Dear Tony: Is a condominium corporation allowed to use the interest from the provident fund investments for the operating account?
In our AGM financial report, a significant amount of interest is shown as income in our operating fund. The property manager and treasurer said the interest came from operating surplus investments, but we were cash strapped this year and had to borrow from the provident fund to pay for our insurance policy.
There is no possibility of generating enough interest shown on our operating account. The financial report shows that we generated $12,723 in our contingency, but it also shows in the operating income. Is this normal?
Christina W., Burnaby
Strata companies often mix their financial relationships between operating, provident fund and special funds. This is not permitted by the Strata Property Act or its regulations. Strata boards and accounting managers should look closely at the regulations in the Act that clearly define reporting. The accounts should show the opening and closing balances of the operating fund, the provident fund and any outstanding special levies during that fiscal year.
The Act and Regulations also require that each of these items be accounted for and reported separately. Interest earned on each of the accounts is only deposited in those accounts.
If the condo company approves an amount to be spent from the contingency reserve fund (FRC), it remains an expense of the FRC and is not mixed or reported with the operating fund. The same applies to special levies. The reasons are intentional. Depending on the fund, the voting thresholds and approvals may be different, and in the case of a special levy fund, any excess funds where no owner is entitled to $100 or more, must be returned to the owners upon end of this project.
A benefit that is often overlooked by condominium corporations is the interest that may be earned on contingency funds and special levies, which is not taxable, when applied to these funds.
With interest rates rising, this is an ideal window to review your CRF balances for upcoming projects, emergency allowances and unforeseen expenses, and consider investing over 1-3 year periods. Rates are up to 4% and higher for GICs, and this invested and compounded interest goes a long way towards offsetting inflation.
Strata councils should dedicate at least one meeting per year to budget planning and investments. Make decisions and vote to authorize the investment of funds to allow your property manager, treasurer and financial planner to make the investments. Most importantly, the funds must always be in the name of the condominium trust and cannot be consolidated with other funds.
Tony Gioventu is executive director of the Condominium Home Owners Association.