Unused fixed assets and depreciation

Sometimes, when running a business, some of your fixed assets may not be used. For example, in the case of production machines, the reason for this may be a reduction in production. It happens that fixed assets may be temporarily excluded from use, but they still constitute the company's property. Therefore, the question arises whether unused fixed assets are depreciated? Check!

Temporarily unused fixed assets - depreciation

Depreciation of a fixed asset consists in creating depreciation write-offs by systematic, planned distribution of its initial value over a specified depreciation period. Depreciation begins no earlier than after the fixed asset is put into use. On the other hand, the end of depreciation takes place no later than on:

• aligning the value of depreciation or amortization write-offs with the initial value of a fixed asset, or

• designation of the fixed asset for liquidation, sale or finding its shortage.

Among the above-mentioned cases, the PIT Act does not provide for detailed regulations regarding the discontinuation of depreciation write-offs in a situation where an enterprise has periodically unused fixed assets.

Thus, there are no grounds for discontinuing depreciation write-offs in the case of periodically unused corporate assets.

Important! Temporary cessation of the use of a fixed asset does not exclude the possibility of making depreciation write-offs and classifying them as tax deductible costs.

Among other things, in the individual ruling of December 11, 2009 (No.

The premise that makes it impossible to make depreciation write-offs on assets is the cessation of activities, as a result of which the use of these components will be discontinued. It should be understood as complete abandonment of a given type of activity, as a result of which the assets are no longer used. Temporary cessation of the use of given fixed assets is not a premise justifying the cessation of depreciation write-offs.

Sometimes a break in the use of a fixed asset results from the necessity to dismantle it and install it elsewhere. The Director of the Tax Chamber in Poznań, in an individual ruling of 7 March 2011 (ILPB4 / 423-343 / 10-2 / MC), admitted that the temporary cessation of the use of given fixed assets for the purpose of transferring them to a new production hall is not a premise justifying the cessation of making depreciation write-offs. In the summary of the interpretation, we can read:

(...) that for the classification of the expenses in question as tax deductible costs, it is irrelevant that the Company does not currently obtain revenues from the operation of dismantled machines and devices. It is not possible to state that the Company ceased to conduct business activity in this respect. Fixed assets suspended temporarily have not been liquidated and are in constant readiness for commissioning.

Thus, the Company may make depreciation write-offs on dismantled machines and devices and include them as tax deductible costs.

Therefore, it should be concluded that the temporary inability to use a fixed asset due to its damage, wear or breakdown does not require the cessation of depreciation write-offs and does not result in excluding such write-offs from tax deductible costs.

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Unused fixed assets - no depreciation

According to Art. 22c point 5 of the PIT Act, depreciation is not subject to, inter alia, fixed assets and intangible assets that are not used as a result of suspension of economic activity pursuant to the provisions of the Entrepreneurs' Law or cessation of activities in which these components were used. These components are not subject to depreciation from the month following the month in which the activity was suspended or discontinued.

Fixed assets are also not subject to depreciation in the event of their physical liquidation, for example, subject to disposal or transfer in the form of a donation or sale. In one of the above-described situations, it is absolutely necessary to cease making depreciation write-offs when the fixed asset loses its status - in other words - from the moment of its liquidation, sale or finding its shortages.

The legislator did not explain what exactly the termination of activity means. However, the tax authorities have developed a unified position in this respect. They indicate that it is a complete abandonment of a given type of activity, which results in the non-use of a given asset. These include those assets that are not used due to the reclassification of the company and the cessation of the activity in which the assets were used.

The above position is confirmed by the jurisprudence of the Supreme Administrative Court. In the judgment of October 20, 2011, file ref. II FSK 725/10, the Supreme Administrative Court indicated that:

The use of the term "cessation of the activity in which these components were used" means, in the opinion of the Supreme Administrative Court, that it is a situation in which the activity in which a given component was used was discontinued, but at the same time the taxpayer continued to conduct business activity. Thus, such a situation enables the continuation of making depreciation write-offs. Thus, only a complete cessation of a given type of economic activity (...) justifies the cessation of depreciation write-offs.