Real estate income tax is based on private property sales and therefore on transactions for consideration, which is why transfers without consideration, such as gifts and inheritances of real estate, do not generally constitute transfer transactions relevant for income tax purposes.
The distinction between a transaction for consideration and a transaction free of charge is therefore decisive for the application of real estate income tax, as the transfer of private real estate free of charge is possible without income tax. However, it should be noted that a transaction that appears to be free of charge at first glance may be relevant for income tax purposes if debts or other encumbrances are also transferred or compensation payments are made as part of the settlement of an estate.
As a rule, a gratuitous acquisition is to be understood as an inheritance as well as a (pure) gift, whereby this is also to be assumed in the case of a mixed gift, i.e. a gift with a consideration. In contrast to real estate transfer tax, for example, the mixed gift in income tax law is not divided into a gratuitous, partially gratuitous and gratuitous part, but is allocated to the element that is in the foreground. The amount of the consideration therefore plays a key role in the assessment:
- A sale (for consideration) is assumed if the consideration amounts to at least 75% of the fair market value of the transferred asset.
- A transfer is deemed to be free of charge if the consideration amounts to no more than 25% of the fair market value of the transferred asset.
- In the case of a gift between relatives, it is generally assumed that the transfer is free of charge if the consideration is more than 25% but less than 75% of the fair market value of the transferred asset and there is an intention to enrich.
A mixed gift may therefore be subject to real estate income tax, which is why it is necessary to check whether the transaction is free of charge or against payment, particularly when liabilities, mortgages or other encumbrances are also transferred. In the case of anticipated succession, it should be noted that a compensation payment, insofar as it comes from the transferee’s sphere of assets, constitutes consideration, which means that it must also be examined here whether a transfer for consideration has taken place.
In contrast to income tax law, which provides for a corridor of 75%-25%, the boundary between gratuitousness and gratuitousness in real estate transfer tax is 70% and 30%.
It should be noted that, unlike income tax, real estate transfer tax covers not only the forms of acquisition for consideration but also transfers between living persons and upon death, including gifts and inheritance of real estate. Within the family, the real estate transfer tax always assumes gratuitousness.
From a VAT perspective, gifts and inheritances of real estate are transfers of real estate free of charge, which only lead to VAT consequences if the real estate is assigned to a company and the transferring person fulfills the entrepreneurial status pursuant to Section 2 UStG. If a property was never assigned to the business of the donor or testator, the transfer does not trigger any VAT consequences.
This article was written by www.tpa-group.at
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