A recent amendment to Section 12 of the Value-Added Tax Act, 1991 has seen the inclusion of levies collected by an association of persons and related to expenditure of the common immovable property as a non-taxable supply.
The reason for the change is that the services rendered by a homeowners association is in essence a cost sharing device i.e. levies are collected and communal expenses paid. The homeowners association is not profit driven and is not classified as a business enterprise.
The effective date of the amendment is 01 April 2014. Homeowners associations currently registered for VAT may apply for deregistration from this date and it will no longer be compulsory for homeowners associations to register for VAT on or after this date.
A six month concession period has been granted to the homeowners association to repay any input VAT previously claimed on capitalised assets. Similarly, output VAT previously paid on any irrecoverable debt should be reclaimed at date of deregistration.
The homeowners association may choose to remain registered for VAT in the event that the majority of owners are registered VAT vendors who are eligible to claim this input as a deduction against their taxable supplies. Alternatively should the homeowners association choose to deregister, a 14% tax saving is available to its members.
Taking the above individual saving into consideration in addition to saved administration fees and the choice of now using non VAT registered suppliers, it is our recommendation that the homeowners association deregister as a VAT vendor.
Trafalgar Property Management (Pty) Ltd