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New rules for claiming motoring expenses against PIT and CIT as of 2019

On 1 January 2019, new provisions of the PIT Act and the CIT Act will enter into force as regards claiming expenses related to passenger cars used for business purposes. They will introduce a major change in the existing rules and principles concerning, among others, capital allowances, determining the tax deductible costs of selling, as well as claiming lease rentals and running costs of passenger cars against tax.

Higher limits for capital allowances recognised as tax deductible expenses

At present, the PIT Act and the CIT Act set forth limits on the amount of capital allowances on passenger cars recognised as tax deductible expenses. As of January 2019, the aforementioned limits will be increased to the amounts presented in the table below:

Type of passenger car

Limit in place until 31 December 2018

Limit in place as of 1 January 2019

electric passenger car

EUR 30,000

PLN 225,000*

other passenger cars

EUR 20,000

PLN 150,000

 

*the limit will apply to cars handed for use after the day following the date on which the European Commission announces either its approval of the compatibility of the state aid provided for in these regulations with the internal market or a negative decision stating that these regulations do not constitute state aid.

The new limit on capital allowances shall not apply to taxpayers running a business that consists in submitting passenger cars for use against payment, if the use of a passenger car has been granted under a lease, rental, tenancy or any other contract of a similar nature.

Determining tax deductible costs of selling a passenger car

The new provisions of the PIT Act and the CIT Act also introduce changes in the rules of determining tax deductible costs of selling a passenger car. As of January 2019, tax deductible costs of selling a passenger car that was purchased earlier and constitutes a fixed asset cannot exceed the amount of PLN 225,000 (for electric passenger cars) or the amount of PLN 150,000 (for other passenger cars). This means that the total amount of tax deductible costs of the capital allowance and the sale of a passenger car cannot exceed the aforementioned limits.

However, these provisions shall not apply to a passenger car that has been submitted earlier by the taxpayer for use against payment pursuant to a lease, rental, tenancy or any another contract of a similar nature, if submitting cars for use against payment under such a contract is the business line of the taxpayer.

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Reduction of the amounts of lease rentals that can be recognised as tax deductible expenses

According to the legal regulations in place until 31 December 2018, lease rentals (and other lease payments) may be claimed against tax in their entirety. There are no limits on the allowable expenses of this type, in particular when it comes to the limit in the amount of EUR 30,000 (for electric passenger cars) or the amount of EUR 20,000 (for other passenger cars).

However, according to the provisions in force as of 1 January 2019, tax deductible expenses concerning a given passenger car shall not include payments under a lease, rental, tenancy or any other contract of a similar nature (in the capital part of the lease rental) in the amount exceeding their part defined to be a proportion corresponding to the share of the amount of PLN 150,000 (PLN 225,000 for electric passenger cars) in the value of the passenger car being the subject of the contract. In other words, if the subject of the contract is a passenger car whose value is up to PLN 150,000 (PLN 225,000 for electric passenger cars), payments under the contract may be claimed against tax in their entirety, as it used to be the case to date. However, if the subject of the contract is a passenger car whose value is higher than PLN 150,000 (PLN 225,000 for electric passenger cars), payments under the contract may be claimed against tax in the part corresponding to the share of the amount of PLN 150,000 PLN (PLN 225,000 for electric passenger cars) in the value of this passenger car.

In this respect, there will be transitional regulations for lease contracts concluded before 1 January 2019.

Running costs of passenger cars classified as tax deductible expenses

Until the end of 2018, passenger cars could be divided into two groups according to the rules and principles of claiming the running costs of passenger cars (e.g. costs of fuel, tires, consumables, insurance, parking fees, repairs and spare parts) against tax:

  1. passenger cars not entered to the list of the taxpayer’s fixed assets: their running costs can be deducted from tax within the mileage limit, provided that a mileage log of these cars is kept;
  2. other passenger cars: their running costs can be classified as tax deductible expenses without any restrictions in general.

What is more, tax deductible expenses may include a passenger car insurance premium in part corresponding to the initial value of the car, not exceeding the amount of EUR 20,000.

As of 2019, passenger cars can be divided into 2 groups:

  1. passenger cars used in a ‘mixed’ way, i.e. partly for business purposes and partly for non-business purposes: their running costs can be classified as tax deductible costs only in the amount of up to 75% of the costs incurred. Thus, 25% of these costs cannot be classified as tax deductible costs; 
  2. passenger cars used for business purposes only: their running costs can be classified as tax deductible costs in their entirety. As a precondition for recognising passenger cars as business cars, the taxpayer will have to, as a rule, keep a a mileage log for VAT purposes.

Both groups presented above shall include not only passenger cars owned by the taxpayer, but also passenger cars used under a lease, rental, tenancy or any another contract of a similar nature. As regards the insurance premium, insurance premiums shall be classified as tax deductible costs in part corresponding to the value of the car accepted for insurance purposes, not exceeding the amount of PLN 150,000.

Furthermore, the provisions of the PIT Act will introduce an additional third group of passenger cars being owned by the taxpayer and not constituting the taxpayer’s fixed assets, which are partly used for the taxpayer’s business purposes. The running costs of such passenger cars can be deducted from tax only in the amount of up to 20% of the incurred costs and only up to 20% of the incurred insurance premiums. These costs can be classified as tax deductible expenses without the obligation of keeping a mileage log.

Using new rules of claiming motoring expenses against CIT

As a rule, the new provisions on claiming motoring expenses against CIT shall apply to revenues (income) earned as of 1 January 2019. As a result, they should apply as of the same date to the costs incurred and capital allowances claimed.

The legislator has provided for two exceptions from the above rule. The first one pertains to lease, rental, tenancy or any other contracts of a similar nature that were concluded before 1 January 2019. In the case of such contracts, the provisions of the PIT and CIT Acts in the current wording shall apply, the reservation being, however, that the new provisions of the PIT and CIT Acts shall apply to contracts amended or renewed after 31 December 2018. The second exception pertains only to CIT taxpayers whose fiscal year is different than the calendar year and started before 1 January 2019 and will finish after 31 December 2018. These taxpayers can continue to apply the provisions of the CIT Act in the current wording until the end of the fiscal year they have adopted.

It is plain to see that the new provisions of the PIT and CIT Acts introduce very important changes in the rules and principles of claiming motoring expenses of cars used for business purposes; in fact, they provide for completely new rules and principles of these tax settlements. Changes consisting in higher limits for capital allowances that can be recognised as tax deductible expenses along with the waived obligation of keeping a mileage log for the purpose of recognising the running costs of cars as tax deductible expenses can be considered good news for taxpayers. However, limits on the amount of tax deductible costs of selling a passenger car and on the amount of lease rentals that can be claimed against tax are bad news. Nevertheless, it seems that these last changes will be of relevance only for luxury cars whose value exceeds PLN 150,000 PLN. For lower value cars, the settlement rules are not going to change much.

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In case of any questions or the need to discuss this issue, please contact our expert Piotr LISS:

e-mail: ekspert@rsmpoland.pl

tel. +48 61 8515 766

fax +48 61 8515 786

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