Income from free benefits - tax settlement

Service-Tax

Do you run a business and received a free or partially free benefit? Did you know that in this case you need to prove income from free benefits? How to determine it? How to record the income from free benefits in the kept accounting records? We explain below.

Income from gratuitous benefits - definition

Pursuant to Art. 14 sec. 2 point 8 of the Personal Income Tax Act, business income is also understood to mean the value of received benefits in kind and other free benefits.

Importantly, the Personal Income Tax Act does not define what should be understood as a gratuitous benefit. Therefore, reference should be made to the judgment of the Supreme Administrative Court, which presents its own definition in practice accepted by the tax authorities:

“(…) The key feature of free-of-charge benefits is therefore that the recipient of such benefits is not obliged to perform any consideration.Therefore, in order for a given benefit to be considered free of charge, it is necessary for it to consist solely in a unilateral gain on the part of the entity that obtained the benefit. Therefore, free of charge benefits will be, in particular, any services performed for the benefit of the entitled person, e.g. granting him the right to use or use an asset. It is also possible to speak of a free benefit in the event of abolishing a specific activity of the taxpayer, e.g. making real estate available for business free of charge. Thus, the owner of the encumbered real estate does not obtain any benefits, which could be, for example, a discount in charges for the supply and use of electricity. (...) ”(judgment of 16 June 2011, file reference number II FSK 788/10).

Important!

Income from gratuitous benefits arises on the day of obtaining the property gain, i.e. on the day of receiving the gratuitous benefit.

Importantly, exempt from income tax, pursuant to Art. 21 sec. 1, paragraph 125, is the value of benefits in kind and other gratuitous benefits received from people included in the I and II tax group within the meaning of the provisions on inheritance and donation tax. However, this exemption does not apply to benefits received on the basis of an employment relationship, homework or on the basis of contracts constituting the basis for obtaining revenues classified as revenues from activities performed in person.

Tax groups

Tax group I - spouse, descendants (children, grandchildren, etc.), ascendants (parents, grandparents, etc.), stepson, son-in-law, daughter-in-law, siblings, stepfather, stepmother and in-laws;

Tax group II - descendants of siblings, parents' siblings, descendants and spouses of stepchildren, spouses of siblings and siblings of spouses, spouses of siblings of spouses, spouses of other descendants;

Tax group III - other persons.

How to determine the income from free benefits?

Art. 14 sec. 2 point 8 of the Personal Income Tax Act clearly indicates the article to which reference should be made when determining the income from gratuitous benefits. It is Art. 11 sec. 2–2b of the Act.

According to its content, the monetary value of benefits in kind is determined on the basis of market prices used in the course of trade in things or rights of the same type and species, taking into account, in particular, their condition and degree of wear, as well as the time and place of obtaining them.

In the case of other free benefits, the monetary value is determined in accordance with the following principles:

1) if the subject of the service are services falling within the scope of the economic activity of the service provider - according to the prices applied to other recipients;

2) if the subject of the services are purchased services - according to the purchase price;

3) if the subject of the benefits is the provision of the premises or building - according to the equivalent of the rent that would be payable in the event of concluding a rental agreement for this premises or building;

4) in other cases - on the basis of market prices used in the provision of services or the provision of items or rights of the same type and species, taking into account in particular their condition and degree of wear and the time and place of making available.

Important!

In the case of partially paid benefits, the revenue is the difference between the value of these benefits, determined in accordance with the principles set out above, and the fee paid by the taxpayer.

 

Important!

A free computer program is not always income from free benefits. It depends on whether it is "free" for everyone, regardless of the circumstances, or only for selected entities, as is the case in the Activation Program.

Income from free benefits in KPiR

Taxpayers who keep a tax book of revenues and expenditures show the revenues from free benefits in col. 8 - Other revenues. In practice, accounting is made on the basis of internal evidence, to which the taxpayer is obliged to attach all documents related to the receipt and valuation of the free benefit.

