VAT change adds to cluster costs

VAT change adds to cluster costs
VAT change adds to cluster costs

HOMEOWNER associations range in size from small committees that pool resources to collectively tackle security to substantial operations that provide comprehensive support services needed to run massive housing estates.

The larger associations incur substantial expenditure, which is passed on to the homeowners by way of monthly levies. Much of this expenditure is VAT leviable. There has always been much contention surrounding the VAT implications. Most believe it is better for the association to register, claim VAT input credits upfront and gradually recover them in VAT-leviable charges to homeowners.

Others say it is best for homeowner associations to stay outside the VAT system. This avoids VAT being levied to homeowners on labour costs and fuel — not to mention the stringent administration burdens of the Value-added Tax Act. In homeowner meetings, this debate can be as contentious as dogs fouling and parking facilities for visitors.

The debate is now finally settled by the 2013 tax amendments that render all homeowner associations’ services exempt from VAT. It makes all VAT disbursements irrecoverable disbursements. But there is a further sting in the tail.

VAT-registered associations will have to deregister for VAT, effective April 1. The deregistration of any VAT enterprise triggers a deemed supply of all the remaining assets determined at the lower of cost and market value as defined in the act. This potentially causes a last, substantial VAT liability that is softened only by a six-month payment plan with the South African Revenue Service.

It would have been far kinder if SARS had offered a 12- or 24-month payment option, but that would establish a precedent for all other VAT deregistrations and cannot be accommodated.

Depending on the financial status of the association, it may well be necessary for it to impose a special levy to recover the VAT liability.

Add that to the inevitable increased rates, insurance and energy costs on the way, and it is going to be a tough year for homeowners.

By Matthew Lester

Photo by: Sophie Smith 

Source: Sunday (Business) Times

Lester is a professor at the Rhodes Business School, Grahamstown


Source:  Sunday Times Business Section

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