Installment purchase of a fixed asset and cost adjustment

From January 1, 2013, Art. 24d of the Personal Income Tax Act, according to which the right to settle the cost is indirectly related to the timely payment for the purchase of goods or the provision of services. What's more - this rule applies to installment purchases, including fixed assets. How should costs be adjusted in such a case?

General rules for the correction of costs

By the end of 2015, in accordance with the above-mentioned According to the provision, failure to pay an expense within the statutory deadline, which has been recognized as tax deductible costs, means that the taxpayer is obliged to derecognise it, i.e. to correct the entries in the records.

Originally, an expense can be booked in costs even in the event of an unpaid payment. Later, it is necessary to write it off in the event that no payment has been made for the purchased goods or the service provided. This does not apply if the payment has been made no later than 30 days from the due date (if the due date is not longer than 60 days). This also applies when the payment deadline exceeds 60 days and the payment is made within 90 days from the date on which the amount resulting from the invoice, bill or other document has been recognized as tax deductible costs. Therefore, payments made within the statutory deadlines will not have any consequences.

According to the Ministry of Finance, the obligation to correct costs also applies to the installment purchase, and thus - also to the purchase of a fixed asset.

Depreciation and cost adjustment

However, the obligation to correct costs when purchasing fixed assets in installments raises many practical problems - how should such a correction be made? It does not follow from the regulations whether, when calculating the amount of the write-off, by which costs must be reduced, the sum of the depreciation write-offs should be compared with the paid-up value of the asset, or whether the appropriate part of the depreciation should be excluded from the costs, in proportion to the unpaid installments.

The answer of the Minister of Finance to the parliamentary question no. 14770 clearly showed that the distribution of the payment for the fixed asset into installments should result in the exclusion of the appropriate part of the depreciation from the costs. In terms of payments, each installment should be determined and settled separately. In line with the general principle of cost adjustment, after payment, the taxpayer would be entitled to re-enter the reductions made earlier. Such an approach would require entrepreneurs to make very complex calculations and settlements.

However, the Tax Bulletin No. 3/2013 published a letter from the Deputy Director of the Income Tax Department (No. write-offs, which are covered by the payments made. According to the opinion presented, including expenses as costs, in the case of the so-called indirect costs - including through depreciation - taxpayers should not reduce costs proportionally. If, by the expiry of the time limits referred to in Art. 24d paragraph. 1 and 2 of the PIT Act, i.e. 30 days from the payment date and 90 days from the date of including the expense as costs, the part of the liability included in the costs is covered by payments, in the opinion of the author of the indicated letter, there should be no cost reduction.

The solution presented by the Deputy Director of the Income Tax Department is more beneficial for taxpayers. However, it should be remembered that the above-mentioned the letter is not a general interpretation of tax law.

No cost adjustment from January 1, 2016

The issue of cost adjustment in the case of an installment purchase of a fixed asset in 2016 will no longer raise any doubts. Because under the amendment to the PIT Act, entrepreneurs will be released from the obligation to make cost adjustments in the event of non-payment of expenses within the statutory deadline. However, the legislator introduced a transitional period in this respect. Namely, entrepreneurs who made cost adjustments by the end of 2015 will be able to recognize expenses as costs again after they have been paid after January 1, 2016.