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TAX & BUSINESS
ImmoESt liability on re‑zoning
If a plot of so‑called old‑stock land is sold and only later re‑zoned, this later re‑zoning can, under certain conditions, lead to a higher real‑estate earnings tax.
The Administrative Court (Verwaltungsgerichtshof, VwGH) dealt in a recent ruling with the relevant question of the economic link between the re‑zoning and the disposal. In the specific case, the appellant sold in July 2017 a plot he had acquired in 1998 and taxed the proceeds using the flat‑rate method with the low effective ImmoESt of 4.2%.
The tax office took the opposite view: because the plot was re‑zoned to building land a few months after the sale, the higher ImmoESt assessment of an effective 18% should apply.
Legal basis
For old‑stock land the acquisition cost is flat‑rated at 86% of the sale proceeds. The taxable capital gain therefore amounts to 14% of the sale proceeds and the tax burden is effectively 4.2% (14% multiplied by 30% ImmoESt). If, after 31 December 1987 – and after the last paid acquisition – the land use is changed from green land to building land, the acquisition cost is flat‑rated at 40% of the sale proceeds instead of 86%, so the taxable capital gain is 60% of the proceeds.
Effectively this means a tax burden of 18% (60% multiplied by 30% ImmoESt) of the sale proceeds. This also applies to a re‑zoning that is in an economic relationship with the disposal, provided the re‑zoning occurs within five years of the disposal, as well as to a purchase‑price increase resulting from a later re‑zoning.
BFG and VwGH rulings
The Federal Fiscal Court (Bundesfinanzgericht, BFG) found that the re‑zoning only became effective six months after the sale and therefore applied the more favourable ImmoESt assessment. However, it did not examine whether a economic link might have existed between the later re‑zoning – which nevertheless fell within the five‑year period – and the sale.
The Administrative Court (VwGH) set aside the BFG’s decision and sided with the tax office. The core argument was that where a re‑zoning occurs within the five‑year period, the economic link must always be examined. Such an economic link is deemed to exist whenever the seller economically benefits from the value increase caused by the re‑zoning, for example by paying a purchase price that exceeds the price of green land.
The tax office took the opposite view: because the plot was re‑zoned to building land a few months after the sale, the higher ImmoESt assessment of an effective 18% should apply.
Legal basis
For old‑stock land the acquisition cost is flat‑rated at 86% of the sale proceeds. The taxable capital gain therefore amounts to 14% of the sale proceeds and the tax burden is effectively 4.2% (14% multiplied by 30% ImmoESt). If, after 31 December 1987 – and after the last paid acquisition – the land use is changed from green land to building land, the acquisition cost is flat‑rated at 40% of the sale proceeds instead of 86%, so the taxable capital gain is 60% of the proceeds.
Effectively this means a tax burden of 18% (60% multiplied by 30% ImmoESt) of the sale proceeds. This also applies to a re‑zoning that is in an economic relationship with the disposal, provided the re‑zoning occurs within five years of the disposal, as well as to a purchase‑price increase resulting from a later re‑zoning.
BFG and VwGH rulings
The Federal Fiscal Court (Bundesfinanzgericht, BFG) found that the re‑zoning only became effective six months after the sale and therefore applied the more favourable ImmoESt assessment. However, it did not examine whether a economic link might have existed between the later re‑zoning – which nevertheless fell within the five‑year period – and the sale.
The Administrative Court (VwGH) set aside the BFG’s decision and sided with the tax office. The core argument was that where a re‑zoning occurs within the five‑year period, the economic link must always be examined. Such an economic link is deemed to exist whenever the seller economically benefits from the value increase caused by the re‑zoning, for example by paying a purchase price that exceeds the price of green land.