Taxability of homeowner’s association and condominium cor - PowerPoint Presentation

Slide1

Taxability of homeowner’s association and condominium corporations(RMC 65-2012 & RMC 9-2013)Slide2

Association dues, membership fees & other charges

Condominium

It Constitute Income Payments or Compensation for Beneficial Services it Provides to its Members and Tenants. Hence, subject to:

Income Tax

√

Value Added Tax

√Slide3

Homeowner’s AssociationIt Constitute Income Payments or Compensation for Beneficial Services it Provides to its Members and Tenants. Hence, subject to:

Income Tax

√

Value Added Tax

√Slide4

RA 9904 -Magna

Carta

for Homeowners

and Homeowners

Association

Grants Tax Incentives

The homeowners association must be a duly constituted

“Association”

as defined under Section 3(b) of RA 9904;

The local government unit

(LGU)

having jurisdiction over the homeowners’ association must issue a

certification

identifying the basic services being rendered by the homeowners’ association and

stating its lack of resources to render such services Slide5

Grants Tax Incentives (cont

…)

that such services must fall within the purview of the

“basic community services and facilities”

those referring to services and facilities that redound to the benefit of all homeowners and from which, by reason of practicality, no homeowner may be excluded such as, but not limited to

security;

street and vicinity lights;

maintenance, repairs and cleaning of streets;

garbage collection and disposal; and

other similar services and facilities;Slide6

Grants Tax Incentives (cont

…)

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.Slide7

Policies on the issuance of tax exemption/rulings to qualified non-stock, non-profit corp., assoc. & hospitals

(RMC 76-2003, RMC 35-2012, RMC 4-2013, RMO 20-2013)Slide8

Non-stock, non-profit corporations

General Rule:

Exempt from payment of income tax on income tax on income received by them as such

organization

(Section 30 of the Tax Code of 1997)

Exemption to the Rule:

However, they are subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 on their income derived from any of their properties, real or personal, or any activity conducted for

profit regardless of the disposition thereof

(i.e. rentals from building/premises).Slide9

Non-stock, non-profit educational institutions

General Rule:

Exempt from payment of

internal revenue taxes imposed by the National Government on all revenues and assets used actually, directly and exclusively for educational purposes

(Paragraph 3, Section 4, Article XIV of the Constitution)

Exemption to the Rule:

However, they

shall be subject to internal revenue taxes on income from trade, business or other activity, the conduct

of which is not related to the exercise of performance by such educational institutions

of their educational purposes or functions (i.e. rental payment from their building/premises)Slide10

Bank Deposits (Final Tax of 20% or 7.5% FCD)

Corporation √

Educational Institution

X

Provided, that they shall on an annual basis submit to the Revenue District Office concerned an annual information return and duly audited financial statement together with the following:

Certification from depository banks as to the amount of interest income earned from passive investment

Certification of actual utilization of the said income

Board resolution by the school administration on proposed projects to be funded out of the money deposited before the 15

th

day of the fourth month following the end of its taxable year.Slide11

Recreational Clubs

Taxability

Income Tax

√

Value Added Tax

√

Intentionally omitted from the National Internal Revenue Code of 1997

“In the course of trade or business” means the regular conduct of pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization, or government entity.Slide12

Policies & guidelines in the issuance of tax exemption/ revalidation of exemption

Corporations and Associations –

issued with tax exemption rulings/ certificates

prior to June 30, 2012

shall file their respective Application for Tax Exemption/ Revalidation with RDO where they are registered.Slide13

Policies & guidelines in the issuance of tax exemption/ revalidation of exemption

General Requirements

A

pplication letter for issuance of Tax Exemption Ruling/ Certificate

Articles of Incorporation and By-Laws issued by SEC;

Certification under Oath by an executive officer

All amendments in the Articles of Incorporation and By-Laws

Manner of activities

Sources and disposition of income

COR with the BIRSlide14

Cont….

Certification

under Oath by the Treasurer as to the amount of income, compensation, salaries or any emoluments paid to trustees, officers and other

executives

Certification

issued by the RDO that the corporation or association is not subject of any pending

investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate; or if thereby any, the Original copy of the Certification issued by the RDO on the status thereofSlide15

Cont…

Income Tax Returns or Annual Information Returns and Financial Statements for the last 3 years

Statement

under oath by an executive officer as to its modus operandi which shall include:

Full description of the past, present, and proposed activities

Narrative description of anticipated receipts and contemplated expenditures

Detailed description of all revenues which it seeks to be exempted from income taxSlide16

Educational Institutions (Additional)

Government recognition/permit/accreditation CHED,

DepEd

, TESDA

Certificate of Operation/ Good Standing

Certificate of utilization of annual Revenues and Assets by the Treasurer. With the following breakdown:

Amount of cash or in kind paid or utilized to accomplish one or more purposes for which the educational institution was created or organized (grant scholarships & trainings of professionals)Slide17

Educational Institutions (Additional)

Amount

paid to acquire asset used

or

held for

use

(upgrading existing facilities)

Amount of cash or in kind invested in an activity related to the educational purposes

Amount set aside for specific project, which must be supported with Board Resolution (construction/improvement of school buildings) to be funded out of the money deposited in banks or placed in money markets on or before the 15

th

day of the fourth month following the end of its taxable year.Slide18

Validity of Tax Exemption Ruling – 3 years from the date of

effectivity

specified in the Ruling, unless sooner revoked or cancelled

.

Annual Information Return –

Failure to file shall automatically loses its income tax-exempt status beginning the taxable year for which it failed to file an AIF.

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