How much should be in a sinking fund?

A sinking fund exists to pay for major, infrequent capital works: repainting, re-roofing, replacing lift cars, repointing brickwork, resurfacing the car park, swapping out the fire panel. These costs don't arrive evenly. They cluster. You might coast for six years spending almost nothing from the fund, then face a re-roof and a lift refurbishment in the same 18 months.

A percentage rule can't see any of that. "0.5 to 1 per cent of building value" is anchored to what the building is worth — a number driven by land value and the property market, which has nothing to do with when your lift is due for replacement or what a litre of membrane costs. Two identical buildings on the same street can be worth wildly different amounts on paper and still need the exact same roof at the exact same time.

Pegging the sinking fund to the admin (administrative) fund is just as shaky. The admin fund covers recurring, predictable running costs — insurance, cleaning, gardening, management fees. Those move with inflation in a fairly smooth line. Capital works don't. Tying a lumpy, decades-long liability to a smooth annual operating budget is comparing two things that behave nothing alike.

Three things, and none of them is building value. First, your asset register — the full list of common-property components the owners corporation is responsible for, each with a replacement cost and a remaining life. A building with lifts, a pool, intercoms and rendered façades carries far more forward liability than a simple brick walk-up, even if both are worth the same.

Second, timing. A $90,000 re-roof due in two years is a very different funding problem to the same re-roof due in twelve. The closer a big-ticket item sits, the faster the fund has to fill — and if several items bunch up in the same window, the required contribution climbs sharply.

Third, cost escalation. A repaint quoted at $60,000 today won't cost $60,000 in eight years. Building costs rise over time, and a forecast that ignores escalation will quietly under-collect every single year, leaving a shortfall that only shows up when the invoice lands. The right levy is whatever funds tomorrow's prices, not today's.

A proper forecast — what most states call a maintenance plan or capital works plan — does something a percentage rule can't. It projects every major work to the year it actually falls due, applies cost escalation to that future year, then lays the whole lot out on a timeline and works out the annual contribution that keeps the fund balance above a safety floor in every single year of the plan.

That last part is the key. The model isn't aiming for one target number at the end of ten years; it's making sure the fund never runs dry along the way. If a re-roof and a lift overhaul collide in year six, the forecast lifts contributions in the earlier years so the cash is there when the work hits — rather than leaving owners to scramble. The output is a recommended annual levy, smoothed so contributions stay as steady and predictable as the works allow.

This is also why the "right" balance changes every year. As works are completed, costs are re-quoted and component lives are reassessed, the forecast should be re-run and the levy adjusted. A static plan written once and filed away drifts out of date fast — which is the whole idea behind a living maintenance plan that you update as the building changes, rather than a PDF that ages in a drawer.

The clearest symptom of a sinking fund that's been set too low is the special levy — a one-off charge raised when a major work arrives and the fund can't cover it. If your owners corporation has raised special levies for capital works (as opposed to genuine emergencies or insurance excesses), that's strong evidence the regular contributions have been running below what the building actually needs.

Special levies hurt because they're lumpy and badly timed. An $8,000 surprise bill lands on every owner at once, often with little notice. Owners on fixed incomes can struggle to pay; investors may need to sell; and a building with a thin fund and a history of special levies is a harder sell at auction, because buyers and their conveyancers read the financials.

A well-set sinking fund turns those shocks into a steady, modest annual contribution that everyone can budget around. The point of the forecast isn't to hoard cash — it's to spread the real cost of owning the building smoothly across the owners who use it, instead of dumping it on whoever happens to own a lot the year the roof fails.

You can get a useful first read in an afternoon. Start with your current fund balance (it's in the latest financial statements). Then list the big-ticket common-property items and, for each, a rough replacement cost and how many years until it's likely due — your most recent maintenance plan, or quotes from past works, will get you in the ballpark. Don't aim for precision; aim for the right order of magnitude.

Feed those into the free sinking fund calculator. It projects each item to its due year, applies cost escalation, and shows whether your current contributions keep the fund above zero across the next decade — or where it dips into the red. If the line goes negative, that gap is roughly the special levy your owners are heading towards, and the tool shows the higher annual contribution that closes it.

Treat the result as a conversation-starter for your committee, not a final figure. Exact numbers depend on your building's real asset register, genuine quotes and a proper condition assessment — and in most states a formal maintenance plan should be prepared by a suitably qualified person. But the calculator will tell you, in a few minutes, whether your fund is roughly on track or quietly sliding towards a nasty bill. If you'd rather keep the forecast live and update it as works are done, that's exactly what Plinth's sinking fund forecast software is built for — you can book a demo to see it on your own numbers.