Tax notes: Taxability of homeowners’ association dues

REVENUE Memorandum Circular (RMC) No. 9-2013 was issued by the Bureau of Internal Revenue (BIR) last Jan. 29, 2013 to clarify the taxability of association dues, membership fees, and other assessments/charges collected by homeowners’ associations from its homeowner-members and other entities.

Based on RMC 9-2013, the amounts paid in as dues or fees by homeowner-members of a homeowners’ association form part of the gross income of the latter subject to income tax. This is because a homeowners’ association furnishes its members with benefits, advantages, and privileges in return for such payments.

In addition, since a homeowners’ association is subject to income tax, income payments made to it are subject to applicable withholding taxes under existing regulations.

Moreover, RMC 9-2013 provides that association dues, membership fees, and other assessments/charges collected by a homeowners’ association are subject to value-added tax (VAT) since they constitute income payment or compensation for the beneficial services it provides to its homeowner-members.

However, Republic Act (R.A.) No. 9904, otherwise known as the “Magna Carta for Homeowners and Homeowners’ Associations”, grants tax incentives to homeowners’ associations subject to certain conditions. Under Section 18 thereof, the association dues and income derived from rentals of the homeowners’ association’s properties may be exempted from income tax, VAT and percentage tax subject to the following conditions:

1) The homeowners’ association must be a duly constituted “Association” as defined
under Section 3(b) of R.A. No. 9904;

2) The local government unit having jurisdiction over the homeowners’ association must issue a certification identifying the basic services rendered by the homeowners’ association and therein stating its lack of resources to render such services notwithstanding its clear mandate under applicable laws, rules and regulations; and

3) The homeowners’ association must present proof (i.e. financial statements) that the income and dues are used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages.