Understanding Your Non-Profit Condo Corporation – Part 1 of 2

June 2015

Following Canada Revenue Agency’s three-year review of compliance with the Income Tax Act, some have suggested that non-profit condo corporations are on the threshold of changes to their non-profit status. The inference here is that some condominium corporations may be accumulating excessive financial reserves, using income for personal benefit and/or generating too much additional revenue.

Fortunately, facts do not support these suggestions of abusing non-profit status. It appears that condo corporations are quite diligent at following the requirements imposed by their non-profit status.

Condo corporations obtain most of their income from monthly maintenance fees. A portion of these fees go directly to the Reserve Fund with the remainder usually used for operations. Other revenues earned by the condo corporation may

include renting of guest suites, fees for use of elevators or for Party Room rental. These untaxed revenues provide condo owners with an untaxed benefit and lower condo fees which some argue is inconsistent with non-profit status.

Non-profit status is appropriate for organizations where profit is not the main purpose of the organization. A condo corporation is granted non-profit status because all monies paid through condo fees and other initiatives are returned to the organization.

Some interpret non-profit status to mean zero based budgeting is the goal. That is, each year the condo corporation should strive to earn zero profit and not incur losses. This is inconsistent with home ownership. It may take many years of putting money aside to afford a new kitchen, roof replacement or addition to a house. The same is true with a condo corporation which may take many years to set aside enough money to pay for upgrades or repairs. As with other forms of home ownership, it is prudent to establish a rainy day fund to cover unanticipated expenses.

Canadian law does allow for non-profit organizations to earn profits to reinvest in their operations or to hold in reserves. Despite the contrary view, this is not inconsistent with the non-profit status of condo corporations.

During the three-year compliance review, 1,300 non-profit organizations were reviewed and not one had their non-profit status revoked.