AbgÄG 2023: Tax-neutral withdrawal of business premises to private assets as of 01.01.2024
The Tax Amendment Act 2023, which has been available in draft form since 21 April 2023, introduces an innovation that has been longed for for decades: In the future, withdrawals of business buildings from the business assets of sole proprietorships and partnerships will – like land – be income tax neutral. The regulation is to apply from 01.01.2024 and opens up far-reaching and pleasing perspectives.
In professional circles it was hardly imaginable. But the taxation regime of withdrawal-related hidden reserves of business buildings, which has been carefully guarded and justified in terms of the tax system for decades, will be completely abolished with the Tax Amendment Act 2023 (AbgÄG 2023). The reason given for this, which was probably unexpected for many, is that it is intended to counteract the vacancy of commercial buildings and consequently further soil sealing under ecological objectives. After the reduction of the cold progression, the Austrian government’s tax policy agenda thus sets a further, far-reaching accent and also breaks new ground in tax dogmatics.
The previous legal situation
Withdrawals of assets from the business assets of a sole proprietorship or a so-called co-partnership (general partnership, limited partnership) into private assets are to be valued at the partial value at the time of the withdrawal in accordance with section 6 Z 4 EStG 1988. The partial value is the value of an individual asset within the framework of a total purchase price for a business acquired with the intention of continuation. The hidden reserves of the asset, i.e. the difference between the going-concern value and the book value reduced by depreciation, are realised with tax effect when the asset is withdrawn. According to the current legal situation, this also applies to the withdrawal of buildings.
In contrast, land has already been recognised at the book value at the time of withdrawal (unless an exception from the special tax rate pursuant to section 30a (3) EStG 1988 applies), which means that the withdrawal of land is tax-neutral.
A tax-effective disclosure of hidden reserves also occurs in the event of the sale or discontinuation of a (partial) business if individual assets dedicated to the business are not sold but transferred to private assets. In the case of buildings, the current legal situation means that hidden reserves must already be taxed at the time of removal, unless the conditions for a preferential termination of the business (section 24 (6) EStG 1988) are met. In the case of land, on the other hand, taxation generally only takes place at the time of a subsequent actual sale.
Future legal situation after AbgÄG 2023
According to AbgÄG 2023, the withdrawal of buildings is also to be carried out at book values – comparable to the rule that previously only applied to land – because the hidden reserves of buildings remain tax-dependent in any case in view of the provisions for “private property sales” (section 30 EStG 1988). Land, buildings and building rights are therefore to be treated equally in future.
Since building withdrawals are to be made at book value in future, the preferential treatment of buildings in the case of sale and cessation of business (section 24 (6) EStG 1988) can be dropped, which means that in the case of cessation of business for the purpose of tax-exempt building withdrawals, the age limit (attainment of 60 years of age) or incapacity for work is no longer relevant.
In addition, some clarifications are planned, e.g. in order to avoid arrangements for the non-taxation of self-produced buildings used for business purposes, so that the exemption from tax on production is only to apply to self-produced buildings held as private assets.
The amendments are to come into force on 1 January 2024.
The intended new regulation of the tax-neutral removal of buildings from the business assets of sole proprietorships and business partnerships (co-partnerships) is in any case to be welcomed, will find a wide range of practical application and will in future enable both economically sensible and fiscally attractive measures. This ranges from the abandonment or sale of (partial) businesses to structural measures on the occasion of a change in the legal form of property-owning companies.
When determining profits in accordance with section 5 EStG 1988, the question of the allocation of buildings to the optional business assets of the sole proprietorship or the optional special business assets of a partner in a partnership (taking into account the case law issued in this regard, e.g. VwGH 21.12.1993, 89/14/0186) could also become more important. This is because different depreciation rates apply for tax purposes to business and private assets in relation to buildings and the disposition of their tax allocation via contributions and withdrawals is to be possible in the future in a completely tax-neutral manner.
It remains to be seen how the law will be drafted.