Accounting for strata corporations and condo associations in Canada

Terminology: the same thing, different names by province

Canada uses different terms for the same concept depending on the province:

• British Columbia: "Strata corporation" under the Strata Property Act. Owners hold "strata lots." Common areas are "common property." The reserve fund is called a "contingency reserve fund."
• Ontario: "Condominium corporation" under the Condominium Act, 1998. Owners hold "units." The reserve fund is the "reserve fund."
• Alberta: "Condominium corporation" under the Condominium Property Act. Similar terminology to Ontario.
• Other provinces: Each has its own condominium statute with slightly different terminology, but the fundamental structure — unit owners, common property, shared corporation, operating and reserve funds — is the same across Canada.

For this guide, "strata corporation" is used generically to refer to any of these entities.

Financial statement requirements by province

Provincial condo acts impose minimum financial reporting requirements on strata corporations. These requirements protect owners by ensuring an independent look at how their fees are being managed.

British Columbia

The Strata Property Act requires annual financial statements to be prepared and presented at the annual general meeting. The Act does not mandate a specific level of assurance (audit, review, or compilation), but many strata councils voluntarily use a CPA for annual compilation engagements, and strata property management companies often require it. A depreciation report prepared by a qualified individual must be obtained every three years (with limited exceptions for small stratas).

Ontario

Ontario's Condominium Act requires financial statements to be audited by a licensed public accountant or reviewed by a public accountant, depending on the size of the corporation. Corporations with annual revenues or expenses below certain thresholds may pass a bylaw to require only a review instead of a full audit. Owners can vote to opt back to an audit. The Condominium Management Services Act also regulates condominium managers, adding another layer of oversight.

Alberta

Alberta's Condominium Property Act requires annual financial statements but provides more flexibility on the level of engagement. Most condo corporations use review or compilation engagements unless the governing documents or a special resolution require an audit.

Reserve fund and depreciation reports

The reserve fund is the strata corporation's savings account for major capital repairs. The goal is to accumulate enough money over time to cover replacements — a new roof every 25 years, elevator modernization every 20 years, parking garage membrane repairs — without hitting owners with large special levies.

Reserve fund studies and depreciation reports

Most provinces require periodic reserve fund studies (Ontario, Alberta) or depreciation reports (BC) conducted by qualified professionals (engineers, architects, or persons with specific reserve fund training). These reports inventory all common assets, estimate their remaining useful life and replacement cost, and model what the annual contribution to the reserve fund should be to fund anticipated replacements.

In BC, the depreciation report must be renewed at least every three years. In Ontario, the reserve fund study must be updated every three years by a person with prescribed qualifications. The reserve fund contribution in the annual budget must be sufficient to maintain the fund balance recommended by the most recent study.

Underfunded reserves

Many older condominium buildings carry underfunded reserves — the fund balance is lower than what the reserve study recommends. This can happen when boards have historically kept contributions low to avoid fee increases. The consequences are either gradual fee increases as the shortfall is addressed, or a special levy when a major repair cannot wait. Buyers and their real estate lawyers should always review the reserve fund status before purchasing a strata unit.

Investing reserve fund assets

Most provincial acts specify that reserve fund assets must be invested in low-risk instruments — GICs, government bonds, insured deposits. The investment income earned belongs to the reserve fund. This income must be tracked separately and may affect the corporation's income tax position (see below).

Common ledger accounts for strata corporations

A well-organized strata chart of accounts separates the operating fund from the reserve fund and tracks special levies separately:

• Operating fund — bank: The current account from which day-to-day expenses are paid.
• Reserve fund — bank/investments: Kept separate from operating funds. Most provinces require this to be in a separate account.
• Special levy receivable: Amounts assessed but not yet collected from unit owners.
• Prepaid insurance: Annual insurance premium amortized over the year.
• Operating fund revenue: Maintenance fee contributions for the operating fund.
• Reserve fund contribution revenue: The portion of maintenance fees allocated to the reserve.
• Special levy revenue: Amounts assessed for specific extraordinary expenditures.
• Common expenses: Individual expense accounts for insurance, utilities, maintenance, management fees, landscaping, cleaning, elevator maintenance, etc.
• Reserve fund expenditures: Capital expenditures funded from the reserve (roof, parking membrane, common area renovations).

The financial statements should present the operating fund and reserve fund separately — a combined balance sheet and an income statement that clearly shows the year's activity in each fund and the ending balances.

HST on strata fees

Residential strata fees are an exempt supply under the Excise Tax Act. A residential unit owner paying monthly maintenance fees to the strata corporation is not paying HST on those fees, and the corporation does not charge HST. This also means the strata corporation cannot claim input tax credits on its purchases that relate to residential services — the GST/HST paid on landscaping, building maintenance, and administration is just a cost.

Mixed-use stratas with commercial units

Stratas that include both residential and commercial units (retail, office) face a more complex HST situation. The fees charged to commercial unit owners for their share of common property maintenance may be taxable, and the strata may need to register for GST/HST and allocate ITCs between taxable (commercial) and exempt (residential) activities. The allocation method requires careful analysis — get specific advice from a CPA with strata experience before the commercial units move in.

HST on special levies for capital projects

If a major capital project (roof replacement, common area renovation) involves taxable supplies of services (contractor work, professional fees), the strata pays HST on those costs. As noted above, the strata generally cannot recover these ITCs if it is making primarily exempt supplies. The HST cost is part of the project budget and should be factored into the reserve fund study.

Income tax considerations

Strata corporations are technically corporations under provincial law and, in most cases, are non-profit organizations under section 149(1)(l) of the Income Tax Act — organized and operated exclusively for the benefit of their members (unit owners) and not for profit. As long as they collect only what is needed to fund common expenses and reserves, they generally pay no income tax.

The risk arises when reserve funds grow large and earn significant investment income that exceeds what the corporation needs for operations. CRA has taken the position in some cases that investment income exceeding operational needs can constitute taxable income. While most strata corporations stay well inside safe territory, those with multi-million-dollar reserves earning meaningful investment income should have their accountant review the income tax position annually.

A T2 corporate income tax return may need to be filed even if no tax is owing — the non-profit exemption claim must be made, and there may be a requirement to file depending on the province and the corporation's circumstances. Get specific advice from a CPA.

Records every strata corporation should keep

• AGM and council meeting minutes: Decisions about budgets, special levies, major repairs, and bylaw changes must be documented. Keep minutes permanently.
• Annual budgets (operating and reserve): Keep at least seven years of budget history.
• Financial statements: Keep permanently.
• Reserve fund studies or depreciation reports: Keep all historical reports.
• Insurance policies: Current policy and at least three years of prior policies.
• Contracts and warranties: All service contracts, major repair warranties, and equipment warranties.
• Special levy history: Documentation of every special levy, the reason it was needed, the amounts assessed, and collections.
• CRA correspondence: Any income tax filings or CRA correspondence.

Choosing an accountant for your strata corporation

Not every CPA has worked with strata corporations. Look for an accountant who can answer these questions confidently:

• Are you familiar with the provincial strata or condo legislation in our jurisdiction?
• How many strata corporations do you currently work with?
• Can you prepare the level of engagement our Act requires (compilation, review, or audit)?
• Do you understand how to account for restricted reserve funds separately from operating funds?
• Can you advise us on whether we need to file an income tax return?

Many strata corporations use the same CPA as their property management company recommends. This can work well, but make sure the accountant's engagement letter clearly identifies the strata corporation (not the management company) as the client, and that the accountant will provide independent commentary to the council if issues arise.

Frequently asked questions