Condo Owners Association COA

Condominium Investor

Investor Information in a National Post article

 

Get ready condo flippers, Canada Revenue Agency is hunting you

National Post | Garry Marr | 13/04/20 | Last Updated: 13/04/19 2:23 PM ET

 

You just sold your condo, you made a hefty profit and know you have to pay your taxes.

The bill might be more than you think.

If it’s your principle residence, there’s no tax, as long as you have the paperwork to prove it. The Canada Revenue Agency is taking a closer look at the condominium sector in what some in the industry have dubbed the “Condo Project.”

Even if you own up to it being an investment property, you may not be allowed the capital gains tax break and that means a bigger hunk of your profit going to Ottawa.

Let’s say your gain is $100,000 and your tax bracket is 46%. Capital gains are taxed at 50% so you would only owe $23,000 on that profit.

Not so fast! If the CRA says you are in the business of flipping condominiums, get ready to pay based on the gain being counted as income for a tax bill of twice the amount at $46,000. And, it gets worse. You could also face a fine of up to 50% of the tax owed for making a false disclosure.

With the deadline for filing taxes coming up April 30, you might want to think very carefully about how you record that housing sale you made in 2012.

Sam Papadopoulous, senior public affairs advisor-manager with CRA’s Ontario region, acknowledges that the strength of the condo sector has attracted the attention of the taxman.

“We do from time to time target some sectors more closely than others,” he said. “We look at the real estate market in general. Of course, [there is more focus], it’s a hot market.”

People in the industry have a different view.

Some suggest it fits in with the recent budget when Jim Flaherty, the finance minister, announced his government was taking a closer look at loopholes and tax cheats — hoping to shrink its deficit in the process.

One of the issues attracting the attention of the CRA is assignment clauses, where one person agrees to purchase a condo before it is built but ultimately sells his or her right to buy that condo before the building is even registered.

Builders usually collect a fee for that privilege but ultimately when title is registered at the land registry office the original purchaser’s name is nowhere to be found.

While most builders are unlikely to voluntarily supply a list of properties in their building that were assigned, they could be forced to cough it up if they are audited by the CRA.

Those people who have assigned their units to another buyer are going to be hard pressed to prove they planned to use the unit as an investment property rather just flipping — meaning the CRA is highly unlikely to allow them to count money made at the lower capital gains rate.

“If you keep [assigning property] then it is not capital gains, that’s trade and that’s income,” said Mr. Papadopoulous, adding you do it a “couple of times” and it’s income. “Of course, that’s part of [what they are investigating].”

The warning to people flipping property and thinking they can get away without reporting the gain is pretty clear.

“We live in the information technology age,” said Mr. Papadopoulous, who wouldn’t get into how CRA is tracking down the tax evaders. “We are putting our resources to work and following the trail where we can.”

David Chodikoff, a tax lawyer and partner at Miller Thomson, said he’s seen the CRA go after people who have been living in a property and still question it as a principal residence.

CRA starts with a letter to a taxpayer asking them for details about when and why they sold their property and people often fill out the questionnaire without legal advice.

The issue goes all the way back to 1971 when there was no tax at all on capital gains so everybody tried to avoid counting gains as income.

Mr. Chodikoff says the distinction between income and capital is as simple as the difference between a tree and the fruit that it bears.

“The tree is capital and it produces a fruit and the income is the profit that is derived when that fruit is sold,” he says.

If your condo is that tree and your rental income is the fruit and you make a profit from that rental income, that’s taxed as full income. You eventually sell the tree for more money and that’s just a capital gain, taxed at the 50% rate.

If your entire businesses is just trading trees and not producing fruit, that’s business income.

“The Income Tax Act asks what was your intention when you bought that condo,” said Mr. Chodikoff. “These principles are easy to describe but harder to prove in fact.”

The law is like a civil case, a judge doesn’t have to believe you beyond a reasonable doubt, but a judge does have to conclude you are more believable than the CRA.

“We have to bring all kinds of intrinsic evidence,” says Mr. Chodikoff, noting some clients will produce something as simple as a change in address on their driver’s licence to show they were using their condo as a principal residence.

