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Impact of VAT Act amendments on homeowners’ associations: Piet Nel (SAICA)

Homeowners’ associations become principally the same as body corporates.

HILTON TARRANT: In this month’s Integritax feature we are joined by Piet Nel, project director for tax at SAICA.
   Piet, there are a number of changes to the value-added tax or VAT Act that take effect on April 1, 2014. One of these may indeed have an influence on homeowners’ associations. Take us through the situation before these amendments come into play.

PIET NEL: Ja, Hilton. Before the amendment, this applied to body corporates, and only body corporates were exempt from value-added tax. And the services that really qualified for the exemption were those that were supplied by the body corporate to its members in the course of management of the body corporate or shareblock or housing development scheme. Any other services supplied by these entities were potentially subject to VAT if the total value exceeded the R1m threshold.
   Now, the problem was that homeowners associations did not enjoy the same relief and were obliged to register as VAT vendors when the value of their supplies exceeded the R1m threshold. So for the members of these, where they were residential property owners, it meant an additional cost or an additional layer of VAT, or essentially for conduit type payments, and where no meaningful other services were added to that.
   Now, since 2006 homeowners’ associations principally fulfil the same function as body corporates and the only difference is that they are not governed by the Sectional Title Act. They are normally formed as Associations of Persons or non-profit companies, and they are often set up to recover communal costs such as security costs on behalf of the homeowners.

HILTON TARRANT: So the two are being harmonised in that homeowners’ associations and body corporates are pretty much coming into line here. With this amendment from April 1 2014 what happens as far as VAT is concerned?

PIET NEL: As you say, homeowners’ associations will then principally be the same as body corporates. The effect is actually quite significant on them. They will no longer make taxable supplies, so they will be making exempt supplies, which means that a homeowner can’t levy VAT. The Act does allow for them to remain registered as vendors, but they will principally have to apply to SARS to remain on the register – and this should have been done already by now.
   The effect of the amendment on the members is also I think maybe not that significant, but it’s also important. The additional layer of tax is now removed, so there may be a small saving to the members – and that is the saving that will come through to the members. What is important for the homeowners’ associations, though, is that they now cease to be a vendor, and the Act then requires of them to repay the input taxes that they deducted originally when they acquired assets, where these assets are still on hand at March 31 2014. The amount is calculated on the lower of the costs originally when acquired, or the open market value of the assets today. And this must be paid to SARS within six months unless they apply to pay it off over a longer period of time. So we are essentially reminding homeowners’ associations of the change in law, and reminding them that they have to declare the output tax on the assets that are still on hand at the moment. And for members to be aware of this when they do the next year’s planning and agreeing on the next year’s levy contribution they must remember that there might be a slight saving in the cost due to the VAT being removed from this.

HILTON TARRANT: Thanks to Piet Nel. More details are available on Moneyweb.co.za.

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