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.