If you never actually moved into the condo, it’s going to be tough to prove that it was principal residence.

You may never have produced income from the profit but that’s not to say you didn’t plan to, so perhaps you could get the capital gains exemption.

“The question can be ‘how did they come to sell the property,’” said Mr. Chodikoff, adding the CRA might look at whether you were advertising the property for sale.

Brian Johnston, chief operating officer of Mattamy Corp., says the CRA has ways to get information on sales.

“They audit real estate companies, look at the name on the contract and look at the final deed and see a difference,” said Mr. Johnston. “They see Bill Smith bought it and Joe Blow is on the deed. They want to know how this happened and follow the paper trail.”

He has some sympathy for consumers confused about the whole process.

“I think the government should make it a little simpler in terms of filing for principle residence exemption,” said Mr. Johnston. “It’s a real gray area of the law. The government has not done a good job for Canadians trying to specifically identify all the rules around [selling homes and paying taxes]. People might have inadvertently made mistakes.”

Condominium developer Bard Lamb, who has been audited several times, said ultimately it’s better to be more conservative when you’re filing — meaning just count the gain as income if you are in doubt.

“If you are prolific buyer or seller of properties, whether it’s condos or not, you have to govern yourself accordingly. If you don’t, you’ll get caught and be fined,” said Mr. Lamb. “I decided many years ago when I started buying condominiums, after talking with my accountant, you can pay [lower tax] or you can fight 50 years with Revenue Canada.”     http://business.financialpost.com/2013/04/20/get-ready-to-pay-income-tax-on-your-condo-profit/

Other Links:

Condo Show Podcast

Condo Radio.com

Contact us for more details  

Board of Directors

To be noted - this section to be revised shortly to reflect the changes to the Condo Act.

CONDO Board of Directors and Responsibilities

There are generally 5 Board of Directors (but sometimes there may be 3 Board members in smaller buildings) who have been elected by the majority vote of the Owners (who are the Corporation) to handle all of the affairs of the Corporation. 

The Board of Directors shall elect among themselves the following positions: 

  • President 
  • Vice-President
  • Treasurer
  • Secretary
  • Director

The Qualifications and Disqualifications are outlined in the Condominium Act to include:

Qualifications

29. (1) No person shall be a director if, 

(a) the person is under eighteen years of age; 

(b) the person is an undischarged bankrupt; or 

(c) the person is incapable of managing property within the meaning of the Substitute Decisions Act, 1992. 1998, c. 19, s. 29 (1); 2009, c. 33, Sched. 2, s. 17 (1).

Disqualification 

(2) A person immediately ceases to be a director if, 

(a) the person becomes an undischarged bankrupt or incapable of managing property within the meaning of the Substitute Decisions Act, 1992; or 

(b) a certificate of lien has been registered under subsection 85 (2) against a unit owned by the person and the person does not obtain a discharge of the lien under subsection 85 (7) within 90 days of the registration of the lien. 1998, c. 19, s. 29 (2); 2009, c. 33, Sched. 2, s. 17 (2). 

Director Resignation

Note:  If a Director resigns before his/her term is up; and the Board of Directors no longer have a quorum: 

The remaining Directors must: 

  • Hold a meeting of owners within 30 days of losing quorum to fill all vacancies on the Board
  • If the Board does not call a meeting;  the Owners can call the meeting and the Board of Directors shall reimburse the cost 

Note:  If a Director resigns before his/her term is up;  but the Board still has quorum;  the Board can to any of the following: 

  • Appoint another person to the Board by majority vote of Board Members
  • hold a meeting of Owners and open to election for those willing to stand for the position
  • do not fill the position and leave it vacant til the next Annual General Meeting

 

Property Managers and Property Management Firms

The Property Management firm is under contract with the Board of Directors on behalf of the Corporation.  The Property Management Company then appoints a Property Manager (who is an employee of the Property Management Firm)  to that building unless the Board of Directors has requested to interview their Property Managers and vote to who they would prefer to be at the building.  The Property Management contract is one of the larger contractual arrangements in value.  Many times the Property Management firm will also handle the accounting and replacement staffing during holidays.   The contract may include a Property Manager and an Administrative Assistant.

