point for their capital works levies.
Can a strata committee transfer money between the two funds?
Yes, an owners corporation can transfer money between the administrative fund and the capital works fund, but only as a temporary loan that must be repaid within 90 days.
Section 76 of the legislation explicitly regulates inter-fund transfers. The Act generally prohibits using one fund to pay for the other’s designated expenses. For example, a strata committee cannot legally use capital works money to pay an unexpected spike in the building’s water bill.
However, the law recognises that cash flow emergencies happen. By passing an ordinary resolution at a general meeting, the owners corporation can authorise a temporary transfer of funds. The critical caveat is that the borrowed amount must be repaid within three months. If the building’s finances are so strained that repayment within 90 days is impossible, the owners corporation may need to raise a special levy to correct the deficit.
Why are special levies raised if we have a capital works fund?
A special levy is issued when there are insufficient funds in the capital works account to cover an unexpected emergency or a miscalculated major repair.
While a robust 10-year plan should ideally prevent the need for emergency funding, the reality of property management is often unpredictable. The Strata Community Association (NSW) highlights that special levies are a vital mechanism for owners corporations to remain solvent when faced with major, unfunded liabilities.
There are several scenarios where a special levy becomes necessary:
- Hyper-inflation in construction costs: A 10-year plan drafted five years ago may have estimated a roof replacement at $100,000. Due to recent spikes in material and trade labour costs, that same roof might now cost $150,000, creating an immediate funding gap.
- Premature asset failure: An elevator expected to last twenty years might catastrophically fail at year twelve, long before the capital works fund has accrued enough to replace it.
- Historic under-funding: Some owners corporations historically voted to artificially suppress their quarterly levies to make the building seem “cheap” to hold. This false economy inevitably leads to a massive special levy when structural components start to fail.
Special levies require an ordinary resolution at a general meeting, meaning a simple majority of owners must agree to the amount and the payment schedule.
How are your strata levies calculated each year?
Your individual levy notice is calculated by dividing the total approved budget for both funds by your specific lot entitlement.
At every Annual General Meeting, the strata committee (often assisted by their strata manager) presents proposed budgets for the administrative fund and the capital works fund. The owners corporation votes to approve these budgets. Once the total required revenue is set, the financial burden is distributed among the owners based on lot entitlements.
For example, consider a Sydney apartment complex with a total annual budget of $100,000 ($60,000 for the administrative fund and $40,000 for the capital works fund). If your specific apartment has a lot entitlement of 5% of the total building, your annual contribution will be $5,000 (split into $3,000 for administrative and $2,000 for capital works). This total is typically divided into four quarterly levy notices of $1,250.
Section 79 of the Act legally obligates the owners corporation to estimate these contributions accurately. Purposefully under-calculating levies to save money in the short term is a breach of this duty and can severely damage the building’s long-term market value.
Frequently Asked Questions
Do all strata schemes in NSW need a capital works fund?
Yes, the vast majority of owners corporations in NSW are legally required to maintain a capital works fund. The only exception applies to certain two-lot strata schemes. If a two-lot scheme’s buildings are physically detached and no other buildings are situated on the common property, the owners can unanimously vote to bypass the capital works fund requirement under Section 74(5) of the Act.
What happens if you don’t pay your strata levies on time?
If you miss a strata levy payment, you will typically accrue penalty interest at a rate of 10% per annum on the overdue amount after one month. The owners corporation may also engage debt collection agencies or commence legal action in the NSW Civil and Administrative Tribunal (NCAT) to recover the debt. Committees are strongly encouraged to offer formal payment plans to struggling owners before escalating to legal action.
Can owners vote to reduce the capital works fund levies?
Yes, owners can vote at an Annual General Meeting (AGM) to adjust the capital works fund budget. However, reducing these levies below the recommended amounts in the mandatory 10-year plan carries significant risk. While it saves money in the short term, it almost guarantees the need for expensive special levies in the future when major repairs can no longer be delayed.
Can we use the capital works fund for sustainability upgrades like solar panels?
Yes, legislative updates have made it easier for owners corporations to fund sustainability infrastructure, such as solar panels or electric vehicle (EV) charging stations, using the capital works fund. As detailed by Bartier Perry, provided the installation meets the legal definition of “sustainability infrastructure,” it can be treated as a valid capital works expenditure rather than an unapproved enhancement.
Can administrative funds be used to paint the building exterior?
Generally, no. Full exterior painting is considered a major, cyclical renewal project rather than a day-to-day maintenance task. Therefore, the cost must be allocated to the capital works fund. However, touching up a small, scratched section of a common property wall during routine cleaning would fall under the administrative fund.
Take Control of Your Strata Financials
Navigating the complexities of the administrative fund vs capital works fund in NSW doesn’t have to be overwhelming. When you understand exactly where your levy contributions are going, you can make informed decisions at your next AGM and ensure your building remains financially secure.
StrataClear helps Australian strata owners decode their levy notices, analyse building financials, and identify potential red flags before they turn into costly special levies. Gain clarity on your strata investment today with StrataClear.
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