As of January 1, 2019, taxpayers covered by the personal income tax will see some beneficial changes regarding the housing tax relief. The period when taxpayers can apply the relief will be extended. Additionally, issues that are currently subject to disputes with tax authorities will be clarified.
What changes await taxpayers
An important change is the extension of the period when the relief can be applied – from two to three years. Taxpayers gains additional time after disposal of a property to spend obtained funds for their own housing purposes. It certainly is a very beneficial change for taxpayers planning renovations, fit-outs, or extensions of owned buildings and premises, which will allow to distribute those works and related expenses over a longer period of time.
By way of planned changes the Ministry of Finance is going to resolve numerous disputes with taxpayers regarding spending of funds before two years have elapsed and purchasing a residential unit after the expiry of that period. Pursuant to the new regulations, the possibility to use the relief will depend on acquiring the ownership title to the property. The acquisition will have to take place before the mentioned period of three years has elapsed. This change is of particular importance for the taxpayers that didn’t acquire a residential unit, but only signed a developer agreement.
Thus, some of court rulings, which so far have been beneficial to the taxpayers, will become irrelevant. Some of the previous rulings by administrative courts were in favor of granting the taxpayer a relief also in the situation when funds were spent within the statutory period, even if the acquisition took place after the expiry of that period (e.g. ruling of Provincial Administrative Court in Kraków of December 19, 2017, ref. no. I SA/Kr 1097/17).
Example:
In 2014 Mr. Jan sold the house he inherited a year before. In the years 2015–2016 he incurred expenses on the acquisition of a residential unit under a developer agreement he had signed, but only in 2017 he signed the agreement transferring the ownership of the premises.
Pursuant to the previously effective legislation, expenses incurred by Mr. Jan could be tax exempted under the housing tax relief. What was important was the date when the expenses on housing purposes were incurred. According to the new regulation it is the date of acquiring the ownership that is crucial. Therefore, Mr. Jan would be unable to apply the relief, as he acquired the property after the statutory period for settling the relief has elapsed (previously it was two years).
Expenses incurred prior to the acquisition
Some of the disputes between taxpayers and tax authorities regarded the cut-off date from which expenses on housing purposes could be incurred. Taxpayers would often face unfavorable interpretation, according to which, if the taxpayer had not acquired the property beforehand, the expenses, e.g. on renovation incurred prior to the acquisition, would not be subject to relief. The fact that the taxpayer acquired the property within the statutory period was irrelevant. The amended provisions will eliminate the said doubts.
Applying the relief in case of the sale of a residential unit before January 1, 2019.
Despite the fact that potentially the new regulation on using the housing relief are more beneficial to taxpayers than the previous provisions, they apply only to income generated after January 1, 2019. Whereas taxpayers who, after December 31, 2018 obtain revenue from the sale of a property and property rights will settle that housing relief under the previous regulations.
The moment of obtaining revenue from the sale of the property, and not the moment of acquiring the new residential unit, is of particular importance with regard to the housing relief. Therefore, if taxpayers intend to sell a residential unit before January 1, 2019 and use the housing relief, they should consider postponing selling the “old” apartment until 2019 and thus be able to use the new, preferential terms.
Example:
In January 2018, Mr. Piotr obtained an apartment as a donation. He wanted to use the obtained funds for a major renovation of a rundown stand alone house owned by his parents. The renovated house was to become a co-owned property of Mr. Piotr only after the apartment was put into use. Mr. Piotr had considered selling the apartment already in 2018. In that case, the period to spend the funds would expire by the end of 2020. However, eventually the sale took place on 2 January 2019.
Pursuant to the new regulations, Mr. Piotr will be able to spend the funds obtained from the sale of the apartment under the relief until December 31, 2022, provided that he acquires the ownership right to the renovated property before the end of this period.
