In 2006, the Canadian Accounting Standards Board ("AcSB") announced that public companies in Canada would be required to adopt International Financial Reporting Standards ("IFRS") beginning January 1, 2011. The AcSB undertook a separate project to review the needs of not-for-profit organizations and as a result created the Canadian Accounting Standards for Not-for-Profit Organizations (the "ASNFPO").
While not-for-profit organizations had the option to adopt the ASNFPO early, the ASNFPO came into effect as of January 1, 2012.
A question has been raised about whether or not the ASNFPO apply to condominium corporations in Ontario.
In my last post I explained that the corporate legislation that governs not-for-profit corporations in Ontario does not apply to condominium corporations in Ontario. However, it is not corporate law that determines which accounting standards apply to condominium corporations; it is tax law that applies.
Section 4400 of the CICA handbook, which relates to financial statement presentation by not-for-profit organizations defines not-for-profit organizations as:
…entities, normally without transferable ownership interests, organized and operated exclusively for social, educational, professional, religious, health, charitable or any other not-for-profit purpose. A not-for-profit organization's members, contributors and other resource providers do not, in such capacity, receive any financial return directly from the organization.
The Income Tax Act (the "ITA") defines non-profit organizations in paragraph 149.(1)(l), which definition includes many of the components set out in Section 4400. The conditions an organization must meet in order to qualify for exemption under paragraph 149.(1)(l) of the ITA are summarized in Interpretation Bulletin 496R published by Canada Revenue Agency ("CRA").
Interpretation Bulletin 304R2, effective June 2, 2000, discusses various tax matters in respect of condominium corporations. At paragraph 4 of the bulletin, CRA states that:
…[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… Although it is a question of fact whether a particular condominium corporation qualifies for an exemption under paragraph 149(1)(l), most residential condominium corporations qualify as non-profit organizations within the meaning of this paragraph.
As a result, the accounting standards that apply to a particular condominium corporation will be determined by the corporation’s tax status, not by its corporate status. Since most residential condominium corporations in Ontario qualify as non-profit organizations under paragraph 149.(1)(l) of the ITA, the ASNFPO will apply to condominium corporations, unless a particular corporation elects to adopt IFRS.
For more information about the new accounting standards, we encourage you to contact your accounting and tax advisors.