Participation in the Activation Program - income from free benefits in KPiR

Users of the wfirma.pl system, in order to correctly demonstrate the income, should create an internal proof in the tab REVENUE >> OTHER REVENUE >> ADD OTHER INCOME >> OTHER REVENUE (DW). In the window that will appear, remember to complete the field:

  • Date of issue, which should be the same as the date of obtaining income from free benefits;

  • Total, which represents the amount of income from gratuitous benefits;

  • Name of the income, which can be general, e.g. income from gratuitous benefits or more specific, e.g. income from gratuitous benefits - accounting program;

  • Accounting scheme that should include Other income. Then the user is guaranteed to show the revenue in the appropriate KPiR column.

After saving, the revenue will be shown in the tab RECORDS >> BOOK OF REVENUE AND EXPENDITURE >> TAX BOOK OF INCOME AND EXPENDITURE.

Income from free benefits in the revenue record (lump sum)

Taxpayers taxed with a lump sum on recorded income do not tax the income from gratuitous benefits with the rate appropriate for their activity. In this case, the provisions of the Lump-sum Income Tax Act will apply. Pursuant to Art. 12 sec. 1 point 5 lit. e:

"The lump sum on recorded revenues is 3.0% of the revenues referred to in Art. 14 sec. 2 points 2 and 5-10 of the Income Tax Act ”.

Thus, in the revenue record, income from gratuitous benefits should be included in the column on income taxed at the 3% lump sum rate. As in the case of taxpayers keeping the KPiR, it is customary to prepare internal evidence and make appropriate entries in the records on its basis.

Participation in the Activation Program - income from free benefits in the income record

Users of the wfirma.pl system, in order to correctly demonstrate the income, should create an internal proof in the tab REVENUE >> OTHER REVENUE >> ADD OTHER INCOME >> OTHER REVENUE (DW). In the window that will appear, remember to complete the field:

  • Date of issue, which should be the same as the date of obtaining income from free benefits;

  • Total, which represents the amount of income from gratuitous benefits;

  • Name of the income, which can be general, e.g. income from gratuitous benefits or more specific, e.g. income from gratuitous benefits - accounting program;

  • Accounting scheme that should include Bank interest. Then the user is guaranteed to show the revenue in the appropriate column of revenue records (col. Related to the 3% flat rate, even though the name of the scheme does not correspond to the actual event).

 

After saving, the revenue will be shown in the RECORDS >> REVENUE RECORDS tab.

The Activation program and the income from free benefits on an example

The Activation program is a package of benefits for new entrepreneurs. The basic element of the package is free one-year access to the wfirma.pl system. The program participant receives the Optimal Package.

How to calculate the income from free benefits in practice in this case? It all depends on whether the entity using the program is an active VAT payer or whether it benefits from VAT exemption.

If you receive free annual access to the wfirma.pl package, the income from free benefits will be determined according to the prices applied to other recipients.

The wfirma.pl price list contains information on the prices of individual packages. In the case of 12-month packages, the prices given are monthly net prices.

Example 1.

The entrepreneur took advantage of the Activation Program, under which he received the Optimal Package for a period of 12 months. How much will the income from free benefits be in the case of:

a) active VAT payer?

In the case of an active VAT payer, the income from free services is determined based on net prices.

Net price Optimal Package: PLN 33.33 / month

Income from free benefits: 12 months x 33.33 PLN / month = 399.96 PLN

b) entity exempt from VAT?

In the case of an entity exempt from VAT, the income from free benefits is determined based on gross prices.

Net price Optimal Package: PLN 33.33 / month

Gross price Optimal Package: PLN 33.33 / month + 23% VAT = PLN 41.00 / month

Income from free benefits: 12 months x 41.00 PLN / month = 492.00 PLN

Important!

Income from free benefits related to the wfirma.pl package should be shown on the date of its receipt, i.e. on the day of registration on the wfirma.pl website.