Accounting for expenditure on the acquisition of low-value assets in tax costs

Tax payers undoubtedly see the change in the limits of the value of both the corporate income tax law 1 , as well as the Personal Income Tax Act 2 , resulting in certain depreciation obligations. The result of the changes is an increase in the existing 31 December 2017 limit of 3,500 PLN to 10,000 PLN. Tax payers may choose different ways of dealing with the acquisition or production of low-value assets.

Introduction

From 1 January 2018 the regulations on depreciation of fixed assets have been amended.

Content Article 2(21) Act amending the Personal Income Tax Act, the Corporate Income Tax Act and the Act on flat-rate income tax on certain revenues generated by individuals (hereinafter: amendment of the Act) – amount 3,500 PLN (indicated in Article 16d(1), Article 16e(1)(2), Article 16f(3), Article 16g(13) and Article 16k(9) (u.p.d.o.p.) replaced by 10,000 PLN.

The same solution on the basis of regulations u.p.d.o.f. expresses disposition Article 1(10) amendments to the laws relating to Article 22d(1), Article 22e(1)(2), Article 22f(3), Article 22g(17) and Article 22k(9) u.p.d.o.f.

This limit is applicable to:

1. failure to make depreciations whose initial value does not exceed 10,000 PLN (Article 16d(1) u.p.d.o.p., Article 22d(1) u.p.d.o.f.),
2. an obligation to include in fixed assets an acquired or created asset with an initial value exceeding 10,000 PLN, which, due to the expected duration of use, was not originally included in fixed assets or intangible assets (hereinafter referred to as ‘the CLP’), Article 16e(1)(2) u.p.d.o.p., Article 22e(1)(2) u.p.d.o.f.),
3. the possibility to make a one-off depreciation write-off during the month of putting into service a fixed asset or a WNiP where the initial value of such a fixed asset is equal to or lower than 10,000 PLN (Article 16f(3) u.p.d.o.p., Article 22f(3) u.p.d.o.f.),
4. non-qualifications of expenditure incurred as an improvement of a fixed asset if the value of such expenditure (including expenditure on acquisition of component parts or peripherals) does not exceed 10,000 PLN (Article 16g(13) u.p.d.o.p., Article 22g(17) u.p.d.o.f.),
5. exemption for the establishment of a one-off depreciation limit for the taxable person in the tax year made under conditions Article 16k(7) u.p.d.o.p. (Article 22k(7) u.p.d.o.f.), fixed assets of an initial value not exceeding 10,000 PLN (Article 16k(9) u.p.d.o.p., Article 22k(9) u.p.d.o.f.).

Acquisition or production of low-value assets

From regulation Article 16a(1) U.p.d.o.p. and Article 22a(1) u.p.d.o.f. results in a rule in the light of which depreciation is subject to (subject respectively to Article 16c u.p.d.o.p. and Article 22c (u.p.d.o.f.) owned or co-owned by the taxable person, acquired or produced in his own right, complete and fit for use on the date of acceptance:

• 1) buildings, buildings and premises owned separately,
• 2) machinery, equipment and means of transport,

1. other objects with an estimated period of use of more than one year, used by the taxable person for the purposes of his economic activity or put into use under a lease, lease or lease contract (as defined in Article 17a(1) u.p.d.o.p. and Article 23a(1) u.p.d.o.f., called durables. Regulation Article 16b(1) u.p.d.o.p. (Article 22b(1) u.p.d.o.f.) establishes the WNiP directory to be amortised. In the context of this issue, reference should be made to solutions that provide for simplified models of conduct, which are appropriate in situations where the amortisation (permanent measure or WNiP) is a low-priced asset. In the legal state since 1 January 2018 its initial value does not exceed 10,000 PLN. Accordingly, taxpayers (both CIT and PIT ) can choose different available models of handling such assets.

The following solutions are acceptable here:

1. failure to make depreciation write-offs and as a result, according to Article 16d(1) u.p.d.o.p. (Article 22d(1) (u.p.d.o.f.) a one-time recognition in tax costs of expenditure incurred in the acquisition or production of an asset in the month of putting it into service;
2. making depreciation off of low-value assets subject to depreciation. In this option, taxpayers may make depreciation write-offs:

(a) according to general principles (i.e. according to regulations) Article 16h-16m u.p.d.o.p., Article 22h-22m u.p.d.o.f.)

either

(b) at one time in the month of putting into service this fixed measure or the CIS or in the following month.

