As a not for profit organisation, residential property management companies can apply to the Revenue Commissioners, on an annual basis, for a concession from completion and submission of a Corporation Tax Return Form CT1. While these companies may not be required to complete a Corporation Tax Return, it is important to note that they are not exempt from Corporation Tax.
How to claim a concession from submitting a Corporation Tax Return Form CT1
In order to claim the above concession residential property management companies should write, each year, to the Revenue Commissioners confirming the following:
- The only income received by the company are the service charges paid by the property owners.
- The income is expended on the day to day maintenance and management of the complex.
- Surplus income is transferred to deferred income for future maintenance expenses.
- No deposit interest is earned in the year.
Once you have submitted the above letter you should receive a response from the Revenue Commissioners confirming that they have treated your return for the relevant period as “not required”.
Sinking Funds and their impact on the concession from submitting a Corporation Tax Return
With the introduction of the Multi-Unit Development (MUD) Act 2011, all management companies are now required to establish a sinking fund and each unit owner is obliged to make a fixed annual contribution to the sinking fund. The amount of the contribution may be agreed at a meeting of the members in respect of each year, however if such an amount is not agreed, the MUD Act outlines that a contribution of €200 per unit is to be applied. It is therefore important for management companies to agree the amount of the sinking fund contribution with its members. The MUD Act also outlines that any amounts received by the management company in respect of the sinking fund are to be held in a separate bank account, to ensure that the funds are easily identifiable as belonging to the sinking fund and these amounts are only to be expended on the following non-routine expenditure:
- Refurbishment
- Improvement
- Maintenance of a non-recurring nature
- Advice from a suitably qualified person in relation to points one and two.
As you would expect, many management companies have established a deposit account in which sinking fund contributions are held in order to avail of deposit interest. However, this will have an implication in relation to the concession from submitting a Corporation Tax Return, which many management companies have been claiming. You will note from above, when writing to the Revenue Commissioners, one of the confirmations which the management company is required to provide is that they did not earn deposit interest. With the introduction of the sinking fund this may no longer be the case as interest will now be earned on the amounts held in the sinking fund deposit account. Based on correspondence which we have received from Revenue Commissioners in recent years we note that the concession from submitting a Corporation Tax Return is only available where the tax liability on interest earned is €30 or less, which is quite low considering that some management companies could now be holding significant amounts of money in sinking fund deposit accounts. Therefore, as interest is taxed at 25%, interest earned in excess of €119 per annum would incur a tax liability of €30 and therefore a Corporation Tax Return Form CT 1 would be required to be submitted by the management company.
Corporation Tax Returns
If the above is the case, Corporation Tax Returns are required to be completed, submitted and paid on the 21st of the ninth month following the year end. For example, a management company with a year end of 31st December 2014 would be required to complete, submit and pay Corporation Tax on or before 21st September 2015.
Preliminary Corporation Tax
In addition, if the management company is subject to Corporation Tax a preliminary tax return would be required to be submitted on or before the 21st of the month preceding the accounting year end. Again, taking the above example, a company with a year end of 31st December 2014, would be required to make a Preliminary Corporation Tax return on or before 21st November 2014. It is important for management companies to review the deposit interest earned to determine if they will be required to complete a Corporation Tax Return. As with all other limited companies, management companies must keep their tax affairs up to date and to ensure that all relevant returns are submitted and paid on or before the relevant deadline. The introduction of the requirement to establish a sinking fund may impact on a management company as their ability to claim a concession in relation to submitting a Corporation Tax return may no longer apply and this must be addressed.
