Is Your Condo Management Company Putting You at Risk?
Why your condo corporation needs a registered business number
Did you know that your condominium is more than a residence? In reality, your condo is a corporation, similar to that of a non-profit. Yep, that’s right, you’re living in a corporation!What this means for your building is that your condominium corporation is responsible for having a business number, registered through the Canadian Revenue Agency (CRA), and for filing taxes each year. Not quite the sexiest topic in the condo world, but one that must be addressed, along with a property risk assessment, for your condo corporation to be law-abiding and compliant with the CRA.
Your heart may have stopped just now (gah – taxes!), but in reality, any income your condo brings in, such as condo fees, less the expenses required to run/maintain/update your building, should equal zero. Meaning, you and your condo residents should not be paying any additional taxes when you file each year.
How to Register Your Condo as a Business
In onboarding new clients, we discovered that, prior to working with us, none of these condo corporations had a business number. Not a single one! This honestly astounded us.
While we cannot say for certain why they haven’t had a number up to this point, we do know that the current federal government is identifying where there are gaps in the system, and are now cracking down to ensure these gaps are closed. Part of closing this gap is detecting corporations that have fallen through the cracks and a large number of these corporations are condo buildings.
Before the CRA comes knocking on your condo board’s door, make sure your condo corporation obtains and registers a business number. From there, it’s up to you, your condo board, and your condo management team to ensure that you fulfill all requirements that come with being a corporation, even if it’s a not-for-profit entity.
To get started in proactively removing your property risk assessment of a CRA phone call, below are some simple steps you must follow:
- Put in a request for a business number
- Register your condo corporation for a business number
- File a T-4012 for your condo’s tax year
- This should be done in conjunction with auditing your condo’s financial statements each year.
- Include your board member information:
- President’s name, contact info, and S.I.N.
- List of all Board Directors, along with their information
What?! We know, we know. Having to attach your personal board members’ information to the condo’s tax return is nerve-wracking. However, it is imperative that when you file, you include the individual personal information of your board members. While this may be causing heart palpitations for you and your members, know that if you have a proper insurance package on your condo building, then you will have Directors Insurance that protects your members from any liability attached to the board’s responsibilities. This means what happens to the board will not hurt your individual tax filings and returns.
Why Your Condo Needs a Business Number
As much as we want to say that you don’t really need this and it’s just a way to create more paperwork for you, this is not the case. There are two primary reasons why you need to make sure your condo corporation is registered and filed, including ensuring that a property risk assessment is part of your compliance efforts.
1. First and foremost, it’s the law, plain and simple!
If your condominium corporation does not have a business number that is registered with the CRA and is not filing tax returns, then your condo corporation is breaking the law. Period.
That said, if you do not currently have a business number and are not filing, you are not alone in trying to catch up. This information, while it should be easily available, is not as obvious as one would think. Heck, as we mentioned, not a single one of the condo corporations we recently onboarded have been doing this. It’s only through our own research and education that we discovered this information and oversight within the entire condo management industry. Now, armed with this knowledge, we are helping our new clients become compliant with the CRA rules, setting them up as a corporation.
2. Know where your condo fees stand
In filing your condo corporation’s taxes, you should be filing a zero-rated return. Meaning, that all income-less expenses equal zero and no taxes are to be paid to the CRA. Paperwork – yes. More tax payments for your corporation? No, not if done properly.
However, if you find in the auditing of your financial statements that you have a surplus in income, this could be an indicator that your condo fees are too high. Look at why you have this surplus and assess how to adjust your condo fees accordingly to ensure that your condo residents are paying only what they need to in order to create value in your building, not excess. A property risk assessment can also help ensure that funds are being used appropriately to address potential risks. The end game of your condo fees should be to properly look after your condo building, not see a profit.
How to Avoid Penalties for Not Filing
You may be wondering what might happen to your condo corporation if you haven’t had a business number or filed any tax returns until now. Are you going to be slammed with back taxes because your condo management company never brought this information to your attention? We’re not blaming the condo management company for not knowing – again, it’s not obvious. However, now that you do know, it’s important that you and your condo board take action.
This is where the Voluntary Disclosure Program comes into play. Here, you or a third party acting on your behalf should proactively reach out to the CRA, indicating that you are filing for previous years missed. By voluntarily disclosing this information, you are protected from larger penalties should the CRA discover that your corporation hasn’t filed taxes on its own.
However, if the CRA does identify that your condo corporation isn’t a registered business and/or filing your tax returns accordingly, they will fine you. The amount of the fine depends on your condo corporation’s individual circumstances.
Bringing Peace of Mind to Your Condo
The entire condo industry – both corporations and management companies – is now looking to catch up with legislation, ensuring that the industry becomes one that is more compliant with, and understanding of, the laws tied to running a condo corporation, including the importance of conducting a property risk assessment.
If you’re not sure where your condominium corporation currently stands with business registration, tax filing, and so forth, contact Catalyst and we’ll help guide you and your board through the process