Remuneration of property disposal – tax effects

According to the legal line and interpretations of tax authorities, if the property which belongs to a personal property is to be covered by the property's property ownership one of the spouses and this will not result in the separation of part of the property, it cannot be considered that at the time of the conclusion of the notarial agreement extending that commonality one the spouses are disposed of the right to property, and second acquire them according to Article 10(1)(8) Act on 26 July 1991 on personal income tax 1 (Further: u.p.d.o.f.). This is important to settle the taxation of the subsequent sale of such property by one of the spouses and determining when the five-year period begins to run, counting from the end of the calendar year in which the acquisition or construction took place, before the expiry of which, within the meaning of the abovementioned provision, the sources of revenue include the sale of immovable property for consideration.

1. Introduction

The Director of National Tax Information decided in his tax interpretation with 16 September 2020 2 the question of personal income tax as a result of the planned sale of real estate.

The applicant, who does not carry on business, is, together with her husband, a co-owner (1/10) two plots — on first there is an office building, and on the second, a cobblestone (building); In 2018 an agreement has been concluded to extend these shares to the property partnership of the spouses.

The author's husband acquired the participation In the first of These plots In 1999 by a decision transforming the right of perpetual use into ownership, and second Acquired – as a swap property – In 2016, as part of the compensation for the property taken over by the city for the public road (both acquisitions occurred during the marriage).

Real estate was privately rented. The applicant asked the Director of KIS whether the sale of the two properties would result in a tax liability, and the sale of the property would take place before 5 years from the date of the extension of the marriage union?

2. Effects of the contract extending the statutory property union

According to Article 47(1) Act on 25 February 1964 Family and caring code 3 (hereafter: (k.r.o.) «Married couples may, by an agreement concluded in the form of a notarial act, extend or limit the statutory commonality or establish property separation or property separation with equalisation of earnings (the property agreement).

Such an agreement may precede the conclusion of a marriage." The Code also clarifies that a marriage property contract may be amended or terminated, and if this is the case during the course of the marriage, there shall be a legal partnership between spouses unless the parties have decided otherwise.[4].

The Director of KIS referred in interpretation to the position of the administrative courts, according to which the inclusion in the estate of spouses under a contract extending the statutory property ownership, participation in it or property rights constituting separate assets one the spouse...

is not the acquisition of that property, interest or property right by second spouse, within the meaning of Article 10(1)(8) u.p.d.o.f.

5 and concluded that the expansion of the marital union which occurred In 2018 does not constitute the acquisition, by the author of the request for interpretation, of shares in the properties in question.

3. Determination of the date of acquisition of the property

The result of this assessment was the position of the Director of the CIS that, in the situation described, the date of the acquisition of the property by each of the spouses is the date of the acquisition of the property by that spouse who incorporated the property in the common property.

According to Article 10(1)(8) u.p.d.o.f, the sources of income are the disposal of: (a) the real estate or parts thereof and the participation in the real estate, (b) the cooperative property right to residential or utility housing and the right to a single-family house in a housing cooperative, (c) the right to perpetual land use, (d) other items Ö if the sale paid does not take place in the performance of the business activity and was effected in the event of the payment of the property and property rights specified in point (a)-c before expiry five years from the end of the calendar year in which the acquisition or construction took place.

After five There will be no tax obligation for years.

The Director of KIS therefore stated that, with the effect of taxing the disposal of both parcels, the five-year period indicated in that provision should be calculated from the end of the year in which the applicant’s husband acquired the shares.

In case of first of which the provisions of the Act of 23 April 1964 Civil Code 6 ((c) where the Director of the CIS indicated that ‘the conversion of perpetual usufruct to property rights is not a tax law event to be identified with the acquisition in question under Article 10(1)(8) up.d.o.f. (...).

This is only a change in the legal form of the actual right to real estate’. Such acquisitions are not made at the time of this transformation, but at the time of the conclusion of the perpetual use right agreement.

Therefore, ‘the date of acquisition by the applicant’s husband of a share of the said property should be identified with the date of acquisition of the right of perpetual use’ and since the sale is to take place In 2020, i.e.

after the expiry of the five-year period specified in u.p.d.o.f., this is in the case of disposal paid first there will be no tax liability.

In the opinion of the Director of KIS the sale transaction second However, the property will already be taxable. In this case, he referred to the provisions of the Act of 21 August 1997 on real estate management 7 (Further: u.g.n.).

It provides that land parcels (distributed under public roads – municipal, county, provincial, national) are entitled to compensation of the amount agreed between the owner or perpetual user and the competent authority 8 , and as part of this compensation, the owner or the perpetual user of the expropriated property may be granted (from the property of the Treasury or (jst) with his consent, the corresponding replacement property[9].

The author's husband acquired the application In 2016, as a result of such compensation, the right to land which he had not previously owned. Because its sale is planned In 2020, This is not yet the five-year deadline indicated in u.p.d.o.f. and there will be a tax obligation on the applicant.

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