Financial administration’s response to queries regarding changes to tax depreciation
Extraordinary tax depreciation, adjusted limits for acquisition costs of tangible fixed assets or the cancellation of the intangible asset category are some of the most significant changes introduced by the January amendment to the Income Tax Act. These changes, some of which have a retrospective effect, gave rise to many questions from taxpayers. The most frequent ones have been addressed by the financial administration on its website, e.g., the question of applying extraordinary depreciation via a supplementary income tax return.
On its website, the financial administration e.g. further explains the option to use a new CZK 80 thousand limit, increased from the original CZK 40 thousand, for the acquisition cost of assets acquired in 2020. It has been unclear whether for 2020 taxpayers may apply the increased limit only to assets determined individually or whether they must apply it to all assets costing up to CZK 80 thousand. The financial administration took an approach more helpful to taxpayers and concluded from transitory provisions that the law does not impose a uniform approach, therefore it is also possible to apply the new limits retrospectively just to specific assets. However, it should be understood that for assets not meeting the limit for tangible fixed assets chosen by the taxpayer, the accounting recognition shall be taken as a basis.
The financial administration also deals with technical improvements to intangible assets the depreciation of which started pursuant to the previous wording of Section 32a of the ITA. The tax depreciation of intangible assets was abolished by the 2021 amendment, but the financial administration confirms that technical improvements to assets that were previously categorised as intangible assets should continue to be depreciated as before. Consequently, technical improvements to intangible assets already being depreciated will be subject to the existing limit of CZK 40 thousand and straight-line depreciation over a minimum period prescribed by law in effect before the amendment.
For extraordinary depreciation that may temporarily be applied for assets falling into the first and second depreciation group in the period from 1 January 2020 to 31 December 2021, the financial administration confirms the general applicability of conclusions reached by Coordination Committee No. 284/16 in Sept 2009, dealing with extraordinary depreciation in 2009. Taxpayers who already had to file their ordinary income tax returns for a part of the above period (typically taxpayers using fiscal years as their accounting periods) shall apply extraordinary depreciation via a supplementary income tax return in which they shall change the method of depreciation of selected assets acquired after 1 January 2020.
The financial administration also states that to meet the condition of a finance lease contract’s minimum duration period, it is possible to derive from the length of the depreciation period under the conditions pertaining to extraordinary depreciation, even without the lessor having to actually apply it. This may be particularly relevant for assets leased from foreign persons.
Finally, the financial administration confirms the possibility to combine the application of the law before and after the amendment, directly mentioning the option to use the original limit for the acquisition cost of tangible assets while using extraordinary depreciation in accordance with the new amendment to the ITA.