Do Homeowners' Associations Pay Income Tax on Clubhouse Rentals and Other Non-Member Income?

Homeowners’ and condominium associations can generally exempt dues spent on basic member services from income tax under RA 9904 Section 18, but income from non-members — clubhouse or function hall rentals to outsiders, leased commercial space, interest, or similar receipts — stays subject to regular income tax and, depending on gross receipts, VAT or percentage tax. The dues exemption follows the purpose of the money, not the association’s identity as a whole, so a village clubhouse booked out for a stranger’s wedding does not inherit the same tax-free status as the monthly dues that pay the guards.

Why dues and non-member income get different tax treatment #

Dues and non-member income are taxed by looking at what the money is for and who paid it, not by treating the association as a single tax-exempt entity. Revenue Memorandum Circular (RMC) No. 9-2013 and Republic Act (RA) No. 9904 set a conditional exemption specifically for dues homeowners pay for their own basic services; income the association earns from outside parties or unrelated commercial activity was never inside that exemption to begin with, because it isn’t a member funding shared upkeep — it’s a third party paying for something the association is selling.

This site has two companion posts that cover the dues side of this question in depth:

• Are Homeowners’ Association and Condominium Dues Subject to VAT? — whether monthly member dues themselves trigger VAT or percentage tax.
• Are Condominium Association Dues Subject to BIR Income Tax? What the Supreme Court Actually Ruled — whether member dues trigger income tax, including the Supreme Court’s 2020 ruling on condominium corporations.

Both of those posts answer the dues question. This post picks up where they leave off: what happens when the same association also earns money from people who are not members.

What counts as non-member income for an HOA or condo corporation #

Non-member income is any receipt that does not come from a member’s own dues, fee, or assessment used for the association’s basic services — it is money paid by an outsider, or earned from an activity that is commercial rather than cost-sharing among owners. Common examples for a Philippine village or condominium association include:

• Renting the clubhouse, function hall, multipurpose court, or swimming pool to non-member families or outside groups for private events.
• Leasing out commercial or retail space the association owns (a ground-floor unit, a small store, an ATM slot) to a tenant.
• Charging parking or facility-use fees to non-residents or visitors, distinct from resident parking covered by dues.
• Interest income earned on the association’s bank deposits or investments.
• Advertising or sponsorship fees, such as a billboard or signage placed on association property.
• Running a canteen, sari-sari store, or similar concession open to the general public rather than only to members.

None of these involve a member paying the association for the association’s own basic upkeep of common areas — the defining feature of the dues the RA 9904 exemption route was built for.

The practical test: basic member services versus commercial activity #

The dividing line is simple to state and worth applying line by line to an association’s books: money collected from members and actually spent on cleanliness, safety, security, and common-facility maintenance can qualify for the RA 9904 exemption; money earned from anyone else, or spent on anything beyond those basic services, is ordinary taxable income. The table below applies that test to typical association receipts.

What RMC No. 9-2013 actually established #

RMC No. 9-2013, issued January 29, 2013, is the circular that set the baseline rule the industry still works from: homeowners’ association dues are, by default, treated as income to the association because they pay for services the association renders to members, not merely funds the association holds for owners. The circular abandoned the BIR’s older position that dues were simply held in trust for the homeowners. As quoted in ForeclosurePhilippines.com’s coverage of the circular (the BIR’s own RMC text was not independently accessible for this article, so treat this as a secondary-sourced quote rather than a primary-document confirmation):

“The previous interpretation that the assessment dues are funds which are merely held in trust by a homeowners’ association lacks legal basis and is hereby abandoned.”

— RMC No. 9-2013, as quoted in ForeclosurePhilippines.com’s summary of the circular

That default — dues are taxable unless the RA 9904 Section 18 conditions are met — is the subject of the two companion posts linked above. What RMC No. 9-2013 does not do is create any separate exemption for income the association earns from non-members; that income was already commercial in character under ordinary income tax principles, independent of how the dues question gets resolved.

Worked example: renting the clubhouse for private events #

A concrete example shows how the non-member portion of an association’s income gets taxed even when its member dues are properly exempt. Assume Mahogany Grove Homeowners’ Association, a duly registered RA 9904 association that meets the Section 18 conditions on its dues, also rents out its clubhouse to non-member families for private events.

• Rental fee: P15,000 per event.
• Bookings: roughly 20 events per year (about 1–2 per month).
• Annual non-member rental income: P15,000 × 20 = P300,000.

