Homeowners Associations (HOA) are currently not exempt from VAT and are required to charge VAT on their levies if they are over the R1million limit (or if they have voluntarily registered). This is going to change with effect from 1 April as SARS is now of the view that the supply of services by an HOA to its members is not a business enterprise.
Therefore, from 1 April 2014, the levies payable by members to HOAs will be exempt from VAT. The effect of this amendment is that many HOA’s will have to deregister as VAT vendors as they will no longer be making taxable supplies. This will have certain financial and administrative implications.
Firstly, this is good news for most HOA members, because this will probably have the effect of a lower levy, depending on how much input VAT the HOA could claim in the past.
However, in terms of the VAT Act, any person/entity who ceases to be a vendor is deemed to have sold any assets held by the enterprise immediately before the ceasing occurs. This means that HOA’s will have to declare output tax on the market value of their assets as at 31 March 2014. However, relief has been provided to HOA’s as they will be allowed to pay over this VAT liability in 6 equal instalments, instead of as a lump sum with their final VAT return (which is normally the procedure). From 1 April 2014 any Input VAT charged by suppliers to the HOA will not be recoverable.
HOA’s must ensure that they comply with the deregistration procedures, including filing the necessary forms to finalise the process. It is recommended that HOAs carefully budget their cash flows to allow for any final VAT liability which may arise from the deemed disposition of assets.
For any assistance or advice on the above, please contact us on 021 713 8700.