Bodies Corporate are established under the Sectional Title Schemes Management Act No. 8 of 2011 to manage privately owned sections and common property within section title schemes, while Share Block Companies are established in terms of the Share Blocks Control Act No. 59 of 1980 which regulates its existence and operations.
Levy income received by Bodies Corporate and Share Block Companies is automatically exempt from income tax in terms of section 10(1)(e) of the Income Tax Act, although they remain obligated to register and file annual income tax returns.
In contrast to Bodies Corporate and Share Block Companies, an Association of Persons, established by adopting a legal founding document such as a constitution or memorandum of association, to manage the collective interests of its members and common property, do not automatically enjoy tax exemption. They may qualify for the levy exemption provided it meets SARS’ requirements. Examples of association of persons may include, but not limited to: Homeowners’ Associations, Property Associations and Resident’s Associations. An association of persons do not include companies, co-operatives, close corporations or trusts.
SARS Requirements
In terms of SARS recently updated Interpretation Note 64, for an association of persons such as Homeowners’ Associations to qualify for the relief in terms of section 10(1)(e) of the Income Tax Act, the association of persons must formally apply to the SARS Tax Exemption Unit and the Commissioner for SARS must be satisfied that:
- the association of persons was formed solely for purposes of managing the collective interests common to all its members, including expenditure on common immovable property and the collection of levies;
- the founding document prohibits distribution of funds to any person other than a similar association of persons; and
- that such association has not knowingly participated in, or permitted itself to be used in, any scheme designed primarily to reduce, postpone, or avoid tax liability.
In SARS Interpretation Note 64, SARS maintains that it has always been practice for association of persons such as Homeowners’ Associations etc. to apply for approval.
Exemption Approval
Failure by such association of persons to apply for exemption approval, may result in levy income being fully taxable.
Generally, the approval would apply from the date that the Commissioner for SARS issued the approval letter. Although the legislation does not prevent the Commissioner from approving the exemption retrospectively, SARS will consider each application on a case-by-case basis.
SARS now requires that tax exemption application be submitted through eFiling.
For any assistance with compliance related matters or facilitation of exemption applications to SARS, please contact your nearest PKF office.
