The Ministry of Finance said yesterday that maintenance fees for condominium and homeowners associations will be subject to value-added tax (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 VAT-able in July 2015.
In such cases, mandatory registration would be put off for six months.
The ministry encouraged 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 homeowners associations would be able to issue VAT invoices to VAT registrants who use such properties as vacation rentals, the ministry said.
While homeowners 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, the spokesperson said.
Associations might 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, business license fees will not be imposed on homeowner associations. However, residential real estate held as assets for investment/commercial purposes may be subject to business license 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.
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