Repayment of the spouse after the division of property as a tax expense

Service-Tax

To conduct business activity, taxpayers may use assets that are part of the matrimonial property. Doubts may arise when the above-mentioned commonality ceases as a result of divorce. In such circumstances, property is divided, not often with the obligation to pay off the spouse. It is worth asking whether the repayment of the spouse in the part relating to property used for running a business can be considered a tax expense.

General classification of expenses as tax costs

First of all, it should be pointed out that pursuant to Art. 22 sec. 1 of the PIT Act, tax deductible costs are the costs incurred in order to achieve income or to maintain or secure the source of income, with the exception of the costs listed in art. 23. In order for a given expense to be classified as tax deductible costs, it must meet the following conditions:

  • it must be incurred in order to achieve income or to maintain or secure a source of income,

  • cannot be listed in Art. 23 above the act, among the expenses that are not tax deductible costs,

  • must be duly documented.

As a rule, it should be assumed that tax deductible costs are all rationally and economically justified expenses related to the conducted business activity, the purpose of which is to achieve income or to secure or maintain this source of income, provided that, in accordance with the provisions of the Act, they are not excluded from these costs. At the same time, the causal relationship between the expenditure incurred and the achievement of income or the preservation or securing of its source should be assessed individually for each expenditure. The assessment of this relationship should show that the expenditure incurred may objectively contribute to the achievement of income or serve to preserve or secure the source of income.

The costs incurred to maintain the source of income are the costs that have been incurred in order for the income from the given source to continue to be obtained and for such a source to continue to exist at all. On the other hand, the costs of securing the source of income should be considered those that are incurred to protect the existing source of income, in a way that guarantees the safe operation of this source. The essence of this type of costs is their obligatory incurring in order to prevent the loss of the source of income in the future.

Repayment of the spouse and the nature of expenses

In the light of the above considerations, it should be pointed out that the most important feature of a given expense is the ability to prove that it is related to the conducted business activity.Only the cost characterized in this way may reduce the income from non-agricultural economic activity.

From the above considerations, it should be concluded that any repayment of the spouse may not constitute tax deductible costs of non-agricultural business activity, as it does not constitute an expense incurred as a tax deductible income from the conducted activity, or as a means of maintaining or securing the source of income generated by the enterprise.

The necessity to incur expenses to pay off a spouse after divorce is a result of the spouses' personal relationships. The amount paid to the spouse will therefore be an expense for personal purposes. As a consequence, it should be clearly emphasized that such an expense is not related to obtaining (obtaining) income from the conducted business activity or maintaining or securing this source of income.

A similar position was expressed by the Director of the Tax Chamber in Katowice in the individual ruling of December 19, 2013, No. IBPBI / 1 / 415-945 / 13 / AB. In this letter, the tax authority indicated:

Bearing in mind the above-mentioned provisions, it should be stated that in the event of the sale of the assets indicated in the application, which constitute fixed assets or intangible assets in the economic activity conducted by the Applicant, the initial value of the land (from which no write-offs are made) will be a tax deductible cost. depreciation) as well as buildings and structures as well as other fixed assets and intangible assets, reduced by depreciation write-offs, which were classified as tax deductible costs on an ongoing basis. Thus, the costs of acquiring property components that are the subject of sale will be recognized as tax deductible costs (partly indirectly in the form of depreciation write-offs, and partly at the time of their sale). Thus, the repayment to the spouse may not be deductible for the sale of the assets in question.

The correctness of the thesis about the impossibility of including the spouse's repayment expenses as corporate costs also results from the fact that the settlement between spouses is secondary and is not directly related to economic activity. It also results from the content of Art. 2 clause 1 point 5 of the PIT Act, which stipulates that the provisions of the Act do not apply to income from the division of the joint property of spouses as a result of the termination or limitation of marital joint property and income from the equalization of property after the end of the separation of spouses or the death of one of them.

Example 1.

A taxpayer who conducts business activity uses real estate for business purposes, which is a shared property. The taxpayer's spouse does not run a business. As a result of the divorce, the taxpayer took over the entire property with the obligation to make repayment to the spouse. The value of such repayment cannot be considered a tax deductible cost in the taxpayer's business activity.