Tax card and private rental of an apartment

Service-Tax

Under the Polish tax law, entrepreneurs may opt out of the general principles of taxation of business activity and use simplified forms. An example of such a simplification in tax settlement is a tax card, where the taxpayer pays a fixed amount of tax every month, determined by the decision of the head of the tax office and does not have to keep complicated documentation and tax records. The tax card may be selected by the taxpayer after meeting the conditions provided for in the regulations. In today's article, we will analyze the impact of private rental of an apartment on the admissibility of using a tax card.

Tax card and rent

The issue related to the conditions and premises allowing for the taxation of activities with a tax card has been regulated in the Act on flat-rate income tax on certain revenues earned by natural persons. However, the issue of interest to us is described in Art. 25 sec. 2 point 2 of the same act. According to the cited provision: It does not exclude taxation in the form of a tax card, earning income from a lease, sublet, lease, sublease agreement or other similar agreements, the revenues from which (income) are subject to separate income tax on general principles.

In the context of the presented regulation, several key issues should be noted. First, the aforementioned provision mentions income from lease and similar contracts that are subject to separate taxation. The Personal Income Tax Act distinguishes non-agricultural economic activity as well as lease and other contracts of a similar nature as separate sources of income, with the exception of assets related to economic activity. The above means that the rental income may be classified as a non-agricultural business activity or it may constitute a separate source of income and then it is considered a private rental.

In the light of the presented considerations, it should be pointed out that earning income from rent considered to be part of the conducted business activity excludes the possibility of using the simplification in the form of a tax card. This is a consequence of the use in art. 25 sec. 2 point 2 of the Act, the wording that the rental income is to constitute a source of income separate from the conducted activity.

The above was confirmed by the Director of the Tax Chamber in Warsaw in the individual ruling of July 7, 2010 (reference number IPPB1 / 415-400 / 10-4 / MT), which reads:

The facts presented in the application show that the Applicant has concluded a sub-lease agreement for part of the premises in which he conducts business activities to his son-in-law who will provide saddlery services. In view of the above, the revenues obtained from this sublet should be treated as income from business activity and not as a separate source of income (...).

Individual types of business activity that can be taxed in the form of a tax card are listed in Art. 23 of the Act on flat-rate income tax on certain revenues earned by natural persons. There is no rental activity among these activities. As a consequence, a taxpayer who obtains income from the rental of real estate (similar contracts) cannot tax this income with a flat-rate income tax paid in the form of a tax card.

To sum up, bearing in mind the presented facts and the cited legal provisions, it should be stated that the conclusion by the Applicant of a sublet agreement of premises where non-agricultural business activity is carried out and obtaining revenues from this, which the Act on personal income tax includes as a source of income - non-agricultural economic activity - will exclude him from the possibility of using taxation, which is a tax card. The income from the rental of assets is income from business activity, and not income from the rental specified in Art. 10 sec. 1 point 6 of the Personal Income Tax Act.

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Tax card and the choice of the form of private rental taxation

As it is commonly known, income obtained from renting premises under private rental may be taxed in two ways. Taxpayers can choose between general rules or a flat-rate tax of 8.5%.

The analyzed article states that it does not exclude taxation in the form of a tax card, obtaining income from lease and similar contracts, which are taxed on general principles. In accordance with the statutory glossary contained in the Act on flat-rate tax, income tax on general principles means personal income tax, paid using the tax calculation basis referred to in Art. 26 of the Income Tax Act, and the scale referred to in Art. 27 of this act.

As a result, a taxpayer who wants to use a tax card and who obtains an additional financial benefit from a private lease must tax the income obtained on general terms. In this case, the application of the flat rate of 8.5% will result in the loss of the right to the tax card as part of the conducted business activity.

Example 1.

The taxpayer runs a hairdressing salon and taxes her activities on the basis of a tax card. She rented a part of the premises where the activity is conducted to her friend, who opened a beauty shop. Income from subletting should be considered as earned in the course of business activity, which results in the taxpayer losing the right to use the tax card.

Example 2.

The taxpayer runs a business in the form of chimney sweep services, which is taxed with a tax card. Additionally, he rents out his private apartment. Income obtained from private rental is taxed according to general rules. Thanks to this, he can still use the right to the tax deduction card. If the taxpayer chose the flat rate and the 8.5% rate on private rental income, he would lose the ability to tax his business on the basis of a tax deduction card.