A home owners association neglected for many years to register for tax. When it eventually did so, the exemption unit refused to backdate the exemption registration to the date of formation of the association on the basis that Section 10(1)(e)(i)(cc) does
Important:
This answer is based on tax law for the year ending 28 February 2019.
Answer:
Home owners association:
We accept that the ‘taxpayer’ in this instance is any other association of persons (other than a company as defined in the Companies Act, any co-operative, close corporation and trust, but including a non-profit company as defined in that Act) from its members, where the Commissioner is satisfied that, subject to such conditions as he or she may deem necessary, such association of persons—
(A) has been formed solely for purposes of managing the collective interests common to all its members, which includes expenditure applicable to the common immovable property of such members and the collection of levies for which such members are liable; and
(B) is not permitted to distribute any of its funds to any person other than a similar association of persons:
See section 10(1)(e)(cc) of the Income Tax Act.
In terms of the current practice prevailing, dated 13 November 2018, such an association of persons must lodge an application with SARS to qualify for exemption from normal income tax. It is specifically stated there that “an association of persons will be fully taxable on all its receipts and accruals in the absence of approval by the Commissioner.”
We agree that the Act doesn’t allow for the approval by SARS to be given “with retrospective effect” as does section 30(3B) for instance do.
We are not sure why the entity didn’t make a voluntary disclosure to rectify the failure to register with SARS - it may well only have assisted with the penalties.