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Revisiting the tax liabilities of condominium corporations.

Condominiums continue to become an important part of the cityscape of the Philippines.

Just taking a walk in Manila, Makati or Bonifacio Global City shows us that there seems to be no end to the number of condominiums being built as the demand increases.

Managers of these newly opened condominiums should know what taxes must be paid by condominium corporations from their purchase and continued use.

For every individual purchase of a condominium unit, the condominium corporation must pay the corresponding income tax. Also, every year, real property tax will have to be paid to the local government unit, which has jurisdiction over the area where the property is located. This responsibility may eventually be transferred to the buyer of the unit.

With respect to the condominium corporation, there are some tax issues related to the collection from its members. A unit owner pays association dues and other fees to the building administrator of the condominium corporation for the maintenance and general improvement of the condominium building and facilities.

Should these sums be considered taxable income of the condominium corporation? Are they subject to income, withholding or value-added tax (VAT)?

The 2014 case of OfficeMetro versus Commissioner of Internal Revenue is instructive. In this case, the taxpayer, OfficeMetro, was assessed for deficiency in the payment of the expanded withholding tax for 2005. However, OfficeMetro asserted that these were actually payments of condominium dues and should not form part of the condominium's taxable income. It argued that the same should not be subject to withholding tax.

The Court of Tax Appeals (CTA) ruled that OfficeMetro was correct. Association or condominium dues, membership fees and other assessments collected from the members, or unit owners, which are merely held in trust and which are to be used solely for administrative expenses in implementing their purpose and from which the corporation could not realize any gain or profit as a result of their receipt thereof, must not be included part of the corporation's gross income.

In other words, if the payments are to be used for the maintenance and upkeep of condominium facilities and to raise the quality of life of the condominium occupants, they do not form part of the income of the condominium corporation. This means that a condominium corporation should not be subject to the aforementioned taxes.

This interpretation of the CTA has been integrated by the Bureau of Internal Revenue. Revenue Regulation 13-18, which implements the VAT provisions under the Tax Reform for Acceleration and Inclusion law, holds that association dues, membership fees collected on a purely reimbursement basis by homeowners' associations and condominium corporations shall be VAT exempt.

Taxes are the lifeblood of the nation. As such, we all must do our part. However, one must also be vigilant in paying only those taxes that one is obliged to pay.

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Publication:Business Mirror (Makati City, Philippines)
Geographic Code:9PHIL
Date:Nov 27, 2018
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