Reserve Fund Investment in Western Australia

Investing your strata funds is not a new proposition. Most Strata Companies have been using primary forms of investment, usually, term deposits, for their long term Reserve Funds for decades.

The more recent phenomenon of record low returns on term deposits and cash accounts has brought questions about the suitability of these historical solutions to the attention of strata financial controllers nationwide. The question now remains, what other means of investment is allowed under the Western Australian legislation?

Thankfully, the Western Australian regulations allow you to consider other solutions. In a similar fashion to the NSW and QLD legislation, Section 116(e) of the Strata Titles Act 1985 (WA) offers strata companies the ability to invest money in it’s administrative or reserve fund in any manner permitted by law for the investment of trust funds, effectively forwarding the responsibility to the Trustees Act 1962 (WA), so off we go for further clarification.

The Investments portion, or Part III, of the Trustees Act 1962 (WA) offers some detailed guidance on what should be considered when investing capital on behalf of others as the controller of a trust.

Parts 16 & 17 offer a series of confirmations and considerations when working through some alternatives for your longer-term savings (such as the reserve fund) as a trustee:

• An initial review of your trust deed is required to ensure no limitation on the allowable investments above and beyond what is prescribed in the Act.

• Notwithstanding the above, the ability to invest in ‘any form of investment’ and at any time vary any investment is then permissible.

• Exercise the care, diligence and skill that a prudent person would exercise in managing the affairs of another person.

• Implement annual performance reviews of the trust investments

Like all well-considered investments, Sections 19 & 20 of the Trustees Act 1962 (WA) detail a list of further factors that should be addressed to ensure the validity of the decision when exercising the power of the investment. Here are a few points of note, but not all of them:

• A duty to invest trust funds in investments that are not speculative

• The purpose of the trust and circumstances of the beneficiaries

• The desirability of diversifying the trust’s investments

• The nature of and accompanying risks of the proposed investment

• The potential for capital appreciation, along with the prospect of capital loss

• The length of the term of the proposed investment against the probable duration of the trust

• Consideration of tax liabilities, likely income return and timing of this income

• The liquidity and marketability (i.e. ability to sell) of the investment

• Costs and fees of the investment – are they reasonable?

• The likelihood of inflation affecting the value of the trust and its investment

• A duty to seek advice as required and the power to use trust funds to obtain this advice

In a similar fashion to what is allowable in NSW and QLD, the Western Australian legislation is also demonstrative of the allowances for Strata Company committees to consider broader investment options above and beyond the less than desirable cash and term deposit rates.

Going about it.

Suppose you feel that your trust has met the above criteria (or have had it confirmed through legal advice, highly recommended), then great! All that is left is a committee resolution approving the decision, and the world of broader investments awaits.

You may also find that your Strata Company does not have a trust structure arranged or setup. In this case you can also look to invest as a Corporate style account, with a number of nominated signatories in lieu of directors in a corporate trustee. These may be the key members of your committee, and it is advisable to nominate several people that can be contacted or oversee the account in the event of long holidays or periods of absence from committee duties.

We are happy to say that help is at hand, however, so if you feel you would like to explore some options, feel free to reach out to Strata Guardian and see if our investment service can help your strata savings diversify away from negative real returns and the prospect of rising strata levies.

Tim Fuller is the Head of Wealth at Strata Guardian. Using over a decade of experience providing sound financial advice to everyday Australians, he shares a passion for simple and effective investments that give clients the confidence they can achieve their goals.