Condo Smarts: What happens to contingency reserve funds’ interest earnings?

Strata councils and accounting managers need to look closely at the regulations of the Act, which clearly define reporting.

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Dear Tony:

Is a strata corporation permitted to use the interest from contingency fund investments for the operating account?

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Our AGM financial report shows a significant amount of interest as revenue in our operating fund. The property manager and treasurer advised the interest was generated from investments of the operating surplus, but we were short on cash this year and had to borrow from the contingency fund to pay our insurance policy. There is no possibility of generating sufficient interest shown on our operating account. The financial report shows we generated $12,723 in our contingency, but it also shows in the operating revenues. Is this normal?

— Christina W., Burnaby

Dear Christina:

Strata corporations often intermingle their financial reporting between the operating, contingency fund and special. This is not permitted by the Strata Property Act or Regulations.

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Strata councils and accounting managers need to look closely at the regulations of the Act, which clearly define reporting. The accounts must show the opening and closing balances of the operating fund, the contingency fund and any current special levies within that fiscal year.

The Act and Regulations also require that these items be accounted for and reported separately. Interest earned on each account is only deposited back to those accounts.

If the strata corporation approves an amount to be spent from the contingency reserve fund (CRF), that remains a CRF expense and is not intermingled or reported with the operating fund.

The same applies to special levies. The reasons are intentional. Depending on the fund, voting thresholds and approvals may be different, and in the case of a special levy fund, any surplus funds where no owner is entitled to $100 or more must be returned to the owners at the completion of that project.

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A benefit that strata corporations often overlook is the interest that may be earned on the contingency and special levy funds, which is non-taxable when applied back to those funds. With rising interest rates, this is an ideal window to review your CRF balances for upcoming projects, emergency allocations and unforeseen expenses, and consider investing in one- to three-year terms. The rates are up to four per cent and higher for GICs, and that invested and compounded interest goes a long way to offset inflation.

Strata councils should dedicate at least one meeting annually to budget planning and investments. Make decisions and vote to authorize the investment of the funds to enable your property manager, your treasurer and financial planner to complete the investments.

Most importantly, the funds must always be in the name of the strata corporation in trust and cannot be consolidated with other funds.

Tony Gioventu is executive director of the Condominium Home Owners Association. Email [email protected].

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