For the record, to the end 2017 those arrangements were only possible for assets whose initial value did not exceed 3,500 PLN. It should also be pointed out that the one-off crediting of the expenditure in question to the tax costs (if the asset is not included in the fixed assets to be depreciated) or the one-off depreciation of a fixed asset (WPI) to be depreciated on the basis of the above-mentioned regulations, appropriate to the low-value assets, is the right, not the duty of the taxpayer.

In analysing these solutions, it is also worth noting that from 12 August 2017 to u.p.d.o.p. and u.p.d.o.f. (as a result of the entry into force of the amendments to the laws), regulations were introduced to allow for a one-off tax depreciation in respect of pre-purchased new fixed assets included in the group 3-6 and 8 KST .

Subject to Article 16k(14) u.p.d.o.p.

(Article 22k(14) (u.p.d.o.f.) taxpayers may make one-off depreciation write-offs from the initial value of such fixed assets in the tax year in which the measures were entered in the accounts of fixed assets and of the General Tax Code, up to an amount not exceeding the amount in the tax year 100,000 PLN.

However, only fixed assets meeting the required requirements are covered by this solution (not applicable to CHP) and additional conditions are required to meet the minimum initial value of such a one-off asset. Appropriately, in light Article 16k(15) u.p.d.o.p. (Article 22k(15) u.p.d.o.f.), Article 16k(14) u.p.d.o.p.

(Article 22k(14) (u.p.d.o.f.) shall apply provided that: 1) baseline one the fixed measure referred to in Article 16k(14) u.p.d.o.p. (Article 22k(14) (u.p.d.o.f.) acquired during the tax year shall be at least 10,000 PLN or 2) total starting value at least two fixed assets referred to in Article 16k(14) u.p.d.o.p.

(Article 22k(14) (u.p.d.o.f.) acquired during the tax year shall be at least 10,000 PLN, and the initial value of each of them exceeds 3,500 PLN.

To 31 December 2017 We have faced a certain gap in certain depreciation situations. On the one hand, taxpayers could not absorb a fixed measure or be classified as expenditure tax costs if the value of the acquired asset (which fulfilled the conditions of its one-off depreciation from Article 16k(14) U.p.d.o.p., respectively Article 22k(14) u.p.d.o.f.) exceeded 3,500 PLN.

Only if the initial value of the purchased, pre-paid new and included 3-6 and 8 Classification of Persistent Measures 4 (( c ) the fixed asset was at least 10,000 PLN, is based on regulation Article 16k(14) u.p.d.o.p. (Article 22k(14) (u.p.d.o.f.) within the limits of the set annual limit, a one-off depreciation copy could be made.

Regardless of these solutions for small taxpayers and start-ups, one-off depreciation within the annual limit was also available 50,000 EUR. However, it should be remembered that according to the content Article 11 amendments to laws, changes in regulations Article 16d(1) and Article 16f(3) u.p.d.o.p. (Article 22d(1) and Article 22f(3) (u.p.d.o.f.) shall apply to assets accepted for use after 31 December 2017

Reclassification into fixed assets of assets originally not recognised as fixed assets

Increase from 3,500 PLN to 10,000 PLN the amount of the limit to be applied under the depreciation provisions shall also be relevant for assets which fulfil the conditions for their recognition as being amortised fixed assets, or to the CIS, which, due to the estimated period of use equal to or less than one year, have not been included in fixed assets or in the CIS.

As a rule resulting from Article 16e(1) u.p.d.o.p. (Article 22e(1) (u.p.d.o.f.), if the actual period of use of the assets exceeds one year, taxpayers shall be liable, in first the month following the month in which that year expired, to make detailed corrections to the previous accounts, which are related to the obligation to charge such an asset to fixed assets (in NiP, respectively), to reduce the cost of obtaining revenue, to apply the depreciation rate and to pay interest to the tax office.

