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

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

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 √

Homeowner’s Association It Constitute Income Payments or Compensation for Beneficial Services it Provides to its Members and Tenants. Hence, subject to: • Income Tax √ • Value Added Tax √

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

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;

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.

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)

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).

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)

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 15th day of the fourth month following the end of its taxable year.

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.

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.

Policies & guidelines in the issuance of tax exemption/ revalidation of exemption • General Requirements • Application 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 BIR

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 thereof

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 tax

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)

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 15th day of the fourth month following the end of its taxable year.

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. the end

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