Credit costs for the purchase of fixed assets
Entrepreneurs purchasing fixed assets often use a foreign source of financing, which is a loan. When entering such a purchase in the register of fixed assets, its initial value should be correctly determined. It is important because such a value is the basis for calculating depreciation charges. Do you have to take into account the cost of the loan for the purchase of fixed assets when determining it? How to recognize interest for the cost of a loan for the purchase of fixed assets? We explain in the article.
Initial value of fixed assets
Pursuant to Art. 22 g of paragraph 1. 1 point 1 of the Personal Income Tax Act, the initial value of a fixed asset is the purchase price, which is considered to be the amount due to the vendor, increased by the costs related to the purchase accrued until the date of commissioning the fixed asset for use, including:
costs of transport, loading and unloading;
insurance on the way;
assembly, installation and commissioning of computer programs and systems;
notary, tax and other fees;
- reduced by the tax on goods and services, except where, in accordance with separate provisions, the tax on goods and services does not constitute input tax or the taxpayer is not entitled to reduce the amount of tax due by input tax or refund the tax difference within the meaning of the VAT Act and services. In the case of import, the purchase price includes customs duty and excise duty on the import of assets.
Mr. Piotr bought a production machine worth PLN 12,000. The purchase invoice includes transport costs in the amount of PLN 600 and assembly costs PLN 900. From what amount will the depreciation write-offs be calculated?
As the costs related to the purchase of the fixed asset were incurred before it was put into use, these fees will increase the initial value, which will amount to PLN 13,500 (12,000 + 600 + 900).
Credit costs for the purchase of fixed assets and the initial value
When determining what is included in the purchase price of fixed assets, it can be stated that the loan costs for the purchase of fixed assets will be their component part. Therefore, the costs of bank commissions, insurance and interest related to granting the loan and accrued until the date of acceptance of the fixed assets for use will increase their initial value. The entrepreneur cannot then include the costs of loans for the purchase of fixed assets directly as tax costs, if they are not yet included in the fixed assets register.
Doubts arise as to which interest will increase the initial value - whether it is actually paid or the interest accrued until the date of putting the fixed assets into use. As a rule, interest on the loan, accrued up to the date of acceptance for use, should also be taken into account. It does not matter here whether they were paid at the time of acceptance of the fixed assets into the records.
This is confirmed by the tax ruling issued by the Tax Chamber in Warsaw on June 13, 2014, file reference number IPPB5 / 423-343 / 14-2 / AM, in which you can read:
“(...) interest on funds from external sources contracted to finance investments may be allocated to the value of a fixed asset, i.e. they may affect its purchase price or its production cost, respectively. It should be noted that the provisions of Art. 16 g of paragraph 1. 3-4 u.p.d.o.p. the term "accrued up to the date of putting the asset into service" for interest relates to both interest paid before that date and interest only accrued up to that date, even if it has not yet actually been paid.
Therefore, the Applicant should include in the initial value of fixed assets the interest accrued by the date of commissioning of a given fixed asset, which can be assigned to the costs of its purchase or production, regardless of whether they were actually paid ”.
In addition, such a position is also confirmed by the individual interpretation of the Director of the National Tax Information of 4 July 2017, file reference number 0111-KDIB1-1.4011.46.2017.1.BS, in which you can read:
"To sum up, if the loan was taken in connection with the investment, then the interest accrued during the investment implementation period increases the initial value of the fixed asset (regardless of when it is paid) and is not included directly in tax deductible costs. In turn, the interest on the loan accrued after the date of commissioning the fixed asset for use will be able to be recognized as tax deductible costs at the time of payment ”.
Interest on loans and credits accrued until the date of transferring a fixed asset or an intangible asset for use increase the initial value of this asset, regardless of whether it has been paid up or not.
After handing over for use and introducing the purchased fixed assets financed from a bank loan to the records, the costs of accrued and paid interest can be recognized directly in tax deductible costs.
The legislator did not specify how to determine the initial value in the case of purchasing several fixed assets financed with one loan. The provisions of the act on personal income tax indicate only that their value should be determined according to the purchase price increased by the costs of the loan for the purchase of fixed assets. Therefore, the cost of the loan must be proportionally divided into fixed assets, taking into account the loan amount for a given fixed asset.
Company X took out a loan for the purchase of 2 fixed assets in the amount of PLN 200,000. The bank charged a commission of PLN 3,000 and PLN 2,000 for insurance. The bank charges interest pursuant to the loan agreement from the following month in which the entrepreneur received it.
However, before these funds were entered into the records, the bank managed to charge interest for the first month in the amount of PLN 1,300. Fixed assets costs:
"A" - PLN 80,000 - the share in the loan is 40%;
"B" - PLN 120,000 - the share in the loan is 60%.
Determining the initial value of fixed assets:
the value of the fixed asset "A" is PLN 82,520, which represents:
purchase price - PLN 80,000;
insurance - PLN 2,000 x 40% = PLN 800;
commission - PLN 3,000 x 40% = PLN 1,200;
interest - PLN 1,300 x 40% = PLN 520;
the value of the fixed asset "B" amounts to PLN 123,780, which represents:
purchase price - PLN 120,000;
insurance - PLN 2,000 x 60% = PLN 1,200;
commission - PLN 3,000 x 60% = PLN 1,800;
interest - PLN 1,300 x 60% = PLN 780.
Credit costs after the fixed asset is registered
Otherwise, the costs of the loan for the purchase of fixed assets should be accounted for, if it is included in the company's property. In the case of interest for the period from the handover of the fixed asset for use, it is recognized directly as tax deductible costs on typical terms, i.e. on the date of their actual payment.
The above theses regarding the interest charged result directly from Art. 23 sec. 1 point 32 of the PIT Act, as well as interpretations of tax authorities. As you can read in the judgment of the Provincial Administrative Court in Gdańsk of February 24, 2015, file reference number I SA / Gd 1348/14: "interest on loans (...) may be included in direct tax deductible costs only when it is calculated after returning of a fixed asset for use, because it is no longer possible to increase the value of this asset ”.
In January, Mr. Dariusz took out a loan for the purchase of a fixed asset worth PLN 16,000. The monthly interest on the loan is PLN 300. The equipment was accepted for the register of fixed assets in May. How to determine the initial value and include loan costs for the purchase of fixed assets?
The initial value will consist of the principal amount of the fixed asset, i.e. PLN 16,000 plus accrued interest from January to April, i.e. 4 x PLN 300 = PLN 1,200. The initial value will therefore be 16,000 + 1,200 = 17,200 PLN.
However, after the fixed asset is registered, the interest paid can be recognized directly as tax deductible costs.
Private loan for the purchase of fixed assets and company costs
Pursuant to Art. 22 sec. 1 of the Personal Income Tax Act, 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 of this act. The condition for including private loan costs for the purchase of fixed assets is the existence of a cause-and-effect relationship between the income and the expenditure. The costs of obtaining income are considered to be rational and justified expenses related to the conducted activity in order to achieve revenues. Importantly, it is the taxpayer's responsibility to demonstrate the relationship between the costs incurred and the revenues earned.
An entrepreneur who takes a private loan and wants to finance the purchase of fixed assets from it, will be able to include the related credit costs as company costs. In this case, also all fees related to the loan will increase the initial value of the fixed asset until the date of putting it into use. Then, the accrued and paid interest will be recognized directly in tax deductible costs.
In connection with the above, the costs of the loan for the purchase of fixed assets (including accrued interest) increase their initial value, if they were incurred before putting them into use. It does not matter whether the interest has been paid. It is also not important whether the loan is taken for the company or privately. If privately, then the taxpayer bears the burden of proving that the purchase of fixed assets was financed from this loan.
Credit costs for the purchase of fixed assets - booking in the wFirma.pl system
The invoice for the purchase of fixed assets in the wFirma.pl system is posted through the EXPENSES »ACCOUNTING» ADD »VAT INVOICE / INVOICE (WITHOUT VAT)» PURCHASE OF FIXED ASSETS tab, where you must complete the basic data from the purchase document, and then the data on the fixed asset.
If additional costs were incurred related to its purchase and increasing the initial value of the fixed asset, they should be entered in the WART field. INITIAL +.
On the other hand, the posting of the interest paid for the cost of the loan for the purchase of fixed assets should be made on the basis of the DW scheme EXPENDITURE »ACCOUNTING» ADD »INTERNAL EVIDENCE, where as the ISSUE DATE enter the date of payment of interest.