  

Condominium Auditor

Every year the Corporation Auditor shall examine the financials and prepare an annual report to be verbally provided by the Auditor at the Annual General Meeting.  Expenditures from the Reserve Fund must be made in accordance with the Reserve Fund Study which must be carried out by a professional reserve fund study engineering firm on behalf of the Corporation every 3 years. 

Note:  The Auditor is appointed by the Corporation (vote by Owners) and not hired by the Board of Directors

Condominium Lawyer

The Corporation Condominium Lawyer is hired and contract by the decision of the Board of Directors.  In some cases they perform their duties ie. liens, lack of payment of maintenance fees and various other demands by an hourly rate.

Other times, the Board of Director may contract a lawyer on a retainer   This amount could fluctuate from $8,000 - $12,000 per year and will not cover certain features.  It is wise to obtain a complete breakdown if you or your Board decides to choose the retainer route.

COA RECOMMENDATION All condominium corporation lawyers should be appointed by the Corporation just like the Auditors.  There has been too much twisting and turning of the Condominium Act to service the will of the Board of Directors;  jeopardizing the health, welfare and value of the condo community.

 

Concierge / Security Contract

The Concierge/Security contract is agreed and signed by the Board of Directors.   In some cases, Condo Owners feel that they have no rights when they are confronted by Security who has a direct relationship with the Board of Directors and who have in some cases intimidated the owners.  There is a fine law of professionalism and COA is hoping that Conciierge and Security companies should understand where the problems lie and try their best.   It can be very difficult if an Owners has a Difficult Board of Directors and equally if the Board of Directors has a bad owner.

 

Service Related Condominium Contracts

The other contracts are all approved by the Board of Directors.  

Financials of a Condo

What is the Financial Structure of a Condominium 

The Financial structure of a Condominium relates to the Annual Budget and the day-to-day expenditures which generally comprises of services related contracts and utilities.  Every year just prior to the year-end; the Board of Directors get together with their financial consultant, generally the person doing their accounting to determine the expected revenues and expenditures over the next 12 month period.  The revenues are generated from maintenance fees from the unit owners.

Once prepared;  the Board of Directors approves the budget and sends it to the Owners of the Corporation approx 2 weeks prior to year end with a notice to each respective Unit Owners informing them of their new maintenance fee amount for the incoming fiscal year.

The Financial statements shall include:

  • a balance sheet
  • a statement of general operations
  • a statement of changes in financial potion
  • a statement of reserve fund operations
  • prescribed information relating to reserve fund study and operations
  • an indication of the aggregate remuneration paid to the Directors
  • Additional statements or information

Most budgets are relative to the cost of inflation.  If your building is above 4-5% Ask Questions

Note: New Construction Buildings

  • 1 - 2 years old may have a large increase in maintenance fees in the 2nd Year
  • See New Construction - Maintenance Fees and Financials

Standard Operating Budget Expenditures include:

  • Property Management Firm
  • Cleaners and General Housekeeping
  • Concierge / Security (and/or Gatehouse)
  • Heat, (Gas) Hydro and Water
  • Maintenance and Repairs
  • Energy Management
  • Landscaping /Show Removal/Lawn Mowing
  • Exterior Maintenance
  • Repairs and interior maintenance

 

Surplus and Contingency Funds

There could be instances where the Annual Budget was over-calculated leaving a surplus in the Condominium Budget.   Many times the Board of Directors may not spend the surplus or contingency fund and keep it for an unexpected charge.   Other times they may use portions of this amounts to pay down the inflationary increase at the following years annual budget review.  In either case;  if the surplus and/or contingency fund is no too great;  we do not see there to be a harm in keeping the additional moneys available.

Reserve Fund

The budget will also include a portion to be paid towards the Corporation Reserve Fund.  It is very important for a Board of Directors to be very careful and practice complete transparency and due diligence with expenditures relating to reserve funds.   There are strict mandates in accordance with the Condo Act which must be adhered to.    If a condo building has a low reserve fund; it could trigger special assessments and expensive costs moving forward.

