Home-owners associations cease to be vendors for VAT purposes
Johannesburg, Monday 31 March 2014 – From tomorrow 1st April 2014, home owners associations will cease to be vendors for the purposes of Value Added Tax. This follows a recent amendment to the Act in terms of which the contributions levied by entities in respect of services supplied to all its members relating to managing the collective interest of residential property use or ownership of its members will now be an exempt supply.
According Piet Nel, Project Director for Tax at the South African Institute of Chartered Accountants (SAICA), the exemption also applies to the expenditure applicable to the common property of the members and the collection of the levies for which the members are liable.
“For these associations or non-profit companies, this means that the entity has to account for tax in respect of goods which formed part of the assets of the entity on that date (1st April 2014). However, the Act allows them to pay the amount of over a period of 6 months, but the entity can approach SARS if they require a longer period. The principle here is that the entity will essentially have to pay back the tax that the entity deducted in prior periods in respect of these assets,” explains Nel.
The members of these entities should, from 1 April 2014 onwards, enjoy the benefit of a lower levy. An example of this would for instance be where an additional layer of VAT for conduit payments that did not contain any meaningful value–addition was incurred. This must be taken into account when the amount of the contribution for the next financial year is budgeted for.
It may be to the benefit of members of certain home owners associations for the association to remain registered as a vendor. This would for instance be where the members are carrying on an enterprise themselves and may be able to deduct the VAT as input tax. The Act allows for these entities to be registered as vendors, but require that they apply in writing to SARS. SARS will then, based on the circumstances of the case, direct with effect from a future date that the contributions levied are not exempt from the tax……..