Theft of a fixed asset depreciated once - how to settle?

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Every entrepreneur in the course of his business activity is exposed to the risk of theft of the possessed assets. As a result of the theft, the taxpayer incurs a loss which, in certain circumstances, may be recognized as tax deductible costs as part of the income tax settlement. Due to the fact that the theft of a fixed asset is the most common, we will consider how the theft relates to depreciated components.

General principles for recognizing the value of stolen items at cost

In order to analyze the presented issue of what the theft of a fixed asset is, first of all, refer to the general definition of tax costs. Pursuant to Art. 22 of the PIT Act (Article 15 of the CIT Act, respectively), tax deductible costs are costs incurred in order to achieve income or to maintain or secure the source of income, with the exception of the costs listed in the catalogs of exclusions.

In the context of the above structure of costs, it is commonly assumed that only those losses that are unavoidable in the course of a given type of activity are tax deductible costs. As a result, when assessing the admissibility of recognizing the value of stolen fixed assets in costs, factors such as the taxpayer's fault as the cause of the loss should be taken into account. The point is to include in costs only those losses that were not attributable to the taxpayer and resulted from unforeseeable events and unavoidable by an economic entity that rationally and carefully carries out its interests. On the other hand, if the theft of a fixed asset was caused by the fault of a taxpayer, as a result of his negligence or improper supervision over employees, the tax authorities consistently deny the right to recognize the stolen asset in tax costs.

The above is confirmed in letters issued by tax authorities. For example, as indicated by the Director of the Tax Chamber in Rzeszów in a letter of December 8, 2005, IS.IX / 1-415 / 84/05:

In order to include the theft of both fixed and current assets as tax deductible losses, the aggrieved party must prove that in a given case we are dealing with a random event, understood as an unforeseeable and unavoidable event. However, losses in fixed assets and current assets cannot be considered as tax deductible costs if it is proven that these assets were not secured or were secured improperly.

Loss of depreciable fixed assets

As is commonly known, fixed assets owned or jointly owned by the taxpayer are recognized in tax costs through depreciation write-offs from the initial value. Therefore, it is worth considering what if the theft of the fixed asset occurs during depreciation. In order to clarify this issue, refer to the content of Art. 23 sec. 1 point 5 of the PIT Act (Article 16 (1) (5) of the CIT Act), which states that losses in fixed assets and intangible assets in the part covered by the sum of depreciation charges are not included in the tax deductible costs. This means that in the event of theft of a fixed asset, the loss may be deducted from tax deductible costs, but only in part, the amount of which is determined by subtracting the value of depreciation write-offs from the initial value of this asset.

Example 1.

The taxpayer purchased a fixed asset worth PLN 20,000. The current depreciation charges amount to PLN 14,000. Despite due diligence and proper supervision procedures being ensured, the fixed asset was stolen. In such circumstances, the taxpayer may include the remaining, non-depreciated value of the fixed asset, i.e. PLN 6,000, as tax deductible costs.

Theft of a fully depreciated fixed asset

In the light of the provisions and arguments cited so far, it should be clearly stated that in a situation where the theft concerns a fully depreciated fixed asset, there are no grounds for re-entering the value of the stolen fixed asset in tax costs. Additionally, it should be emphasized that the manner in which the fixed asset was fully depreciated is irrelevant. As a result, both in the case of systematic depreciation and as a result of a one-off depreciation write-off, the value of a fixed asset cannot be recognized in tax deductible costs.

Example 2.

A small taxpayer purchased a fixed asset worth PLN 40,000. In the same year, he made a one-off depreciation write-off. Despite all precautionary measures, the fixed asset was stolen. It is not possible for the taxpayer to recognize a loss due to the theft of this asset in the costs, because earlier, as a result of a one-off write-off, its entire value was included in tax deductible costs.

Accounting for the theft of an asset

Pursuant to Art. 3 sec. 1 point 32 of the Accounting Act, costs indirectly related to the operating activity of the entity, including, inter alia, costs related to the sale of fixed assets, fixed assets under construction, intangible assets, as well as the transfer of assets free of charge, including by donation of assets, to other operating expenses or revenues. In the case of theft, the costs include the value of the assets as shown in the books of account - while in the case of fully depreciated fixed assets, the value is zero, so no costs will be charged.