In this article by Business Tech, the South African Revenue Service (SARS) issues a tax alert for complexes and gated communities in South Africa.
The article outlines what these communities need to know about their tax obligations, including information on the newly introduced community scheme regulations.
The author provides important details for those living in these communities to understand and comply with the new regulations.
The South African Revenue Service (SARS) has published its 2023 guidelines for tax-exempt institutions, alerting Home Owner Associations (HOA) to their tax obligations.
While HOAs are partially exempt institutions, they are still subject to some obligations, SARS said.
An HOA is an association of persons formed to manage the collective interests common to all its members regarding the expenditure applicable to common immovable property. They are common fixtures in sectional title developments, gated communities and other similar setups.
Despite being partially exempt from Income Tax, SARS said that these groups still need to compile the following obligations:
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.
In an Interpretation Note published in 2018, SARS outlined the tax exemptions of associations dealing with complexes and gated communities.
Under 10(1)(e) of the Income Tax Act 58 of 1962, body corporates, a share block company and an association of persons are exempt from income tax on levy income.
SARS said that when determining whether an amount is a levy that is exemptable from income tax – regard must be given to the true nature of the transaction.
Exempt levies can be broken into the following categories:
General levies
Refers to a levy that covers the community’s day-to-day running, maintenance or operation. These are exempt from income tax.
Special levies
This type of levy may be raised to pay for capital improvements, such as installing a satellite dish or upgrading paving in the community, said SARS.
Building penalty levies
“Homeowners’ association management rules may require a member to pay a higher fee, known as a “building penalty levy,” for not starting or finishing construction within a specific timeframe,” said SARS.
This levy, which is usually a multiple of the regular fee, is intended to recoup additional expenses incurred by the association due to the delayed construction, added the authority. “It should be noted that this type of building penalty levy is considered a fee, not a penalty or fine, and is eligible for exemption.”
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,” said SARS.
The authority noted, however, 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.
Changes coming in 2023
Complexes are facing a rigmarole of changes this year, with a handful of new regulations governing property and land in South Africa poised to be signed into law by President Cyril Ramaphosa.
Parliament is currently reviewing the Sectional Titles Amendment Bill, which establishes regulations for developing schemes, including property and extensions.
According to law firm Cliffe Dekker Hofmeyr, the bill’s primary goal is to address gaps left in existing property law and sectional title management structures.
The bill will change how complex managers, body corporates, and homeowners’ associations interact with sectional titles, said Cliffe Dekker Hofmeyr.
For example, developers will be required to meet with every lessee of a building or part of a building to answer questions put forth by the lessees’ agents.
Other key amendments include requiring an architect or land surveyor’s certificate for land use, allowing for modification of sectional title plans based on exclusive use regions, and requiring developers to submit plans for subdividing, consolidating, or extending a section to the surveyor-general for approval.
Source: https://businesstech.co.za/news/government/659475/sars-tax-alert-for-complexes-and-gated-communities-in-south-africa-what-you-need-to-know/
