It was recently reported that SARS has published its 2023 guidelines for tax-exempt institutions, alerting Home Owner Associations (HOA) to their tax obligations.
Section 10(1)(e) of the Income Tax Act 58 of 1962 states that body corporates, a share block company and an association of persons are exempt from income tax on levy income, however, SARS warned that they still need to comply with the following:
- Register as a taxpayer;
- File annual income tax returns;
- Register as an employer if they have employees earning above the tax threshold;
- Register for VAT.
SARS said that when determining whether an amount is a levy that is exemptible from income tax, regard must be given to the true nature of the transaction. An example is the establishment of so-called Stabilisation Fund Levies: "Homeowners' associations sometimes establish a levy stabilisation fund for the purposes of subsidising day-to-day expenditure and to provide a reserve for future capital improvements or unforeseen expenditure on the common immovable property".
SARS indicated that such funds might only be exempt from income tax in certain circumstances, namely:
- The founding document of the association makes provision for the establishment and management of the fund;
- The founding document of the association stipules that the fund can only be used on common immovable property;
- The levy must be a charge imposed by the qualifying association.
- The method by which the amount payable is determined must be specified in the founding document.
It is therefore imperative that HOAs check their founding documents before such funds are established, to ensure that they are still tax compliant when this is done. It is always a good idea to consult with an experienced Property or Tax Attorney.
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