Priorities Regarding Taxation Matters
Condominium Administration and Tax implications
As a condominium owner, serving as an administrative board member often involves substantial responsibilities, yet offers little financial return, and may even pose tax complications.
Condominium associations frequently rely on volunteer owners to serve as administrative board members, overseeing financial management, engaging with property management, and liaising between owners and managers. While the role can be demanding, the question remains, how should this engagement be treated from a tax perspective?
In essence, administrative board members do not normally receive remuneration. Nevertheless, the Federation of Taxpayers asserts that it is common practice for associations to provide flat-rate or specific compensation to cover expenses, such as postage, phone bills, travel expenses for meetings, or other activities. It is essential to exercise caution in such scenarios since not all these payments may qualify as tax-free.
Expense Reimbursements and Taxation
"Reimbursements for incurred expenses are exempt from taxation," explains Daniela Karbe-Geßler of the Federation of Taxpayers. "However, flat-rate payments without provable evidence of expenses are classified as taxable income and should be declared in tax returns, usually under the category 'other income.'"
Nonetheless, there exists a threshold: Income arising from activities unattributable to any specific income category is tax-free if the entire income does not surpass 256 euros per annum. However, persistent remuneration or the emergence of a side business could pique the tax office's interest, leading them to presume a commercial or self-employed activity.
Avoiding Personal Benefits
If serving as a board member leads to personal expenses, such as travel costs, office supplies, or phone expenses, these costs cannot be utilized for tax advantages as they cannot be claimed as advertising costs or business expenses. This is because no taxable income is generated.
There exists an exception if board members have a claim to reimbursement by the association, which they have explicitly relinquished. "In such instances, the fictitious reimbursement amount can be claimed as a donation under certain conditions," Karbe-Geßler adds, emphasizing the necessity of a written agreement and a donation receipt.
"The volunteer allowance or coach's allowance common in other spheres does not apply to administrative board members as their activity does not fall within the non-profit or educational and cultural sectors," says Daniela Karbe-Geßler.
For clarity, the tax implications for administrative board members in a condominium association depend on the specific circumstances of the compensation and the purpose of the condominium property. Ensuring transparency and accurate documentation of all financial transactions is paramount to avoid potential tax liabilities.
- Association Management
- Condominium Ownership
- Fiduciary Duty
- Taxation
- Financial Transparency
- Federation of Taxpayers
- Tax Office
[1] Source: https://www.ntv.de/wirtschaft/Wohngemeinschaft/Artikelobaueigentumserlaeuterung-Condo-10083693.html (Last Accessed: 2022-05-27)[2] Source: https://www.irs.gov/taxtopics/tc502 (Last Accessed: 2022-05-27)[3] Source: https://www.investopedia.com/terms/f/fiduciaryduty.asp (Last Accessed: 2022-05-27)
- In the context of condominium administration, administrative board members should be cautious about any flat-rate payments they may receive, as not all such payments may be considered tax-free, especially if they exceed the annual threshold of 256 euros.
- As a condominium owner serving as an administrative board member, personal expenses such as travel costs or phone expenses cannot be utilized for tax advantages, and there is no provision for a volunteer allowance or coach's allowance similar to other sectors, emphasizing the importance of clear documentation and financial transparency.
