The Strata Property Act clearly states in section 95(3) that investment income generated by the contingency reserve fund belongs to the contingency reserve fund. The Act is silent on the treatment of other investment income. There is no mention as to how investment income earned by funds attributable to the operating fund or a special project fund is to be treated. From a pragmatic perspective, it makes sense that investment income generated by the operating fund or a special project fund would be allocated to the fund responsible for generating that income, ergo back to the operating fund and/or the respective special project fund.
This perspective is partially supported by the CICA Handbook (Canadian generally accepted accounting principles). Section 4410.70 deals with the recognition of investment income for 'Not for Profit Organizations' which a strata corporation by virtue of the CICA's Emerging Issue Committee Abstract number 95 dated December 6, 1999, is. Section 4400.70 states that an organization should recognize:
(a) net investment income that is not externally restricted in the statement of operations in the general fund.
(b) Externally restricted net investment income that must be added to the principal amount of resources held for endowment in the statement of operations in the endowment fund.
(c) Other externally restricted net investment income in the statement of operations in the appropriate restricted fund or, if there is no appropriate restricted fund, in the general fund on the same basis as that described in paragraph 4410.65 (that is in accordance with the deferral method).
To reiterate, the Strata Property Act externally imposes restrictions on investment income earned by a contingency reserve fund. The CICA handbook tells us that investment income not restricted externally is attributable to the general fund (read operating fund for strata corporations). In other words investment income earned by a strata corporation that is not specifically attributable to the CRF is to be allocated to the operating fund.
A strata corporation has the power to modify this by passing appropriate bylaws or incorporating into seventy-five percent resolutions an internally restricted allocation of non-contingency reserve investment income to something other than the operating fund. For example, a strata corporation undertaking a significant project may decide that any investment income earned on the monies collected for that project is allocated to that project, not the general fund. However, in the absence of a bylaw or appropriate wording in the seventy-five percent resolution dealing with the proposed project, investment income earned by the project's cash must be allocated to the operating fund.
