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TAX & BUSINESS
Timing of cash outflow for credit‑card payments
Expenses incurred by an employed managing director that were paid with a credit card can only be claimed as tax‑deductible expenses in the year in which the credit‑card statement is actually debited from the bank account.
An employed managing director of a GmbH incurred various expenses on behalf of the GmbH by paying with his private credit card. Although the credit card was charged with the expenses in the current year, no actual debit from the bank account took place before the end of the year; the debit occurred only in the following year. The tax office did not take the expenses into account when assessing income tax for the current year.
The managing director lodged an appeal against the assessment. During the proceedings the Federal Fiscal Court (Bundesfinanzgericht) found that no actual cash outflow of the expenses occurred in the current year and that it was merely a charge to the credit card. No payment had been made. Consequently, the expenses cannot be taken into account even if they were of a tax‑deductible nature.
Decision of the Administrative Court (Verwaltungsgerichtshof, VwGH)
The VwGH clarified that tax‑deductible expenses are outlays that serve to acquire, secure or preserve income from non‑business sources and must be deducted in the calendar year in which they are incurred. The decisive factor is the moment when the amount actually leaves the taxpayer’s assets and economic control is lost.
In the present case there was no debit of an amount from the bank account, so no cash outflow of the recorded expenses occurred in the relevant year. A mere charge to the credit card does not yet constitute an economic reduction of assets, because the assets remain within the taxpayer’s control until the actual debit takes place. A cash outflow therefore only occurs when the credit‑card company actually draws the amounts from the bank account.
Conclusion
A credit‑card transaction is a multi‑party relationship in which the credit‑card holder receives services from a contracting party without making an immediate payment. The credit‑card company settles the card‑holder’s liability and, in return, charges the holder a fee.
The cash‑outflow principle applicable to tax‑deductible expenses under income‑tax law is linked to a genuine loss of economic control. The decisive factor is the reduction of assets, which with a credit card only occurs when the credit‑card transactions are actually drawn by the credit‑card company. A mere charge to the credit card does not yet lead to an asset reduction. Therefore a taxpayer can only claim tax‑deductible expenses in the year in which the amount is actually debited from the bank account by the credit‑card company.
The managing director lodged an appeal against the assessment. During the proceedings the Federal Fiscal Court (Bundesfinanzgericht) found that no actual cash outflow of the expenses occurred in the current year and that it was merely a charge to the credit card. No payment had been made. Consequently, the expenses cannot be taken into account even if they were of a tax‑deductible nature.
Decision of the Administrative Court (Verwaltungsgerichtshof, VwGH)
The VwGH clarified that tax‑deductible expenses are outlays that serve to acquire, secure or preserve income from non‑business sources and must be deducted in the calendar year in which they are incurred. The decisive factor is the moment when the amount actually leaves the taxpayer’s assets and economic control is lost.
In the present case there was no debit of an amount from the bank account, so no cash outflow of the recorded expenses occurred in the relevant year. A mere charge to the credit card does not yet constitute an economic reduction of assets, because the assets remain within the taxpayer’s control until the actual debit takes place. A cash outflow therefore only occurs when the credit‑card company actually draws the amounts from the bank account.
Conclusion
A credit‑card transaction is a multi‑party relationship in which the credit‑card holder receives services from a contracting party without making an immediate payment. The credit‑card company settles the card‑holder’s liability and, in return, charges the holder a fee.
The cash‑outflow principle applicable to tax‑deductible expenses under income‑tax law is linked to a genuine loss of economic control. The decisive factor is the reduction of assets, which with a credit card only occurs when the credit‑card transactions are actually drawn by the credit‑card company. A mere charge to the credit card does not yet lead to an asset reduction. Therefore a taxpayer can only claim tax‑deductible expenses in the year in which the amount is actually debited from the bank account by the credit‑card company.