Special Assessment

Special Assessments are when the building does not have an adequate reserve fund to do a repair and cannot charge the expenditure through the operating budget.  In order to obtain the monies required; the Board will approve a Special Assessment and each unit owner will be assessed their portion of the expenditure in relation to their square footage of their unit.   During the times of a Special Assessment, Unit Owners will be subject to pay their monthly maintenance fees and also their Special Assessment.  This added costs could make life very miserable for  many.

Approval of Budget

The Budget is approved by the Board of Directors evidenced by the signature at the bottom of the balance sheet by two of the Directors with signing authority.

Auditor and Review of Financial Annual Report at Annual General Meeting

Every year the Corporation Auditor shall examine the financials and prepare an annual report to be verbally provided by the Auditor at the Annual General Meeting.  Expenditures from the Reserve Fund must be made in accordance with the Reserve Fund Study which must be carried out by a professional reserve fund study engineering firm on behalf of the Corporation every 3 years. 

Note:  The Auditor is appointed by the Corporation (vote by Owners) and not hired by the Board of Directors 

New Condominium Act

      

 

New Condo Act

The Province of Ontario “activated many new legislative provisions affecting the condo industry" on November 1st, 2017, however there are some aspects of the changes not in force as of yet.  The Ontario New Condominium Act is overseen by the Ministry of Government and Consumer Services.   

Condominium Law Changes   

Condominium Act  1998     

Bill 106, Protecting Condominium Owners Act, 2015 

 

What’s in force

The Province implement changes to the Condominium Act to governed and strengthen transparency and accountability of condo corporations.  The Province has also regulated Condo Management firms and Managers.  Here is an overview of some of the important changes:

The Ministry of Government and Consumer Services posted and released 15 new forms now required to be used under the Condominium Act. These 15 forms will help standardize and facilitate communications between Condo Owners and Boards.  Most of which are mandatory.

Training & new Director disclosure

All directors elected or appointed after October 31, 2017 will have 6 months to complete mandatory training.

The CAO Condominium Authority of Ontario  is offering free online training modules, to cover a range of topics including director responsibilities and obligations.  The required training takes between 3 to 6 hours to complete.  At this time there are 21 short online modules, they are approximately 10 to 20 minutes each to be completed in any order.   Anyone can take this training whether you are a Director or not however Directors need to log in using their corporation’s account with CAO. Corporations receive their online account once they register with the CAO.  Non-directors wishing to take the courses will be able to do so by creating their own online profile with the CAO.  Access to this training can be done through the CAO’s training page.

Any director (appointed or elected after October 31, 2017) who fails to complete the required training within 6 months will immediately and automatically cease to be a director.

Director Disclosure Obligation

Directors will have to comply with new disclosure obligations to include:

  1. whether they (or a related person) are party to any legal action;
  2. whether they have been convicted of an offence under the Condo act; 
  3. whether they have a material interest in a contract or transaction;
  4. whether they are in arrears for more than 60 days.

 

Board meetings by electronic means

Boards may now hold board meetings by teleconference or by another form of electronic communications allowing concurrent communication between directors if all directors have consented to these methods of meetings.  Corporations will not have to have a law permitting these kinds of remote meetings.  Some Corporations do have these allowances on their declarations.

Mandatory licensing of managers

The Condo Management Regulatory Authority of Ontario (the CMRAO) began on November 1, 2017 with an online portal allowing condo managers to apply for their management licence. They do have until January 29, 2018 to apply for their appropriate Management licence.  It is illegal to provide condo management services without a licence (or without a proof that you have applied for one and are waiting for the CMRAO to treat your application) after January 29, 2018.   Visit the CMRAO licensing page and click on the licence you wish to apply for. Once you are in the licensing portal you will need to create a profile with the CMRAO.

The new Condo Tribunal

The Condo Authority of Ontario (CAO) launched Ontario’s first online tribunal! This new tribunal will help decide and settle condominium related disputes in Ontario.  At this time the tribunal’s jurisdiction is limited to disputes related to the corporation’s records. It is expected to expand in time.  You will require a Tribunal's portal to commence or to respond to a new tribunal case

Information Certificates 

Condo Corporations are now obligated to provide owners with regular Information Certificates, containing information about the condominium corporation’s board, finances, insurance, reserve fund, legal proceedings and other matters about the corporation.

