Rental tax - when can you take advantage of the flat rate?

Service-Tax

Renting is an increasingly popular form of earning in the country. Currently, it gives much higher profits than bank deposits. This way of earning money is also considered very safe. Thus, more and more people are buying premises for rent. They have a choice as to how to tax the lease with income tax. Find out what impact the declaration of choosing the lump sum form will have on the rental tax?

Rental tax - contract definition

Pursuant to Art. 659 of the Civil Code, the landlord undertakes to give the tenant the property for use for a specified or indefinite period of time, and the tenant undertakes to pay the landlord the agreed rent. It may be indicated in money or in other types of benefits. The essential features of this contract are therefore two elements: putting the item into use for a certain period of time and payment. The lease agreement does not transfer ownership of the property. This means that putting into use against payment on the basis of a rental agreement constitutes the provision of services.

The parties to the lease agreement, under the applicable principle of freedom to conclude contracts, have full freedom in shaping contractual relations, including changing and suspending the term of the contract for a certain period of time for justified reasons.

Rental tax - for private rental and business activities

At the outset, it should be recalled that a taxpayer may classify rented real estate as private or business property. If the size, repeatability, profit-making nature and manner of organization indicate the features of economic activity, then the rental of real estate meets the conditions for recognition as an economic activity within the meaning of Art. 5a point 6 of the PIT Act. So in such a situation, the rental tax should be settled on the principles appropriate for this activity.

From the definition included in the PIT Act, in order to recognize a specific activity as an economic activity, it is necessary, inter alia, to cumulative fulfillment of three conditions: first - the activity in question must be a gainful activity, secondly - an organized activity and third - on a continuous basis. An activity is gainful when it is capable of generating a profit and its purpose is to provide a certain income. Activities the sole purpose of which is to satisfy the own needs of the person undertaking specific activities are not of a profit-making nature.

The provisions of the Personal Income Tax Act also require that economic activity be carried out in an organized and continuous manner, while it is possible to earn income from this type of activity without meeting certain formal elements of the organization (e.g. official registration), because running a business is an objective category, regardless of how this activity is assessed by the entity conducting it and how it is called, and whether it fulfills its obligations related to this activity.

Rental tax versus flat rate

Article 1 point 2 of the Act on flat-rate income tax on certain revenues earned by natural persons regulates taxation with flat-rate income tax on certain revenues (income) obtained by natural persons: earning revenues from lease, sublease, lease, sub-lease or other contracts of a similar nature , if these contracts are not concluded as part of non-agricultural business activity.

Importantly, lump-sum taxation on recorded income also applies to money and monetary values ​​received or made available to the taxpayer in the calendar year, as well as the value of benefits received in kind and other free benefits under rental, sublet, lease, sublease or other contracts of a similar nature. In the event of receiving benefits in kind and other gratuitous benefits under these contracts, Art. 11 sec. 2b of the Personal Income Tax Act.

Rental tax - conditions for taking advantage of the lump sum

In the case of obtaining rental income by choosing to tax in the form of a lump sum on the revenue recorded for a given tax year, the first payment in a tax year for a lump sum in this respect is recognized, and if the first such income was achieved by the taxpayer in December of the tax year - submission of the tax return referred to in art. 21 sec. 2 point 2.

From 2019, taxpayers who decide to tax rental with a flat rate do not have to submit a declaration to the tax office on the choice of this form of income taxation.

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Lease tax and late declaration

As we have already described above, the taxpayer, in order to be able to benefit from the flat-rate taxation, must pay the flat-rate tax on this account.

Example 1.

In June 2020, the taxpayer purchased a flat. In July 2020, he rented an apartment. In connection with the rental, he received the first income in July 2020 and it amounted to PLN 1,000. The lease agreement was concluded for the period from July 1, 2020 to December 31, 2022. From August, the taxpayer was paying the tax in the form of a lump sum at the rate of 8.5%. Moreover, at the end of the year, he submitted a PIT-28 settlement and a lump sum.

At the outset, it should be remembered that the meaning of Art. 21 sec. 1 above of the Lump-sum Act, taxpayers are obliged to calculate a lump-sum on recorded income for each month and pay it to the individual tax micro-account by the 20th day of the following month, and for December - before the deadline for submitting the tax return.

From January 1, 2020, taxpayers are required to pay tax using an individual tax account.

Pursuant to Art. 21 sec. 2 point 2 of the Lump-sum Act, taxpayers are obliged to submit a tax return to the tax office according to the established formula on the amount of income obtained, the amount of deductions made and the lump sum due on recorded income - from February 15 to the end of February of the year following the tax year; a tax return submitted before the deadline is deemed to have been filed on February 15 of the year following the tax year.