The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fears were expressed last night that home/property owners fees in gated communities and condo complexes could rise as much as 32 per cent with Value-Added Tax’s (VAT) implementation, one management company warning it would have “a big impact”.

James Owen, managing director of Seaview Management Services, which manages the affairs of 15 such communities, said his attorney had been advised by the Ministry of Finance that such common area maintenance (CAM) fees would attract VAT.

Expressing surprise at this, and suggesting that as non-profit organisations Homeowners Associations and Property Owners Associations (HOAs/POAs) should be treated as ‘exempt’ for VAT purposes, Mr Owen said few people appeared to have considered the implications of the Government’s current tax plans.

He suggested that rather than maintain a ‘reserve’ to finance special projects and upgrades, gated communities and condo complexes would now resort to levying ‘special assessment fees’ to fund this.

Apart from creating challenges for homeowners when it came to paying these one-off fees, Mr Owen said VAT would also discourage such communities from investing in their upkeep.

And he questioned whether gated communities/condos would be able to recover VAT paid on maintenance fees never received from delinquent homeowners, and whether their neighbours would effectively have to fund the tax payments on behalf of non-payers.

John Rolle, the Ministry of Finance’s financial secretary, did not respond before press time to Tribune Business e-mails and phone messages seeking clarification on whether VAT will be levied on homeowners fees.

Still, Mr Owen, in a November 6 letter to Tribune Business, said: “A large proportion of residents live in gated communities.

“We understand that it is being proposed that VAT at the standard rate be levied on the fees assessed to a home site.”

Acknowledging that this could not be 100 per cent confirmed until the VAT legislation, regulations and other accompanying documents were released to the public, Mr Owen suggested the new tax would have a ‘cascading’ effect for property owners in gated communities, with tax being paid on tax.

Taking a $150 monthly association fee as an example, Mr Owen said this would have to be increased by 15 per cent to compensate for the VAT charged to the Association by landscapers and other service providers.

This would increase the $150 fee to $172.50 and, with VAT also levied at 15 per cent on the homeowner, the total sum paid to the Property Owners Association would rise another $25.88 to a total $198.38.

This, Mr Owen said, would represent a 32.2 per cent fee increase to gated community property owners, even though the Association would be able to claim the VAT paid on its ‘inputs’ back, netting this off against what it paid to the Government.

“The cost of living for residents will increase by 32 per cent as a result of the increased costs from suppliers, and then the VAT levied on the increased Association fees needed to pay the new, increased supplier bills,” Mr Owen wrote.

“At a time when the Government is claiming that the public will not bear the costs of VAT, this one aspect of taxation will directly hit a large proportion of the general public, but have minimal positive revenue for the country.

“The negative impact on people’s disposable income, resulting in a decrease in the standard of living and an increase in the cost of living, must be avoided.”

Pointing out that homeowners and property owners’ associations were merely “a conduit for residents to pool resources to settle the affairs of the community”, and ‘added no value’ as they were non-profit organisations.

As such, he urged the Government to make such Associations VAT ‘exempt’, meaning that they would be able to reclaim the 15 per cent levied on bills submitted by the likes of landscapers, plumbers and gardeners.

This, though, would “mitigate” the impact of VAT-induced inflation.

In an interview with Tribune Business, Mr Owen said his attorney had confirmed, based on conversations with the Government, that property owner fees would attract VAT.

Noting that the 15 communities managed by his company covered “at least 1,000 homes”, he said that with at least 10 other firms in the same line of business as Seaview, it was likely the issue could affect around 10,000 Bahamian homes.

Mr Owen said his communities collectively generated around $5 million in Association fees annually, and said all VAT would do is impose an “inflationary burden” on gated community homeowners.

“It’s so obscure no one has thought about it,” Mr Owen told Tribune Business. “With the Government saying the public will not be affected, no one is paying it any mind.”

He added that this would likely impact business and employment levels at companies that served gated communities.

Mr Owen said VAT would deter Associations from saving for future expenditure on upgrades, causing them to either stop engaging in such activities, or deferring the financing to one-off special assessment fees.

In the latter case, homeowners would have difficulty in paying. And if it was the former, Mr Owen said: “It’ll stop communities investing, and have a knock-on effect on employment.”

Maintenance fee bills were sent out at different intervals depending on the community, with some sent monthly, and others quarterly, semi-annually or annually.

Mr Owen said most gated communities were now likely to issue annual bills come June 2013, so that VAT payments were deferred for at least one year.