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Strata financial statements

What are the requirements in the SPA?

Bookkeeping and the preparation of financial statements for strata corporations doesn’t need to be complicated. Strata managers often produce a variety of reports, however, a strata corporation is only required to comply with the requirements of the Strata Property Act (SPA) and Regulations which are fairly straightforward.

  • SPA s. 92 requires the strata corporation to have an operating fund and a contingency reserve fund (CRF)
  • SPA s. 103 requires the strata to pass a budget at each annual general meeting (AGM)
  • Regulation 6.6 lists the information that must be in the budget
  • SPA s. 45 requires the strata to include the budget and financial statement in the Notice of an AGM
  • Regulation 6.7 sets out the requirements for a financial statement

What financial records must be kept?

SPA s. 35 lists the records that a strata must retain. This includes:

  • Books of account showing money received and spent and the reason for the receipt or expenditure (e.g., ledgers)
  • The budget and financial statement for the current year and for previous years
  • Bank statements, cancelled cheques and certificates of deposit

How often are financial reports required?

The SPA requires one financial statement per year which must be included in the Notice of an AGM.

It is recommended that councils review bank statements, arrears, and cash flow on a regular basis. While there is no requirement in the SPA or Regulations to produce financial statements monthly, it is helpful to prepare a statement at least a few times per year so that council can monitor spending and stay on budget.

Best practices for financial reports

Financial reports or statements should be presented simply and clearly so that council members and owners can easily understand them. There is no requirement to use certain accounting programs or present financial statements in any particular format.

Operating fund: See VISOA’s simple accounting program for BC stratas called STRATACCOUNT. It contains easy to use ledgers and produces monthly and year-end financial statements for the operating fund which conform to the requirements of the SPA.

Alternatively, a simple way to produce a financial statement for the operating fund is to use a spreadsheet that shows the budget approved at the AGM. Add a column to show the total expenditures in each budget category for the year to date. This helps council see if it is staying on budget. Learn more about the operating fund and budget.

CRF: The SPA requires stratas to keep separate books of account for the CRF. Regulation 6.7 requires the financial statement at the end of the year to include:

  • The opening balance in the CRF (including all investments)
  • Income from all sources
  • Details of expenditures including any unapproved expenditures made under SPA s. 98
  • The current balance

A best practice is to list each source of income such as contributions from strata fees, interest earned, and any transfers into the CRF such as a prior year operating surplus. For expenditures, have columns to list each project, its approved budget, how much was spent during the year, and whether the project is completed. If the project spanned more than one fiscal year, add a column that shows the total cost of the project. List any other expenses from the CRF such as payment of an insurance deductible. Learn more about the CRF.

Special levies: SPA s. 108 requires the strata to “account for the money collected separately from other money of the strata corporation”. If there were separate resolutions that approved special levies, accounting must be done separately for each special levy. Regulation 6.7 requires a financial statement showing the “income and expenditures” for each special levy at the end of the year. STRATACCOUNT includes a separate workbook for the accounting and annual financial statement for each special levy. Learn more about special levies.

Do stratas have to hire a bookkeeper or accountant?

There is no requirement in the SPA, Regulations, or Standard Bylaws for a strata corporation to hire a bookkeeper or accountant. In most cases, no accounting or bookkeeping expertise is required to produce statements that comply with the SPA.

Year-end surplus or deficit?

The expenses in the budget are estimates. Actual expenses over the course of the year will be higher or lower than budgeted. There will be a “surplus” or a “deficit”. The financial statements for the year ending will show the amount of the surplus or deficit. Either the operating budget or the CRF budget for the coming year will show what you’re going to do with it.

Operating fund surplus

A surplus is when the strata spent less money than was anticipated and approved in the budget at the previous AGM. A surplus is not a “slush fund” to spend money for a purpose that is not authorized. So, what can the strata do with this money?

SPA s. 105 says that the surplus can be dealt with in one or more of the following ways:

 1. Transfer it to the CRF

 2. Carry it forward forward as part of the operating fund, as a surplus (without reducing strata fees)

 3. Reduce the total contribution to the next fiscal year’s operating fund (reducing strata fees)

 4. Pass a ¾ vote to use the surplus in another way

The first 3 options can be decided by council because the SPA doesn’t require owner approval. However we recommend, as a best practice, that council make a recommendation and put it to a majority vote of the owners at the AGM before approval of the budget.

1. Transferring the surplus to the CRF has the advantage of growing the CRF. It’s also easy for council members and owners to understand and track simply by looking at the bank account statements.

