Donation from parents - is it tax exempt?

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In practice, most people are aware that a donation to the immediate family is exempt from inheritance and donation tax. However, not everyone knows that in some cases, in order for the exemption to be granted, certain formalities must be completed at the tax office. In addition, there are tax-free amounts depending on the tax group in which the donor is located. Is the donation from parents subject to inheritance and donation tax? You will find the answer in the article.

Donation from parents - in which tax group?

All donations, without exception, are subject to inheritance and donation tax. However, certain exemptions have been provided for in individual tax groups. Depending on the tax group of the donor, tax-free amounts have been defined and if the value of the donation does not exceed them, the recipient is not obliged to pay the tax.

In terms of inheritance and donation tax, the following tax groups are distinguished:

Tax group Who is it? Tax-free allowance
Group 1 spouse, descendants (e.g. son, daughter, grandchildren, great-grandchildren), ascendants (e.g. mother, father, grandparents), siblings, stepfather, stepmother, stepson, son-in-law, daughter-in-law, in-laws PLN 9,637
Group 2 descendants of siblings, siblings of parents, descendants and spouses of stepchildren, spouses of siblings and siblings of spouses, spouses of siblings of spouses, spouses of other descendants 7276 zł
Group 3 other people, not included in other groups 4902 PLN

However, if the acquisition of ownership of goods or property rights from the same person takes place more than once, then the value of the donation is recognized jointly in the period of 5 years preceding the year in which the last acquisition took place. The sum of all donations received from one person over 5 years will be the taxable amount.

Within group 1 there are the so-called group 0. They belong to it:

  • spouse,
  • descendants (e.g. son, daughter, grandchildren, great-grandchildren),
  • ascendants (e.g. mother, father, grandparents),
  • stepson,
  • siblings,
  • stepfather,
  • stepmother.

In the case of tax group 0, all donations, regardless of their value, may be tax-free. After exceeding the free amount, you can still take advantage of the exemption. Receiving a donation from this group of people, however, requires reporting it to the competent head of the tax office within 6 months from the date of the tax obligation on the SD-Z2 form. The obligation to report arises after the tax-free amount is exceeded, which for group 1 (including group 0) is PLN 9,637. The SD-Z2 application shows the surplus of the donated amount, exceeding the limit free from inheritance and donation tax. The template with an overview of filling in the application is described in the article Form SD Z2 - application for donation to the office - template with discussion

Example 1.

In 2020, the mother gave her son a car worth PLN 6,000. In 2021, the son received a laptop from his mother, the value of which was PLN 4,637. The son is obliged to report on the SD-Z2 form the difference between the sum of donations received and the tax-free amount in the amount of PLN 1,000 (6,000 + 4,637 - 9,637).

Example 2.

The grandfather gave his grandson a financial donation in the amount of PLN 1,000. This donation is exempt from inheritance and donation tax. However, if the grandson receives a donation from the grandfather within 5 years exceeding the total value of PLN 9,637, then he will be obliged to inform the tax office about the surplus on the SD-Z2 form.

In the case of receipt of funds as a donation, when the total value of the acquired property exceeds PLN 9,637, the received funds should be documented with a proof of transfer to the buyer's payment account or his account kept at the cooperative savings and credit union or by postal order.

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Inheritance and donation tax and donation from parents - will it occur?

Parents belong to the 0 tax group, so all donations received from them are completely exempt from inheritance and donation tax, provided that after exceeding the tax-free amount of PLN 9,637, the obligation to report to the Tax Office will be fulfilled.

A donation from parents worth less than PLN 9,637 does not have to be reported to the tax office and is exempt from tax. A donation worth more than PLN 9,637 should be reported to the appropriate tax office on the SD-Z2 form - notification on the acquisition of property or property rights within 6 months of its receipt. Only then is the donation tax-exempt.

How to account for a cash donation from parents?

The settlement of a cash donation looks a bit different. A donation made in group 0 with a value above PLN 9,637 is not taxable, if its receipt has been documented:

  • proof of transfer to the buyer's bank account,
  • or by postal order,
  • or the donation was transferred to his account at the cooperative savings and credit union.

To sum up, if the donation is properly documented, you can take advantage of the right to be exempt from inheritance and donation tax. Then, proofs of receipt of the donation (e.g. printouts from the bank account) are attached to the SD-Z2 form. The limit of the tax-free amount of PLN 9,637 includes all donations received from the same person over the last 5 years.

Example 3.

