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Sectional title VAT registration changes welcomed

Until now sectional title bodies corporate have been exempt from VAT and home owners' associations have had to register for VAT if their incomes exceeded the VAT threshold amount.

The logic to this is that, in sectional title schemes run by bodies corporate, the aggregated rates, electricity and water accounts are paid on behalf of the owners then recovered from the owners. Imposing VAT on a body corporate, therefore, would mean that a double layer for these amounts is created.

Home owners' associations have no historical need to pay municipal accounts on behalf of the owners, because all the owners are billed directly, says Michael Bauer, general manager of IHFM property management company.

'Since 2006, however, bodies corporate have not had to pay rates on behalf of sectional title owners, yet they 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 among owners in a sectional title scheme. Home owners' associations are essentially the same thing and should therefore not have to register for VAT either,' says Bauer.

'There is now a welcome amendment to the ruling, which will be implemented on April 1, whereby home owners' associations will no longer have to register as VAT vendors. Home owners' associations that are registered will be able to deregister in terms of Section 8 (2) of the VAT Act. They will also be given a concession period to pay their VAT liability.'

Many home owners' associations still remain registered to be able to claim the input VAT back on large contracts or service bills but Bauer says this does not save costs.

'It is rather a short-term cash-flow advantage as the owners have to pay 14 percent more in levies (output VAT) and if the home owners' association budgets for a surplus the output VAT always exceeds the input VAT portion and should not be the reason to remain registered for VAT.

'It does not make sense to add the complication of the VAT returns if it is not absolutely necessary.'


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