In summary, the old practice note 8 that SARS used to tax community schemes on has been replaced with ID 64 and, in essence, the major change to the taxation policy has been the removal of the need for a community scheme taxpayer to submit provisional tax returns, irrespective of whether or not the community scheme would be paying tax or not. Any tax payable is paid after an assessment is made by SARS, based on the application of the provisions as set out in ID 64.

As stated previously, the tax rate applied is the applicable tax rate for companies, which is currently 28%. There is a deduction formula that is specified, but expenses relative to exempt income may not be deducted from the taxable income that has been determined as taxable in terms of ID 64.

SARS sets out a detailed example of how the tax computation and deduction formula works in practice in ID 64, an extract from which we include below.

It can be argued that where a body corporate incurs direct expenses in the production of income, such as levies paid on a body corporate-owned flat that is let out, these may also be deducted from the taxable income. Other expenses, such as commissions to rental agents if applicable or any repairs and maintenance, could also be deducted if accurate records have been maintained.

The scheme must have accurate records of direct and indirect expenses. Those incurred directly in the production of the scheme’s taxable income are fully deductible. Increases in direct expenses must be calculated in the same ratio that the scheme’s expenses have increased as a result of the extra taxable income compared to total income or by some other meaningful or fair method. In these instances and where there is uncertainty, it is often best to approach SARS for a non-binding private ruling.

In looking at other taxes, donations tax is specifically exempt under ID 64 and Capital Gains tax would only be payable under very specific conditions, usually involving share block company conversions and shareholders rights of use and occupation. Secondary tax on companies has recently been replaced with dividends tax, which became operational on 1 April 2012 and here too it seems that there will be no or very few reasons for any of this form of tax to be payable in the community schemes environment.

In summary, and contrary to some published opinions; a community scheme must register as a taxpayer. Compliance is now easier and seemingly less expensive. The current method of taxing community schemes means that, for many, no tax is payable.