Company building depreciation - when is it possible to start?

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As a rule, entrepreneurs use real estate in their business activities. The expenses incurred for their production do not constitute a direct cost, but through depreciation write-offs. In a situation where the entrepreneur produces the building on his own, the question arises from when the company building can be depreciated.

Company building depreciation - conditions

In accordance with the Income Tax Acts, the following are, in principle, subject to depreciation:

  • structures, buildings and premises owned separately,

  • machines, devices and means of transport, as well

  • Other items

- with an expected period of use longer than one year, used by the taxpayer for the purposes related to his business activity or put into use on the basis of a rental, lease or specified contract.

During use, the premises wear and tear, therefore it is possible to depreciate it. However, it must meet the conditions for recognition as a fixed asset of the company. The premises will be a fixed asset if:

  1. is owned or jointly owned by the taxpayer,

  2. was acquired or manufactured by the taxpayer on its own,

  3. it is complete and fit for use on the day it is accepted for use,

  4. the expected period of use is longer than one year,

  5. is used by the taxpayer for the purposes related to his business activity or put into use on the basis of a rental, lease or leasing agreement.

When the above conditions are met, entrepreneurs taxed on general principles - who keep a tax book of revenues and expenses or trade books - are required to enter it into the register of fixed assets.

As you can see, one of the conditions for the depreciation of a building is completeness and usability on the day it is put into service. As practice shows, taxpayers have a problem with determining the initial value when building a building.

Completeness and suitability under construction law

In the case of assessing the completeness and fitness for use of the building, reference should be made to the provisions of the Act of July 7, 1994 Building Law (i.e. 2013, item 1409). The regulations contained in the aforementioned Act indicate that the relevant authority issues a decision on the occupancy permit for a building object after a mandatory inspection has been carried out.

According to Art. 59 of the Building Law Act, the construction authority had to assess whether the office building could be used despite the undeveloped warehouse building.

Since the building is economically used to generate income, it is a complete and serviceable fixed asset.

Thus, it should be assumed that the date of "completeness and usability" of the building will be determined by the permit of the building authority.

Completeness and suitability of the building under tax law

As previously indicated, a fixed asset (e.g. a building) is depreciated when it is complete and fit for use on the day it is put into use. An asset meets these criteria if it is equipped with all the structural elements that enable it to function as intended. The wording "fit for use" should be understood primarily as the possibility of actual and legal use. Consequently, in order for a building constructed by a taxpayer to be entered in the fixed assets register, and then subject to depreciation in accordance with Art. 22a paragraph. 1 point 1 of the PIT Act, must be complete and fit for use on the date of acceptance for use. Completeness of a fixed asset means that it is a functional whole, it is complete, complete and can be used independently. In turn, a usable fixed asset is one that is useful in a given activity, appropriate and suitable for the function it is to perform.

The concept of completeness and fitness for use has already been clarified many times by administrative courts. And so in the judgment of the Provincial Administrative Court in Wrocław of June 8, 2011, file ref. act I SA / Wr 349/2011, we read:

(...) Completeness and suitability for use on the date of acceptance for use means that the fixed asset contains the required structural elements allowing it to function as intended, is technically efficient, and if there are formal requirements, they are also met (...) . "

As indicated by the tax authorities, in the event of a building being constructed, the date of "completeness and usability" of the building will be determined by the building authority's permit.

Such a position was confirmed by the Director of the Tax Chamber in Poznań, in the individual ruling of April 10, 2014, file ref. ILPB4 / 423-15 / 14-2 / ​​MC, where we can read:

(...) The company will be entitled to make depreciation write-offs from the initial value of a single-story office building, starting from the month following the month in which it is entered into the fixed assets register. The write-offs will be tax-deductible until the sum of the write-offs equals their initial value, in accordance with Art. 16 h of paragraph 1. 1 point 1 of the Corporate Income Tax Act, unless pursuant to Art. 16 of this act, these write-offs cannot be classified as tax deductible costs.

The company may begin to depreciate a one-story office building when a use permit for the reconstructed existing office building has been issued and the building was abandoned with a two-story office building, which was to be connected to the one-story building by a delegated liaison officer, starting from the month following the month in which this measure will be entered into the register of fixed assets and intangible assets (…).

Example 1.

The entrepreneur built the building. It was fit for use, but was not accepted by the appropriate authority. In such a situation, it is not possible to depreciate a company building.