The basic activity of a condominium, collecting monthly common element fees, qualifies it as a not-for-profit organization. A corporate tax return is filed annually but no taxes are assessed. In addition, the corporation may have to file a Non-Profit Organization (NPO) Information Return. This return must be filed if combined interest and rental income exceed $10,000 in the current fiscal year, if the corporation owned assets valued at more than $200,000 at the end of the previous fiscal year or if the corporation has ever filed an NPO Information Return in the past. It is important to file this return within six months of the fiscal year end to avoid penalties. This return does not assess tax but can impose penalties, if filed late, of $25 per day up to a maximum of $2,500.
Most condominiums earn some interest income. To date, we have not seen this income attract tax for any of our clients. The corporation needs to be sure that interest earned on reserve investments or a reserve bank account is kept as reserve income. It cannot be deposited into the general fund bank account.
Laundry income – if the condominium collects the coins (cash) from the laundry machines, rather than using a third party service, this cash may result in a qualified opinion on your audited financial statements. Cash cannot be audited and it is susceptible to theft. If the corporation does not want to use a third-party service, see if you can set up a documented system that involves two unrelated people overseeing each other through the handling of the cash until it is deposited into the corporation’s bank account. This may not result in an unqualified report, but will increase the controls related to cash collection.
Rental income – this includes, but is not limited to parking, guest suite, locker and rooftop. (Notable exemptions include long-term residential rent, such as superintendent suite, and parking rent charged to residential units.)
- If you earn $50,000 in total from these sources in four consecutive calendar quarters or less, you must register for HST. Once registered, you must collect HST on these sources. Consult with your accountant to determine if you can claim Input Tax Credits (ITC’s) on any expenditures incurred once you have registered.
- Be careful – even if you aren’t registered for HST, some suppliers will include HST in their payment to you. We have seen this frequently with rooftop rentals to cell phone tower companies. If they include HST in their payment, you should return the HST portion or you will need to register for HST and submit the HST to the government. The corporation cannot keep the HST.
- Common Element Fees for commercial units are considered a taxable supply from an HST perspective. If this income, combined with the above list, exceeds $50,000 in four consecutive calendar quarters, or less, the condominium will have to register for HST.
Receipt of income other than monthly common element fees could jeopardize your not-for-profit status. At a minimum, this means you may have to pay tax on these incomes. CRA has audited a number of condominium corporations over recent years. They issued letters to various corporations pointing out that the activity was not compliant with not-for-profit income. However, to date, no action has been taken.