Condo Smarts: The decision to invest funds is a majority vote of the Council

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Dear Tony:

Our Strata Corporation currently holds $1.2 million in special levy funds, $350,000 in contingencies and $200,000 in operating surplus. None of these funds have been invested, and as interest rates rise, owners are frustrated that we are putting their funds dormant.

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The special collection fund could not be invested because the interest was taxed, and the proceeds of the reserve were not worth investing. This seems strange. Additionally, our project has been delayed due to design and permitting issues and may not start for at least a year. How will you direct the Council to invest these funds?

— JJ Rollins

Dear JJ:

A Strata entity may invest contingency and special levy funds in one or more investment accounts in Canada if eligible for insurance from the Canadian Deposit Insurance Corporation (CDIC) or the Credit Union Deposit Insurance Corporation of BC. is allowed. Guaranteed by the Canadian government or province.

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Other types of investments are also permitted under regulation, but these are the safest investments and are intended to limit the Strata companies’ exposure to potential losses.

Unless Strata Corporation operates and invests for commercial purposes (which is rare), Strata Corporation does not pay taxes on interest earned on special collection or contingent accounts. You will receive a tax statement for your investment that is filed with your annual tax return.

Short-term redeemable investments, such as one-year cashable GICs, currently yield around 2.8-3%. Worth considering. Long term investment is much higher at 5.1% over 3 years and depending on the amount, higher amounts can be negotiated. The challenge of special collection accounts is cash flow management. If you don’t expect to access the funds for at least a year, or perhaps you expect to access 50% of the funds this year and the rest next year, consider a portion of your investment with a higher yield .

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Cash management and emergency cash flow considerations must be balanced against earnings. The decision to invest funds is a majority vote of the council. If the Council is unwilling to consider investment options, the owners may petition for a special general meeting and direct the Council to proceed under the Act by majority vote.

Everyone is very cautious at the moment as interest rates are rising. For investors, however, it’s a profitable time to consider long-term returns.

Hierarchical councils must remember that investments must be trusted in the name of the hierarchical legal entity. This is “Owner, Trust in Hierarchy Plan ABC 1234”. Interest earned must be returned to those funds. Investment advisors may be used, but any additional fees or commissions to be paid shall be deducted from interest as part of the annual budget or as a three-fourths vote from the Contingent or Special Collections Fund. Must be approved by Strata Corporation.

Your funds cannot be pooled with general investment accounts or other funds.

Tony Gioventu Condominium management association. e-mail tony@choa.bc.ca.