Taxable generosity

It has always been said that taxes are the lifeblood of the nation. A government will not survive without revenue raised from taxation. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it.

The Bureau of Internal Revenue (BIR), in an effort to keep this lifeblood flowing, had instituted several reforms this year to expand its tax base. One such reform was Revenue Memorandum Circular (RMC) No. 009-2013 dated Jan. 29, 2013, which subjects to income and value-added taxes, association dues, membership fees, and other assessments/charges collected by homeowners’ associations. The rationale behind this regulation is because associations furnish its members with benefits, advantages, and privileges in return for dues and fees, these payments should therefore form part of the associations’ gross income subject to income tax.   

This is a complete departure from previous interpretations whereby the BIR exempted the association dues and other assessments/charges from income taxes for the reason that they are merely held in trust to be used solely for administrative expenses in implementing its purposes i.e., to manage and maintain the homeowners’ associations. The BIR had, in the past, also given tax exemptions to associations as mutual aid associations.

In Circular 009-2013, the BIR stated that the tax exemption granted to associations under Republic Act (RA) No. 9904, otherwise known as the “Magna Carta for Homeowners and Homeowners’ Association”, is not automatic. Under the said Magna Carta, the government had allowed tax exemptions to associations in recognition for their contributions to the local governments by providing vital services to their members and in helping implement the local government programs and ordinances. 

With the issuance of Circular 009-2013, an association is now required to present documentary requirements before it can claim the tax exemption privilege under the Magna Carta. These documents shall consist of evidences showing that: the Association was constituted under the Magna Carta; that the Local Government Unit having jurisdiction of the association lacks the resources to provide basic community services and facilities; and lastly that the income and dues received by the association are used to provide the basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages.

In an effort to further regulate the tax exemption privileges given to associations, the BIR had recently issued RMC No. 53-2013 this  Aug. 14, 2013.  This circular clarified that for donations given to associations in exchange for goods and services, such contribution shall be treated for tax purposes, as assessments or fees which shall form part of the associations’ gross income subject to income tax and value-added tax. This is because technically, the contributions were not given in the nature of an endowment or donation but were fees given for the performance of a service or delivery of goods. The circular cites as examples, donations made by non-members for right-of- way stickers in the subdivision or toll fees for the maintenance of roads.

On the other hand, true donations or those which are gratuitous in nature, such contributions shall be subject to donor’s tax. The circular clarified that donations to associations is not exempt from donor’s tax as associations are not educational or charitable institutions. It further mentions that these donations must be covered by a Donor’s Tax Return. This return should be filed in triplicate by the person who made the donation within 30 days after the donation was made.

John Dominee A. Reyes is a supervisor from the tax group of Manabat Sanagutin & Co. (MS&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email [email protected] or [email protected]