Homeowner groups get breaks: Revenue agency sets conditions for tax exemptions

The income of homeowners’ associations may be subject to levies, but the Bureau of Internal Revenue has set conditions on how the groups may be exempted from various taxes.

In particular, the BIR is referring to associations’ revenue from homeowner-members’ dues and fees, rental of properties, and other charges to members and other entities.

In Revenue Memorandum Circular No. 9-2013, issued last Jan. 29, the BIR noted that under Republic Act No. 9904—or the Magna Carta for homeowners and homeowners’ associations—homeowners’ associations could be exempted from tax dues and rental income, subject to certain conditions.

Such income “forms part of the gross income of the [association], subject to income tax [and withholding tax],” the memo said. “This is because a homeowners’ association furnishes its members with benefits, advantages and privileges in return for such payments.”

The BIR mentions this to underscore that it would no longer regard association revenues as funds merely held in trust by concerned homeowners’ groups.

The revenue agency said that association revenues are subject to the value-added tax or subject to the percentage tax.

One of three conditions that the BIR cited as bases for exemption is that the association must exist as defined by the magna carta.

The law states that a homeowners’ association must be a non-stock, non-profit corporation registered with the Securities and Exchange Commission and the Housing and Land Use Regulatory Board, or previously with the Home Guaranty Corp., formerly the Home Insurance Guarantee Corp.

Also, an association is one that is organized by owners or buyers of a lot in a subdivision or by underprivileged and homeless citizens—as defined by law—who are in the process of gaining or who have gained ownership rights under various government programs related to socialized housing.

A second basis of exemption from taxes is when an association, as certified by the local government unit concerned, lacks the resources to provide its members basic community services and facilities such as security; street and vicinity lights; maintenance, repairs and cleaning of streets; and collection and disposal of garbage.

Third is that the association must show proof—like financial statements—that its revenues are used for basic community services and facilities.