Homeowners’ groups, condos lose tax perks

THE Bureau of Internal Revenue (BIR) has removed tax perks of homeowners’ associations, condominium corporations and recreational clubs.

In an interview with Sun.Star Cebu, Punongbayan & Araullo (P&A) director for Cebu and Davao- Tax and Payroll Outsourcing Wendell Gahinhin said these establishments are now required to pay an income tax of 30 percent based on net income and a 12-percent value-added tax (VAT).

He said that although the Aquino administration stuck to its promise not to impose new taxes, the BIR recently released new interpretations of tax rules aimed at increasing revenue collection this year.

“President Aquino has kept his promise of no new taxes and BIR commissioner Kim Henares also kept her promise to plug loopholes by correcting wrong interpretations of tax rules and strictly enforcing these taxes to taxpayers,” said Gahinhin.

The BIR targets to raise P1.253 trillion this year, higher than its 2012 goal of P1.066 trillion.

Previous rulings of the BIR said the collection of association dues and other assessments/charges for condominium corporations and homeowners association is exempted from income tax because “it is merely held in trust to be used solely for administrative expenses in implementing its purpose and from which both could not realize any gain or profit.”

The association dues are also exempted from VAT because condominium corporations and homeowners association “do not sell, barter, exchange nor lease any goods or render any service for a fee but merely implements the administration of the required services to collect the association dues from the unit owners.”

But Gahinhin said the BIR clarified that these are wrong interpretations.

The BIR ruled that the amounts paid in as association dues or membership fees by members or tenants are “part of the gross income and are subject to income tax.”

Association dues, membership fees and other assessment or charges collected by the homeowners association and condominium corporate are subject to VAT “since they constitute compensation for the beneficial services it provides to its unit-owners, tenants, and homeowner-members.”

“While these would bring in changes to these establishments, on the other hand, the government can collect more taxes given the property boom in the country,” he said.

The BIR will also impose taxes on recreational clubs, he said.

It ruled that “clubs organized and operated exclusively for pleasure, recreation and non-profit purposes are subject to income tax and VAT on their income from whatever source, including but not limited to membership fees, assessment dues, rental income, and service fees.”

Gahinhin was one of the speakers during the Tax Update Seminar hosted by P&A in cooperation with Finex Cebu last Wednesday at the Harolds Hotel.

The seminar was attended by 100 participants from various corporations.

Gahinhin is confident that BIR would hit its collection target this year so long as it would remain aggressive in its tax enforcement, particularly on business establishments and individuals, specifically the three million professionals.

Gahinhin urged individuals and business establishments to declare and pay the right taxes so they could take advantage of the new investments coming in.

“Professionalizing the business is one way for them to take advantage of the new investments but part of professionalizing the business is compliance and paying the right taxes,” he said.

The increase of tax collection would translate to more infrastructure developments, job generation and helps uplift lives of ordinary people through improved basic services, Gahinhin said.