When it comes to VAT registration and liability up until now bodies corporate have been exempt from VAT and HOAs have had to register for VAT if the threshold was exceeded.
The background and logic to this was that, in sectional title schemes, which are run by bodies corporate, the aggregated rates, electricity and water accounts were paid on behalf of the owners and then recovered from the owners via their levy payments. Imposing VAT on a body corporate, therefore, would effectively mean that a double layer for these amounts was created, said Michael Bauer, general manager of the property management company IHFM.
HOAs had no historical need to pay municipal accounts on behalf of the owners, because all the owners are billed directly and so were never exempt from VAT.
Since 2006, however, bodies corporate have not had to pay rates on behalf of the sectional title owners, who now pay their accounts directly to the municipalities yet the bodies corporate have remained VAT exempt. The reason for this is that bodies corporate are not business enterprises but merely a way of sharing the operating costs and services amongst owners in a sectional title scheme. HOAs are essentially the same thing and should therefore not have to register for VAT either, said Bauer.
There is now a welcome amendment to the ruling, which will be implemented on the 1 April 2014, said Bauer, whereby HOAs will no longer have to register as VAT vendors and if they are registered, can now deregister (in terms of section 8 (2) of the VAT Act) as of this date. They will also be given a concession period to pay their VAT liability in six monthly payments or in as many instalments that the Commissioner decides.
Many HOAs still remain registered to be able to claim the input VAT back on large contracts or service bills but this does not represent any cost saving, but rather a short-term cash flow advantage as the owners have to pay 14% more levies (output VAT) and if the HOA budgets for a surplus the output VAT always exceeds the input VAT portion and should not be the reason to remain registered for VAT, said Bauer.
“It does not make sense to add the complication of the VAT returns, as well as the time it takes the person enlisted to do the job, if it is not 100% necessary,” he said. “In my opinion, the amount claimed back in VAT is negligible in an average year and the HOA would be much better off without having to deal with the added administration.”