2. Carrying the amount forward as a surplus as part of the operating fund can be confusing. This means that the money stays in the operating fund bank account but council can’t spend it. Having this cushion in the bank account is helpful during the year when there are large bills before enough strata fees have been collected. However, at the end of the fiscal year, that money must be in the bank account. The total of all prior year surpluses carried forward in this way becomes the opening balance of the operating fund on the first day of the next fiscal year.

3. This option uses the surplus as a line item in the budget for the next fiscal year to reduce the amount of contributions needed to cover expenses and the contribution to the CRF. So, you apply the surplus towards the budget and then calculate your strata fees off that lesser amount. In other words, the strata fees are lower. It might seem tempting to do this. However, it only reduces fees for one year. If there isn’t a surplus next year, strata fees will go back to “normal”. With operating costs increasing each year, going back to “normal” can feel like a big increase. Some owners may find this confusing and not be prepared for the change in fees.

4. The final option requires a ¾ vote of the owners at an AGM or SGM. This allows the owners to use the funds in any way they wish. The surplus isn’t part of the CRF, nor is it part of the operating budget for the coming year. If the amount is very large owners might vote to pay it to the owners based on unit entitlement. Alternatively, the owners could approve spending the funds on a capital project instead of paying from the CRF or by special levy. If so, a best practice is to account for it separately. All of this can be confusing for council members and owners. If owners want to spend the money on a capital project that occurs less often once per year, it’s simpler to use option one: transfer the surplus to the CRF and then approve an expenditure from the CRF to pay for the project. The accounting is easier and more transparent.

Operating fund deficit

If actual expenses are higher than budgeted, the strata will end the year with a “deficit”. Unlike governments, a strata corporation can’t have an ongoing deficit. SPA s. 105 says “If operating expenses exceed the total contribution to the operating fund, the deficit must be eliminated during the next fiscal year”. However, it doesn’t explain how to do that.

Here are 3 methods to eliminate a deficit:

  • In the operating budget for the coming year, add an expense category called “deficit elimination”. This usually results in higher strata fees. The budget requires a majority vote approval at the AGM.
  • Pay off the deficit by special levy. A ¾ vote is required to approve a special levy.
  • Use a surplus in the operating fund from a previous year. See the section above about surpluses. If the strata used option 2 to carry a surplus forward to the operating fund without reducing strata fees, that money could be used to eliminate the deficit in a future year. Using these funds to eliminate a deficit requires a ¾ vote.

Can money from the CRF be transferred to the operating fund to eliminate a deficit? There are different opinions on this. For clarity, we looked to SPA s. 92, 96, and 98. In his article Strata Finances: Dealing with a Deficit, lawyer Shawn M. Smith said “What is arguably not permitted is to withdraw money from the CRF to reduce the deficit. This is because the nature of expenditures permitted from the CRF is different than the nature of expenditures from the Operating Fund. The CRF, being for “expenses that usually occur less often than once a year or that do not usually occur” and the Operating Fund being for those which occur annually or more often. To apply the CRF to a deficit would be to effectively allow for annual operating expenses to be paid out of the CRF – something which could not otherwise be done. You cannot use the CRF to make up for poor budgeting.”

Are stratas required to have audits?

There is no requirement for audits under the SPA or Regulations. However, a strata corporation could pass a bylaw setting out a requirement for a financial review or audit annually. A financial review or audit may also be authorized by a vote of the owners at an AGM or SGM.

An audit is a very thorough examination of the financial records which determines if the information correctly reflects the financial position at the given time. A financial review is a limited examination. A review provides limited assurance, while an audit provides a reasonable amount of assurance. Both are performed by a chartered accountant however they are reviewing accounting practices, not compliance with the SPA.

Can owners request copies of financial records?

SPA s. 36 permits certain persons to inspect or request copies of the records referred to in section 35. This means that any owner, or person authorized by an owner, can request certain financial records including books of account showing money received and spent and the reason for the receipt or expenditure, certificates of deposit, cancelled cheques, bank statements, budgets, financial statements, and income tax returns (if any). There is no requirement for the strata corporation to retain invoices. The strata may provide copies of or access to invoices but it is not required to.

Learn more about the records a strata corporation is required to keep, who can make requests, the timelines, and fees.

Member-only resources

Log in to your account to access the following resources. *Indicates a resource for corporate members only.

  • Sample financial statements*
  • Worksheet for creating a budget and calculating strata fees by unit entitlement (Excel)*
  • Worksheet for calculating a special levy by unit entitlement (Excel)*
  • Preparing for your strata AGM (slides)*
  • Preparing for your strata AGM (webinar Q&A)*
  • Spending Money: CRF, Operating Fund, Special Levies and More (slides)
  • Spending Money: CRF, Operating Fund, Special Levies and More (transcript and case law)*
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