HST to hike management, service costs

Sunday, August 30th, 2009

prepare for new tax: Owners to pay more for maintenance, landscaping, labour

Tony Gioventu

Dear Condo Smarts: Several of our owners have heard on a number of talk shows this week that strata owners are now going to have to pay the harmonized sales tax on their strata fees. Is this true?

This will immediately add 12 per cent to all of our costs at a time when we can hardly get the owners to approve a one-per-cent increase.

— Wendy Neilsen, Vernon

Dear Wendy: The HST is basically being applied to those goods and services where GST and/or PST were applied. Until the tax guide for HST is published for B.C., it will be difficult to establish the total impact, but it will have an impact on strata corporations.

Residential strata corporations and residential strata lots, if they qualify, are deemed to be non-taxable corporations under the Income Tax Act. A residential condominium corporation that qualifies as a non-profit organization under paragraph 149(1)(l) is exempt from Part I tax on its taxable income but is required to file Form T1044, Non-Profit Organization (NPO) Information Return, with its T2 tax return.

As a result, there is no GST or PST charged on residential strata fees, so the HST will not be applied to residential strata fees.

Commercial strata corporations and those residential strata corporations that are used for commercial purposes, such as a hotel, may be subject to GST and, as a result, HST on their strata fees.

The strata corporation in these situations is likely already registered for a GST number and will modify their collections for HST.

Now for the real costs.

If your strata is a small 10-unit, self-managed complex and you maintain your own buildings, your increase on costs is likely going to be around 0.5 to two per cent of your total costs.

But look at a large 350-unit, three-tower complex where there is a range of labour services that are currently only subject to GST. On a $1.5 million budget, the strata probably pays $100,000 in management fees, and another $200,000 to $400,000 in contracts for janitorial, landscaping, building maintenance, inspection services, labour and consulting.

The potential impact on the total annual budget is going to be an increase of two to four per cent of the total budget. Don’t forget, when it comes time to do that new roof., when you paid only five per cent GST on the labour, it will cost you 12 per cent HST after July 1, 2010.

The coming year will be an important time for strata corporations to review services, cost allocations for labour and administration and prepare for the possible increases.

For more information on taxation and condominiums (strata properties in B.C. ) go to: www.cra-arc.gc.ca , type in the word condominiums and select the first bulletin IT304R2 — Condominiums.

Tony Gioventu is executive director of the Condominium Home Owners’ Association (CHOA)

E-mail: [email protected]

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