While, according to the Income Tax Act Section 10(1)(e), bodies corporate are exempt from paying income tax, body corporate tax compliance has become problematic in some instances, says Michael Bauer, general manager of property management company IHFM, in that many cases the overall tax affairs are not in order for the scheme.
The main issue, he said, is usually income tax, where an annual return has to be submitted, even if it is found that the body corporate has no income tax liability for that year, and many trustees are not aware of this requirement nor that the body corporate has to be registered as a tax payer.
The South African Revenue Service Income Tax interpretation notice number 64 (issue 3), which interprets Section 10 of the Income Tax Act, says: “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 TEU* 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.”
“Each body corporate must have trustee who is a public officer and this person becomes liable if the tax return is not submitted on time. It must also be noted that SARS wants a natural person as the tax officer and not a juristic person, so it one trustee in the scheme who will hold responsibility for this. Usually the managing agent cannot hold this position, but trustees do not want to do this either, which creates a problem for the scheme in question”, said Bauer.
“Another area of concern with regard to tax, is payroll tax”, he said. “Many bodies corporate might have employees where it would be simpler (administration-wise) to outsource the work to contractors. With the hiring of employees, often comes complications besides labour law matters with regards to taxes, workmen’s compensation, and UIF, firstly because someone will be responsible for completing the paperwork for this as well as the actual management of the staff member”, he said.
“Where a body corporate’s tax matters are not up to date or compliant”, said Bauer, “there will be penalties charged by SARS – which is a waste of much-needed resources and it would benefit the trustees a huge amount to ensure that the necessary work is done properly and on time each year. It will also be advisable for them to look at simplifying the running of their scheme by not hiring staff but rather finding companies who specialise in specific tasks, such as gardening, security, cleaning and maintenance, in order to eliminate having to deal with payroll matters”, said Bauer.
*“TEU” means the Tax Exemption Unit which is a dedicated office within SARS that deals with all applications by entities seeking exemption from income tax under section 10(1)(e)(i)(cc) on behalf of the Commissioner.