Theobligation to keep accounts falls within the competence of the statutory body. As a non-profit organisation, the SVJ keeps slightly different accounts from ordinary entrepreneurs and has a tailored chart of accounts, which also differs from the chart of accounts for entrepreneurs. The management of the accounts does not have to be carried out by the SVJ committee itself, but only ensures that they are properly maintained by an external accountant or management company. The committee must then ensure that the person in question has all the supporting documents necessary for keeping the accounts.
The HOA committee should regularly, i.e. at least once a year, provide the unit owners with information on how their property is managed. In essence, they are mainly accountable to them, as the accounts of the HOA are in most cases not of much interest to other authorities, such as the tax authorities, due to the minimal amount of tax returns filed (see below).
Nevertheless, for accounting errors (e.g. incorrectly kept accounts or not keeping accounts at all), SVJs are liable to fines of up to 6 % of the value of the assets of the SVJ.
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Approval of financial statements
Once a year, the summary information on the management in the form of annual accounts is submitted for approval by the committee or the chairman of the JVU.
The accounts shall consist of:
- the balance sheet,
- a profit and loss account (profit and loss account),
- an annex containing supplementary information.
The accounts shall be approved by the owners’ assembly. It shall be approved by a simple majority of the votes of the unit owners present, unless the statutes provide for a different qualified majority. The unit owners themselves are usually divided into two groups when voting. The larger group is happy to have someone manage their property for them, they trust their elected committee, and they will raise their hand for almost any form of financial statements. The smaller group of owners prefer to keep a close eye on their assets and check the items in the spreadsheets carefully. This is, of course, perfectly all right, unless they become the sort of hawkers who demand proof of every single postage bill.
Tip na článek
Tip: Avoid mistakes that can bring both bad relationships in your home and legal unpleasantness. The e-book How to Manage a HOA, which we have written, is a helping hand to the management and members of HOAs or housing associations. We have put in it 8 pieces of advice where our clients most often make mistakes.
Even for unit owners who are not familiar with accounting, the entries relating to the SVJ’s claims should be important, because if they are not recovered, they will become time-barred and it is possible that the other owners will end up sharing in their payment. A similar interest should be attached to the obligations of the HOA, for which the unit owners may also be legally liable.
Once approved, the financial statements should be published by depositing them in the collection of deeds.
Tip na článek
Tip: The collection of documents is an important part of the commercial register, where important documents related to the establishment and further functioning of business and other entities registered in the register are stored. What is required by law to be published and what are the penalties for violation? We have written about this in our blog article.
Audit of accounts and financial statements
The audit committee or auditor, if appointed, is authorised to re-audit the accounts.They will first of all check whether the accounts are kept correctly and in accordance with the Accounting Act, i.e. whether they are clear and complete, including all necessary supporting documents. The Commission must also be assisted by the JAC committee.
What about taxes and tax returns?
The vast majority of unit owners’ associations are not obliged to file a tax return. The decisive factor is whether the condominium has only non-taxable income, exempt income or income on which tax is withheld at a special tax rate. An HOA is not a business entity and does not typically have income that is subject to taxation. The majority of income is derived directly from unit owners for the management of the building and grounds. This income is not subject to tax.
The distinction between whether a particular income is income of the HOA or the individual owners and whether the HOA or the unit owner should be taxed is perhaps the most common error.
A classic example of such an error is the treatment of income from the rental of common areas – such as the rental of a former drying room where someone sets up his workshop. Here, it is typically the income of the individual co-owners from a legal perspective, as the HOA does not own the common parts of the building (although the owners may subsequently decide that the funds will be used within the HOA and may not even physically dispose of them themselves). They should still tax it themselves and reflect it in their tax returns.
Should the JVU dispose of income that is subject to income tax, then it has a duty to register and subsequently a duty to file a tax return . However, there is not much such income, for example: interest on deposits in the bank accounts of the HOA or interest on late payments and contractual penalties paid by third parties for breach of obligations under contracts negotiated by the HOA.
HOAs are not subject to VAT, so they are not subject to value added tax.
House management vs. supply of services
The two main areas that the accounts of the HOA deal with are the management of the house itself (cleaning, inspection of chimneys, ducts, insurance of the common parts of the house, bookkeeping, winter maintenance, etc.) and the supply of services for the housing, e.g. water, heat and electricity for the common housing.
Themanagement costs are considered to be the costs of the HOA, while the costs of the housing services are the costs of the unit owners. Management and service costs must logically be accounted for separately and in different ways. They will also be reported differently in the financial statements. The inclusion of some costs in the correct category is also assisted by the Government’s regulation on the regulation of certain matters relating to condominiums.
Thecosts of services (e.g. water, heat, electricity) are invoiced by the HOA to the service providers. They require the JUA to make ongoing advance payments, which are paid to the JUA by the unit owners. After the end of the accounting period, the advance payments from the owners are compared with the actual costs and on this basis, overpayments (which are paid to the owners) and underpayments (which are paid by the owners) are determined. Receivables and payables for services are also recognised in the balance sheet.