These certificates are to be provided to owners twice a year;  First: within 60 days after the end of the first and third quarter of the corporation’s fiscal year.   Such certificates are also to be provided within 30 days of any change to be reported and to every new owner. Corporations must use the prescribed Information certificate issued by the province see Forms

 

Annual General Meetings - AGM

Note: you must provide advance notices of owners meeting and reduced quorum

For any and all meetings of owners (including AGMs) held on or after December 11, 2017, the Corporation will have to send an advance notice of the meeting, using the form prescribed. This advance notice will advise owners, amongst other things, of the anticipated date of the meeting. It will confirm whether a director will be elected at the meeting and whether an auditor will be appointed. We have already blogged about how to call an AGM under the new Act.

Please ensure to use the prescribed form for the AGM notice

The required quorum to hold an owners’ meeting (including AGMs) remains at 25% but is there is a reduction to 15% if quorum is not met in the first two attempts.

Voting method and new proxies

Votes at owners’ meeting can continue to be held by show of hand, in person or by proxy but can now also be done by telephonic or electronic means if the corporation has a by-law permitting it.  These new electronic voting methods can include telephone calls, fax, email, touch-tone or computer systems.

Any owner using a proxy must now use the prescribed formed.  Corporations and owners can no longer make their own forms.

The new Condo Authority of Ontario

The CAO has been operative since September 1st, 2017. The Authority focusses on consumer protection and healthy condo communities across Ontario.  It provides trusted easy-to-use online information, training, dispute resolution, and other services to help improve condominium living. The CAO website is often the best place to start for anyone wishing to learn more about condo living or wishing to resolve a condo-related matter.

Keep in mind that it is mandatory that all condominium corporations must register with the CAO and they also must pay the CAO Assessment fee before December 31, 2017. .

What types of Condominiums apply under the Act

  • Standard Condominiums - (low-rise, high-rise apartment buildings, stacked townhomes and townhomes)
  • Leasehold Condominiums
  • Vacant Land Condominiums
  • Common Element Condominiums
  • Phased Condominiums
  • Almalgamated Condominiums   

  

Other Provincial Acts in the Canada

Sample 4

CanLii is a non-profit organization managed by the Federation of Law Societies of Canada

 

Condo Insurance

 

Tune into this interview - Condo Radio on Insurance

COA Founder CEO Linda Pinizzotto interviews Paul Hainer, President of Insurance Land on Condominium Insurance

 

COA advocates:

  • Consumer insurance for onsite and offsite Condo Owners
  • Consumer Tenant Policies to ensure and protect Condos
  • Better Condominium Board of Directors Liability Insurance
  • Better Dispute resolution to protect Condo Owners rights
  • Condo Corporations should have better governance for insurance claims
  • Province must License Property Management Firms & Property Managers
  • Property Management Firms and Property Managers need errors/omissions insurance 

 

COA suggestions and concerns on Insurance Coverage

  • Board of Directors may remove Building coverage to reduce deductibles
  • Mandates must be in place to force Board of Directors to notify owners of changes
  • Owners at risk for what the Corporation covers/doesn't cover under their "standard unit"
  • Condo Building insurance may have different insurance companies on insurance coverage
  • Status Certificate shows Insurance Coverage/deductible but not "standard unit coverage"
  • Water is a #1 problem in condo buildings and insurance coverage

 

COA suggests preventative medicine

  • Change plastic dishwasher and washer hoses to stronger rubber quality
  • Regular checkups on lint traps in ceiling of units and regular cleaning
  • Board may enforce policy for fan coils to be changed back to owners
  • Plumbing inspection of all units and charge back to owners

 

 

  

 

Condo Information

   

COA provides condominium information to help Condominium Owners and Buyers.     

