Condo residents fear impact of new tax on fees

Terrence Belford
Friday, Jul. 24, 2009
The Globe and Mail

The Ballantrae Golf and Country Club is a wonderful upscale gated community in Stouffville, Ont., the kind of place where many people would want to retire if they had the money. Its charming bungalows are nestled in acres of land surrounding a golf course.

It was one of the province's first land condominiums. Residents own their home and the land immediately surrounding it outright, but are members of a condominium corporation, which owns the acres that tie all the houses together.

You might think residents would have enough money socked away to be able to easily absorb the impact on condo fees, of the new harmonized sales tax (HST) due to take effect in Ontario on July 1, 2010.

You would be dead wrong, says Patrick Wittingham, who stepped down as president of the condo board earlier this year.

“We have people living on fixed incomes,” he says. “There are some of them who believe the increase in condo fees the HST will bring will mean great hardship in making their monthly payments. Some are already telling us they will have to move.”

The proposed tax will merge the 8 per cent provincial sales tax and the 5 per cent federal goods and services tax into one 13 per cent tax. In the past, the provincial sales tax component did not apply to services. The provincial government also announced a plan for future income-tax cuts and rebates that it says will offset some of the impact of the HST. But that doesn't go far enough, say critics.

“I just don't think the government thought this through,” says Mr. Whittingham. “It is going to have the greatest impact on those who can least afford it.

“We have people here who planned their retirement based on the rules the government set. They committed to this community, invested their money in it and could afford to live here comfortably.

“Now the government has changed the rules. Lives are going to be seriously affected.”

The HST is going to have an impact far beyond a one-time hike in selling prices, says Janice Pynne, executive vice-president of Simmera Property Management Inc., which manages more than 200 condominiums including Ballantrae.

First, it will mean an immediate 6 per cent to 8 per cent increase in monthly maintenance fees as the provincial sales tax is expanded to cover all forms of goods and services. And it will mean an additional increase in the portion of those monthly fees covering condo reserve funds, which will have to be topped up to cover future HST payments.

Reserve funds are the condo corporation's savings account, money set aside by owners every month to cover replacement costs of everything from doorknobs to roofs. They can average between 10 per cent and 20 per cent of monthly fees, says Ms. Pynn.

Any condo built after 2001 has just two years from registration date to make sure its reserve fund holds enough money on a proportional basis to cover projected future replacement and repair costs. Those built before 2001 were given 10 years to get in line with projections. That deadline hits next year.

While most condos in Ontario are right where they should be as far as reserve funds are concerned, there are others that, through poor management by their boards, have fallen far short of the funds that have to be there next year.

“You do indeed hear horror stories,” says Ms. Pynn.

While Ballantrae has been well served by its board in this matter, the assumptions made when calculating future need for cash to pay repairs and investment income to meet them will have to change to take increases due to the HST into account, says Mr. Whittingham. The end result could be a significant increase in the $1-million Ballantrea spends every year on regular maintenance costs and thus in the levy needed for reserve funds.

He says reserve-fund estimates were based on a 3-per-cent annual increase in construction costs with the cost of materials accounting for 50 per cent of the expense of repairs and labour the other 50 per cent. Now that the HST is to cover a contractor's labour costs as well as cost of materials, that annual increase is estimated to be closer to 4 per cent than 3 per cent.

Also to be factored in is the fact that four years ago, when the projections were first drawn up, the condo board looked for a conservative 6 per cent return a year on its investments. Today it can expect less than half that.

In simple terms, costs are going to go up and income is down. The only way to remedy the situation is to hike monthly contributions to the reserve fund.

“Raising the monthly maintenance fees is always contentious,” he says. “Right now, they average about $400 a month but earlier this year so many residents petitioned against a hike we cut services rather than raise maintenance fees.”

Condo owners are only now becoming aware of the impact of the HST,” says Ms. Pynn, and many renters and home owners remain unaware that it will hit their pocketbooks as well, she adds.

“This is a tax that is going to raise the cost of housing for everyone,” she says.

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