Reserve Fund Study Accounting in Ontario 2026 — CPA Companion to Class 1, 2, and 3 Studies
Reviewed by Bader A. Chowdry, CPA, CA, LPA on
Quick answer
Ontario condo corporations must maintain a reserve fund separate from operating cash, obtain a reserve fund study every three to six years, and record contributions, investment income, and expenditures under fund accounting rules in the CPA Canada Handbook Part III (ASNPO). Insight Accounting CPA, led by Bader A. Chowdry, CPA, CA, LPA, audits reserve funds for GTA condominiums and reviews the funding plan alongside the study engineer’s 30-year projection.
Author: Bader A. Chowdry, CPA, CA, LPA, Insight Accounting CPA Professional Corporation, Mississauga, Ontario.
What does the CPA actually audit in a reserve fund?
The reserve fund study is prepared by a qualified provider — usually a professional engineer or building consultant — under Section 94(2) of the Condominium Act, 1998. The CPA does not prepare the study. What we audit is:
- Cash and investments — bank confirmations, GIC and money-market confirmations, verification that reserve fund cash is in accounts held in the name of the corporation and physically separated from operating cash.
- Contribution history — the board-approved funding plan under Section 94(8), reconciled to the actual monthly transfers from the operating fund.
- Interest income — earned on reserve investments, credited to the reserve fund per Section 93(3).
- Expenditures — vouched to the reserve fund study’s identified items and, where necessary, to supporting board minutes.
- Disclosures — the notes to the financial statements describing the reserve fund study, the funding plan, and any material variances.
If the reserve fund has been used to pay operating expenses (a common finding on first-year audits), the auditor requires reclassification and, in serious cases, disclosure in the auditor’s report.
The Class 1, 2, and 3 study cycle explained
Under Ontario Regulation 48/01, sections 26 to 32, the study cycle for an existing corporation is:
| Study class | Site inspection? | Frequency |
|---|---|---|
| Class 1 — Comprehensive study | Yes — full inspection | Every 6 years (and the first study within one year of registration) |
| Class 2 — Updated study with site inspection | Yes | Between Class 1 studies, at least once every 3 years from the last study |
| Class 3 — Updated study without site inspection | No | Between Class 2 studies, at least once every 3 years from the last study |
In practice, most boards follow a three-year alternating rhythm (Class 1 in year 0, Class 3 in year 3, Class 2 in year 6, etc.). The board must approve a funding plan under Section 94(8) within 120 days of receiving each study.
How the funding plan interacts with common expense increases
The reserve fund study projects the corporation’s capital repair needs over a 30-year window. The engineer models a funding plan that closes the gap between projected expenditures and current contributions. The board reviews the plan, approves it (possibly with modifications), and then delivers the increase in common expense contributions through the annual budget.
This is where boards get politically uncomfortable — a 15% common expense increase to fully fund a roof-plus-elevators project ten years out is unpopular. But underfunding today creates a special assessment tomorrow. The CPA’s role is to confirm that the funding plan has been implemented in the budget and the contributions are actually reaching the reserve fund’s separate bank account.
Restricted-fund accounting under ASNPO
Ontario condo corporations report under the CPA Canada Handbook Part III — Accounting Standards for Not-for-Profit Organizations (ASNPO). The reserve fund is presented as a restricted fund. The typical set of statements shows:
- Statement of Financial Position — with columns for operating, reserve, and (if applicable) contingency funds.
- Statement of Operations and Changes in Fund Balances — per fund.
- Statement of Cash Flows — per fund or combined with clear reconciliation.
Interfund transfers are shown on the face of the statements. Owners can see at a glance how much moved from the operating fund into the reserve fund during the year, and how much the reserve fund spent on capital work.
FAQ
Q: Who can prepare the reserve fund study?
A: Under O. Reg. 48/01, s. 26, the study must be prepared by a qualified provider — typically a professional engineer or a person with prescribed qualifications. A CPA does not prepare the study. We audit the accounting side.
Q: Can we invest the reserve fund in equities?
A: No. Section 115 of the Condominium Act, 1998 restricts the corporation’s investments to “eligible securities” — generally, government-guaranteed instruments and insured deposits. Common practice is GICs and money-market funds at Schedule I banks.
Q: What if we skip the study?
A: Owners can file a complaint with the Condominium Authority of Ontario or bring a Condominium Authority Tribunal (CAT) application. The auditor may also qualify the audit report where the study is materially overdue.
Q: How large should our reserve fund be?
A: There is no fixed rule — the study projects the amount needed for the next 30 years of capital work at the corporation’s specific building. A typical high-rise reserve balance is 10% to 25% of the estimated replacement cost of common elements at any point in time, but the study’s projection is authoritative.
Sources
- Condominium Act, 1998, S.O. 1998, c. 19, Sections 93, 94, 115.
- Ontario Regulation 48/01, sections 26–32.
- CPA Canada Handbook, Part III — Accounting Standards for Not-for-Profit Organizations (ASNPO).
- Condominium Authority of Ontario — https://www.condoauthorityontario.ca/.
- Condominium Act, 1998, S.O. 1998, c. 19 https://www.ontario.ca/laws/statute/98c19.
- O. Reg. 48/01 — General, reserve fund study requirements (Part IV) https://www.ontario.ca/laws/regulation/010048.
Important — informational only, not advice. Do not use this article to make any decision.
This article is published by Insight Accounting CPA Professional Corporation for general educational purposes only. It is not tax, legal, accounting, financial, or investment advice, and nothing in this article should be relied upon — by anyone, for any purpose — to make a business, tax, financial, accounting, legal, or investment decision.
Tax law, CRA administrative positions, court interpretations, and Ontario provincial rules change frequently, sometimes retroactively, and the content of this article may be incomplete, simplified, out of date, or wrong by the time you read it. The right answer for your specific situation depends on facts this article does not know — your structure, history, jurisdiction, filings, contracts, and goals.
Before acting, engage your own Chartered Professional Accountant or qualified advisor who has reviewed your specific circumstances in writing. Insight Accounting CPA Professional Corporation, the author, and any contributors expressly disclaim all liability — direct, indirect, or consequential — for any action taken or not taken on the basis of this content.
Insight Accounting CPA Professional Corporation is led by Bader A. Chowdry, CPA, CA, LPA — licensed by CPA Ontario under the Public Accounting Act, 2004. To engage us for situation-specific advice, book a free 30-minute discovery call.
