Ontario Condo Law Blog : Toronto Condominium Lawyer & Attorney : Gardiner Miller Arnold Law Firm : Ontario, Ottawa, Hamilton, Kitchener

In a special update released this week, CCI-Toronto and ACMO announced that they have successfully lobbied the provincial government to amend the regulations under the Condo Act so that corporations registered before May 5, 2001 will have 15 years (not 10 years) from the date of their first reserve fund study to top-up their reserve funds.

[Update (March 7, 2010):  The regulation making this amendment is now published here.]

Condominium corporations existing as of May 1, 2001 were required to have their first official reserve fund study under the New Act within three years after that date. Generally speaking, that means that they must top up their reserve funds by the year 2016 or 2019.

CCI-Toronto and ACMO deserve kudos for securing this concession to help condo corporations offset the deleterious effects of the ever-looming HST.   We wish them well in their continued negotiations with government.

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The Toronto Chapter of the Canadian Condominium Institute has posted a special info bulletin on how condominium unit owners can claim the Home Renovation Tax Credit (HRTC).

From the bulletin:

On behalf of CCI Toronto & Area Members, and in conjunction with ACMO, a lawyer specializing in tax law was retained to coordinate a meeting with CRA representatives in order to address many questions submitted by our members regarding the legal interpretation of the HRTC rules and how they affect the practical management of Condominium Corporations. This meeting with CRA representatives was also attended by an Auditor specializing in condominium accounting and taxation.

16 questions and answers are then provided.

See the bulletin (in pdf) here.

Kudos to CCI-T and ACMO for gathering and presenting this useful information.  

Pass it on!

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The Ontario Superior Court of Justice recently confirmed the simple notion that a condominium lien is not slander of title where the unit owner is in arrears of common expenses at the time the certificate of lien is registered on title.

The following portion of Madam Justice Low’s decision in Jeffers v. YCC 98, 2010 ONSC 474 (CanLII) is instructive:

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The following guest post is by Athena Mailloux, a fraud examiner at ZAP Consulting Limited. Athena shares some practical solutions to help condo directors keep their new years’ resolution to be vigilant against fraud.

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Whether you are a large business corporation or a sole proprietorship you can never be too cautious when it comes to protecting against fraud. Condominium corporations have no less of a responsibility in protecting against fraud than a publicly traded company. In fact, condo corporations are often relatively small, close-knit communities that may lack stringent internal controls and thus be more susceptible to fraud.

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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):

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Many condo boards and unit owners are concerned over the impact of the proposed Harmonized Sales Tax on their condominium corporations and their own pocket books.  They will be glad to know that  the Toronto Chapter of the Canadian Condominium Institute (which represents over 113,000 condo units in the GTA) has been valiantly advocating against the proposed tax.  

CCI-Toronto is taking their fight to the airwaves on TV tonight.   Hear the latest about what is being done.   According to their news release: 

 Tune in to Focus Ontario on Global Television on Saturday, November 21st at 6:30 p.m. to hear host Sean Mallen speak with guests Armand Conant - President, Canadian Condominium Institute - Toronto Chapter and Robert Hattin - Canadian Manufacturers and Exporters, on the issue of the Harmonized Sales Tax.

Mr. Conant, President of CCI Toronto, Co-Chair of the Joint CCI-T/ACMO Government Relations Committee and a lawyer with the firm Heenan Blaikie LLP will focus his comments on Saturday's show on CCI-T's opposition to the inequities the HST will create for condominium owners.

For details on Focus Ontario click here.

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Daily Commercial News reports on a trend emerging in response to the deteriorating physical and financial condition of older condominiums -- "lender tenders."

The article cites a report by GRG Building Consultants showing that condominiums built in the 1970s are in worse shape today in terms of their building envelope and structure compared to complexes built in the 1980s and 90s. Moreover, increasingly stringent reserve fund requirements in the Condominium Act since the 1980s have created a financial gap between condominiums built in the 1970s and those constructed afterwards. The 1970s condominiums are less likely to have a properly-funded reserve to pay for major repair and replacement of the common elements than condominiums constructed since then.

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The Toronto Sun reports that the impact of the proposed HST on condominium corporations and their unit owners is turning into a political football in the September 17 provincial by-election in the Toronto riding of St. Paul’s.

