Financial administration again answers questions about changes to tax depreciation
Even after months of the Income Tax Act’s amendment’s validity, the retroactive effect of the changes to tax depreciation has still not been fully clarified. For the third time, the financial administration has again updated the Q&A file on its website concerning one of the most significant changes to tax depreciation in recent years.
The new information deals, among other things, with the tax implications of the retroactive application of the change in the cost limit (threshold) for tangible assets from TCZK 40 to TCZK 80. In this context, the question arises whether it is possible to claim the acquisition cost of assets costing between TCZK 40 and TCZK 80 on a one-off basis, even though the taxpayer under their accounting policy should capitalise all assets costing over TCZK 40.
In the financial administration’s opinion, the recognition of acquired assets in the taxpayer's accounting books is of key importance. From that, it shall be derived whether the accounting depreciation of the asset or its cost upon consumption shall be claimed as the tax-deductible expense. The financial administration points out that a change in the threshold determining tangible assets is solely a tax matter, and is not generally a reason to increase the threshold set in the accounting policies. Furthermore, the accounting treatment cannot be changed retroactively, as this would lead to a change in the accounting method, which would be contrary to the obligation to only apply the accounting methods applicable at the accounting period’s beginning.
In light of the above, for many taxpayers who choose to apply the increased threshold, it will be necessary to classify tangible fixed assets costing from TCZK 40 to TCZK 80 into a (new) category of low-value assets, where the accounting depreciation will be the tax-deductible expense. Alternatively, other options introduced by the amendment can be used, such as extraordinary depreciation.
In its answer to another question, the financial administration deals with the implications of the increased threshold for improvements to tangible assets. In its opinion, there is no problem here, as a one-off claiming of the costs of an improvement is not dependent on the accounting recognition. However, the different capitalisation threshold for technical improvements for tax and accounting purposes will have to be reflected in the input price of assets, which will increase related record-keeping demands.
The last two answers deal with intangible assets. The financial administration confirms that the amendment does not regulate the amount of cost of improvements to intangible assets that would have to be capitalised. However, it points out that taxpayers should set in their accounting a threshold for the capitalisation of the cost of intangible assets and their improvements so as to observe the materiality principle.