In terms of Section 10(1)(e) of the Income Tax Act, the levy income of a body corporate is exempt from income tax. The section also provides an exemption for a maximum amount of R50 000 for all the body corporate receipts and accruals other than levy income.
However, body corporate tax compliance has been a problem in some instances, says Michael Bauer, general manager of property management company IHFM.
“In many cases, the scheme’s overall tax affairs are not in order, with the main issue typically being income tax. Annual returns have to be submitted, even if it is found that the body corporate has no income tax liability for that year. Many trustees are not aware of this requirement nor that the body corporate has to be registered as a taxpayer," says Bauer.
Obligations
According to the South African Revenue Service (SARS) Income Tax interpretation notice number 64 (issue 3), which interprets Section 10 of the Income Tax Act: “A body corporate or share block company is not required to apply for exemption under section 10(1)(e)(i)(aa) or (bb) respectively.
“These entities are not registered at the tax exemption unit for income tax but are required to register at a branch office and submit annual income tax returns even if they are unlikely to have an income tax liability. The levy income exemption and the basic exemption are applied on assessment.”
Bauer says that each body corporate must have a trustee who is a public officer, and this person becomes liable if tax returns are not submitted on time.
“SARS wants a natural person as the tax officer and not a juristic person, so one trustee in the scheme will be responsible for this. Usually, the managing agent cannot hold this position, but trustees don’t want to be responsible for this either. This often creates problems for the scheme in question,” says Bauer.
Another area of concern is payroll tax. Body corporates might have employees such as caretakers or gardeners, whereas it would be simpler to outsource the work to contractors. Hiring employees often results in complications besides labour law matters when it comes to taxes, workmen’s compensation, and UIF. This is because someone will be responsible for completing the paperwork for this as well as managing the staff member.
Penalties
SARS will charge penalties if a body corporate’s tax matters are not up to date or compliant.
Bauer says this is a waste of much-needed resources, so trustees should ensure that the necessary work is done properly and on time each year.
“It will also be advisable to simplify the running of the scheme by appointing companies that specialise in specific tasks, such as gardening, security, cleaning and maintenance, to eliminate having to deal with payroll matters."
Writer: Sarah-Jane Meyer