Right to Claim Depreciations at their Full Value with Assets only Partially Used

Verdict of the Supreme Administrative Court of 25 May, 2016, no. 4 Afs 24/2016-37

The Income Tax Act does not specify the conditions of a direct connection of expenses incurred and income generated within the same taxable period.

In the above case, the court dealt with a situation of a complainant (a physical person) owning and renting an accommodation unit generates a taxable income. The tax administrator assessed the tax on the basis of the fact that although several flats and the garage were not rented for the whole of the taxable period owing to their inadequate condition, the complainant wrongly made a full claim of the depreciations of the property. In the tax administrator’s view, however, was entitled only to a proportional part of the depreciations – i.e. solely for the flats that were rented and generated the income. This reasoning was ruled to be erroneous as the complainant did not use the respective premises for their private purposes.

Nevertheless, it is important to distinguish between a situation when the owner utilises a part of their property for their personal use or they fully use or are planning to use them solely for the purposes of generating of income. Temporary limitations in the utilisation of their tangible assets (e.g. due to the technical condition as was the heard case) do not necessarily indicate that the property in question does not serve the above purpose and, thus, is not even partly used for private purposes, in which case the depreciations would need to be reduced proportionally.