Renting of flats as an economic activity

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Renting apartments is more and more often the main source of income, not just additional income. The line between renting apartments as a private person and as an entrepreneur is very thin. Both the tax authorities and the courts have a problem with determining this limit. Read the article and find out how to settle the rent of apartments.

Renting flats as an economic activity and private renting

Why is it so important to distinguish private rental from business rental?

Well, when renting a flat as part of business activity, the taxpayer cannot settle this activity with a lump sum using the 8.5% rate. Because the lump sum is only allowed for private renting. Therefore, the taxpayer is obliged to settle rent through a tax scale or a flat tax. From 2018, taxpayers settling private rent, after exceeding the income limit of PLN 100,000, are required to apply a higher flat rate - 12%.

When is apartment rental considered an economic activity?

Usually, it is not up to the taxpayer himself whether he carries out private rentals or conducts business related to the rental of apartments. Well, many activities performed in the field of housing rental indicate that the taxpayer conducts business activity, and not private rental. According to the position of the Director of the Tax Chamber in Katowice taken in the individual tax ruling of July 15, 2015, IBPB-2-2 / 4511-41 / 15 / JG - if the landlord:

  • establishes cooperation with specialized companies,

  • rents out multiple properties or an occasional lease,

  • treats rent as a permanent source of income,

  • rents an apartment on a continuous basis, i.e. for a long time

- such activities are treated as lease as part of business activity.

What exactly is an economic activity?

Economic activity is defined in art. 3 of the Entrepreneurs' Law, in which we read: An economic activity is an organized gainful activity, performed on its own behalf and on a continuous basis.

In connection with the above, economic activity is carried out:

  • in order to generate income - the intention to generate income is important, because even if the entrepreneur suffers a loss, the activities performed do not lose the status of economic activity;

  • on a continuous basis - what matters here is the intention to perform certain activities that constitute the goal of achieving income;

  • in an organized manner - the actions taken depend on the applicable rules and standards and are intended to achieve the set goal. Moreover, they have an impact on the disposal of the possessed funds, as well as the participation of the entity in economic turnover.

It should be noted that the definition of economic activity contained in the Act does not make the recognition of a given activity as an economic activity conditional on its registration in competent offices. Therefore, if the given activities meet the definition of economic activity, despite the fact that they have not been registered as an activity, they are considered economic activity according to the regulations. Income from lease conducted as part of business activity can be easily settled using the accounting system.

Definition of economic activity and apartment rental

If the size, repeatability, profit-making nature, as well as the manner of organization indicate the features of economic activity, then such rental should be considered as economic activity.In such a situation, the rental of apartments should be accounted for on general principles, just like any other business activity.

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Rental of flats - rental income

The Personal Income Tax Act does not include a definition of lease. On the other hand, the regulations concerning lease are defined in the Civil Code. Pursuant to this legal act, income obtained under a lease agreement is taxable. The rental income is the value of the rent specified in the contract.

Art. 659 § 1 of the Civil Code:
By the lease agreement, the landlord undertakes to give the tenant the property for use for a specified or indefinite period of time, and the tenant undertakes to pay the landlord the agreed rent.

Explanation of the issue of renting apartments on the basis of the interpretation

In the matter of renting flats, the Director of the Tax Chamber in Katowice took his position in the individual interpretation no. IBPB-2-2 / 4511-41 / 15 / JG.

The applicant presented his situation, asking for an interpretation in the presented case. Well, he and his spouse own four apartments (spouses' private property) and plan to rent them. Considering the purchase of more apartments, the owners of the apartment want to look for tenants on their own, but they also consider using the services of companies specialized in this field.

Tenants will pay rent for the rented apartment, including service charges, e.g. for water, electricity, gas, or rent due to a housing cooperative. The rental income will be settled by one of the spouses. The applicant wants to settle the rent of an apartment with a flat rate recorded at the rate of 8.5%.

The applicant's question is: will he be able to apply this form of taxation in the situation presented above and how should he determine the taxable income?

In the opinion of the director of the Tax Chamber, the described situation meets the conditions for considering these activities as economic activity. This is supported by the fact that the applicant decides to rent the already owned four apartments with the possibility of increasing their number. This means that the lease will not be accidental. Deciding on such a size of activities, it will predictably bring considerable financial benefits. The applicant takes into account the purchase of additional apartments, which means that his activities are long-term, aimed at long-term profit-making.

In addition, the submitted application contained information that the applicant is considering using the services of intermediary companies. This suggests the intention to invest in the venture in order to earn money - these activities meet the criteria of economic activity.

After analyzing the activities of the taxpayer, it can be concluded that he intends to earn a continuous and organized income from renting apartments. Therefore, the situation described above should be considered as an economic activity, even if the taxpayer fails to register it. Whether or not a rental constitutes an economic activity is not determined by the will of the taxpayer, but by whether the rental of apartments meets the conditions included in the definition of economic activity.

By qualifying the above situation as a business activity, the taxpayer will not be able to tax the rental of apartments with a flat rate on recorded income.

To sum up, in many cases it is difficult to define the boundary where private leasing ends and economic activity begins. Fortunately, in case of doubt, in order to avoid ambiguities, the taxpayer may request an individual interpretation.