September 2016
Condo corporations are constrained by the revenues generated from condo fees. Since these revenues are not always sufficient to undertake everything desired by a condo corporation, it is not uncommon for some to seek additional revenues.
Supplemental revenues may be generated through sources other than condo fees and may include:
- Rental of guest suites or a party room
- Leasing of roof space for solar panels or cell phone antennas
- Advertising space in newsletters, elevators, on garage entrance lift arms and other corporation properties
- Yard sales, events or programs that involve fees paid by residents or non-residents
Condominium corporations are considered not-for-profit organizations according to Canada Revenue Agency (CRA). This means that condo corporations are tax exempt. They do not collect or pay taxes on the revenues they generate from condo owners. This status, granted by CRA, is provided to condo corporations so long as their operations are consistent with not-for-profit status. This status means:
- Not a charity
- Organized and operated for a purpose other than profit
- Income is not made available for the personal benefit of the corporation
Condo corporations do, at times, generate revenue through their operations which may include activities that generate a profit.
In 2009, CRA issued an Interpretation that a condo corporation renting a condo suite for more than its cost could lose its tax exempt status. This could be construed as operating with intent to earn a profit. Income could be used to reduce condo fees or increase a reserve fund balance. Income could also be used to fund condo corporation activities such as programming or social events which may be consistent with not-for-profit status.
The CRA appears to direct their focus on if the income that has been earned is “incidental” or “material”. When income is minor and directly related to activities consistent with not-for-profit status it is “incidental”. If the income is a small proportion of the corporation’s revenue it is not “material”.
For a condo corporation with $2 million in total revenue, $50,000 in non-condo fee revenue accounts for 2.5% of its budget and may not be considered “material”. That same $50,000 represents 10% of the annual budget for a condo corporation with $500,000 in total revenue and may be considered “material”.
CRA does not provide a clear definition of “material”. The CRA’s position is that a non-profit organization can earn profits so long as it is “incidental” and the result of activities undertaken that are consistent with the corporation’s non-profit objectives.
During a three-year compliance review, 1,300 non-profit organizations were reviewed and not one had their non-profit status revoked. This suggests that non-profit organizations, which include condo corporations, have been acting prudently with regard to their not-for-profit status.
Condo corporations may want to obtain direction before embarking on revenue producing initiatives.
