Pursuant to the guidelines set out by the Ministry of Finance, Sandyport Homeowners Association is duly registered under the provisions of the Value Added Tax Act 2014 and effective January 1, 2015 all charges made by the Association shall be subject to VAT. A notice published on the Ministry of Finance website sets out the position concerning VAT as it relates to Homeowners’ Association fees as follows:
Amid increasing enquiries the Ministry of Finance explained today that maintenance fees for condominium and homeowners’ associations will be subject to VAT if the annual billings exceed the mandatory registration threshold of $100,000. For some associations this threshold may not be reached until property insurance services become VATable in July 2015. In such cases, mandatory registration would be put off for 6 months. The Ministry however encourages associations in this second category to register initially on a voluntary basis so that transparent billing practices can be followed from the outset.
An important advantage of registration is that condominium and home owners association would be able to issue VAT invoices to VAT registrants who use such properties as vacation rentals.
While homeowner associations operate on a non-profit basis, their services are of a cost recovery nature, just like common area maintenance charges on commercial rentals and leases. A spokesperson for the Ministry of Finance explained that “because of this, many associations will see little difference between the adjustment in maintenance fees billed and the change in VAT inclusive expenses charged to them by service providers. In these cases, the collection of VAT from homeowners, will match very closely the input credits that associations would be able to claim. There is no upside revenue potential for the Government.”
Associations could find however, that there is net revenue that must be paid to the government, if they directly employ a significant number of staff to provide homeowner services.
Unlike for profit operations, a business licence fee will not be imposed on homeowner associations. However, residential real estate held as an asset for investment/commercial purposes may be subject to business licence fees and VAT when used as vacation rentals.
The Ministry advises that the online system for VAT registration began on October 13. Applications for mandatory registration must be filed by November 30, 2014.