Tale of two tax men and strata corporations

Dear Condo Smarts: Our strata corporation has been advised by our new strata manager that we have an obligation to file a tax return every year. We have never filed a tax return and, considering that strata corporations are non-profit organizations and don’t pay taxes, we don’t see the reason for filing a return, but the strata manager has insisted that we do. Could this be at the discretion of the strata council?

Allyne C., Kamloops

Dear Allyne: No, it couldn’t. It is a legal requirement.

A condominium corporation in Canada (strata corporation in B.C.) created under provincial or territorial legislation is a corporation without share capital whose members are owners. It is not the classification of the strata corporation that is significant in determining the tax-exempt status so much as the activities of the strata corporation.

While expenditures of a strata corporation are generally met by the members’ non-taxable proportional contributions, such as strata fees and special levies, there are circumstances where strata corporations generate revenues that are not tax-exempt.

If the strata corporation operates a business, such as a golf course, hotel, marina, riding stable, rental units or rental or leasing of space to third parties, the strata corporation may be in a situation where they are required to report the revenues and pay taxes on the revenues.

A common example of taxable revenues for strata corporations is leases of roof-top spaces to communications companies for transmission towers, or the lease of space for advertising, such as billboards, or public rental of parking spaces.

Interest paid by banks etc. on the operating accounts, contingency reserve fund and special levy fund are also generally non-taxable provided the interest becomes part of those funds.

In addition, strata corporations with commercial strata lots may also be required to collect and remit GST on the commercial portion of strata fees or strata units used for commercial purposes such as rental pools.

Paragraph 150 (1) (a) of the Federal Tax Act requires all corporations — including condominium corporations — to file an income tax return each year, even if they are exempt from paying taxes. The strata corporation is required to file a T1044 Information Return with its T2 tax return.

If your strata corporation is conducting any type of commercial activity or is a mixed-use residential/ commercial property, seek the advice of a qualified accountant to ensure you properly file and disclose your financial information.

U.S. citizens who live in Canada also have personal obligations of reporting to the Internal Revenue Service in the U.S., even though they are residents of Canada. It is important to understand that the sale of a principal residence in Canada is not tax exempt for U.S. citizens.

There’s more. If you have a U.S. citizen on your strata council who is also an authorized signing officer on your trust funds, that person is also required to report on their U.S. tax return whether they have any foreign bank or investment accounts.

The U.S. Bank Secrecy Act requires them to file a Report of Foreign Bank and Financial Accounts if they have a financial interest in, signature authority or other authority over one or more accounts in a foreign country, and the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

While these are the personal issues of the U.S. citizen, the strata corporation may discover the release of the financial information of the strata corporation to a foreign government is in conflict with our privacy legislation.

Canadian strata corporations do not report to the IRS, so before any information of the strata corporation is released or published as part of the U.S. return, the strata corporation should seek advice on the risk of the release of personal information to a foreign government.

Source: The Victoria Times Colonist