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How to Manage the Operational Impact of HST
May 2010
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| Dean McCabe, Regional Manager for Brookfield Residential |
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By Hayley Mitchell
Dean McCabe, Regional Manager for Brookfield Residential says that the biggest misconception with the new HST tax is that residents think the tax is being added to their maintenance fees, which is untrue. That fee will not be taxed. In fact it’s the costs and services that make up those maintenance fees that are being taxed, such as landscaping, security, property management fees – all of these will see an increase in cost due to the additional HST tax being added. In turn, condo fees may go up for individual residents to cover the increased tax behind the scenes on the operational costs of the condo building.
What can we do to minimize the impact of the HST, on the operational side? According to McCabe, don’t enter into long-term contracts. Suppliers are given input tax credits; they will receive rebates on all of the materials that they need to purchase in order to maintain condominium buildings, such as cleaning supplies for cleaning services. This means that their costs will actually be driven down. By avoiding entering into long-term contracts now, you are not committing yourself to today’s prices. With the costs being driven down by input tax credits, someone who is locked into long-term contracts will not be able to take advantage of the lower prices that McCabe says should be coming soon. It is advisable not to enter into three-, four- or five-year contracts, unless there is a clause that you can renegotiate if suppliers realize the benefit of input tax credits and lower their pricing accordingly.
Another problem that condo managers will be facing is that suddenly reserve funds are seriously depleted. The condominiums that were saving money for large maintenance projects are now realizing that those projects costs are significantly higher due to the HST addition. How to handle this? Make sure that you update those reserve funds to match what you are now going to need and also make sure that the costs of those projects are accurate, so that you know if you are putting away enough. McCabe recommends that doing this sooner than later is an important factor to getting your reserve fund where it needs to be.
One thing that will assist in ensuring that the reserve funds are up to date is the five-year allowance that the government has allowed, thanks to pressure from ACMO and CCI. There is no financial assistance from the government, but they have extended the period of time under the Condominium Act for a condo building reserve fund to be fully funded. This simply means that condos do not have to have a huge increase in the fund over the next year or two, which will reduce the impact. “It’s not everything, but its something, and I think it will help a lot of condos, especially those older condos that have been saving for a long time for very expensive projects,” he says.
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