The entrepreneur who allocated the residential premises to the business (a logopedic office) and then rented the room to another person believed that he would be able to account for the income he received from renting the room as private revenue as the rent of the premises was not the subject of his business activity.
A taxpayer for years ninety was engaged in economic activities taxed on a general basis. At the time, only part of the premises was for business. In the year 2010 because of the change of place of residence, the entrepreneur introduced an update in the entry in the register of business activities and in the declaration concerning the assessment of the property tax, thus allocating the entire premises to conduct business.
According to Article 14(2)(11) The income tax laws on natural persons income from economic activities are also income from the rental of assets related to economic activity
In 2017 man decided to rent one a room composed of the above mentioned premises. He chose the form of flat-rate taxation on income for the private rent of the room. The entrepreneur mentioned that the apartment was owned by him and that the premises were not introduced to the state of fixed assets.
Consequently, the entrepreneur in the premises owned by him was engaged in an economic activity which he accounted for on a general basis, whereas one the room (i.e. room) was rented to another entity and the rental tax was paid in the form of a lump sum.
The entrepreneur claimed that renting a room was not the subject of his business activity. According to the entrepreneur, renting a room from the apartment that he owned was a private lease.
The taxpayer claimed compliance with Article 10(1)(6) Act 26 July 1991.on personal income tax (Journal of Laws of 1991, item 350), concerning a separate source of income that is rental.
The man counted the income he received as private rental revenue, which he then settled with a flat-rate income tax. Furthermore, the taxpayer considered that the lease was a source of income distinct from the activities.
Therefore, in order to ensure that his position is correct, he addressed the question to the body issuing individual tax interpretations.
The body, on the other hand, disagreed with the man by arguing that the entrepreneur had allocated the entire premises for business activity, and for this reason it had to be considered that the premises constituted an asset related to business activity.
For the Authority, it did not matter that the premises were not entered in the fixed assets records, he felt that there had to be a link between the asset and the business activity, and that such a link existed in the case in question, since the property component, or the entrepreneur's premises, also carried out its own business activity.
The Authority also referred to the fact that, in principle, the choice of qualifications and the way in which the rental income was settled has been left to the person who gave the goods in the lease, but each case should be considered on a case-by-case basis, taking into account the relevant circumstances of the case in the context of the fulfilment of the conditions set out in Article 5(6) the abovementioned Act.
According to the Authority, it was decisive whether, in the circumstances of the case in question, the conditions of that law were met and not merely the taxpayer’s belief that the relevant qualifications of his income were met.
According to the Authority, the taxpayer could not have classified the rented property as private property.
In the situation described, the rent of the property fulfilled the conditions of business activity and should be settled on the terms applicable to that activity and not according to the choice of the taxpayer, since according to Article 14(2)(11) The income tax laws on individuals, the income from business activity, are also revenue from the lease which is part of the assets associated with business activity.
The fact was that the entrepreneur used the entire premises for business activities, thus creating a link between an asset and an economic activity. Thus, the taxpayer could not have classified the rental of the said room as a private rental.
In turn, the revenue had to be accounted for according to the same tax rule as it was in force in the accounting of its activities.
On the basis of an individual tax ruling of 22 February 2019
syg.: 0112-KDIL3-1.4011.4.2019.2.AGR
Author: Paweł Boś, law student at the Kozminski Academy in Warsaw, employee of Russell Bedford