Further amendment to Condo Act increases choice for investing condo funds
Another small amendment to our Condo Act came into force on December 15, 2009, this time by virtue of Bill 218, the Ontario Tax Plan for More Jobs and Growth Act, 2009.
Clause (b) of the definition of "eligible security" in subsection 115(5) of the Condominium Act, 1998 is amended to include certain financial instruments issued by institutions located in Ontario insured by the Deposit Insurance Corporation of Ontario ("DICO").
Subsection 115(5) now reads as follows (with amendment underlined):
Definition
(5) In subsections (6) and (7),
“eligible security” means a bond, debenture, guaranteed investment certificate, deposit receipt, deposit note, certificate of deposit, term deposit or other similar instrument that,
(a) is issued or guaranteed by the government of Canada or the government of any province of Canada,
(b) is issued by an institution located in Ontario insured by the Canada Deposit Insurance Corporation or the Deposit Insurance Corporation of Ontario, or
(c) is a security of a prescribed class.
In practical terms, this amendment allows condominium corporations to purchase investments issued by credit unions or caisses populaires that are located in Ontario and are insured by DICO. This effectively destroys the monopoly enjoyed until now by CDIC-insured banks and trust companies and provides greater choice of investment products and providers.
A list of CDIC-insured institutions is here. A list of DICO-insured institutions is here.
Condominium corporations that are unhappy with the investment choices offered by their banks now have more flexibility as to where to purchase investments. This provides considerably more leverage when negotiating rates and terms. Choice is good.
Can the money be invested with an Insurance Company, not technically a GIC, but rather a GDA (Guaranteed Deposit Annuity) that would operate the same as a GIC ... eg) 5 years at 3.5% compounded, cashable. Not CDIC or DICO protected, but same level of protection offered through Assuris.
Where is the definition of "(c) is a security of a prescribed class."?
Thanks for your questions and for reading our blog!
In answer to the Kathy's question, an investment will only be an "eligible security" if one of the criteria in section 115(5) applies. If none of them apply, then the security is not eligible. "Close" doesn't count. If the institution is not insured by CDIC or DICO, then the securities it issues are not eligible, period.
If the insurance companies want to get in on the condo reserve fund investment action, they can send their lobbyists to Queen's Park.
In answer to Bill's question about the meaning of "a security of a prescribed class" as described in s. 115(5)(c), keep in mind that section 1 of the Condo Act (under "definitions") says the following:
"prescribed" means prescribed by the regulations made under this Act.
So we have to look to the regulations. At present, the regulations contain no provision creating a class of eligible security for the purpose of section 115, so section 115(5)(c) really has no practical application at this time. Stated another way, there are no prescribed classes of securities.
It is interesting (but confusing) to note that section 20(2) of Regulation 48/01 under the Condo Act creates a class of eligible security for the purpose of section 81(7) (b) of the Act, but this is different from a class of eligible security for the purpose of section 115(5)(c). The word "security" in section 81(7) means a guarantee or assurance for an obligation, but "security" in section 115 means an investment product. The two are not interchangeable.
I hope this helps.
I find it interesting that the wording in the Act at 115 (b) reads "is insured by an institution located in Ontario insured by the CDIC or the DICO". This could suggest that as long as the instrument is issued by an institution that is a member of CDIC or DICO it is permitted even though the investment itself may exceed the insured amount. e.g. a $200,000 investment is permitted even though the insurance cover is limited to $100,000 as long as the institution itself is insured. One wonders whether this was intended or whether it is unclear drafting. To be on the safe side I am assuming that the instrument itself is required to be insured but someone else may take a different view and it does cause problems when the current account with a bank has a balance exceeding $100,000 simply to fund large cheques for expenses which occur from time to time.
That's an understandable concern, Colin, but I don't agree that the wording is unclear.
It's the institution that must be insured by CDIC or DICO, not the instrument. The way clause 115(5)(b) is written makes this clear.
Note that there is no comma after the words "located in Ontario". If a comma was placed there, then the words "insured by CDIC and DICO" would refer to the instrument, and not the words "an institution located in Ontario".
Also, I don't think that CDIC or DICO insure individual securities.
Thanks for raising that point!
Can I invest in a Solar installation and sell the power to the OPA and does this qualify for investing Condo funds?
Many thanks.
John
Can a condo corporation invest its reserve funds in eligible securities that are traded on the exchange and which would be subject to price fluctuations, e.g. Government of Canada Bonds?
Thanks for your question, Ray.
So long as you’re talking about a condo in Ontario, subsections 115(5)(a) and 115(7) and (8) of the Condo Act should provide a complete answer to your question.
To navigate these issues, your condo needs the help of a financial advisor who has experience and skill in assisting condominium corporations specifically. Make sure your advisor is a member of ACMO and/or Canadian Condominium Institute.
Good luck.