Takeover of leased vehicles
December 2, 2009 | 90,00 EUR | answered by Michael Herrmann
Dear Sir or Madam,
I would like to request advice on a matter regarding the purchase (takeover) of my current leased vehicle.
Here is my current situation: I am employed as a doctor and also work as a freelance expert. In January 2006, I leased a car (list price: 24970) with a down payment of 5000 euros, monthly lease rate of 196.72 euros (from December 15, 2006: 201.86 euros). It is declared as business assets and treated for tax purposes under the 1% rule. Initially, the business use was well above 50 percent, but now the business portion has decreased to below 50 percent (which I can control for tax purposes). I am currently not keeping a mileage log (only did so in the first year to prove that business-related trips exceeded 50%).
The lease contract expires after 36 months on January 8, 2010, and the lessor has offered to sell me the car for 9600 euros (including VAT). I am inclined to accept this offer.
My questions:
1. If I keep the car as business assets - how will the takeover costs be tax-deductible (previously, the full lease rate and all car expenses were deductible, with the private use portion treated as business income under the 1% rule)?
2. Can I also buy the car privately or transfer it to my personal assets - how should I handle this transfer for tax purposes and how would it financially impact me?
Thank you in advance for your assistance, and I hope to hear from you soon.
Best regards,
M.S.
Dear questioner,
First of all, thank you for your inquiry, which I would like to answer based on the information provided and in the context of your initial consultation. The response is based on the facts presented. Missing or incorrect information about the actual circumstances can affect the legal outcome.
As a freelancer, you are not required to keep accounting records and can calculate your profit as the surplus of business income over business expenses. This is important for determining private car usage.
Unlike in a balance sheet-based profit determination, the vehicle can only be considered as part of the business assets if the business usage is over 50%. Expenses cannot be directly considered as business expenses if the usage is below 50% (so-called arbitrary business assets). This is not allowed in the context of income-surplus calculation.
If the vehicle is used less than 50% for business purposes, it is automatically considered a private vehicle. In this case, you can claim €0.30 per kilometer as business expenses. The profit-increasing aspect of private car usage does not apply.
Now to your questions:
1) Unlike before (leasing), the costs from the acquisition are considered as wear and tear deductions, reducing the profit. The purchase price is depreciated over the remaining useful life (linear depreciation). For a standard useful life of a car of 6 years from acquisition (purchase), there are still three years remaining. In this year, only one month (December) is considered.
In 2009 and 2010, there is also the option to depreciate in a declining manner. In the first year, 25% of the full purchase price is depreciated, and in the following year, 25% of the remaining value (purchase price minus depreciation in 2009) is depreciated.
Example: (estimated purchase price €12,000)
linear depreciation:
2009: €12,000 / 36 months = €333.33
2010: €12,000 / 36 months x 12 months = €4,000
declining depreciation:
2009: €12,000 x 25% = €3,000
2010: €9,000 x 25% = €2,250
Ultimately, the entire purchase price is depreciated over the useful life (3 years). The distribution over specific years varies.
The remaining vehicle costs are depreciated as usual. The only change from previous practice is that leasing costs are replaced by depreciation. An asset register (depreciation calculation) must be included in the profit determination.
2) If the car is used less than 50% for business purposes, it is automatically considered a private vehicle. In this case, there is no need for accounting action when purchasing, as the purchase is not a business transaction. The leased vehicle is not part of the business assets, as it belongs to the lessor. Therefore, there is no transfer to private assets.
The financial impact is that expenses, as described above, can be deducted at €0.30 per kilometer and the taxation of private usage is avoided. If the actual costs are higher, a higher rate per kilometer can also be deducted.
The most advantageous option for you depends on the actual costs and the number of business kilometers driven. This can only be determined through a detailed comparison calculation.
If the vehicle is part of the business assets, any proceeds from its sale will also be subject to taxation. This ultimately reduces the depreciation volume.
My response is based on the assumption that your expert activity is not subject to VAT.
I hope this information provides you with an initial overview of the situation and remain
Yours sincerely,
Michael Herrmann
Dipl.-Finanzwirt (FH)
Tax consultant
