Presentation by Reid Hurst Nagy Inc. Certified …

1 Presentation by Reid Hurst Nagy General AccountantsCertified General AccountantsBruce Hurst , FCGAI sadora Goh, CGAF ebruary 18, 2012I. Financial Reporting RequirementsII. CRA Filing of Changes in of Changes in RegulationsIV. RHN, how we can help?I. Financial Reporting RequirementsFinancial Reporting Requirements1. Annual financial statements2. What is a notice to reader / review / audit?Financial Reporting RequirementsAnnual Financial Statements1. SPA Regulations outlines the requirements for financial Corporation must prepare annual financial Corporation must prepare annual financial statements within 8 weeks of its fiscal year end3. Basis of preparation Generally Accepted Accounting Principles (GAAP) not stated to be requiredFinancial Reporting RequirementsAnnual Financial Statements must include Regs (1):1.

2 OF opening and ending balances2. CRF opening and ending of income from all sources (except special of income from all sources (except special levies)4. Details of expenditures out of the OF and CRF from all sources, including details of unapproved expenditures under Section 98 Financial Reporting RequirementsTypes of Engagements1. Notice to Reader (NTR) engagement3. Financial audit Suitable for small strata corporations Objective: prepare financial statements based on information received from management or client1. Notice to Reader (NTR) Accountant does not audit, review or verify the accuracy or completeness of information disclosed in the financial statements Limited use of the statements Should not be used if assurance is required More in-depth than NTRs Objective: conducting analytical procedures to identify if the figures appear to be reasonable2.)

3 Review Engagement Involves global and general testing of internal controls; comparison of yearly figures; ratio analysis; review of meeting minutes; and confirmation from third parties. Offers limited assurance (Negative Assurance)How is it done?1. Detailed testing of both revenues and expenditures2. Looks out for coding errors, double payments to suppliers, incorrect payments Financial Auditincorrect payments Inspects authorization given by council, owners4. Ensures compliance with SPA, Strata s bylaws and Canadian GAAPWhat are the benefits?1. Protects Council Reassures Council that the financial reporting is sound Stewardship2. Protects the management company3. Financial Audit Financial records are verified by independent auditor More credibility3. Protects the members/owners Benefit of knowing Strata is financially managed properly4.

4 Compliance with the SPA Auditor can assist property managers and councils to ensure finances are properly accounted for, and in compliance with the SPAC ommonly seen in audits1. Strata fees received in advance2. Council proceedings4. Inactive restricted funds5. Due from previous management6. Developer issues7. SPA compliance II. CRA Filing RequirementsCRA Filing Requirements1. T2 Corporate income tax return2. t1044 NPO information CRA AuditsT2 Corporate Income Tax Return1. All Canadian resident corporations, except charities, have to file a T2 for every tax year, even if there is no tax Corporations are non-profit organizations Corporations are non-profit organizations exempt from income taxes under (1)(l) of the Canadian Income Tax Due 6 months after the fiscal year end4. Penalties and interest are assessed on taxes payable, possibility of administrative penaltiesT1044 Non-profit organization Information ReturnRequirements to file a T10441.

5 The organization received or was entitled to receive taxable dividends, interest, rentals or royalties totaling more that $10,000 in the fiscal royalties totaling more that $10,000 in the fiscal period. 2. The total assets of the organization were more than $200,000 at the end of the immediately preceding fiscal period (using GAAP).3. A t1044 has been filed for a previous fiscal Non-profit organization Information Return1. Due 6 months after the fiscal year end2. Penalties and interest: $25/day, minimum of $100 and a maximum of $2,500a maximum of $2,5003. Voluntary to for DatesGST/HSTF iling Requirements For not-for-profit organizations: when taxable supplies exceed $50,000 in a single calendar quarter or in the last four consecutive calendar quartersfour consecutive calendar quarters Taxable supplies: examples are strata fees for non-residential units and rentals of space such as common party rooms, parking spaces, lockers and roof (antenna leases).

