Extension of the marital community - what is it about?
Although the extension of marital cohabitation is a category of family law, it may result in certain tax consequences in the case of taxpayers running a business. In particular, we will look at the case where the extension of the marital community will include an asset used in business activities.
What is the extension of marital communion?
In order to understand what the fiscal consequences of the event we are discussing are having, it is first necessary to carefully consider when we are dealing with an extension of marital communion.
The agreement extending the marital property partnership is regulated in Art. 47 § 1 of the Act - Family and Guardianship Code, according to which the spouses may, by an agreement concluded in the form of a notarial deed, extend or limit the statutory community or establish property separation or property separation with the equalization of assets (property contract). Such an agreement may be prior to marriage.
Under an agreement that extends the commonality of the spouses, the spouse's personal property (e.g. acquired before the marriage) is included in the marriage community.
The commonality of marriage is joint ownership. This means that in this type of joint ownership it is not possible to determine the size of the spouses' share in joint ownership (non-joint ownership) and none of the spouses may dispose of their rights to joint property during its duration.
We can therefore say that each spouse has the full right to any property in the conjugal community.
Next, it is worth noting that pursuant to Art. 34 of the Code, each spouse is entitled to co-ownership of things that are part of the joint property and to use them to the extent that is compatible with the co-ownership and use of things by the other spouse.
However, according to Art. 35 of the Penal Code, during the duration of the statutory joint property, neither spouse may claim the division of the joint property. He may also not dispose of or undertake to dispose of the share which, in the event of termination of the commonality, will be attributed to him in the common property or in individual items belonging to that property.
Thus, irrespective of which spouse uses the assets covered by statutory commonality in his / her business activity, both spouses remain their owners.
The extension of the marital community is the inclusion of an item constituting the spouse's personal property into the joint property characterized by non-shareholding co-ownership.
Extension of marital unity in the context of tax law
In the next point, it is necessary to consider what possible tax consequences are caused by a situation in which an element of personal property is included in the joint property of the spouses.
According to the established jurisprudence, such an event is tax neutral.
The courts have repeatedly emphasized that agreements on the extension of statutory community, in so far as they establish a principle shaping the property regime, are strictly marriage agreements and are of purely organizational nature.
Since, as a result of such extension and inclusion of an asset with joint ownership, there is no separation of shares, and none of the spouses (co-owners) has ownership of a physically separated part of the thing, it cannot be assumed that with the extension of joint property (statutory joint ownership), a party to such an agreement has been given up. the right to the thing, that is, it transferred ownership.
The Supreme Administrative Court also took a similar position in its judgment of March 22, 2017, file ref. II FSK 456/15, pointing out that the recognition that as a result of the extension of the marital community property one of the spouses acquired the property listed in Art. 10 sec. 1 point 8 of the Personal Income Tax Act, would also lead to taxation of the spouse whose personal property belonged to the property to which the marital cohabitation was extended. After all, the tax would be paid from the joint property of the spouses, as a result of which its burden would also be borne by the spouse who undoubtedly acquired the property for consideration so early that the tax obligation could not arise at all.
If a spouse, as a result of an agreement extending the marriage, contributes to the joint property an item that is his property, then he will also have full ownership of this item at the time of including that thing in the commonwealth.
Therefore, since we are not dealing with a sale for consideration resulting in a change of owner, the extension of the marital community should be considered a tax neutral event.
As a result of the extension of the matrimonial commonality, the spouse who brings his private component to the commonality does not lose the ownership right.
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Extension of the marital community including an asset used in business activities
Moving on to the essence of the problem, it is necessary to consider what tax consequences are caused by the inclusion in marriage of an asset (e.g. a fixed asset) used in business activity.
It should be noted that pursuant to Art. 14 sec. 2 point 1 lit. and the PIT Act, income from business activity is also income from the sale of assets that are fixed assets or intangible assets subject to inclusion in the register of fixed assets and intangible assets used for business purposes.
Therefore, a question arises whether the contribution of a fixed asset to the community of property is treated as disposal for consideration and should be taxed as part of non-agricultural economic activity?
At this point, it is necessary to refer to the existing arrangements and clearly indicate that this type of activity will not result in the need to settle the tax. For both spouses, such a transaction will be tax neutral.
Additionally, it is worth emphasizing that the same conclusions result from the issued tax interpretations.
For example, in the interpretation of the Director of the National Social Insurance Institution of January 17, 2019, No. the activity will sell fixed assets for consideration upon the conclusion of the agreement on the extension of marital property.
The extension we are discussing will be organizational in nature and will not constitute a paid sale within the meaning of Art. 14 sec. 2 point 1 of the PIT Act. Remember that a marriage contract cannot be equated with the sale of individual assets (shares in this property).
This, in turn, means that as a result of the extension of the marital community by a fixed asset used for company needs, no income is generated from non-agricultural economic activity or from other sources of income. The provisions of the act do not include the activities of including a private property in marriage to any of the categories of sources of income, therefore it will be tax-neutral for the activity.
Finally, it is worth adding that the division of joint property is also a tax-neutral event. However, this circumstance results directly from the provisions of the law, as provided for in Art. 2 clause 1 point 5 of the PIT Act, outside the scope of the regulation of this Act, there are revenues from the division of the joint property of the spouses as a result of the cessation or limitation of marital joint property, and revenues from the equalization of property after the end of the separation of spouses or the death of one of them.
Contribution to the common property of a fixed asset used in business activity is a tax-neutral event. The extension of the marital community does not generate income on this account in the course of business activity.
In the light of the information presented, we can therefore indicate that the extension of the marital community is a tax neutral event in every tax sphere, and it includes both private and corporate property. This type of event does not generate tax revenue.