Sale of real estate used in business activities

When running a business, entrepreneurs conclude transactions not only regarding the sale of commercial goods, as it is also possible to sell company property. Should the sale of a usable property entered into the register of fixed assets or not entered into the register for tax purposes be accounted for in a separate manner?

Income from the sale of company property

Pursuant to Art. 14 (2) (1) (a) of the Personal Income Tax Act (hereinafter: the PIT Act), income from non-agricultural business activity shall also include income from the sale of fixed assets used for the needs related to the operations of fixed assets, included in the register of assets fixed assets and intangible assets.

The provision cited has been controversial for many years in the judgments of administrative courts, in particular with regard to the qualification of the source of income from the sale of utility property, which was used in the entrepreneur's business activity, but was not shown in the register of fixed assets and intangible assets.

Sale of real estate not entered into the register of fixed assets

An interesting position was taken in the judgment of the Supreme Administrative Court of 25 October 2011, file ref. II FSK 739/10, in which it was found that in the case of the sale of a utility property:

• used for running a business,

• which is not a fixed asset, and which, according to the regulations, should be one

- there is no income from the sale of real estate for consideration within the meaning of Art. 10 sec. 1 point 8 of the PIT Act.

Thus, the formal condition in the form of entering real estate into the register is of a secondary nature and does not exclude the potential possibility of qualifying revenues as those from non-agricultural business activity (Article 14 (2) (1) of the PIT Act).

In the judgment of March 8, 2012, file ref. II FSK 1545/10, the Supreme Administrative Court ruled that for the revenue from sales to be classified as from business activity, the following conditions must be met:

• the subject of the sale should be a fixed asset,

• the fixed asset must be included in the register of fixed assets and intangible assets.

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The breakthrough took place on February 17, 2014. On that day, the Supreme Administrative Court adopted a resolution in a bench of seven judges, file ref. no. II FPS 8/13, which stated: " In the legal status effective from January 1, 2004, it does not constitute income from business activity within the meaning of Art. 14 sec. 2 point 1 lit. "A" of the Act of July 26, 1991 on personal income tax (Journal of Laws of 2012, item 361 as related to business activities, which were not included in the register of fixed assets and intangible assets, and which do not constitute assets indicated in art. 14 sec. 2c of this act.”

Therefore, the sale of real estate used for the purposes related to economic activity, which was not a fixed asset, for consideration, does not constitute income from economic activity. It should be added that the pending dispute concerned commercial real estate, and the adopted resolution is the result of the actions of the Human Rights Defender, who on August 1, 2014 submitted an application to the Supreme Administrative Court to resolve a legal issue in the discussed case.

To sum up, the general rule resulting from Art. 10 sec. 1 point 8) of the PIT Act. Consequently, the sale of real estate will be free from personal income tax after 5 years, counting from the end of the calendar year in which the acquisition or construction took place.