Compensation from company insurance - how to book?

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Doing business involves some risk. In order to minimize the severity of the damage to property components, entrepreneurs purchase insurance policies. The contributions paid in this respect constitute tax costs. And, as a rule, you have to pay tax on the compensations received. How then to include compensation from company insurance?

Compensation from company insurance as income

According to the wording of Art. 14 sec. 2 point 12 of the Personal Income Tax Act (hereinafter: the PIT Act), the income from business activity is also received compensation for damage to assets related to the conducted business activity.

On the other hand, under Art. 21 sec. 1 point 4 lit. a) the amounts received from property and personal insurance are free from income tax, with the exception of compensation for damage to assets related to the conducted business activity or running special departments of agricultural production.

Thus, it should be concluded that company insurance compensation for a damaged or lost asset generates taxable income, regardless of whether the cost of taking out the policy has been included in the records.

It is worth adding that, in addition to fixed assets, the assets of the conducted business activity include also intangible assets and equipment (other tangible elements of the company's assets not classified as fixed assets).

In addition, this regulation also applies to taxpayers who have chosen the flat-rate taxation form. Then the received compensation should be taxed at the rate of 8.5%.

Compensation from company insurance - date of the income

The date on which the income from the compensation paid for damages to the assets related to the business activity arises is the date of actual receipt of the compensation, i.e. the date on which it was credited to the bank account or paid to the cash register (Article 14 (1) and the PIT Act).

Compensation from company insurance for a damaged car

The most common asset in small and medium-sized enterprises is a car. Depending on whether the compensation from the company insurance will be paid out from civil liability or autocasco, the entrepreneur's tax situation will be different.

As a reminder, autocasco insurance serves to cover the costs incurred for the repair of a vehicle that has suffered an accident. Its amount generates income and must be taxed.

The situation is different when the taxpayer has obtained compensation under the perpetrator's civil liability insurance policy.

Pursuant to Art. 23 sec. 1 point 48 of the PIT Act, losses resulting from the loss or liquidation of cars and the costs of their post-accident repairs are not considered to be tax deductible costs, if the cars were not covered by voluntary insurance.

Moreover, pursuant to Art. 14 sec. 3 point 3a of this Act, the reimbursement of expenses not included in tax costs is excluded from revenues.

To sum up, if the taxpayer has purchased only a third party liability insurance policy, the expenses incurred for the repair of the car will not constitute a tax cost, and the compensation paid from this insurance, in part covering the actual expenses, will not be income.

Only the excess of the compensation paid over the expenses incurred for the repair should be included in the income.

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Withdrawal of a car from the records and compensation from company insurance

The taxpayer has the option to withdraw the car from business activity and use it for personal purposes.

However, the withdrawal of a fixed asset from the records may raise a number of doubts.

If the car was insured, the problem may be the tax effect on the compensation paid in connection with the damage or loss of the car, especially if such a situation occurred within 6 years from the date of withdrawal.

Because according to Art. 14 section 2 point 1 and art. 10 sec. 2 point 3 of the PIT Act, income from business activity is also income from the sale of fixed assets for consideration, also when these assets have been withdrawn from the company, and between the first day of the month following the month in which the assets were withdrawn from activity and the date of their withdrawal. for consideration disposal has not passed 6 years.

However, in this situation, the period that has elapsed since the car was withdrawn from the register of fixed assets is irrelevant for the taxpayer, because the compensation received by him from the company insurance is not the same as a paid disposal, even if the vehicle has been lost or damaged, which precludes repair.