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Homeowner’s Associations (HOAs) play a crucial role in managing and maintaining shared spaces in residential communities. In South Africa, there are specific circumstances under which a HOA can claim Value Added Tax (VAT) on expenses.
Here we explore the conditions that allow a HOA to make VAT claims and provide insights for homeowners and association members.
The history of VAT
Chris Eagar, VAT practitioner at VATiQ points out that HOAs were once obligated to pay VAT. ‘In the past, sectional title developments in South Africa were managed by body corporates and their activities were exempt from VAT. However, HOAs weren’t part of this exemption, which was a surprise. Now, they’ve been brought under the same exemption under the VAT Act in Section 12. But this specific section allows the HOA to approach the Revenue Service to not be subject to this exemption.’
Paying VAT
To pay VAT the HOA needs to be registered for VAT and then incur certain costs where VAT is included. ‘The HOA would need to show that they either used, consumed, or supplied a taxable good – a taxable supply – from those costs. The HOA would need to be making a ‘supply’ for which they are getting paid as part of the business.
‘Normal levies aren’t subject to VAT unless the HOA has made an application to SARS, where they have proven this to be subject to VAT. Typically, anything that falls outside of the normal levy structure is likely to be subject to VAT, on the condition that the HOA has provided a taxable supply,’ explains Ettiene Retief, Chairman of the National Tax and SARS Committee at the South African Institute of Professional Accountants (SAIPA).
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What can HOAs claim VAT for?
- There may be various reasons why an HOA would need to register for VAT and claim this back.
- To make it financially viable, the HOA would need to provide a taxable supply to claim VAT.
Retief offers two examples: ‘Let’s say an HOA has installed solar panel systems and they then sell on that electricity. The selling of that electricity is now effectively a good, not a service, and therefore the HOA would be able to claim VAT on those costs.
To give another example, let’s say in that estate there’s a golf course facility, and included in that are things like green fees. These other add-ons would be considered taxable supplies. In that case, the costs that you incurred to supply those, you can claim the VAT. It is ultimately based on what the HOA is providing that determines if it is eligible to claim VAT.’
Funding capital expenditure
Eagar says the other reason an HOA may want to register for VAT is if the estate has a big capital expenditure that it needs to fund. ‘They may want to build a squash court, for instance, and may borrow to do so. They could then have the deduction on the capital outlay, which would reduce the costs by 15%.’
But Eagar warns that HOAs need to consider this carefully as levy income would then be subject to VAT too. ‘Levying payers may not be a fan of this though, however, the 15% funding could be a help. It would only make sense to register for VAT if you’re doing big construction projects on your estate,’ he adds.
How to register for VAT
HOAs can register for VAT with SARS. Retief adds: ‘To claim VAT when filing their returns, HOAs need to show that they have incurred input tax (a cost for which they have paid VAT), through documentation like a tax invoice, for a taxable supply they have made. They need to demonstrate to SARS that they have made a supply which they have either used, consumed, or supplied to their clients.’
Understanding the circumstances under which HOAs can claim VAT is essential for effective financial management. It’s important to maintain proper records and consult with tax professionals to ensure full compliance with South African tax laws. Doing this will ensure that HOAs continue to make informed decisions regarding VAT claims and allocate resources effectively to the benefit of the community.
