February, 2 2022 Published by Toronto and Area Chapter - By hristina Ajith-Brandford, Justin McLarty
Bonuses Should be Handled With Care
From the Winter 2021 issue of CCI Toronto Condovoice Magazine, Volume 26, Issue Number 2
Owners Faced With a Large Special Assessment May Come Up With a Response Disproportionate to the Actual Amount of the Bonus
It is only natural that a board would want to reward the concierge who has a smile for each resident every morning or the superintendent who knows the building like the back of their hand with a bonus. The board should remember, however, that they are ultimately the trustees of the unit owners’ money and the distribution of bonuses should be handled with care.
First, the Corporation should be on firm financial ground before deciding to hand out bonuses. While no unit owner (hopefully) wants to be a Grinch, the optics of providing bonuses when the owners are faced with a large special assessment can create a response that is disproportionate to the amount of the bonus that is actually being given out.
Second, the bonuses should be properly documented and handled like any other expenditure. This process ranges from approval of the exact amount of the bonuses in the minutes of the board meeting at which they were approved to ensuring that the bonuses are a line item in the corporation’s audited financial statements.
There are a number of other unique considerations for Directors to take into account regarding bonuses which fall into two categories: payment of bonuses to condominium employees (e.g., superintendents) and payment of bonuses to contract personnel (e.g., cleaners, security and shared facilities personnel) who are employees of the company providing the service to the condominium under contract.
Bonuses paid to condominium employees should be paid through the condominium’s payroll with appropriate withholdings and the income should be reported to Canada Revenue Agency (CRA) on the employee’s annual T-4, Statement of Remuneration Paid.
The best (but most difficult) way to pay bonuses to contract personnel is for the contractor to invoice the condominium for bonus amounts and for the condominium to pay that invoice. In this way, the condominium is clearly not the employer and is not responsible for withholdings or informing CRA of bonus amounts paid – those are the responsibility of the contractor. Its important to note, that under this method, the condominium may incur harmonized sales tax (HST) on the bonuses as the contractor is likely required to charge HST for services provided.
When payment to a contracting company is not feasible, payment of bonuses directly to contract personnel has implications as to whether the condominium is an employer of those personnel and therefore may have related employment liabilities. Condominiums should consult with their legal counsel (both employment and condominium lawyers) before making such payments.
Owner Contributions to Bonus Pools
Condominiums occasionally address bonuses through bonus pools. Typically, a separate bank account is set up and owners make voluntary contributions as they see fit. The account may or may not be in the name of the condominium and is almost never recorded in the condominium’s accounting records. The Board, a Committee of the Board or, in more informal condominiums, a group of owners, then decide which personnel receive bonuses and how much.
We recommend that this procedure never be used as it is completely opaque. Lists of contributing owners, of bonus recipients included and how much they were paid are never published. This lack of transparency can lead to allegations of favoritism and discrimination that are difficult to refute. Another allegation that is challenging to disprove is the diversion of funds, especially when cash contributions are involved, or a property manager has contributed to the bonus pool. Under no circumstances should Directors or property managers expose themselves to the possibility of such allegations.
Opening bank accounts authorized by the Board, whether that authorization is formal or informal and whether the bank account is in the name of the corporation, also has implications. The Board should consult with legal counsel as to whether these funds are corporate funds. If they are corporate funds, the Board should consult with their accountant or auditors regarding how to record them in the corporation’s accounting records. The Board should also ensure that these accounts are being reconciled on a regular basis. Having authorized bank accounts and reconciliations may minimize the possibility of the allegations discussed above.
Note that bonuses paid by condominiums directly to condominium employees or to contract personnel are employment income and there may be penalties where Directors do not ensure that withholdings are properly made and where CRA is not properly informed of bonus payments following appropriate payroll reporting procedures. We strongly recommend that professional advice (e.g., lawyers, auditors) be sought as to how to best protect the condominium and its Directors when making bonus payments to employees and/or to contract personnel.
By no means is the above holiday to do (and don’t) list exhaustive, but it does provide some guidance on many of the questions condo corporations will deal with during the holiday season. Having said that, we hope you have a safe and happy holiday!
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