What is the tax regime of a syndicate of co-ownership?

The tax status of a syndicate of co-ownership

As with any legal person, a syndicate of co-owners has tax obligations to respect under penalty of consequences that could have a significant impact on the financial situation of the co-ownership and the co-owners. Although governed by specific rules set out in article 1039 of the Civil Code of Quebec, a co-ownership syndicate is considered by the tax authorities of Quebec and Canada respectively as:

• An enterprise under the Taxation Act;
• A corporation with the status of a non-profit organization under the Income Tax Act  

Is the syndicate of co-ownership exempt from income tax?

By the nature of its non-profit activities, a Syndicate is, in principle, exempt from tax in relation with the money collected from co-owners to ensure the conservation of the immovable and the maintenance of common portions. It is the same for the money paid to the syndicate for the contingency fund.

To maintain this exemption, the Syndicate must not pay any part of its income to any one of its co-owners, or otherwise put it at the personal disposal of one of them.

What is the tax treatment of amounts invested in the contingency fund and the income they generate?

To ensure the conservation of the immovable, article 1071 of the Civil Code of Quebec provides for the establishment by the syndicate of co-owners of a contingency fund. This contingency fund, which is the property of the Syndicate, is destined exclusively for major repairs and replacement of common portions.

This cash reserve is composed of the following amounts:

• The contribution of co-owners to the contingency fund;
•  The interest earned by the amounts invested.

The use by the Syndicate of the amounts in the contingency fund is not a distribution to co- owners nor putting its income at   their personal disposal. Therefore, in principle, disbursements from this fund will not be considered both for the Syndicate and the co-owners to be taxable income. However, the expenses paid with money from the contingency fund and the amounts accumulated in it must be reasonable in relation to the purposes for which they are intended.

Income tax and information return  

Even though it is tax exempt, any syndicate of co-owners must submit an annual tax return both at the provincial and federal level. This return must be filed within 6 months from the closing date of the fiscal year.

In Quebec, the syndicate of co-ownership must complete the Déclaration de revenus des sociétés sans but lucratif (Declaration of corporate income) according to the CO-17.SP form. Under this form, it is required to provide, among others:

• The date of constitution of the Syndicate ;
• The names of the directors of the Syndicate , their social insurance number and their respective titles;
• The NEQ (Quebec Enterprise Number) of the Syndicate;
• The financial statements.

At the federal level, the syndicate of co-owners must complete the Declaration of corporate income as per the T2 form.

Furthermore, if the Syndicate meets one the following three criteria:

• It received or was entitled to receive during the exercise, taxable dividends, interest, rents or royalties totaling more than $ 10,000;
• The total value of the Syndicate’s property was over $ 200,000 at the end of prior year;
• The Syndicate was required to file a return for a prior year;

Then, the Syndicate is required to file:

• In Québec, the CP-17sp form,  « déclaration de revenus et de renseignements des sociétés sans but lucratif, (tax and information return of non-profit corporations);
• At the federal level, the T1044 form, Non-Profit Organization (NPO) Information Return.

Penalties, interest, and other consequences

When a Syndicate fails to file the tax and information returns described above, it may be subject to recourses both from Revenu Québec and the Canada Revenue Agency.

Provincially, Revenu Québec may require it arbitrarily to pay amounts in accordance with what it estimates being owed. Despite the fact that the financial consequences in this area should, in theory, be limited, the board should not expose the Syndicate to the risks of an estimated assessment and weaken, accordingly, the finances of the co-ownership.

At the federal government level, the consequences are different. Indeed, a Syndicate that would not file a tax returns would face a fine of $ 25 per day of lateness (minimum $ 100 and maximum of $ 2,500 per return not filed), even if it had no taxes owing.

WHAT YOU SHOULD KNOW ! It is important for the co-owners or for any buyer to check that the syndicate respects its tax obligations, in order to avoid weakening the financial situation of the co-ownership.

WHAT TO KEEP IN MIND: In order for the right of tax exemption to be maintained, the syndicate must not pay any part of its income to one of its co-owners, nor make it available to it for personal purposes. In addition, the money paid into the contingency fund must reflect the real needs for which it was created. A syndicate would be ill-advised to earn additional amounts for investment purposes and thus remove them from tax.

 WARNING! Although most of the income of a co-ownership is exempt from tax, it remains that some sources of income may be taxable. It would, among others, be the case of a syndicate that operate a business.

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