Fort 26th Condominium Corporation

September 8, 2009 BIR RULING [DA-(C-195) 500-09] Section 105; DA-(VAT-019) 336-08, DA-304-04; DA-(VAT-068) 231-08; DA-(VAT-029) 224-08; DA-(C-074) 242-08 Fort 26th Condominium Corporation 312 26th Street, West corner 4th Avenue Bonifacio Global City Taguig City 1634 Attention: Ms. Gorgonia P. de Luna Member, Board of Trustees Gentlemen : This refers to your letter dated December 16, 2008 requesting exemption from value-added tax and income tax. It is represented that the Fort 26th Condominium Corporation with TIN 007-086-967-000 is a non-stock, non-profit taxpayer duly organized under Republic Act No. 4726, also known as the Condominium Act with SEC Registration No. CN200811677 dated July 25, 2008; that its only source of income is the association dues which are being used to carry on its daily operations, to pay for taxes and licenses and provide security for its tenant/members; that it is not engaged in the regular conduct or pursuit of a commercial or economic activity; and that its usual operation includes maintaining the building equipment and keeping up the cleanliness and orderliness of the common areas; and that the collection of charges for utilities are only a part of the total amount that the condominium corporation is actually paying and that they are only reimbursements of the tenants/members. In reply, please be informed that income earned by domestic corporations is subject to the thirty (30%) regular corporate income tax under Section 27 (A), as amended by Republic Act (R.A.) No. 9337. Nevertheless, collections being paid by unit owners for the maintenance of common areas of a condominium building is not subject to income tax since no income is generated therefrom. (BIR Ruling No. DA-126-00 dated February 24, 2000 and BIR Ruling DA-196-01 dated October 17, 2001). The receipts of condominium dues from the unit owners which are merely held in trust and which are to be used solely for administrative expenses, utilities and maintenance of the common areas for the benefit of the unit owners and from which Fort 26th Condominium Corporation could not realize any gain or profit are not includible in Fort 26th Condominium Corporation's gross income. Hence, the same is not subject to income tax and consequently to the EWT. (BIR Ruling No. DA-304-2004 dated June 2, 2004) Furthermore, the expenses which are incurred by the advancing party for the benefit and for the account of the party accommodated, can be considered reimbursable expenses not forming part of gross receipts of the advancing party subject to tax. Since the party seeking reimbursement does not sell, barter, exchange, nor lease any food or property and neither does it render any service to the party accommodated, the reimbursement transactions are not subject to the twelve percent (12%) VAT. (VAT Ruling No. 026-97 dated April 1, 1997) The mere collection of purely reimbursable costs billed, for instance, in the name of a client but collected through a broker or agent shall not be subject to the 12% VAT provided that such fact of reimbursement is clearly shown in the billing and/or official receipt (VAT Ruling No. 048-97 dated July 11, 1997) and being reimbursement of expenses without any mark-up or profit element (BIR Ruling No. 001-90 dated January 4, 1990) and not charges for services, should not be considered as part of gross receipt for purposes of the EWT. (BIR Ruling No. 129-92 dated April 20, 1992) In view of all the foregoing, this Office is of the considered opinion that receipts of mere reimbursements with no mark-up or profit element of utility charges paid in behalf and for the account of the tenants/members and not being charges for sale of goods or services, shall not form part of Fort 26th Condominium Corporation's gross income subject to the EWT and the 12% VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. cAHITS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service