Sale of fixed asset withdrawn for own needs - taxation

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Each entrepreneur has the right to withdraw a fixed asset from the company and hand it over for their own needs. This gives rise to tax consequences in terms of VAT, if the taxpayer was entitled to deduct it when purchasing a fixed asset or its essential components. On the other hand, in the context of income tax, the transfer itself does not have any tax consequences. However, they may be caused by the sale of a fixed asset withdrawn for own needs, even though theoretically it has already been given for the entrepreneur's personal purposes.

Sale of fixed asset withdrawn for own needs - income settlement

Pursuant to Art. 10 sec. 2 point 3 and art. 14 sec. 2 point 1 of the Personal Income Tax Act, income from activity is the sale of a fixed asset withdrawn for own needs of the entrepreneur, if no more than 6 years have passed from the first day of the month following the month in which the fixed asset was withdrawn for own needs.

Therefore, the revenue from the sale of the fixed asset transferred for the entrepreneur's own needs, if 6 years have not passed since the withdrawal from the company, should be shown as operating income, entering its value into column 8. KPiR - Other revenues.

Example 1.

Ms. Basia runs an upholstery factory, where she has several sewing machines in the register of fixed assets. However, she decided that one of them would no longer be used for business purposes and decided to transfer it for private purposes. One year after the machine was shut down, she decided to sell the equipment. Does Mrs. Basia have to prove income for the sale of the fixed asset?

Yes, although the equipment has been withdrawn for private use, its sale in less than 6 years generates residual operating income.

The sale of a fixed asset withdrawn from activity should be documented by a sale and purchase contract, where the seller is an entrepreneur as a private person.

Example 2.

Mr. Rafał decided to exclude the car from fixed assets and handed it over for private purposes. 7 years after its withdrawal, the entrepreneur sold the vehicle. Does Mr. Rafał have to show income for the sale of a fixed asset and issue a VAT invoice?

No, because the car was withdrawn from activity and its sale took place 6 years after the withdrawal, no income will be generated from the activity, and the entrepreneur settles the sale as a private person on the basis of a purchase and sale contract.

On the basis of VAT, the sale of a fixed asset withdrawn for own needs is not subject to VAT, as this item is already private property, not business property.

The confirmation of the above position is the individual interpretation of the Tax Chamber in Poznań of August 1, 2016 with the reference number ILPP2 / 4512-1-250 / 16-5 / OA, according to which:

“[...] selling a car previously withdrawn from business [...] activity will not be considered a business activity within the meaning of the Value Added Tax Act. The above results from the fact that the sale by the Applicant of the private property in question (after its withdrawal from economic activity) constitutes ordinary exercise of the ownership right. As a result of the above, the sale of the car in question will not be subject to tax on goods and services ”.

The sale of a fixed asset withdrawn for own needs after 6 years from the moment of its withdrawal for personal needs of the taxpayer does not require the entrepreneur to account for this income as income from business activity. In a situation where the entrepreneur had the right to a partial or full deduction of VAT when purchasing a passenger car or its component parts, at the time of its withdrawal, he is obliged to tax this event with VAT, more on in the article: Withdrawal of a passenger car from the company - VAT consequences .

Costs and sale of a fixed asset withdrawn for own use

When selling a fixed asset withdrawn for own needs, the expenses incurred for the acquisition or production of the fixed asset less the sum of the depreciation write-offs (i.e. the non-depreciated part of the initial value) may be a tax deductible cost when determining income from the sale of the fixed asset for consideration. Thus, at the time of sale, the non-depreciated part of the fixed asset may constitute the tax cost shown in column 13. KPiR - Other expenses. At the time of transferring the fixed asset for own needs, the taxpayer could not include the non-depreciated part of the write-offs as costs. This will only take place when the fixed asset is sold.

Example 3.

Ms Iza withdrew for private purposes a fixed asset with an initial value of PLN 12,000 and the current redemption of PLN 5,000. After 4 years, she decided to sell a fixed asset for PLN 8,000. How should such sales be reported in the KPiR?

As 6 years have not passed since the withdrawal for private purposes, the revenue from sales in the amount of PLN 8,000 should be reported in column 8. KPiR - Other revenues, while the rest of the undepreciated amount, i.e. PLN 7,000 (12,000 - 5,000), may be included in column 13. KPiR - Other expenses.

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Thus, if a fixed asset is sold that has been withdrawn from the company before it is fully depreciated, by selling it before the expiry of the 6-year period, the entrepreneur makes entries both on the revenue side (other revenues) and on the costs side (other expenses). It is worth noting that even if, at the time of sale, the taxpayer is no longer active, but the period of 6 years has not yet expired (counting from the first day of the month following the month in which the fixed asset was withdrawn), revenue from its sale should also be shown as revenue , except that in the annual tax return itself.

Example 4.

Entrepreneur Rafał decided to sell a fixed asset, which he withdrew from his activity 7 years ago. In this case, should the sale of the fixed asset also be accounted for as operating income?

No, because the sale of a fixed asset within 6 years of decommissioning results in the obligation to settle the income on this account. Therefore, after this period, the sales revenue is free of income tax.

The possibility of settling the non-depreciated part in costs will not appear, because the sale takes place after 6 years from the first day of the month following the month in which the car was withdrawn from operation.

How to show the sale of a fixed asset withdrawn for own needs in wFirma.pl?

In the wFirma.pl system, in order to show the income in column 8. KPiR - Other income from the sale of a fixed asset withdrawn for own needs and its non-depreciated part in column 13. KPiR - Other expenses, go to the tab: RECORDS »KPIR» ADD ENTRY. Then the value of income must be entered in the item OTHER REVENUE. If a fixed asset was not fully depreciated, at the moment of sale its unamortized part is included in the item OTHER EXPENSES.