The adjustment design itself Article 16e(1-3) u.p.d.o.p. (Article 22e(1-3) u.p.d.o.f.) has not changed, but in the legal state since 1 January 2018 These provisions apply to assets (fixed assets, WNiP) with an initial value exceeding 10,000 PLN.

However, it is necessary to draw attention to transitional regulations in force in this area (Article 11 amendments to laws), which indicate, among other things, that changes in regulation Article 16e(1)(2) u.p.d.o.p. (Article 22e(1)(2) (u.p.d.o.f.) shall apply to assets accepted for use after 31 December 2017

Improvement of the permanent measure

Another issue worth paying attention to is improving fixed assets. As shown by Article 16g(13) u.p.d.o.p.

(Article 22g(17) where the fixed assets have been improved as a result of reconstruction, expansion, reconstruction, adaptation or modernisation, the initial value of these measures shall be increased by the sum of the expenditure on improvement, including expenditure on the acquisition of components or peripherals whose unit purchase price exceeds 10,000 PLN.

Fixed assets shall be considered to be improved when the sum of the expenditure incurred for their reconstruction, extension, reconstruction, adaptation or modernisation in a given tax year exceeds 10,000 PLN and these expenditures result in an increase in the useful value in relation to the value on the date of the adoption of fixed assets for use, measured in particular by the period of use, capacity, quality of products obtained through improved fixed assets and the costs of their operation.

In the context of regulation Article 16g(13) u.p.d.o.p. (Article 22g(17) u.p.d.o.f.) should be noted that still to the end 2017 the indicators of the valuation of the fixed-term expenditure as an improvement were 3,500 PLN. Increase in their value to the present amount 10,000 PLN leads to a conclusion in the light of which:

• 1) expenditure incurred in the acquisition of component parts or peripheral fixed assets whose unit purchase price does not exceed 10,000 PLN, or
• 2) the sum deemed to be an improvement in the expenditure incurred for the reconstruction, extension, reconstruction, adaptation or modernisation of the permanent measure in the tax year concerned does not exceed 10,000 PLN

• these contributions will not constitute an improvement of such an asset and thus will not lead to an increase in the initial value of the fixed asset, understood as the basis for the depreciation deductions. Consequently, such inputs, as excluded from the category of improvement of the fixed asset, under the conditions required for their inclusion in the tax burden, can be included directly in the tax costs of obtaining revenue. However, it should be stressed that, according to the wording Article 11 amendments to laws, amended regulations Article 16g(13) u.p.d.o.p. (Article 22g(17) (u.p.d.o.f.) shall apply to assets accepted for use after 31 December 2017

Example

In February 2018 ABC of O.O. installed an LPG installation in a passenger car which is its permanent means. The value of this installation was 5,500 PLN. The installation of LPG is undoubtedly an improvement in the sustainability measure.

Such an installation shall increase the useful value of the vehicle, measured at least by reducing operating costs. Because the value of the LPG installation does not exceed 10,000 PLN, it must be concluded that the investment in the fixed measure in question does not lead to an increase in its initial value.

There is a credit for incurred expenditure directly in the tax burden of costs.

Summary

Year 2018 brought a number of changes to tax regulations. The amendments did not overlook the issue of depreciation of fixed assets and the possible simplifications in this area. No doubt.

one of the issues to be addressed in this context constitute a fixed value limit considered to be a fixed measure or an intangible asset of the taxpayer's assets, under which taxpayers may apply simplification in the depreciation process.

This limit from 1 January 2018 increased from 3,500 to 10,000 PLN, which is of major importance to many tax solutions, including direct inclusion in the cost of spending on the acquisition of low-value fixed assets and WNiP, their depreciation or the qualification of expenditure as an improvement of the fixed assets.

1 Corporate Income Tax Act with 15 February 1992, t.j. Journal of Laws of 2018, item 1036, Further: u.p.d.o.p.

2 Personal Income Tax Act with 26 July 1991, t.j. Journal of Laws of 2018, item 200 as amended, Further: u.p.d.o.f.

3 Journal of Laws of 2017, item 2175.

4 Regulation of the Council of Ministers of 3 October 2016 on the Classification of Permanent Measures, Journal of Laws of 2016, item 1864.