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Financial equivalents from the employer for using private equipment exempt from PIT

2016-09-01

Interpretation of the Personal Income Tax Act provisions, favourable for taxpayers, that financial equivalents for private equipment used by the employee for performing work are exempt from personal income tax, has been recently confirmed. Even more, according to tax authorities the exemption is also available when the equivalent is paid out in advance for the entire period of equipment use (individual binding ruling of Director of the Fiscal Chamber in Warsaw of 14 July 2016, ref. no. IPPB2/4511-401/16-3/MK1).

The provisions of the Personal Income Tax envisage that exempt from tax are financial equivalents for tools, materials or equipment used by the employee for performing work and owned by the employee (Article 21.1.13 of the Personal Income Tax). When such allowance is being granted to the employee, the following conditions must be satisfied in order to apply the exemption:

  • the equivalent is to be paid out in cash,
  • the tools, materials or equipment must be owned by the employee,
  • the employee must use the tools, materials, equipment for performing work.

However, in applying this solution, one has to be careful about possible risks connected with the possibility of tax authorities challenging the right to exemption.

First, the amount of the equivalent should be determined at a level matching the market value of the equipment used by the employee, its estimated useful life and a degree of wear and tear. Moreover, in determining the equivalent it should be taken into account in what part such equipment is used by the employee for private purposes (the employer should not bear the costs of equipment use for private purposes). In addition, one should not forget about evidentiary issues, i.e. the employer should be able to demonstrate during inspection that the employee’s equipment for which the equivalent is paid out is actually used for performing work (e.g. private computer for receiving and sending business e-mails, phone for making calls connected with performance of employee duties and responsibilities etc.).

In the context of the exemption, it is also important to understand its object category, i.e. the equivalent relates to private tools, material and equipment. These criteria are definitely satisfied in the case of using a phone, computer or tablet. According to tax authorities, a car does not represent such equipment and therefore the equivalent for car use cannot be exempt from PIT. This position can be at least discussed with.

The exemption should be applied also with regard taken of the new regulations effective as of 15 July 2016 regarding the law circumvention rule (we wrote about its implementation in previous Newsletter issues).