But the HST has also impacted the cost of doing major replacements; a new roof will cost another eight per cent thanks to the harmonized tax. Unlike other homeowners, condominium corporations are required to have the money set aside to fund major repairs whenever they are required. So a reserve fund that was adequate a few months ago is suddenly short.

“Not only did the HST impact condos on their operating expenses but also something like a roof that you’d have to pay $500 thousand to replace had a five per cent tax. Now there’s a 13 per cent tax. That eight per cent difference is $40 thousand on the half a million dollar roof,” explains Chesney. “The way the law works is that you have to put money away in your reserve fund to pay for those replacements so how the HST impacted on those expenses, you have to put away more money for them as well.”

“So not only do you have to pay more money on your operating expenses but you have to put away more money to cover the HST on those big repairs later. So that has impacted very negatively on the condo fees themselves.”

A condominium corporation that has not prepared for this tax increase will have to raise their condominium fees by five to seven per cent simply to cover their costs. A condominium that has some savings may be able to offset this increase for the time being but fees will eventually have to cover this new expense.

Chesney paints the portrait of a very ugly situation for condo owners who are struggling with debt. “Owners now have to deal with an immediate eight per cent increase on a lot of their expenses and they also have to save an additional eight per cent for those reserve items that they’re saving for in the future. They have to deal with increasing utility costs this year and they have to deal with other expenditures that are going up and at the same time they have to worry about the fact that some of them are struggling just to meet their expenses. And when you add that all together, it’s been very difficult and a lot of condos are in rough shape. If a condo can’t pay its bills, there’s only one place to get the money from – the owners. If the owner doesn’t feel like paying it, they have no choice. They have to pay it. If they don’t, their unit will get liened. And ultimately if they don’t pay it, it can be taken away from them under a power of sale.”

Boards who don’t want to raise fees may seek to borrow money to help with their deficit but this isn’t a long-term solution since fees will eventually have to be raised to pay for the added taxes and then for the loan as well. Another option to cover the financial shortcomings if they did not budget for higher taxes starting this summer is to do a special assessment – not a popular choice for unit owners.

“The owners have to come up with the money – it’s that simple,” says Chesney. “If not, the condominium corporation would have to lien a unit and ultimately what happens is that the mortgage company would pay it off and take the property and the condo can also take it to power of sale. There is a possibility that there will be some people out there that as a consequence of everything will be forced to sell their units. It’s not pretty but it can happen.”

In efforts to avoid raising fees or having special assessments, boards are doing their best to reduce expenses. It’s a good idea to speak to management and auditors to find out where money can be saved. Communicating with owners is a good idea – find out what services are unnecessary and where they’d be willing to cut back. But be cautious when refining budgets, Chesney advises.

“Sometimes they’re skimping on things such as choosing management that is not as competent. Or they may not have management at all to save a few dollars. They do it themselves. And in the short term they save a few dollars but in the long run it could become disastrous if they don’t stay on top of things. So they’re really trying to pinch pennies and that’s fine but as they say, you get what you pay for.”

Condominium corporations with good management were advised to put money aside for this new tax when it was first announced but regardless of preparation, the HST has taken a dent out of condominium reserve funds. This is one area that condo associations, the Canadian Condominium Institute (CCI) and the Association of Condominium Managers of Ontario (ACMO) were lobbying the government to address when they announced the taxation changes. Armand Conant is the president of CCI – Toronto and he has been involved in the talks.

“We put together proposals to the government to point out that the HST had a greater affect on condo owners than regular home owners. We’ve been advocating trying to find some way to reduce the impact on condo owners because there is a disproportionate burden put on condo owners than a regular home owners would have. Home owners don’t have management companies. Home owners don’t use lawyers. Home owners don’t have reserve funds in which they’re obligated to contribute towards major repairs of components,” explains Conant.

The first step for the government relations committee was education since ministers needed to learn how condominiums operate. They were able to buy older condominiums an extra five years to come up with an adequate reserve fund but they’re still seeking more regulation changes.

“Why can’t we phase it in and have it come in at two per cent per year for three years?” Conant asked the government. “Or some kind of sliding scale. If you don’t want to phase it, let’s look at some form of a rebate. And again the rebate could be on a sliding scale.”

Even if the CCI/ACMO government relations committee isn’t able to convince the government to phase in the tax for condominium corporations, Conant has some good news according to his lawyer contacts living in Nova Scotia where the HST has already been implemented for a few years. They claimed that in time competitive contract prices were reduced.

“HST does help industry,” says Conant, “that’s one of the main purposes of it. From a tax point of view and an administrative point of view they save money because they no longer have two income tax files, they have one harmonized tax. Because now they can place a tax credit on things they could not before, do they get the entire new profit.

“In Nova Scotia and other jurisdictions, they’ve shown that when market forces come to play and you’re bidding and you ask your supplier if they’re going to reduce their price because of the income tax credit, supplier A says no, supplier B says yes. Who gets the contract? It’s never 100 per cent of the entire income tax credit but it did reduce or maintain tendering contract prices.”

But until the prices start to drop, Conant recommends boards communicate with their owners. “The worst thing is to do this behind doors and then they come up with an answer and owners don’t understand. Rumours start, innuendos, whispering... I always council my boards to have an owners’ information night. Use a spreadsheet, have a PowerPoint, have your auditor come and explain to the people here’s where we are, here’s the impact. Now, where do we go from here?”