Warranty replacement of a fixed asset and depreciation

There are no provisions in the Personal Income Tax Act that would regulate the method of depreciation of a fixed asset in the event of its replacement with a new one under the guarantee. The question then arises, how to properly record this type of event in the books? The answer will be included later in the article.

Replacing the fixed asset with a new one

In practice, quite often a taxpayer finds himself in a situation where the equipment he has purchased has broken down, and under the warranty, instead of repairing it, he receives a completely new one. The situation becomes more complicated when the replaced item was included in the fixed assets register and depreciation write-offs were made.

The existing circumstances should be reflected in the entries made in the register of fixed assets. The best solution in this situation is to delete the advertised device from the records and introduce a new one.The new fixed asset may differ to some extent from the previous one, e.g. labeling (batch number), technical parameters.

The replacement of a defective device does not result in the need to make a correction of tax costs by previously made depreciation write-offs.

Depreciation write-offs for new equipment

When starting depreciation write-offs from a new device, one should take into account Art. 16 sec. 1 point 48 of the Corporate Income Tax Act and Art. 23 sec. 1 point 45 of the Personal Income Tax Act. According to it, tax deductible costs cannot be recognized as revenues, write-offs for the consumption of a fixed asset on the part of the value corresponding to the expenses incurred (for acquisition) and deducted from the tax base with income tax or otherwise given to the taxpayer.

Thus, if depreciation charges for a broken device were costs, and thus reduced the tax base, then depreciation charges for a new device could not be considered tax costs up to the sum of the write-offs made for the defective device.

Determining the initial value of a new asset

The new device is delivered under the contract of sale of the original fixed asset, which means also under the already paid remuneration. Therefore, the initial value of the new device should be set at the same level as the withdrawn device.

Sometimes, the replacement under warranty will be accompanied by additional costs, e.g. an additional charge caused by the replacement of the device with a newer generation. In this situation, the surcharge will increase the initial value of the fixed asset.

This position was also taken by the Director of the Tax Chamber in Warsaw in the individual ruling of March 15, 2010, No.IPPB1 / 415-889 / 09-5 / AM

“From (...) the determined initial value, depreciation should be calculated starting from the month following its entry in the fixed assets register. However, when including depreciation write-offs as costs, one should remember about the provisions of Art. 23 sec. 1 point 45 of the Personal Income Tax Act. According to it, write-offs for the consumption of fixed assets on the part of their value corresponding to the incurred expenses, among others, are not considered as tax deductible costs. for acquisition, deducted from the tax base with income tax or returned to the taxpayer in any form. Since depreciation write-offs for a defective asset component were recognized as costs, thus reducing the tax base, depreciation charges for a newly received asset in the amount corresponding to them will not constitute

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The Director of the Tax Chamber in Katowice expressed a similar opinion in the individual ruling of 16 December 2013, IBPBI / 2 / 423-1207 / 13 / AK, IBPBI / 2 / 423-1208 / 13 / AK, IBPBI / 2 / 423-1209 / 13 / AK.