Business assets vs. personal assets
October 9, 2010 | 25,00 EUR | answered by Michael Herrmann
I bought a holiday apartment about 5 years ago, which I have been commercially renting out since then. Due to lower revenues, I have decided to waive the turnover tax assessment starting this year. So far, the rental continues as a business. Is it possible to restructure the rental in such a way that income from renting and leasing is generated, enabling a tax-free sale of the property after 10 years? If so, how and what needs to be done? Is it advisable to remove the holiday apartment from the business assets today in order to be able to receive a tax-free increase in value in the future after 10 years? What do you recommend to me?
Dear inquirer,
First of all, thank you for your inquiry, which I would be happy to answer based on the information provided and in the context of your initial consultation. The response will be based on the facts presented. Missing or incorrect information about the actual circumstances can affect the legal outcome.
Basically, the rental of properties, even for short-term rentals such as a vacation rental, is attributed to rental income and not to commercial income.
According to case law, the rental of one or more vacation rentals is considered commercial if the apartment is offered in a hotel-like manner in a vacation complex, or if there are additional services when renting multiple apartments outside of a vacation complex that require a hotel-like organization.
Transactions with a private character can also be considered commercial if there is already a commercial enterprise. While a business owner can also conduct private transactions alongside business transactions, transactions typical of the industry are usually attributed to the commercial enterprise, unless the private nature is proven or evident. If a taxpayer conducts transactions that typically fall within the scope of their business but could also be carried out as part of private asset management, the classification of the transactions as commercial or private depends on how the taxpayer actually conducted the transactions and whether they used the facilities of their commercial enterprise.
I cannot assess whether these conditions are met based on your description. However, there is generally no choice regarding whether the income is considered commercial or private (asset management). If the current classification is correct, it cannot be changed by declaration. If the income is of a private nature, you should terminate the business and withdraw the property. The 10-year period under § 23 of the Income Tax Act begins from the time of withdrawal. This is always advisable to avoid taxation on any value increases. The withdrawal value will be used as the basis for depreciation in the future.
Regardless of this explanation, there is also a value-added tax assessment. The withdrawal may result in a correction of any input tax deduction from the purchase of the vacation property, as this is subject to certain holding periods for taxable use.
I hope this information gives you a sufficient overview of the situation within the scope of your inquiry. Please feel free to contact me if you have any further questions.
Kind regards,
Michael Herrmann
Diploma in Taxation (FH)
Tax Advisor
