Day 24 May 2021 The Supreme Administrative Court adopted a resolution valid for all natural persons renting assets (e.g. real estate). Until the adoption of the resolution, there were serious doubts as to which source should include revenue generated from assets belonging to individuals and, consequently, how to tax revenue from the rental of assets.
To resolve these doubts 13 January 2021 the Chief Administrative Court has been requested by the Ombudsman of Small and Medium Entrepreneurs to adopt a resolution clarifying: ‘Is it in the light of a provision Article 10(1)(6) Act of 26 July 1991 on income tax on individuals (i.e. Journal of Laws of 2020, item 1426 as amended; Further u.p.d.o.f.) to classify revenue from the rental of non-economic assets to the source of income mentioned in that provision, the criteria in question or the intention (decision) of the taxpayer?’
However, the Supreme Administrative Court noted in the above question the flaws and decided that the relevant question, which would respond to the differences in interpretation arising in the case-law, should concern whether the revenue from the rental, sub-rental, lease, sub-rental and other similar contracts may be included without restriction to the source of revenue mentioned in the Article 10(1)(6) u.p.d.o.f., if they are a property component of the property of a natural person who has not been introduced by him or her into assets related to the pursuit of business activity?
The Chief Administrative Court, after extensive examination of the rules, concluded that if the taxable person:
- • does not take steps to clearly distinguish the company by creating an organized set of material and intangible components to serve this activity,
- • does not build an organisational structure allowing him to manage this part of the property,
- does not develop a strategy for this activity (plans for its development, market research in terms of the needs of potential tenants, adaptation of assets components to these needs), but only invests in the purchase of properties (including premises) which it subsequently rents,
it cannot be considered that the assets are linked to economic activity.
Furthermore, the Supreme Administrative Court indicated that it was the taxable person who decides whether to "link" certain components of his property to the pursuit of his business activity or to keep them on the board of directors of assets not related to economic activity and to give them away, for example, in rent.
This means that the hire of material assets by a natural person may be considered to be an economic activity only if they are linked by the taxable person to an economic activity, e.g. by amortising a particular asset as a permanent measure in the course of an economic activity.
The resolution has a positive impact on the tax situation of individuals who rent many assets because they can decide whether to tax rent income on a flat-rate basis 8.5% up to amount 100,000 PLN revenue and 12.5% above that amount, or on a general tax scale basis, or where they associate assets with economic activities on a general tax scale or a linear tax of 19%.