There is a saying in Poland: "Win the lottery". This means getting something you want, although not necessarily through hard work. In fact, this win in life can be different. And we are not talking about a probability that is often lower than we want to admit to ourselves.
It just happens that winning doesn't bring the satisfaction you would expect. With money, this problem is only psychological, because such a form of reward is only an intermediary to the goal that can be acquired alone. Worse, however, when the winning is in a physical form, e.g. a passenger car.
What if, for example, we don't need a vehicle like this, we already have two in the family and that of a better standard or we simply can't afford to maintain by the costs of parking, service, fuel or compulsory insurance? Generally speaking, when the benefits of such an object are much less than its possible gains and advantages?
Reason suggests that your property can always be sold and generated profit. However, it is also worth considering the tax aspect.
Obligation to tax the win
As a rule, few revenue flows are not subject to taxation. Although the number of redundancies is high, there are still many ways of acquiring that will not escape this unpleasant obligation. The same is true in the case of a win, regardless of whether you are talking about a contest, a game, a bet or any other form of bonus sale.
According to Article 30(1)(2) Act dated 26 July 1991 on personal income tax (i.e. Journal of Laws of 2022, item 2647 as amended, Further: PIT Act), a flat-rate tax of 10% win or reward[1]. Whether it's a monetary or factual win.
Of which second the value of the tax is determined on the market value of the object of the win. The organizer of the competition is the flat-rate tax payer. In the case of a monetary amount, it is collected most often before payment and the winner already receives the value of a "pure" win.
This is not the case with a reward in kind, where according to Article 41(7) The PIT Act the taxpayer before receiving such a prize is obliged to pay the payer an advance or the full amount of tax due before the win is available.
However, the provisions also provide for a rather significant exemption.
Article 21(1)(68) The PIT Act indicates that the value of winnings in competitions and games organised and issued (announced) by mass media (press, radio and television) and competitions in the fields of science, culture, arts, journalism and sport, as well as prizes related to the sale of bonus goods or services, if the one-off value of these winnings or prizes does not exceed the amount of 2,000 PLN; the tax exemption for the sale of premium goods or services shall not apply to prizes received by the taxable person in relation to his non-agricultural business activity, which is revenue from that activity.
However, the question of how does this exemption relate to the general obligation to tax the lump sum of participation in competitions? Is every win in the competition subject to such taxation?
The PIT Act otherwise points to a separate tax treatment for participation in competitions in the fields of science, culture and art and journalism[2].
To address this problem, it is worth applying the following hierarchy of revenue taxation rules[3]:
Given the large scope of application of winnings, i.e. cash prizes, it is of primary importance, Article 30(1)(2) u.p.d.o.f.;
In the second treatment Article 13(2) and Article 22(9)(4) u.p.d.o.f., if there are competitions in the fields of science, culture and art or journalism, and at the same time there is no possibility of recognising the revenue taken into consideration for winning the competition (in this context, particularly the situations in which the participant of the competition deserves attention, e.g. a certified musician performs in an artistic competition designed for professionals, so that his participation in the competition can be treated as an element of personal professional activity);
where two the above tax mechanisms will prove inadequate (the competition taken into account is not a competition in the field of science, culture and art or journalism, and income is not a win in the competition), it seems appropriate to treat such a competition revenue as one in cases of revenue from other sources, especially since the legislator explicitly mentions among them prizes and other unpaid benefits, not belonging to the revenue specified under Article 12-14 and Article 17 u.p.d.o.f. Article 20(1) u.p.d.o.f..
Tax exemption for the sale of a win
After taxing the win and finding its in-kind unusability, consideration should be given to second the moment of interest of the tax authority, or the moment of sale of the acquired item. The tax rules in this case are simple and do not require in-depth analysis, but the authorities in their interpretations have created an additional gateway for taxpayers to use.
However, the general rule should be discussed first. It states that the taxable person's income is generated by the sale, inter alia, of means of transport or other goods. But the tax only applies to sales in a certain time frame.
According to Article 10(1)(8) PIT Act, in the case of real estate and property rights[4] the period is five years and, for other things, six months from the end of the month in which the acquisition took place. This means that the disposal of ownership after a longer period of time will be exempt from such taxation.
An additional condition is to make such sales not as a result of economic activity.
However, tax authorities confirmed, inter alia, in the interpretation of the National Tax Information Director dated 29 May 2023, No reference no. 0112-KDWL.4011.1.2023.2.WS, that there is no obligation to pay the sales tax when the acquisition costs exceed the sales value.
The subject of the interpretation was the sale of the car won in the lottery before the deadline 6 months. In this regard, the Authority agreed with the taxpayer that the amount of the cost of the purchase of the car should be indicated at the time of the purchase from which the flat-rate tax was fixed. 10%.
Therefore, if the disposal rate is lower than its market value at the time of the acquisition, there will be no income to be taxed as the taxpayer will ‘disposal at loss’. This is consistent with the standard set under Article 19(1) PIT Act. However, remember that the sentence second that provision shows that, however, if the price, for no good reason, deviates significantly from the market value of those goods or rights, that income shall be determined by the tax authority at the level of the market value.
We should also bear in mind the declaration obligations in this respect. Despite the absence of an obligation to pay income tax, the taxpayer is required to demonstrate in the annual statement the revenue for the sale of the prize, the cost of obtaining the income incurred in order to obtain the income and the result (differences) of these two components, i.e. income or losses.
[1] We're talking about, of course, winning ordinary individuals. In the case of persons engaged in economic activity, this should be qualified as a separate source of revenue, cf. NSA judgment of 27 March 2019 No reference no. I OSK 1559/17.
[2] Article 13(2) PIT Act.
[3] R. Golat, Taxation of awards obtained in competitions, ABC.
[4] The provision mentions in this case: the property or part of it and its participation in the property; the cooperative property right to residential or utility premises and the right to a single-family home in a housing cooperative; the right to perpetual land use.