Sinking Fund Investment in Queensland

Investing your strata funds is not a new proposition. Most Body Corporates have been using primary forms of investment, usually, term deposits, for their long term Sinking 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 Queensland legislation?

A look at the Legislation

From a legislative perspective, there is some good news for Queensland sinking funds. Section 96(2b) of the BCCMA 1997 (QLD) allows body corporates to invest amounts not immediately required for its purposes in a way that a trustee may invest trust funds. So that’s a start, over to part 3 of the Trust Act 1973 (QLD) for more information. In a similar vein to NSW, Sections 21, 22 & 23 of the Trust Act 1973 (QLD) offers a series of confirmations and considerations when working through some alternatives for your longer-term savings 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.

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

• 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

• Provisions to seek advice and use trust capital to pay for this advice

Like all well-considered investments, Section 24 of the above Act details 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:

• 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

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.

Strata Guardian has sought legal advice from a respected national Strata Lawyer on investing with us in Queensland, along with a template Committee motion we can share with you. Please be in touch to receive a free copy.

You may also find that your Body Corporate 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.