Amendments to the VAT Act – Homeowners Associations (HOA)

With effect from 1 April 2014 the activities of a HOA no longer qualify as taxable supplies. HOA’s must accordingly deregister as VAT vendors.

The consequences of deregistration are as follows:

  • The HOA must account for output tax on the value of any assets or rights held immediately prior to deregistration. The amount of the output tax liability must be computed as:

 (The lower of the cost or market value of the goods or rights)*(14/114)

Fixed property owned by HOA’s normally constitutes property transferred to the HOA for no consideration by the developers. No output tax liability would accordingly be payable on fixed property acquired by HOA’s under these circumstances.

The VAT liability can be paid off over a period of 12 months.

A HOA has the option to register voluntarily as a VAT vendor (partially or fully) if the Commissioner issues a directive to this effect. Where a HOA is registered as a vendor on 1 April 2014, our understanding is that the Commissioner for SARS will allow the HOA to remain registered as if the Commissioner has directed that it may register as such. This approach is doubtful in law, but provides a practical solution for the challenges facing HOA’s. 

Information courtesy of:  LexisNexis South Africa

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