Forklift depreciation - which method to choose?

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Forklifts are indispensable equipment for many companies, especially in production and trade. As it is quite an expensive asset, it is worth considering the most advantageous way of its depreciation, which will allow you to optimize the tax liability to the tax authorities, the more so as the basic depreciation rate is only 14%. Can a one-time depreciation of a forklift be used in an enterprise?

Entrepreneurs who would like to maximize costs should consider a one-time depreciation of the purchased forklift, however, this solution will not always be applicable in practice. One-time depreciation of a forklift truck requires compliance with certain restrictions, which will be discussed in detail later in this article.

Taxpayers who cannot or do not want to make a one-off depreciation of a purchased forklift truck can use other depreciation methods, the idea of ​​which is to depreciate over time. However, this time may be shortened or extended, which depends on the chosen method - more about it below!

One-time depreciation of a forklift truck is only possible within one limit

An entrepreneur who would like to depreciate an asset on a one-off basis, in the light of the current regulations, has two independent limits at his disposal:

  1. One-off depreciation of assets included in groups 3-8 of the Classification of Fixed Assets, excluding passenger cars under de minimis aid up to the amount of EUR 50,000 per year (the limit is intended for small taxpayers or taxpayers starting business activity, who in a given year and in the two preceding years the year of its commencement - counting from the end of the year - they did not conduct independent business activity or as a partner in a company other than a legal person. This rule also applies to the taxpayer's spouse, between whom there was joint property during this period);
  2. One-off depreciation of brand new fixed assets included in groups 3-6 and 8 of the Classification of Fixed Assets up to the amount of PLN 100,000 per year.

Forklifts have been classified in group 7 KŚT (subgroup 76) - means of transport, which automatically disqualifies the redemption of these assets within the limit from point 2, because the legislator did not provide for the legal redemption of any assets from group 7 KŚT.

  1. Therefore, it is only possible to depreciate the forklift once, within the limit of point 1, because it was provided for, inter alia, for the depreciation of means of transport from group 7, only with the exclusion of passenger cars (KŚT 741). It does not matter whether the purchased asset was previously used or brand new, although it is necessary to meet the subjective condition in the form of having the status of a small taxpayer or not conducting business activity (including by a spouse) in the above-mentioned period.

The status of a small taxpayer has an entity in which the value of sales revenue (together with the amount of tax on goods and services) in the previous tax year did not exceed the amount expressed in zlotys corresponding to the equivalent of EUR 1,200,000, and in the case of an enterprise in decline, also sales revenue at deceased entrepreneur; the conversion of amounts expressed in euro is made according to the average euro exchange rate announced by the National Bank of Poland on the first business day of October of the previous tax year, rounded up to PLN 1,000. This limit will be increased soon. The Act, in the wording from January 1, 2020, increases it to EUR 2,000,000. If the entrepreneur does not meet the conditions for a one-off depreciation of the purchased forklift truck, and would like to generate the highest possible tax deductible costs, he should consider choosing the method of individual depreciation rates.

Forklift depreciation at an individual rate

One of the available methods of depreciation is the method of individual depreciation rates - Art. 22j of the PIT Act. Basically, it has two major disadvantages. Firstly, it is provided for used assets, and secondly, the choice of this depreciation method deprives the taxpayer of changing the depreciation rate set at the beginning. This was confirmed, inter alia, by Provincial Administrative Court in Opole in the judgment of October 12, 2011, file ref. I SA / Op 74/11, where it was stated that:

"The provisions of the Personal Income Tax Act in Art. 22a to 22o regarding the depreciation of fixed assets, do not provide the possibility of reducing or changing the individually set depreciation rate for a used fixed asset before the expiry of the deadline for its full depreciation (it is possible only in the case of using the rates specified in the List of depreciation rates - Article 22i of the Act). This would mean a change of the depreciation method, which is unacceptable in the light of the above-mentioned Art. 22 h of paragraph 1. 2 of the Act ".