In the first year, the student received a financial donation from his mother in the amount of PLN 2,000, in the second year - PLN 3,000, and in the third - PLN 5,000, which is a total of PLN 10,000 over 3 years. From the moment when the limit of PLN 9,637 was exceeded, the son has 6 months to report the receipt of the donation to the tax office. Otherwise, he will pay the inheritance and donation tax.

Undeclared donation from parents - consequences

Unreported donation from parents results in the fact that it is taxed according to general rules. This means that in such a case, the donation requires the submission of a declaration and payment of the tax.

In practice, it often happens that parents buy a flat for a child who goes to study. The recipient (child) should report this fact to the tax office on the SD-Z2 form within 6 months of receiving the apartment, otherwise the donation from parents is subject to inheritance and donation tax.

If the unaware parents and the prospective student do not report such a donation to the tax office and after a few years it turns out that the student has received a flat, the donation is taxed according to general rules. Depending on the position of the tax office, it may also be associated with a penalty for failure to comply with the reporting obligation. Failure to report a donation to the tax office is considered a fraud. Then the tax amount is from 3 to 20 percent. - depending on the amount of the surplus over the tax-free limit and the relationship of the recipient and the giver. Importantly, parents should be able to prove the source of the money for the purchase of a flat (in principle, the purchase of a flat is associated with a large expense), i.e. such an expenditure should be covered by their income. The lack of such coverage may additionally result in the payment of tax on undisclosed income.

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Transfer of a donation from parents to the company's property

The received item in the form of a donation may be transferred by the entrepreneur for business purposes, i.e. as a fixed asset. In connection with the entry into force of the amendment to the PIT Act on July 19, 2018, depreciation write-offs on fixed assets received as a donation entered into the company's assets in 2018 may constitute a tax cost only in a specific case.

 

As indicated in Art. 23 sec. 1 point 45a letter a of the PIT Act, depreciation write-offs from the initial value of fixed assets and intangible assets acquired free of charge, except for those acquired by way of inheritance, if this acquisition benefits from the exemption from inheritance and donation tax . The amendment to the act introduced to Art. 23 of the Act, section 9, which reads:

"The provisions of paragraph 1, point 45a, letter a shall not apply to fixed assets and intangible assets acquired by way of a donation, if the donor made depreciation charges on these components. In this case, the provisions of Article 22g of paragraph 12 shall apply accordingly and Article 22h (3) and the provision of Article 22g (15) shall not apply. "

The paragraph introduced by the legislator gives the entrepreneur the possibility of continuing the depreciation write-offs made by the donor and thus the possibility to include the depreciation write-offs in his tax costs. Then, on the date of acceptance of the fixed asset, the taxpayer adopts, among other things, the same initial value, rate and depreciation method used by the donor. If the fixed asset has not been previously depreciated by the donor, the depreciation write-offs made of its value will not be allowed, pursuant to Art. 23 sec. 1 point 45a letter a of the PIT Act constitute a tax deductible cost.

Read more about donation:
Does a donation in the immediate family give rise to a tax obligation?
Monetary donation paid in installments - when does the tax obligation arise?
Enterprise donation - how to donate it?

Example 4.

The father donated a car to his son, which had previously been his company's property (it was a fixed asset in his business). The vehicle was depreciated in 50%, and its initial value was PLN 30,000. The son decided to introduce the donated vehicle into his business. Therefore, how should he enter into the records and what value will be his tax cost?

The vehicle should be entered into the fixed assets on the date of its introduction for use in the company and the depreciation adopted so far for it (indicated in the father's OT document). Then, in the form of depreciation descriptions, the remaining value of the vehicle will be recognized for depreciation PLN 15,000. The current method of settling depreciation on fixed assets received as a donation will not apply to fixed assets and intangible assets accepted for use before January 1, 2018. The Ministry of Finance admitted that such assets will be subject to depreciation on the basis of the previously applicable rules, i.e. in force before January 1 2018

Example 5.

In December 2020, the entrepreneur received an apartment from his parents, the market value of which is PLN 425 thousand. zlotys. The donation he received from his parents was not used by any of them in business activities. Will depreciation write-offs constitute the entrepreneur's tax cost?

Depreciation charges, as the entrepreneur accepts the flat as fixed assets after January 1, 2018 and it was not previously depreciated by any of the parents, will not be allowed, in accordance with the above-mentioned the indicated provision constitute a tax deductible cost.

Entrepreneurs who have not taken advantage of the exemption from inheritance and donation tax can still include in tax costs depreciation write-offs related to the fixed asset received in the form of a donation. To sum up, in a situation where the donation from parents uses the above-mentioned and we want to introduce it into the company's fixed assets, then we should consider whether according to of the provisions of the PIT Act described earlier, it will be possible to include in depreciation write-offs in company costs.