“Particularly after 2006, [it was found that] home owners associations previously didn’t deal with your rates and taxes. That was done by the body corporate. Since then, home owners association also started dealing with that. It essentially is a private cost. It shouldn’t add another layer of VAT on to it. This is why government came in and amended the law to make this,” Piet Nel, project director for Tax at the SA Institute of Chartered Accountants, told CNBC Africa.
Home owners’ associations are particularly instrumental to residential areas such as clusters and complexes, where a number of people live within a shared community. This Value Added Tax (VAT) exemption will therefore be of significant relief to home owners in particular.
“There were some submissions made in the past for home owners associations to actually no longer be vendors, and the reason was if you look at the underlying principle in the VAT legislation, if you buy in a body corporate and own your property through a body corporate, you are a residential owner. You can’t claim the VAT input back, so it’s made exempt,” Nel explained.
“Principally, that provision of that residential accommodation service is exempt from VAT and initially [only body corporates] handled communal expenses. Then home owners associations came into existence, particularly to deal with common expenses such as security costs of all the properties in that area.”
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Nel added that the home owners’ association concept is not limited to inner city property alone, and also extends to beach front property. Associations would be particularly be instrumental to beachfront property in the instance of access control.
“The first thing is that if it’s only residential owners involved and there are no businesses, you would have to account for – on 1 April – that you no longer make taxable supplies, so previously you were registered, you were charging VAT on your supplies, you now no longer have to charge that. You [also] have to account for VAT on the property that you’ve claimed input tax in the past,” said Nel.
Nel added that the fees are however fixed and payable up-front for the year, and home owners and associations alike now have to make sure to keep them updated.
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“It certainly is a saving for the home owners. There are [however] people who were starting to voice concerns about this four or five years ago already. It’s probably not big money involved but the principle is sound. When you handle communal expenses for people who use it for residential purposes, you don’t want to add VAT on to that,” said Nel.