The opposition parties have condemned the proposed new tax because it will cause condominium fees to increase.

Finance Minister Dwight Duncan says he does not expect to see a substantial increase in condo fees, which flies in the face of the predictions made by the condominium management industry that fees will rise on average by 6 to 8%. These predictions were reported in recent months in the Toronto Star here and in the Globe and Mail here.

Notwithstanding the large number of services that the HST will affect, Finance Minister Duncan says:

"I have a condominium in Windsor and my condominium fees will likely not be affected because the services we buy are very competitively delivered."

Let me guess: His condo corporation is locking-in and pre-paying the next ten years' worth of fees for legal, accounting, engineering, property management, landscaping, contracting, housekeeping and any other service not currently subject to PST.   Alternatively, perhaps this corporation has chosen to discontinue some or most of those services.

Shame on you, Minister Duncan. Rather than try to convince us that the HST is not going to have a big effect on our pocketbooks (which is decidedly untrue), you would do better to convince us that this tax is necessary and will benefit all of us in the long term.

Meanwhile, we wait to see what the voters of St. Paul's decide.

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The Toronto Star reports that an ACMO luncheon panel to be held in September on the topic of the HST will feature a very brave parliamentary assistant to the minister of revenue.   The article also outlines ACMO and CCI's estimation of the impact the new tax will have on condo corporations and unit owners, which information has been submitted to the Ontario government.  (See ACMO's submission here.)

Update (Sept 27/09):   National Post reports on the above-mentioned ACMO luncheon here.

Unfortunately, it appears that arguments being made by the condo industry associations in support of exemptions or reductions of the HST  are falling on deaf ears, as are the pleas of every other industry association, social group and watchdog.   By all accounts the government has very clearly made up its mind on the HST and is now firmly focused on "selling" the tax to anyone who will listen.   The time for submissions and petitions has therefore passed -- Consumers and their condo corporations will be paying HST starting next July.   It now falls to condo boards to prepare themselves and their unit owners to deal with the coming new reality.

We wrote about the HST back in March when it appeared imminent that the province would introduce this new tax to help offset massive multi-year deficits.    We suggested back then that condo corporations begin budgeting for HST and establish a program of reducing expenses and increasing contributions to the common expenses and reserve funds.    See that piece here. 

With only ten months until the HST becomes effective, there is no time to lose.

What steps are you taking at your condo corporations?   

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The following guest entry by local condo director Ernie Nyitrai is a call to action for other condo corporations and unit owners to lobby for amendment to the Assessment Act, which governs the municipal tax assessment regime in Ontario.  

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Condominiums, even though they have been around for quite some time in Ontario, have only modestly grown in the past and mostly only in urban areas. However, all that started to change in the late 1980’s when growth in condominium development began to expand. This growth increase almost seemed to double each year. In fact, in many urban areas, especially in the Greater Toronto Area, they have almost come to supplant single-family residences as the preferred form of residential accommodation. MacLeans magazine, in its December 31, 2007 issue, featuring real estate in Canada, postulated that half the people in urban Canada will be living in condos by 2025. 

This growth has led many urban municipalities to allocate an ever-increasingly larger proportion of residential building permits to condominium development. Since condominium developments, specifically high-rise condominiums, utilize less land area, they have also become an excellent planning tool for the urban municipality, enabling them to accommodate more people in a smaller land area.

Although this growth in condominium developments has increased, almost exponentially in recent times, one aspect of condominium life has not changed, namely assessment on condos for the purpose of municipal taxes.

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Residential property owners thinking about appealing their 2009 property tax assessment must file a Request for Reconsideration ("RfR") by March 31.  

Don't wait until the last minute to take steps -- Property owners will need to read up on the changes in force this year and may need to get assistance.

For a handy summary of some of the changes and important dates, see the bulletin prepared this month by the municipal law group at Faskens in Toronto.

As we mentioned in an earlier post, a condo corporation can bring a single appeal on behalf of all of its unit owners if there is an appropriate by-law in place.   If your corporation does not have such a by-law, take steps to enact one before the next assessment period in 2012.

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Imagine waking up one morning to find that all of the goods and services you needed to buy cost 8% more than they did the day before.   That day may come soon.

