3 November 1989 External T.I. 58760 F - Income Earned on Reserve Fund Investments

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

November 3, 1989

19(1)

We are writing in reply to your letter of July 17, 1989, wherein you requested our views regarding the income tax implications for the income earned on reserve fund investments of condominium corporations.

Our Comments

This Department's administrative position, regarding condominium corporations, is set out in Information Circular IC 79-7 (copy attached) entitled "The Condominium Corporation and its Members"  the content of which is self explanatory.

There are no specific provisions in the Income Tax Act relating to the taxation of condominium corporations and their reserve funds. Nevertheless, we offer the following comments and observations with respect to the questions posed in your letter relative to the Information Circular.

A condominium corporation is considered to be a private corporation as defined in the Act.  Since there is no restriction on the types of investments a private corporation may make, there is no restriction placed upon a condominium corporation regarding the investment vehicles used for investment of the reserve funds.

The taxation of various types of condominium corporate income, including interest on reserve funds, is discussed in paragraphs 5, 6 and 7 of IC 79-7.  The comments contained therein would apply equally to capital gains realized and dividends received in the reserve funds.

With respect to the allowable amounts in reserve funds, it would involve a finding of fact with respect to each particular condominium corporation as to whether or no the reserve funds are "maintained at an unreasonably high level in relation to the purpose for which they were created"  (paragraph 5 of IC 79-7).  As previously stated,there is no legislation pertaining to condominium corporations generally that would provide for a limit on the amount maintained in reserve funds.  Since the reserve fund requirement for each particular corporation would be based on facts, experience factors, and other circumstances peculiar to that corporation, the reserve requirements would vary from corporation to corporation.  The level of reserves required by provincial legislation would also be an important consideration.

Paragraph 4 of IC 79-7 states that condominium corporations are required to file T-2 corporate returns.  Whether or not T-3 returns would be required to be filed would be dependent upon the specific facts relating to a particular condominium corporation.  There is no specific requirement that condominium corporations file T-3 returns.

We apologize for the delay in replying to your enquiry.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch