At the end of 2021, in its decision rendered on 22 December 2021, Ro 2021/13/0005, the Administrative High Court dealt with the question of whether expenses incurred (planning costs) are to be taken into account as income-reducing expenses in the case of income from the sale of private real estate if the construction of the planned building never took place.
In 2009, the appellant and his wife purchased an undeveloped plot of land for the construction of a single-family house. A German general contractor was commissioned for the planning, production and construction of the house. In 2010, invoices for the incurred planning costs were paid. Due to liquidity problems of the general contractor, the planned single-family house was never built, and the undeveloped property was sold in 2017 and real estate income tax (ImmoESt) was paid for it. In his income tax return for 2017, the appellant declared income from the sale of real estate and requested to credit the real estate income tax already self-calculated and paid by an authorized representative. In addition, the appellant stated that the planning costs (architects' costs) had not been included in the calculation of the real estate income tax by the representative. According to the taxpayer, these expenses had to be taken into account as part of the acquisition costs of the property. However, the tax office disregarded the planning costs, stating that they were not part of the object of purchase and had no connection with the sale of the property.
According to the established case law of the Administrative High Court on production costs, production means the creation or creation by third parties of an asset that does not yet exist. Production is a process that does not take place at a single point of time, but over a certain period of time. This period begins with the taking of measures aimed at creating a new asset or changing the nature of an existing asset. Production costs are therefore expenses incurred to produce a new type of asset.
Planning costs are to be regarded as part of the production costs of the completed asset and capitalized accordingly. If, however, the initially planned building is not constructed at all, the planning costs - incurred in vain in the present legal dispute – are not production costs due to the lack of a production process. Since the planning costs of the appellant are not to be regarded as production costs, they cannot be taken into consideration as increasing acquisition costs when determining the income from the private sale of real estate.
It should be noted that the result of the Administrative High Court's decision corresponds to the decision of the Tax Appeals Court (RV/7104235/2020), but the first-mentioned court chose a different reasoning. The Administrative High Court does not consider the expenses incurred - due to the lack of a production process - to be production costs, which is why the question of the tax impact of the futile planning costs does not even arise for the Administrative High Court. Although the Tax Appeals Court also considered the expenses as production costs of the building, it did not take them into account as acquisition costs of the land, since they were incurred for a building that could have been sold separately. In accordance with the current legal situation, however, it is no longer possible to recognize uniform acquisition costs ("one-entity theory") for the individual assets of the property. In contrast to the Tax Appeals Court, the Administrative High Court did not comment on the "one-entity theory" at all.
Production costs are expenses incurred to create a new asset or to change the nature of an existing asset. Accordingly, planning costs are to be regarded as part of the production costs if the asset is completed. However, if the initially planned building is not constructed at all, the planning costs are not production costs due to the lack of a production process and are therefore not to be taken into account as expenses increasing the acquisition costs within the scope of income from the sale of real estate.
Mag. Johanna Kloner ist Steuerberaterin bei Deloitte Wien und ist auf die Beratung von Privatpersonen (Private Clients), Familienunternehmen, Privatstiftungen sowie der Beratung im Bereich Immobilien- und Kapitalvermögensbesteuerung spezialisiert. Sie ist weiters Autorin diverser Fachbeiträge.