Condo dues not subject to tax – court

MANILA, Philippines - The Court of Tax Appeals (CTA) has ruled that condominium or association dues as well as other fees collected from unit owners are not subject to income tax and withholding tax.

The CTA issued this ruling in response to a petition lodged by Officemetro Philippines Inc. (formerly Regus Centres Inc.), appealing the deficiency income taxes imposed by the Bureau of Internal Revenue (BIR).

Officemetro leased out office spaces in the Enterprise Center in Makati City.

In its petition, Officemetro asserted that out of the reported rental of P63.11 million, the property services charges amounting to P8.85 million represent payments for condominium dues which are not taxable income of a condominium corporation and must therefore be excluded form the rental amount subject to expanded withholding tax (EWT).

“The court agrees with petitioner. Condominium dues billed to the company are not subject to EWT,” the ruling said.

“The BIR in its various rulings held that association or condominium dues, membership fees and other assessment or charges collected from the members, which are merely held in trust and which are to be used solely for administrative expenses in implementing their purposes to protect and safeguard the welfare of the owners, lessees and occupants, provide utilities and amenities for their members and from which the corporation could not realize any gain or profit as a result of their receipt thereof, must not be included in said corporation’s gross income,” the CTA said in a 21-page decision issued last June 3.

This means that the same are not subject to income tax and to withholding tax, the CTA said.

The BIR previously exempted condominium and homeowners associations from the payment of income tax and VAT. 

This was premised on the theory that the money collected was merely held in trust to be used for administrative expenses incurred in servicing members and does not constitute any sale of goods or rendition of service.

However, the government’s main tax collection agency reversed its previous position and ruled that a condominium corporation or homeowners association provides services and benefits to its members and thus, payments to it shall be considered as income and consequently, must be subject to tax.

Amid the uproar by several homeowners associations and property firms, the BIR has softened its stand on the collection of income and VAT out of the association dues, membership fees and other charges paid by condominium and homeowners associations.

Under Revenue Memorandum Circular No. 9-2013, dues and membership fees will not be taxed if the local government having jurisdiction over the homeowner associations will certify that it has either no or insufficient funds to cover basic services rendered by the homeowners to their members.

Condominium or homeowners associations must present proof that the dues and fees are used for “cleanliness, safety, security and other basic services needed by members.”

The homeowners organization must also be duly constituted as “association” as defined under Republic Act 9904 which grants tax incentives to homeowners associations.