A new provision was added
to the ITA. According to the provision, 20% is deducted from rent
(subsection 1 of § 16 of the ITA) earned under a tenancy contract
for the purposes of the Law of Obligations Act (LOA) in order to
cover expenses related to letting. The deduction is available to
resident natural persons, non-residents and common investment funds.
The deduction is not available to sole proprietors, because their
income from business is subject to taxation as a whole, not based on
individual cost types.
As regards the
amendments, it is important to keep in mind four aspects. First, the
deduction is made only from rent earned on the basis of a residential
premises tenancy contract. The definition of a residential premises
tenancy contract is given in the LOA sections that regulate contracts
of the respective type (§§ 273-275). Second, the deduction is made
in the income tax return, which means that the possibility is not
available without submitting a tax return. Third, the deduction is
made without any documentary evidence regarding costs related to
letting. Fourth, there is no maximum limit to the deduction.
According to the Ministry
of Finance, the system is available to all taxpayers regardless of
the extent to which they actually incur costs and cover the
amortisation component of the residential premises. The choice for
the percentage-based deduction without requesting any documentary
proof of the actual costs has been made, because it is easy for the
taxpayer and best helps to reach the expected result of the
amendment. Granting the right to deduct only costs supported by
documentary proof would mean that the landlord has to collect and
preserve all expense receipts. In addition, the border between the
taxation of natural persons and sole proprietors would become more
vague in the event of document-based deductions.
In all other events (i.e. rental income other than income earned from letting residential premises based on a tenancy contract, as specified in subsection 1 of § 16 of the ITA) there is no right to make any deductions from rental income as long as the person has not registered as a sole proprietor and does not treat their rental income as business revenue.
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