Sale of participation in TBS - how to settle on PIT land?

Service-Tax

Individuals can invest in real estate in many different ways. One of them is participation in the costs of building a flat under the Social Housing Society (TBS). Below, we will analyze the effects of the acquisition and sale of participation in TBS.

What is participation in TBS?

In order to explain the above concept, reference should be made to the Act of October 26, 1995 on certain forms of support for housing construction. According to Art. 27 sec. 1 of the act, the society's activity is the construction of residential houses and their operation on a rental basis. These flats are owned by TBS, and tenants only pay rent while paying off the loan taken out by TBS for their construction. Even after paying off the loan taken out by TBS to build an apartment, it cannot be sold, donated, or owned.

Pursuant to Art. 29a of the Act, a natural person may conclude an agreement with TBS on participation in the construction costs of a dwelling, of which he will be a tenant. The amount of participation in the construction costs of a dwelling, in the case of dwellings built with the use of repayable financing, may not exceed 30% of the construction costs of the dwelling.

As a result, TBS cannot sell a dwelling to a natural person, and the buyer of shares in the construction costs does not acquire ownership of the dwelling, but only the right to rent a flat built to support housing construction. A person deciding to conclude a contract in the right to participate in the costs of building a flat by TBS is only a tenant of the premises in question, but never is its owner.

Participation in TBS is only a share in the construction costs, but not a share in the ownership of the premises. This circumstance is very important in terms of tax law.

Sale of participation in TBS - how should it be taxed?

Pursuant to Art. 10 sec. 1 point 8 of the PIT Act, taxable disposal of real estate or its part is subject to taxation, if it was made within 5 years, counting from the end of the calendar year in which the acquisition took place.

However, the presented rule will not apply to the sale of participation in TBS, because this participation does not constitute the property right to the premises. At the time of signing the agreement on participation in costs, the taxpayer does not acquire a share in the premises. Sale of participation in TBS does not constitute sale of real estate or its part against payment. Therefore, the rule of taxing sales within 5 years from the end of the calendar year in which the acquisition took place does not apply. How should such a sale be taxed? The answer to this question can be found in the interpretation of the Director of the Tax Chamber in Warsaw of December 2, 2010 (No.IPPB2 / 415-855 / 10-4 / MG), where we can read that the sale of the right to a dwelling belonging to the resources of Towarzystwo Budownictwa Społecznego cannot be qualified as a source of income specified in art. 10 sec. 1 point 8 lit. a) -c) above of the act and, as a result, cannot be equated with the tax consequences resulting from such sale. Thus, the qualification of the source of income made by the Applicant is incorrect, and thus irrelevant to the tax consequences is the fact that the said withdrawal of participation transaction took place after five years from the date of its acquisition, because the five-year period referred to in Art. 10 sec. 1 point 8 of the Tax Act does not apply to the case at all.

It also means that in the presented facts, the waiver of the right to a flat owned by the Society for Social Housing to a third party should be qualified as the source referred to in Art. 10 sec. 1 point 7 of the Personal Income Tax Act. Participation in TBS is a property right, the sale of which should be classified as income from capital funds and property rights, including the sale of property rights for consideration, referred to in Art. 10 sec. 1 point 7 of the PIT Act.

Example 1.

In 2012, the taxpayer acquired the right to participate in the costs of building a flat from the resources of TBS. In 2018, he decided to sell this right to another person. In this case, the sale of participation does not qualify as the sale of real estate, which means that the rule stating that after 5 years from the end of the calendar year in which the acquisition took place, the sale is tax-free will not apply. The disposal of participation in TBS should be taxed as the disposal of the property right against payment.

Tax settlement of the sale of participation in TBS

In the event of the sale of the property right referred to in art. 10 sec. 1 point 7 of the PIT Act, income is subject to taxation, which means that the taxpayer may deduct the costs incurred from the income obtained from the sale of participation in TBS.

Example 2.

In 2012, the taxpayer acquired the right to participate in the costs of building a flat from the TBS resources for the amount of PLN 50,000. In 2018, he decided to sell this right to another person for PLN 70,000. Due to the fact that income is subject to tax, which is the difference between income and cost, the taxpayer will pay tax for the amount of PLN 20,000.

Paid sale, ie sale of participation in TBS, is subject to taxation on general principles according to the tax scale (18% or 32% rate). Income obtained from the sale of rights under the participation agreement should be accounted for together with other income in the PIT-36 tax return submitted by 30 April of the year following the tax year.

This method of settlement was confirmed by the Director of the Tax Chamber in Bydgoszcz in the interpretation of May 4, 2011 (ITPB2 / 415-133 / 11 / PS), in which we read that the income that the Applicant will obtain from the sale of rights under the participation agreement in question will be required to settle together with other income taxed according to the tax scale in the tax return submitted pursuant to art. 45 sec. 1 of the act by April 30 of the year following the tax year. The income will be the amount received for the rights sold, not reduced by the costs incurred by the Applicant's mother under the contract of participation in the construction costs of the apartment, implemented by Towarzystwo Budownictwa Społecznego.. In the case of sale of participation in TBS, income is taxed, which is combined with income from other sources. The tax scale will apply to taxation. This income should be shown in the PIT-36 tax return submitted by April 30 of the year following the tax year.

It is also worth emphasizing that pursuant to Art. 1 clause 1 point 1 lit. a) of the Act on tax on civil law transactions, contracts for the sale of property rights are subject to taxation. In such a case, the obligation to pay PCC lies with the acquirer of the right. Since we have established that participation in TBS is a property right, then at the time of purchase, the buyer is obliged to pay TBS. The sales contract is taxed at the rate of 1%. If the contract was concluded with a notary, the obligation to collect the tax and report this fact to the tax office rests with the notary. Otherwise, the taxpayer must submit the PCC-3 declaration on his own and pay the tax within 14 days from the date of the contract. On the part of the buyer of the right to participate in TBS, it is necessary to pay the PCC tax at the rate of 1% calculated on the value of this right.