Sinking Fund for Commercial Property Management Companies

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Multi-Unit Developments Act, 2011 requires the OMC (Owner Managed Companies) to established a sinking fund for the purpose of discharging expenditure of a non-recurring nature. Under the Act each owner must contribute a minimum of €200 per annum to the sinking fund or such greater amount as may be agreed by the members. Funds collected under the sinking fund must be maintained in a separate bank account. Where applicable, a statement of the sinking fund together with details of the amount of annual contribution to the fund and the basis on which it is calculated should be outlined in the annual report to members.

The Act is primarily focusing on OMC rather than commercial property management companies (CMC). For CMC (members/tenants are VAT registered), the above rules can be used as a guidance as well. In addition, the following matters relating to accounting treatment of sinking fund should be considered. 

• Reclaiming VAT input credit on sinking fund expenditure incurred.
• Adopting an accounting policy on payment of sinking fund expenditures out of sinking fund bank account. It’s up to the directors of the CMC to decide whether to transfer gross or net amount out of sinking fund bank account to service charge bank account when making payments. It may have significant impact on year end sinking fund bank balance, recoverable expenditure and balancing charges/credits.
• Recoding gross deposit interest received on sinking fund deposit and related CT charges in the accounts. CT charge/refund is a movement in sinking fund account rather than a recoverable expenditure/credit.

OSK are one of Ireland’s leading providers of property management audit services to commercial, industrial and residential property management companies. For further details, please contact OSK Property Management Audit Team or call 01 4394 200.

 **Detailed explanation for each bullet point above will be expanded on in future blogs.

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• Multi Units Development Act 2011

• Owner Managed Companies

• Property Management Audit