Blog PostSeptember 9, 2020 - Educational
Condominiums and Taxes
CORPORATE INCOME TAXES
A condominium’s primary activity is to collect monthly common element fees and is not taxable. However, many corporations often receive other types of income that may attract tax. The question we are often asked is if collecting other types of income could jeopardize a corporation’s non-taxable status.
The Canada Revenue Agency (CRA) appears to focus on income that could be considered to be in competition with for-profit businesses or agreements made with the sole purpose of earning profit to benefit owners. If the CRA was to audit and assess the corporation, this may mean you will have to pay tax on the activity that is not compliant with a non-profit organization.
Most condominiums earn some interest income. Significant interest income earned in the general fund may be of concern. While a non-profit organization can pay tax on investment income without jeopardizing their status, it has been suggested that transferring excess general fund investment income to the reserve would be safest as, to date, we have not seen reserve interest income attract tax.
Many condominiums are also collecting various types of rental income. This income can include, but is not limited to, parking, guest suite, locker and roof top rental. Notable exemptions that will not affect the corporation’s non-profit status include long-term residential rent, such as superintendent suite rental, and parking rent charged to residential units
Even though condominiums are not-for-profit organizations they must file a corporate income tax return annually. If certain thresholds are met, a corporation may also have to file a Non-Profit Organization (NPO) Information Return. Unlike the standard income tax return, this NPO return carries penalties of $25 per day up to a maximum of $2,500, if not filed within six months of year end.
When a corporation has an audit completed, the filing of these returns is typically included as part of the audit preparation. If a condominium meets the requirements to waive the audit, they should be aware that a corporate income tax return, and the NPO return when applicable, must be prepared and filed each year.
HARMONIZED SALES TAX
Harmonized sales tax (HST) is applicable on other income, if it is considered a taxable supply, once it exceeds $50,000 in any twelve-month period.
Taxable supply includes income from lockers, guest suite and roof rental as well as the common element assessments collected from commercial units. Exempt from taxable supply are interest, parking rental and laundry income.
If you earn $50,000, combined, from these sources in any twelve-month period, you must register for HST. Once registered, you must collect HST on these sources and remit it to the Canada Revenue Agency. If you are required to register for HST you should consult with your accountant to determine if you can claim Input Tax Credits (ITC’s) on any expenditures incurred after registration.
Be careful – even if you are not registered for HST, some suppliers will include HST in their payment to you. We have seen this frequently with payments from large cellular communications companies paying corporations for roof top rentals. These companies are used to including HST in all their payments. If they include HST in their payment, you should return the HST portion to them or you will need to register for HST and submit the HST to the government. The corporation cannot keep the HST under any circumstance.
One of the many obligations of managing a condominium corporation is ensuring that you are compliant with not only the Condominium Act of Ontario but also the Canada Revenue Agency. If you have any questions about income taxes or HST contact your auditor.
Manager, RLB Chartered Professional Accountants