In January 2009, Premier McGuinty said that the Ontario government would "take a long, hard look" at harmonizing the 8% Provincial Sales Tax with the 5% federal GST. 

Those comments were made in response to a report by the Ontario Chamber of Commerce stating that implementing an HST and abolishing the loophole-filled retail sales tax system would boost Ontario's global competitiveness and reduce financial and paperwork burdens on Ontario businesses.   It would also increase tax revenues, which would surely come as a relief to the finance minister who warns us this month about an $18-billion deficit for this year and next.

Both the Globe and Mail and the Toronto Star have written editorials this week in favour of Ontario adopting an HST, but not everyone thinks it's a good idea.   Toronto real estate lawyer and columnist Bob Aaron suggests that the already-battered real estate market will be further impacted by HST on legal fees and realtors' commissions and that it will become harder for honest contractors to compete with the growing underground economy.

There is no question that a boost to our businesses and our global competitiveness would be a positive and welcome development, but let's not kid ourselves -- the cost of that benefit will be dearly paid by consumers at a time when most people are already struggling.   In addition to paying more for their own daily necessities and services for their own families, consumers will be shouldering the higher costs for goods and services sold to their condo corporations.

An HST will have a significant impact on condo budgets.   Landscaping, renovation, accounting and legal services that are presently subject only to 5% GST will become subject to 13% HST.   Even if prices were to remain the same or decrease very slightly, the overall out-of-pocket cost for such goods and services will actually increase with the introduction of an HST.    

If your condo corporation is barely squeaking out balanced budgets today, it may be time to take a long, hard look at further reducing expenses wherever possible and implementing a gradual increase in common expense fees to help build an operating reserve.   Having a cushion in place to absorb higher costs is essential to avoiding scenarios where special assessment is the only remaining option.   A gradual increase in common expenses is a far preferable and affordable option than sudden, large lump sum assessments.

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It has been a while since we’ve heard a story of a big fraud in the local condo scene. We like to think that better education and more vigilant accounting and auditing may have reduced instances of fraud in recent years, and that might be true. It might be more true, however, that the current economic climate may increase the likelihood of a fraud taking place or improve the odds of detecting an ongoing fraud.

Attorney Mark Payne of the Colorado Homeowners Association Law Blog cites the recent case of the chief financial officer of a family-run property management firm in Virginia who stole $3 million from 350 homeowner associations. The Washington Post reports that the culprit confessed to the crime and was sentenced to 5 ½ years in prison and ordered to pay restitution. He also faces IRS action over undeclared income and criminal prosecution for a bizarre police chase and gunfight.

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In December 2008, the Premier of Ontario said that municipal property assessments issued last fall for the 2009-2012 tax years are "unrealistic" since resale values have significantly declined in recent months.  

Will there be a flood of objections and appeals in respect of these assessments? Time will tell, but seeing as how each condominium unit is treated as separate property for municipal tax assessment purposes, a large volume of appeals may be likely.   A 100-unit standard condominium could, for instance, give rise to 100 separate objections or appeals. With more than 5,000 condo corporations in the Greater Toronto Area alone, the number of appeals by condo unit owners alone could be astonishing.

In reality, obtaining expert representation to navigate the process and collecting the necessary market value data to use as evidence is not cheap. For that reason alone, most property owners do not appeal from their assessments.  

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The Institute of Chartered Accounts of Ontario has announced the release of an important document entitled Accounting and Auditing Guidelines for Ontario Condominium Corporations.

This publication is the first major revision of the Institute’s audit guidelines for condominium corporations since 2001 and incorporates recent changes in accounting practice and the requirements of the Condominium Act, 1998. According to the Institute:

The result is a comprehensive guide that promotes best practices for the industry. It details considerations for both accounting and audits that range from budgeting and financial statements to tax issues and reserve funds.

Members of the committee that drafted these guidelines include the most prominent auditors on the local condo scene. Most have audited the books of hundreds of condo corporations and face the unit owners at dozens and dozens of annual general meetings each year. These folks know their stuff. 

This guide will be a valuable resource for any condominium manager, director, unit owner or professional who wants to better understand accounting principles and best practices for audit procedures for Ontario condominium corporations.  In addition to being written in no-nonsense plain English, it also includes a preferred specimen presentation for financial statements.

The full document is available for free download here.

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