Prairie Property Management Inc. (PPMI), based in Calgary, Alberta, manages several residential rental properties. On March 1st, a tenant pays PPMI $1,500 for rent and a $750 security deposit. PPMI's licensed property manager, Sarah, deposits the full $2,250 into the company's operating account. Which of the following statements is true regarding this transaction?

Question: Prairie Property Management Inc. (PPMI), based in Calgary, Alberta, manages several residential rental properties. On March 1st, a tenant pays PPMI $1,500 for rent and a $750 security deposit. PPMI's licensed property manager, Sarah, deposits the full $2,250 into the company's operating account. Which of the following statements is true regarding this transaction?

Answer options: ✅ Sarah is in violation of provincial trust accounting regulations for commingling funds by depositing the security deposit into the operating account.

• This is acceptable practice as long as PPMI transfers the security deposit to a separate trust account within five business days.
• Both the rent and the security deposit are considered operating funds once received and can be held in the operating account.
• Only the rent portion should have been deposited into the operating account, with the security deposit retained by the tenant until lease commencement.

Correct answer: Sarah is in violation of provincial trust accounting regulations for commingling funds by depositing the security deposit into the operating account.

Explanation: Security deposits are trust funds and must be deposited into a trust account, not an operating account, to prevent commingling as per provincial regulations like the BC Residential Tenancy Act and similar legislation across Canada.