Clarifying the Taxability of Donations given to Homeowners’ Association of Subdivisions and Villages

The Bureau of Internal Revenue, on August 16, 2013, issued Revenue Memorandum Circular (RMC) No. 53-2013, Clarifying the Taxability of Donations given to Homeowners’ Association of Subdivisions and Villages.  Contents of RMC No. 53-2013 are provided below.

The taxability of other assessments/charges collected by Homeowners’ Association had already been clarified in Revenue Memorandum Circular (RMC) No. 9-2013 dated January 29, 2013.  It has been observed, however, that Homeowners’ Associations (Associations) are receiving contributions from members and non-members as donations in exchange for goods, services or use of properties.  As such, this Circular is issued to clarify the taxability of donations to Associations of Subdivisions and Villages, as follows:

I. Valid Donation.

Subject to the compliance with the requisites of a valid donation under Articles 748 and 749 of the New Civil Code of the Philippines, all donations to Associations for tax purposes must be covered by Donor’s Tax Return (BIR Form No. 1800). This return shall be filed in triplicate by any person, natural or juridical, resident or non-resident, who transfers or causes to transfer property by gift. The return shall be filed within thirty (30) days after the date the gift (donation) was made.

II. Gratuitous Donations to Associations.

Gifts, donations, and other contributions received by the Associations are subject to the payment of donor’s tax pursuant to Sections 98 and 99 of the Tax Code, as amended.

Section 98 of the Tax Code, as amended, provides:

“Chapter II
Donor’s Tax

SECTION 98. Imposition of Tax. —
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the property by gift, a tax, computed as provided in Section 99.

(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible.”

Endowments or gifts received by such associations are not exempt from donor’s tax considering that gifts to Associations are not qualified for exemption under Section 101 (A) (3) of the Tax Code.

III. Onerous Donation or Donation in Exchange for Goods, Services or Use or Lease of Properties.

Article 733 of the New Civil Code provides that:

“Article 733. Donations with an onerous cause shall be governed by the rules on contracts and remuneratory donations by the provisions of the present Title as regards that portion which exceeds the value of the burden imposed. (622)”

Under the above provision, it can be inferred that donation with onerous cause is not strictly a donation since it is governed by the rules on contracts. Technically, the contributions are not given in the nature of an endowment or donation. Rather, the amounts are in the concept of a fee or price in exchange for the performance of a service, use of properties or delivery of an object.

Pursuant to RMC No. 9-2013, Associations are subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 on their income of whatever kind and character. However, they may be exempted from income tax, value added tax (VAT) and percentage tax derived from the association dues and rentals of its properties subject to the conditions under Section 18 of Republic Act No. (RA) 9904, as implemented by RMC No. 9-2013.

In this regard, contributions to associations in exchange for goods, services and use of properties constitute as other assessments/charges from activity in exchange for the performance of a service, use of properties or delivery of an object.  As such, these fees are income on the part of the associations that are subject to income tax under Section 27 of the Tax Code, as amended.

Further, considering that these fees are received in the conduct or pursuit of commercial or economic activity, these fees are also subject to value added tax (VAT) imposed in Sections 106 and 108 of the same Code.

Those exempt from the payment of VAT under Section 109 (v) (now (w)) are liable to pay percentage tax. Section 116 provides:

“SECTION 116. Tax on Persons Exempt from Value-added Tax (VAT). — Any person whose sales or receipts are exempt under Section 109(V) of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed.”

Example:

ABC Homeowner’s Association is collecting association dues, membership fees and other assessments/charges from its members. Likewise, it is accepting donations from non-members in exchange for stickers for the right of way in their subdivision road or toll fees for the maintenance of the road.

In this case, association dues, membership fees and other assessments/charges collected from the members and the donations from non-members are subject to income tax, and VAT or percentage tax, as the case may be.

All concerned are hereby enjoined to be guided accordingly and give this Circular as wide a publicity as possible.

This Circular shall take effect immediately.

(Original Signed)
KIM S. JACINTO-HENARES
Commissioner of Internal Revenue

Download BIR Revenue Memorandum Circular No. 53-2013, Here.

BIR tightens grip on donations, contributions to homeowners’ groups

Source: The Philippine Star

MANILA, Philippines – Tightening its grip on homeowners associations, the Bureau of Internal Revenues stressed that all gifts, donations and other contributions received by these non-profit corporations are subject to the payment of donor’s tax as required under the Tax Code.

The BIR issued Memorandum Circular 53-2013 to clarify the taxability of donations to associations of subdivisions and villages amid reports these organizations are receiving contributions from members and non-members in exchange for goods, services or use of properties.

BIR commissioner Kim Henares pointed out that association dues, membership fees and other assessments/charges collected from the members as well as the donations from non-members are subject to income tax and value added tax (VAT) or percentage tax as the case may be.

“Endowments or gifts received by such associations are not exempt from donor’s tax considering that the gifts to associations are not qualified for exemption under Sec. 101 of the Tax Code,” Henares said.

An appropriate tax will be levied, assessed and collected upon the transfer by any person, resident or non-resident of the property by gift.

The tax shall apply whether the transfer is in trust or otherwise and whether the property is real or personal, tangible or intangible, she said.

Henares said all donations to associations must be covered by Donor’s Tax Return (BIR Form 1800), which shall be filed in triplicate within 30 days after the donation was made.

Article 749 of the New Civil Code states that in order for a donation to be valid it must made in a public document specifying the property donated and the value of the charges which the donee must satisfy.

According to Henares, contributions to association in exchange for goods, services and use of properties constitute as other assessments/charges. As such, these fees are income on the part of the associations that are subject to income tax.

Considering that these fees are received in the conduct or pursuit of commercial or economic activity, these fees are also subject to value-added tax, Henares said.

However, those exempt from the payment of VAT are liable to pay a percentage tax which shall be equivalent to three percent of the gross quarterly sales or receipts.

Download BIR Revenue Memorandum Circular No. 53-2013, Here.

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