Purchase of business animals and costs
Taxpayers use a variety of components in the course of their business activities. The catalog is wide enough to include animals as well. According to the general principles of the law, animals as living creatures are not things, but under the provisions of the law all regulations that refer to things apply to them. In the context of the above, it is worth considering how to tax the purchase of animals used for business activities.
Can the purchase of animals used for business purposes be included in fixed assets?
First of all, it should be noted that pursuant to Art. 22 of the PIT Act, the costs of obtaining revenues from a particular source are all costs incurred in order to achieve revenues, except for the costs listed in art. 23.
A tax deductible cost is an expense that is directly or indirectly related to the generated income, and has not been listed among expenses not recognized as expenses. The taxpayer bears the burden of proving that a given expense was incurred in connection with the conducted activity in order to achieve income.
Not all expenses are recognized at once in tax deductible costs, expenses for the purchase of the so-called fixed assets are accounted for systematically through depreciation write-offs.
Pursuant to Art. 22a paragraph. 1 of the PIT Act, fixed assets subject to depreciation are owned or jointly owned by the taxpayer, acquired or manufactured on their own, complete and fit for use on the date of acceptance for use:
structures, buildings and premises owned separately,
machines, devices and means of transport,
- with an expected period of use longer than one year, used by the taxpayer for the purposes related to his business activity or put into use on the basis of a rental or lease agreement.
Any animals for income tax purposes are not treated as a fixed asset and are not depreciated. However, since livestock can be used for business activity and the income generated from it, it should be considered that it may constitute a tax deductible cost. As a result, the purchase of animals used for business activity should be charged to tax deductible costs on a one-off basis on the date the expenditure is incurred, even if the purchase exceeds PLN 3,500. The animal will not be depreciated as a fixed asset, and the costs of its purchase will be settled once as costs of the current period.
An entrepreneur running a riding school purchased a horse for company purposes, worth PLN 20,000. The horse will be treated as an asset, but not as a fixed asset. As a result, the expense for its purchase will be recognized as a one-off tax expense in the month of purchase. The entrepreneur will not make depreciation write-offs on the horse's value.
A similar position was expressed by the Director of the Tax Chamber in Warsaw in the individual ruling of May 28, 2014, No.IPPB1 / 415-266 / 14-2 / AM:
Under the tax law, the horse as a livestock does not constitute a tangible component of the taxpayer's property (fixed asset or equipment). The provisions of the above-mentioned Acts, defining the concept of fixed assets, did not include animals within its scope.
The provisions of the Regulation of the Council of Ministers of 23 December 2010 on the Classification of Fixed Assets (KŚT) (Journal of Laws No. 242, item 1622) classify livestock in group 9, including farm animals, farm animals, circus animals and animals in zoos and other live animals, both individual animals and whole herds, however, the regulations on statistics are not the basis for deciding on the legal and tax consequences of actions taken by the taxpayer. These can only be assessed on the basis of the provisions of the tax act. The provisions of the Personal Income Tax Act applicable in the discussed case do not include the concept of fixed assets of animals. Also, the list of annual depreciation rates listed in Annex 1 to the Act does not include group 9 of the KŚT concerning animals.
In the light of the above, the cost of purchasing a horse is not an expense for the purchase of a fixed asset subject to depreciation.
Other animal related expenses
In the light of the foregoing considerations, it should be stated that the taxpayer is not required to show the purchased animal in the register of fixed assets and intangible assets, as it cannot be considered a fixed asset, which means that it is not subject to depreciation.
In addition, it should be noted that not only the expenses for the purchase of animals used for running a business, but also all other expenses related to their maintenance and care, may be recognized as tax deductible costs. Naturally, the general principles of recognition in costs apply, which means that these expenses must be related to the conducted business activity.
A taxpayer running a stud of horses intended for trade incurs a number of expenses related to the maintenance of horses, i.e. stables rental, costs of feeding and treatment of these animals as well as costs of blacksmith care. All the above-mentioned expenses can be classified as tax deductible costs of the conducted business activity, because they are closely related to the scope of the entrepreneur's activity.