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  • Operating Fund Surpluses

    Posted by Laura Mrochuk on July 10, 2022 at 12:33 pm

    How does condo corp access surplus operating funds? We need to defer budgeted project to next fiscal year. The expenses were budgeted in current year but we are not able to complete the repairs & maintenance within current budget year but will be done in upcoming fiscal year. Since we’ve already collected contributions, I feel we cannot collect again in next fiscal year.

    As a resident, unhappy that I’m paying almost 3 additional months of contributions but services are not received and surpluses of almost 10% of annual budget are being generated.

    I agree with a surplus for cash flow (paying insurance up front vs financing charges) but a very large fund is being accumulated with high potential for abuse by future boards to spend on ‘pet projects’ and ignoring stakeholders.

    Also, our reserve fund is lower than anticipated – how can we top up the reserve fund from surplus operating funds? Can & how can we move accumulated surpluses (retained earnings?) into the reserve fund to top up?

    Hope someone can help – I hate to have to ask for funds for accountant advice…


    Michelle J Lucente replied 1 year, 6 months ago 4 Members · 5 Replies
  • 5 Replies
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  • Terry Gibson

    July 13, 2022 at 7:26 am

    I leave it to an accountant to comment re carrying forward, but I suspect it could just be established as an account payable or something like that.

    Surpluses are a good thing. Many condos do not have that luxury.

    The accountants will generally recommend that a condo board have about 3 months working capital in the current account. That is good management.

    Surpluses can always be moved to the replacement reserve account. In our experience, primarily due to inflation, but also due to not planning for the future, a large majority of replacement reserves are under-funded.

    I believe that any capital improvements require the approval of 75% of owners and unit factors so ‘pet projects’ are not easily completed.

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  • Laura Mrochuk

    July 13, 2022 at 9:56 am

    Thanks for your comments Terry! It certainly aids us in our budget considerations. Having a 25% surplus sounds very helpful in creating a robust cash flow to prepay insurance premiums, thereby avoiding expensive carrying costs. Topping up a lagging reserve fund balance from operating surpluses sounds reasonable and at very least restricts ability of future boards from using surplus funds for ‘pet projects’ while bypassing the special resolution process (from my understanding).

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    • Neil Holatko

      July 25, 2022 at 11:20 am

      Hello Laura,

      I do understand your hesitation in funding for a surplus corporation. On paper it looks like, “Why are we paying you more?!”

      The reality is that there is no way you won’t benefit from that surplus…

      If it’s stagnant and held on the books forever, it’s contingent capital for repairs or emergencies.

      If it’s placed into the Reserve, then it’s much the same as above.

      If it’s used to purchase a small GIC investment, then the capital is not lost, and some return is being made to benefit the corporations budgeting.

      If it grows to an amount the Board would like to spend on a betterment, then yes, it’s a change to the original plans and would require a Special Resolution. Whatever the project is will more than likely add value to the property and you can rest assured that the majority of owners will feel the same, either in favour or opposed.

      Either way it’s used you can still pull a factor of that capital and dictate the future listing price of your unit.

      The same rational is already in place with an empty or low Reserve, a fully funded Reserve, or an over funded Reserve. You take your contributed value and mark up the listing. It’s your discretion and if your corporations funding approach is low fees, minimum reserve… it’s buyer beware. If your corporation finances are in a healthy margin and you have surplus for contingency then you should be informing buyers to that advantage, and not shorting your past contributions. I’d rather owners question what we do with surplus, than the aftermath of why we didn’t budget appropriately to avoid special assessments.

      Regardless of how you look at it there always could be some board members or individuals that may not be acting for the betterment of all and that is why we encourage everyone to become knowledgeable and participate within their communities and Corporations. Review the Condominium Property Act and request documents through section 44 actively, this can discourage a board that seeks to undermine owners.

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  • Laura Mrochuk

    July 25, 2022 at 9:36 pm

    Thank you for your insight, Neil. It will be helpful talking points for next AGM. Comforting to know that owners who will be selling within next 5-10 years will see some benefit from making deposits for future owners.

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    • Michelle J Lucente

      August 30, 2022 at 11:13 am

      Hi all,

      I’m a little late to the conversation. It is possible to have a contingency fund set up that’s also invested per Schedule 2; however, your corporation’s bylaws have to allow for your corporation to set up that additional account.

      Whenever a budget is put together, there should be a corresponding plan of action, ,with specific dates, especially for larger initiatives. COVID-19 supply chain issues (etc) have impacted everyone, so it’s unfortunately not a surprise to hear some operating items were delayed.

      It never hurts to seek advice from the Corporation’s accountant/auditor as to how to handle this and the cost should not be significant. Usually Operating fund surpluses are expected to roll into Reserve fund accounts. There should be an investment strategy associated with the Reserve funds, as well.

      Good luck at your AGM.


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