This P300,000 is not a due paid by a member for shared upkeep — it is a fee an outside family pays to use association property for its own private purpose. Even though Mahogany Grove’s separate P1,200 monthly member dues (used entirely for guards, garbage collection, and common-area maintenance, backed by an LGU certification and audited financial statements) qualify for the RA 9904 Section 18 exemption, the clubhouse rental income does not ride along on that exemption. Because P300,000 is well below the P3,000,000 VAT registration threshold under Section 236(F) of the National Internal Revenue Code (NIRC), Mahogany Grove — assuming it is not otherwise VAT-registered — would generally remit the 3% percentage tax under NIRC Section 116 on this rental income rather than VAT, filed quarterly on BIR Form 2551Q. The P300,000 is also reportable as part of the association’s taxable income on its annual income tax return, BIR Form 1702-RT, subject to the regular corporate income tax rate under Section 27(A) of the NIRC as amended by the CREATE Act (RA 11534) — 25%, or 20% if the association’s net taxable income does not exceed P5,000,000 and its total assets (excluding land) do not exceed P100,000,000.

Two practical steps follow from this. First, Mahogany Grove should issue a separate official receipt for each clubhouse booking, distinct from its dues receipts, so its books clearly separate the exempt dues stream from the taxable rental stream — the same financial-statement discipline that RA 9904 Section 18 already requires for the dues exemption claim. Second, if the association pays a third-party caterer, sound-and-light supplier, or events coordinator for setup work tied to a paid booking, and that payment is subject to expanded withholding tax, the association — as the withholding agent — issues BIR Form 2307 to that contractor as proof of the tax withheld, the same certificate covered in How to Claim CWT Credit With BIR Form 2307.

Frequently asked questions #

If a homeowners’ association’s dues are tax-exempt, is all of its income exempt? #

No. Exemption under Section 18 of Republic Act No. 9904 covers association dues and fees that the homeowners’ association actually spends on basic member services — cleanliness, safety, security, and maintenance of common facilities. Income the association earns from other sources, such as renting the clubhouse to non-members or leasing commercial space, is a separate stream that is generally taxable regardless of whether the dues portion qualifies for exemption.

Is rental income from renting out a clubhouse or function hall to non-members taxable? #

Yes. When a homeowners’ or condominium association rents its clubhouse, function hall, or similar facility to outside parties who are not members, the fee is commercial rental income rather than a member due spent on basic services. It is subject to regular income tax, and to VAT or percentage tax depending on the association’s registration status and gross receipts, in the same way rental income from any other property owner is taxed.

What BIR form does a homeowners’ association use to report non-member rental income? #

A homeowners’ association organized as a nonstock corporation generally reports its taxable non-member income, such as clubhouse rental fees, on its annual income tax return (BIR Form 1702-RT for entities subject to the regular corporate income tax rate). If the association is not VAT-registered and its gross receipts from taxable activities stay below the VAT threshold, it typically remits percentage tax quarterly on BIR Form 2551Q instead of VAT; a VAT-registered association files BIR Form 2550Q or 2550M instead.

Does a homeowners’ association need to register as VAT if it rents its clubhouse regularly? #

Only if its gross receipts from taxable, non-exempt activities — including clubhouse rentals and other non-member income — exceed the VAT registration threshold under Section 236(F) of the National Internal Revenue Code, currently P3,000,000 in a 12-month period. Below that threshold, the association is generally subject to the 3% percentage tax under Section 116 instead of VAT, unless it voluntarily registers for VAT.

Should a homeowners’ association keep clubhouse rental income separate from dues in its books? #

Yes. Because dues used for basic member services and non-member rental income receive different tax treatment, an association should record and receipt them separately — issuing distinct official receipts for rental bookings versus dues collections — so its financial statements can support both the RA 9904 Section 18 exemption claim on dues and the correct tax return for the taxable rental income.

Summary #

A homeowners’ or condominium association’s tax exposure is not all-or-nothing. Dues a member pays that the association actually spends on basic services — cleanliness, safety, security, common-facility upkeep — can qualify for the RA 9904 Section 18 exemption route described in RMC No. 9-2013, as covered in the two companion posts on this site. Income the association earns from anyone else — clubhouse or function hall rentals to non-members, leased commercial space, interest, or similar receipts — sits outside that exemption and is generally taxable in the ordinary way: regular corporate income tax on BIR Form 1702-RT, plus percentage tax on BIR Form 2551Q below the VAT threshold or VAT above it. An association that books out its clubhouse regularly should keep that income separately receipted and reported from its dues, and confirm its specific filing obligations with a tax professional as its non-member income grows. For the general VAT threshold this rental income is measured against, see VAT Registration Threshold in the Philippines; for the broader exemption list this sits alongside, see VAT-Exempt Transactions Under NIRC Section 109.