Changes to Home Owners Association’s VAT registration are welcomed

Presently, Sectional title bodies corporate have been exempt from VAT, as opposed to  home owners’ associations that had to register for VAT if their incomes exceeded the VAT threshold amount.

From a practical perspective, in sectional title schemes run by bodies corporate, the aggregated rates, electricity and water accounts are paid on behalf of the owners then recovered from the owners. To impose VAT on a body corporate, therefore, would indicate that a double layer for these amounts are created.

Home owners’ associations have no historical need to pay municipal accounts on behalf of the owners, because all the owners are billed directly. Since 2006, however, bodies corporate have not had to pay rates on behalf of sectional title owners, yet they have remained VAT- exempt. The reasoning is that bodies corporate are not business enterprises, but merely a mechanism of sharing the operating costs and services among owners in a sectional title scheme. Home owners’ associations are essentially in the same category and should therefore not have to register for VAT either.

There is now a welcome amendment to the ruling, which will be implemented on the 1st April 2014, whereby home owners’ associations will no longer have to register as VAT vendors. Home owners’ associations that are registered will be able to deregister in terms of Section 8 (2) of the VAT Act. They will also be given a concession period to pay their VAT liability.

Many home owners’ associations still remain registered to be able to claim the input VAT back on large contracts or service bills. This is, however a short-term cash-flow advantage as the owners have to pay 14 percent more in levies (output VAT) and if the home owners’ association budgets for a surplus the output VAT always exceeds the input VAT portion and should not be the reason to remain registered for VAT.  It does not make sense to add the complication of VAT returns if it is not absolutely necessary.

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