Disposal of a fixed asset may be a tax cost

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Definition of tax deductible costs

Pursuant to the Personal Income Tax Act, tax deductible costs are costs incurred in order to generate income or to maintain or secure a source of income, with the exception of the costs listed in Art. 23. It should be remembered that recognizing an expense as tax deductible costs must first of all be properly justified. Each expenditure should be assessed not only from the perspective of the above paragraphs, but also in terms of purposefulness and economic rationality.

Liquidation of a fixed asset in costs

The above-mentioned Art. 23 updof containing the catalog of expenses that are not included in the tax deductible costs indicates that losses resulting from the liquidation of not fully depreciated fixed assets are not considered tax costs, if these funds have lost their economic usefulness as a result of a change in the type of activity. Therefore, it means that if the liquidation of a given fixed asset takes place as a result of a change in the type of activity, the related losses (non-depreciated value of the fixed asset) may not constitute tax deductible costs. So if the liquidation of a fixed asset is not related to a change in activity, but results from other reasons, e.g. extension of the scope of activity, creation of a new fixed asset, etc. the non-depreciated part of a liquidated fixed asset may be included in costs. This is evidenced by, inter alia, the individual interpretation of the Director of the Tax Chamber in Katowice of September 16, 2011 (IBPBI / 2 / 423-718 / 11 / AK) and the Director of the Tax Chamber in Warsaw of October 29, 2009 (IPPB1 / 415-684 / 09- 2 / AM). In both cases, the tax authorities ruled that it is possible to include the non-depreciated value of the liquidated fixed asset as tax deductible costs. The liquidation of these assets took place not because of a change in the type of activity, but for economic reasons or the desire to expand the scope of activities, moreover, the purpose of incurring the expenses was justified - achieving, maintaining or securing the source of income.

Summing up, the fact whether the unredeemed value of a fixed asset can be classified as costs should be considered through the prism of the reason for its liquidation. The method of settlement of costs depends on the liquidation motive, and thus the possibility of recognizing them as tax costs.

Therefore, if both the reason for liquidation and all the conditions relating to it meet the conditions of Art. 22 updof, the unrepaid value of a fixed asset can, as a rule, be recognized as tax deductible costs.

How, then, should the loss on liquidation of a non-fully depreciated fixed asset be included in the costs? Well, costs not directly related to business activity should be recognized once, on the date they are incurred. The liquidation of a fixed asset is an event indirectly related to the activity, hence the unredeemed value of the liquidated asset will constitute a tax deductible cost deducted on the date it is incurred (the date of liquidation). Therefore, this cost will be recognized once, in the amount corresponding to the non-amortized value of the asset.