In the past Home Owners Associations (HOAs) were not exempted from VAT and had to charge VAT on their levies, whereas sectional title body corporates were generally exempt from VAT. SARS is now of the view that the supply of services by an HOA to its members is not a business enterprise but merely a cost sharing arrangement and the law was amended accordingly.
As from 1 April 2014 the levies payable by members to HOAs will also be exempt from VAT. However, the effect of this amendment is that many HOAs will have to deregister for VAT purposes as from 1 April 2014 which will have certain financial and administrative implications.
In terms of the VAT Act, a person that ceases to be a vendor is deemed to have supplied any goods that form part of the assets of the enterprise immediately before he ceased to be a vendor. HOAs will therefore be required to declare output tax on their assets on hand as at 31 March 2014. However Homeowners Associations to deregister for VAT relief has been provided to HOAs as they can pay over this VAT liability in six equal installments and not as a lump sum with their final VAT return.
HOAs must ensure that they comply with the deregistration procedures and that they file the necessary forms to finalise the deregistration process. Furthermore, HOAs must carefully budget their cash flows to accommodate the final VAT liability on deregistration.
Going forward, HOAs should analyse the effect that the exemption that VAT will have on their budgets as input tax charged by suppliers to them will in future not be recoverable, however, it also means that members would not be charged VAT which, in theory, could result in lower levies for members.
© 2014 PricewaterhouseCoopers