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TAX & BUSINESS
Building depreciation on rental and leasing
If a building is withdrawn from the business assets at book value, the building value must be depreciated at 1.5% per year of the withdrawal value for any subsequent rental without proof.
Since 1 July 2023, not only the withdrawal of land but also of the building at book value is possible, so that the withdrawal from the business assets does not lead to the revelation of hidden reserves in the building.
In the event of a withdrawal, the withdrawal value replaces the acquisition and production costs as the basis for depreciation for subsequent income, such as an ensuing rental of the building.
However, for buildings this withdrawal value now corresponds to the book value, resulting in a correspondingly lower depreciation amount in the case of a rental when this book value has to be spread over the legally prescribed depreciation period of 67 years for rentals. A new, shorter remaining useful life would have to be determined by a costly expert report.
The Ministry of Finance follows the Administrative Court
An applicant asked the Ministry of Finance to confirm his legal view that, after a withdrawal of the building at book value, the existing depreciation schedule is generally continued, with a potentially different depreciation rate in the non‑business sector being applied to the historic acquisition/production costs. The Ministry of Finance did not adopt the applicant’s legal view. In a 2015 decision, the Administrative Court (VwGH) used the withdrawal value as the new assessment basis. This VwGH decision was also applied by the Ministry of Finance analogously to the current question.
Conclusion
If a building is withdrawn from the business assets at book value, the building value must be depreciated at 1.5% per year of the withdrawal value, thus of the book value, for any subsequent rental without proof. The previous business remaining useful life or the original acquisition costs in the business sector have no impact on the new depreciation in the area of rental income.
In the event of a withdrawal, the withdrawal value replaces the acquisition and production costs as the basis for depreciation for subsequent income, such as an ensuing rental of the building.
However, for buildings this withdrawal value now corresponds to the book value, resulting in a correspondingly lower depreciation amount in the case of a rental when this book value has to be spread over the legally prescribed depreciation period of 67 years for rentals. A new, shorter remaining useful life would have to be determined by a costly expert report.
The Ministry of Finance follows the Administrative Court
An applicant asked the Ministry of Finance to confirm his legal view that, after a withdrawal of the building at book value, the existing depreciation schedule is generally continued, with a potentially different depreciation rate in the non‑business sector being applied to the historic acquisition/production costs. The Ministry of Finance did not adopt the applicant’s legal view. In a 2015 decision, the Administrative Court (VwGH) used the withdrawal value as the new assessment basis. This VwGH decision was also applied by the Ministry of Finance analogously to the current question.
Conclusion
If a building is withdrawn from the business assets at book value, the building value must be depreciated at 1.5% per year of the withdrawal value, thus of the book value, for any subsequent rental without proof. The previous business remaining useful life or the original acquisition costs in the business sector have no impact on the new depreciation in the area of rental income.