The method of individual depreciation rates sets minimum depreciation periods for individual assets. For means of transport (including forklifts), the legislator has provided for a minimum depreciation period of 30 months, i.e. 2.5 years, which is relatively favorable compared to the over seven-year depreciation period using the listed rate of 14% (straight-line depreciation).

As mentioned above, depreciation using individual depreciation rates is only possible for means of transport (including forklifts):

  • used - provided that the taxpayer proves that before purchasing the forklift it was used for at least 6 months, or
  • improved - if, before entering into the records, the expenses incurred by the taxpayer for the improvement constituted at least 20% of the initial value.

INThe judgment of the Supreme Administrative Court of 29 January 2009, file ref. II FSK 1487/07:
"The taxpayer should be able to prove that a given fixed asset was previously used for at least 6 months to prove that at a given historical moment there was a basis for applying an individual depreciation rate. The evidence in the case may be, inter alia, a statement from the previous owner".

Forklift depreciation using a degressive method

An entrepreneur who buys a new forklift and will not be able to make a one-off depreciation write-off or apply an individual depreciation rate should consider the degressive depreciation method (Article 22k (1) of the PIT Act), which will enable its faster redemption, and thus optimization the amount of the tax liability.

The degressive depreciation, similar to the one-off depreciation under de minimis aid, is limited to groups 3-6 and 8 of the KŚT and means of transport (excluding passenger cars). Making write-offs using this method results in the fact that the base on which the depreciation is calculated decreases year by year, which in the first year will be the initial value, and in subsequent years the initial value less the part depreciated in previous periods. When the value of depreciation charges calculated for the nth year turns out to be lower than in the case of the straight-line method, the taxpayer should make further write-offs using the straight-line method until the entire initial value of the asset is fully deducted. Summarizing the above: the basis for depreciation in the first year will be the initial value, and in the following years the initial value less the part depreciated in previous periods.

The advantage of degressive depreciation over linear depreciation is that the legislator made it possible to increase the depreciation rates from the list by a factor not higher than 2.0, which means that depreciation of a fixed asset with this method may be more cost-intensive in the first years of use. A practical distinction between the two methods is made in the example below, which also shows the transition from declining to linear depreciation.

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Example 1.

The initial value of the forklift is PLN 100,000. According to the "rate list", the depreciation of this FA will amount to 14% per annum. The forklift's depreciation using the linear and degressive method, applying the coefficient of 2.0, will be as follows:
Year One:

  • linear method: 100,000 - (14% x 100,000) = 100,000 - 14,000 = 86,000
  • degressive method: 100,000 - (2 x 14% x 100,000) = 100,000 - 28,000 = 72,000

Second year:

  • linear method: 86,000 - (14% x 100,000) = 86,000 - 14,000 = 72,000
  • degressive method: 72,000 - (2 x 14% x 72,000) = 72,000 - 20,160 = 51,840

Year Three:

  • linear method: 72,000 - (14% x 100,000) = 72,000 - 14,000 = 58,000
  • degressive method: 51 840 - (2 x 14% x 51 840) = 51 840 - 14 515.20 = 37 324.80

Fourth year:

  • linear method: 58,000 - (14% x 100,000) = 58,000 - 14,000 = 44,000
  • degressive method: 37 324.80 - (2 x 14% x 37 324.80) = 37 324.80 - 10 450.94 = 26 873.86 - ERROR!

In the year in which the annual depreciation calculated using the declining method is lower than in the case of the straight-line method, the taxpayer should switch to the straight-line method. Thus, the correct version of the declining depreciation in the fourth year of use takes the following form:
degressive method (fourth year): 37,324.80 - 14,000 = 23,324.80

The above example shows that the use of degressive depreciation may result in generating higher tax deductible costs in the first years of depreciation of assets from groups 3-6 and 8 KŚT and means of transport excluding passenger cars, including a forklift.