6 GST/HSTF iling Requirements (cont) Commercial units Rental pools Short term rentals: rentals for less than a one month Short term rentals: rentals for less than a one month periodGST/HSTHow to FileWho is responsible for charging, collecting and remitting GST/HST? Residential buildings with taxable supplies Residential buildings with taxable supplies Commercial sections Rental pools Individual rental unitsGST/HSTHow to FileHow to prepare the GST/HST return Register for a business number Forms Forms Input tax credits (ITCs) Methods of calculating the taxes payableGST/HSTA ccounting for GST/HST Setting up your general ledger accounts Recording your GST/HST collected and ITCs Recording your payments Recording your paymentsGST/HSTDue Dates Allowable filing periods Filing dates Notice of assessments Notice of assessmentsCRA Taxable RevenueCRA AuditsGST/HST Not allowing ITCs, stating the Strata is not engaged in commercial activity, however does not revise GST/HST collected collected CRA AuditsGST/HST Condominium Plan No.

7 9422336 v. Canada, 2004 TCC 406 a commercial strata complex in Alberta did not collect GST on a commercial strata complex in Alberta did not collect GST on strata fees, arguing that the condominium corp was an agent of the owners and as such GST need not be collected Tax Court of Canada concluded that the condo corp was an agent of the owners. Court s conclusion that the condo corp was not a separate legal entity distinct from the individual owners and that those owners remained at risk for the actions of the condo corpCRA AuditsGST/HST BC s legislation specifically provides that a strata corporation has the power and capacity of a natural person of full capacityperson of full capacity Excise Tax Act specifically exempts residential strata feesCRA AuditsT2 / t1044 CRA has initiated audits on financial records Where T2s / T1044s have been previously filed and there has been non-compliance in recent years Where a t1044 was required for the following tax year Where a t1044 was required for the following tax year but no t1044 was filed Random spot auditsCRA AuditsPossible Taxable Revenue Stratas may earn revenue from non-owners such as roof top lease rental.

8 This type of profit may be earned by a non-profit organization This type of profit may be earned by a non-profit organization provided that it is incidental and arise from not-for profit activities. CRA has issued correspondence stating that if revenue is determined to be profit oriented and non-incidental tax exemption under (1)(l) no longer Impact of Changes in Regulations Amendments to Regulations as of December 14, 2011 Highlights include: Changes to required CRF ContributionsImpact of Changes in Regulations Depreciation report requirementsChanges to Required CRF : now allows for the required contribution to the CRF to be at least the lesser of the total budgeted contribution to the OF for the Impact of Changes in of the total budgeted contribution to the OF for the current fiscal year, amount required to bring the CRF to at least 25% of the total budgeted contribution to the OF for the current fiscal Report (1)(c).

9 Specifies that the depreciation report must include a financial forecasting forecasting section must include ( (3)):Impact of Changes in forecasting section must include ( (3)):a)Anticipated repairs, maintenance and replacement costs for common expenses that usually occur less often that once a year or not at all, projected over 30 yearsb)Factors and assumptions (interest rates and rates of inflation)c)How the CRF is currently being fundedd)Current balance of CRF less any expenditures approved to be spente)At least 3 cash flow models for the CRF relating to anticipated repairs, maintenance and replacement costsDepreciation Report RequirementsAllowable cash flow models can be any one or more of the of, contributions to and withdrawals from the CRFI mpact of Changes in of, contributions to and withdrawals from the Report RequirementsFunding a Depreciation Report by CRF Regs (5).

10 Contributions to CRF based on a depreciation report become part of the CRF and may be Impact of Changes in Regulationsdepreciation report become part of the CRF and may be spent for any purpose permitted under Section 96 of the Act. Accounting records: Separate general ledger account may be used to track total contribution under the depreciation report, but contributions should be included as part of CRF balance on the financial RHN, how we can helpTypes of ServicesTypes of Engagements1. Notice to Reader (NTR) engagement3. Financial auditIn addition:1. Special reviews2. Real estate trust examinations3. CRA filings (T2s, T1044s, HST) Completed upon request of Council or management Typically a review of large projects ( Building remediation, roof replacement and envelope repairs) May be a review on the management company s controlsSpecial reviews May be a review on the management company s controls Accountant performs tests on a chosen sample depending on the terms and scope of the engagement Required to be done on brokerages that hold trust funds for clients ( property management companies)