Income tax exemption for the sale of housing

According to Article 21(1)(131) Act on 26 July 1991 on personal income tax[1] (hereinafter: u.p.d.o.f.), income tax-free income from the sale of immovable property and property rights paid 2 , if from the date of the disposal, no later than the period three years 3 from the end of the tax year in which it took place, the income from the sale of that property or that property right has been spent for its own housing purposes, with documented expenditure incurred for these purposes being taken into account up to the amount of income from the paid sale of the property and property rights.

In the opinion of the Chief Administrative Court[4] It does not appear from the linguistic interpretation of this provision that, in order to benefit from the exemption, there must be a chronology of events (first of all, the sale paid and then the payment of expenditure for own housing purposes).

The argument cannot be used in the provision of the phrase ‘starting from the date of the sale for payment’, which according to the NSA should be considered as part of a standard setting out the date on which the proceeds from the sale of immovable property are paid, and the provision clearly indicates that the term ad quem 5 .

The condition for the exemption is therefore according to The Court of First Instance shall spend within this period the income from the sale of immovable property for its own housing purposes, subject to the expiry of the right to tax exemption 6 .

1. Introduction

On 30 December 2020 Director of National Tax Information issued an individual tax interpretation 7 , which concerned the right to a tax credit when the purchase of a dwelling took place earlier than the sale of another property, and part of the fixed amount for the new apartment was paid before that sale and part after the acquisition of the new premises.

The sequence of events was as follows. On 13 June 2016 the applicant and his wife bought apartment A for 340,000 PLN, with 170,000 PLN (the deposit) was paid on that date (140,000 PLN with the contract of preliminary sale of apartment B and 30,000 PLN from own resources).

On 20 July 2016 the author of the application sold apartment B for 310,000 PLN and received the missing 170,000 PLN, After which these 170,000 PLN He paid the next day for apartment A. So the total amount (in two parts) for the acquisition of premises A came from the sale of apartment B, which was notarized.

2. Conditions for benefiting from the tax credit

In view of the situation described above, the taxpayer has requested 24 October 2016 with a request for interpretation of whether it should offset the income tax on the amount 170,000 PLN – the difference between the purchase price of A and the sale price of B?

In his view, he has the right to a tax credit because Article 21(1)(131) u.p.d.o.f indicates that in order to apply it must be fulfilled two conditions: first allocate income for own housing purposes, and after second that operation should take place before the expiry of the two-year period from the end of the tax year in which the disposal took place.

Both of these conditions were met and the author of the application also referred to similar positions taken by the WSA in Poznań in the judgment of 28 October 2015 8 and the WSA in Olsztyn in ruling with 19 November 2015 9 .

Director of the Tax Chamber in Katowice acknowledged in his interpretation 10 the taxpayer’s position as incorrect, on the grounds that only expenditure incurred at the earliest on the date of the sale of immovable property or rights paid may be taken into account for the calculation of the exempt income, and the term “from” means first the moment from which specific actions can be carried out.

Therefore, the acquisition must take place after the sale of the previous premises. Only then can the taxable person fulfil the condition of exemption and the payment of the price and transfer of ownership (acquisition) must take place no earlier than the date of sale of the dwelling.

The acquisition of apartment A, as well as the related expenditure, should be made after the sale of apartment B, otherwise it cannot be considered that the sales revenue has been spent for its own housing purposes.

The applicant, in response to this interpretation, made a call for the removal of the violation of the law and, in a reply, the Director of the Tax Chamber stated that there were no grounds to change the interpretation.

The author of the application therefore filed a complaint for interpretation, and after the Director of the Tax Chamber maintained his position, WSA in Krakow issued 20 July 2017 Judgment 11 , in which he waived the contested interpretation.

The tax authority brought a cassation action against that judgment before the Chief Administrative Court, which, in turn, by judgment with 3 December 2019 He dismissed the complaint.

3. Events chronology and the right to tax exemption

In the present situation, the Director of National Tax Information – against the above decisions of the WSA in Krakow and the NSA – re-examined the case and issued an interpretation in which he considered the applicant's position to be correct.

The tax authority referred, among others, to the aforementioned judgment of the WSA in Kraków with 20 July 2017, in which the ruling stressed that Article 21(1)(131), Article 21(25)(1) point (d) and Article 30e(1)(2) U.p.d.o.f.

does not prejudge that ‘the income from the sale of the property must be spent in full after the final transfer of ownership to the buyer, and it is beyond dispute that the parties to the transaction may decide that part of the purchase price will be transferred to the seller in advance in the form of a deposit, which will then be counted against the purchase price at the conclusion of the final contract’.

The director of KIS also pointed out the position of the WSA in Krakow, which he divided the NSA in a judgment with 3 December 2019, that Article 21(25)(1) with regard to Article 21(1)(131) u.p.d.o.f.

‘does not make the possibility of obtaining income tax exemptions dependent on the fact that the property has been acquired at a certain time, but only specifies the date on which the funds for the acquisition of the residential premises constituting income from the sale of the right should be spent’.

The Supreme Administrative Court also indicated that ‘by interpreting Article 21(1)(131) u.p.d.o.f. it cannot be clearly stated that the acquisition, as well as the expenses associated with this acquisition, should be made after the sale of the residential premises and the interpretation Article 21(1)(131) u.p.d.o.f.

adopted by the tax authority in a manner that makes it impossible for the taxpayer to benefit from the exemption (...).

It is difficult to find reasonable grounds for such an interpretation of the legislation in question, which deprives the Applicant of the right to benefit from the exemption in the event that the funds received de facto from the sale of real estate B and the property rights associated with it were allocated to the purchase of real estate A to satisfy his own housing needs (...)’.

Therefore, the income from the sale of premises B benefits entirely from the tax exemption.

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1 Act of 26 July 1991 on income tax on individuals, i.e.

Journal of Laws of 2020, item 1426 as amended 2 referred to under Article 30e a.p.d.o.f., which corresponds to the product of this income and the share of expenditure incurred for own housing purposes in the revenue from the sale of immovable property and property rights for consideration.

3 As a result of the amendment, the deadline was extended to third cages, but the change concerns only income from 1 January 2019 4 NSA judgment of 3 December 2019, reference no. II FSK 3933/17. 5 Terminus ad quem – according to the Polish Dictionary of PWN: “a moment anticipated or determined as a final, closing something”.

6 The Supreme Administrative Court also cited the NSA judgment in its justification 6 August 2019, reference no. II FSK 2080/17, opubl. CBOSA. 7 Signature No 2461-KDIB2-2.4511.983.2016.8.MM. 8 reference no. I SA/Po 1032/15. 9 reference no. I SA/Ol 652/15. 10 reference no. 2461-IBPB-2-2.4511.983.2016. 11 reference no. I SA/Kr 493/17.