The Supreme Administrative Court ("SAC") considered the question of whether it is possible to claim expenses for the reconstruction of a flat against income from the sale of a cooperative share. 

In this particular case, the taxpayer claimed the expenses related to the reconstruction of the apartment when calculating its tax base on the sale of the share in the housing cooperative. The tax authority did not recognise these expenses since, according to Section 10(6) of the Income Tax Act, only the purchase price of a share in a housing cooperative may be taken into account when selling the share. 

The taxpayer tried to base the eligibility of the expenses for the reconstruction of the flat on a discriminatory approach, since in the case of the sale of immovable property, the expenses for the repairs and reconstructions carried out can be claimed in addition to the purchase price, whereas the sale of immovable property and the sale of a share in a housing cooperative are, in the taxpayer's opinion, almost identical, either in terms of administration or in terms of the sale price. 

The Supreme Administrative Court, however, agreed with the tax administrator and confirmed that the provisions of Section 10(6) of the Income Tax Act contain an exhaustive, not a demonstrative list, and therefore it is clear that expenses other than the purchase price of the share cannot be claimed when selling a cooperative share. 

The Supreme Administrative Court (SAC) pointed out that the sale of immovable property is a different institution than the sale of a cooperative share, which, according to the interpretation of the SAC, is also related to a different method of taxation. According to the SAC, even though the investment is in the form of housing, it is a completely different form of housing/ownership, which is the reason for the different income tax treatment. 

According to the SAC, the different category of income (taxation) is also evidenced by the fact that shares in housing cooperatives were historically not subject to real estate transfer tax, whereas transfers of ownership were. Although the SAC agreed that this argument is not a rational reason for the taxation of similar income to have different rules, it is sufficient as a justification that these are not similar institutions. 

It is certainly worth noting the conclusion of the SAC decision that the perceived disadvantage of a taxpayer compared to those who transfer a freehold flat is not in question, but it is always the choice of each individual as to what form of ownership they choose for their investment/housing. Specifically, the SAC stated that "It is a well-known fact that the 'purchase of a cooperative flat' is cheaper than the transfer of a comparable flat into personal ownership, since personal ownership of real estate is a form of housing which provides, inter alia, greater legal certainty and independence in the disposal of the real estate in question than ownership of a share in a housing cooperative and the associated right to rent."

If you need advice on selling a property or a co-operative share, contact PKF APOGEO's tax team.

Author: Kristián Červinka - Senior Tax Consultant

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