Founder President CEO of the Condo Owners Association, Linda Pinizzotto is a Registered Real Estate Sales Representative and has provided the COA with this condo information section.  She is an Award Winning Realtor,  Government Relations Chair and Director of a local Real Estate Board and provides consumer awareness on her Condo Radio Show.  Whether you own or are considering to buy a low-rise or high-rise apartment condominium; a stacked townhouse or standard townhouse; a commercial condominium or  land; protect yourself and read this very important information.

  

Buying a Condominium - New Vs Resale Condominium Purchases


NEW REGULATION


CONDOMINIUM OWNERSHIP

  

GOVERNMENT LINKS

Superior Court Rulings

Maintenance Fees

 

Do you know the Financial Structure of a Condominium? 

What determines your Maintenance Fee? 

The Condominium Financials includes the operating budget, surplus of funds, contingency funds and the reserve funds of the Corporation.  The maintenance fee for each unit is assessed in relation to the square footage of the unit, parking and locker (if included).  The Budget will include all of the expenditures based on a fiscal year of operations.  

The year end is determined by the date of registration of the Condo Corporation.    The Board of Directors must ensure that the Corporation receives enough monthly maintenance fees throughout the year from each unit owner to cover the full years expenditure of operation expenditures.  Reserve funds are only to be used for replacement and refurbishments in accordance with the Reserve Fund Study which is updated every 3 years.  If a replacement or reburbishment has to be completed prior to their expected life term; then a percentage of the cost can be allocated to the operation budget and a percentage allowable on the reserve fund.  

In the event that a Corporation has a surplus of funds; it is common for a Board to pay down the operating budget to reduce maintenance fees.  In the event that the Corporation has an expenditure that cannot be claimed through reserve funds and the budget cannot withstand the expenditure;  the Board of Directors can place a special assessment on unit owners to cover the costs. 

 

Note:  various expenditures and percentages plus the highest percentage of costs  

  1. Services/Contracts   35%
  2. Utilities   30%
  3. Reserve Funds  20%
  4. Personnel (Superintendent); Repairs & Maintenance  15%

 

 

 

 

 

 

 

 

 

 

 

 
 
 

The Condo Budget Pie for Condominiums

 

The HST increased the Condo Operating Budget for the following Contracts:

  • All Service Related Contracts ie.  Property Management; Administation; Concierge/Security;  Cleaners/Maintenance/Repairs;  Superintendant/Personnel
  • Reserve Funds:  need the additional HST because only GST was added into the fund previous years so there will be a shortfall should there be reserve fund expenditures. 
  • Most Condo Corporations have had to top up their contributions to the Reserve Fund
  • Cost of Utilties:  all utilities are subject to HST (13% rather than 5%) as previously paid prior to HST implementation
  • HST COSTS BREAKDOWN - How will the new HST affect me in Ontario? 

 

 

New to Canada

 

Welcome to Canada Mortgage Tips

by: Linda Pinizzotto, COA Founder, President CEO

Real Estate Sales Representative


 

Are you New to Canada and need Mortgage Information

 

If you are planning to purchase a condominium and any other style of home and you are new to Canada, please read this section.

Canada Mortgage and Housing Corporatio (CMHC) have developed a multi-language online source for housing related information CMHC Newcomers  http://www.cmhc.ca/newcomers

Genworth Corporation have developed and online information guide for housing information New Canada  http://www.genworth.ca/homeownership/c_on-your-terms/new_canada.asp


There are a series of guides and tools that take you through the condo and home buying process.

Guides are available in several languages – click for languages

  • English
  • French
  • Mandarin/Simplified Chinese
  • Arabic
  • Punjabi
  • Spanish
  • Tagalog
  • Ardu

Key information for Newscomers covers special information on:

  • Finding a home of your own
  • How Much can you Afford
  • How to choose the right mortgage
  • Information on making an offer and closing the deal

Mortgage Planning is important and key safety measures are:

  • Protect yourself from Mortgage Fraud
  • Save Money and Understand Mortgages
  • Steps on How to Maintain a Good Credit Score

 

For More Insight into Condominiums

 

Special Note: COA listed on Provincial Government Website (bottom of page)

Building a Better Condo Act

 

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