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| | September 23, 2024
In its judgment No 5 Afs 220/2023-36, the Supreme Administrative Court (hereinafter the “SAC”) dealt with an appeal by an individual (the plaintiff) against the Appellate Financial Directorate (the defendant) in a dispute concerning the fulfilment of the conditions for exemption from personal income tax on the sale of real estate pursuant to Art. 1(a) of the Income Tax Act (“ITA”) where the seller had resided in the property for at least two years immediately prior to the sale.
Specifically, the case concerned an individual who received income from the sale of a family semi-detached house with house numbers Xa and Xb on two different plots and did not include this income in his tax return because he considered it exempt from personal income tax under Section 4(1)(a) of the ITA.
However, the tax administrator’s investigation revealed that one part of the semi-detached house was not occupied at all and therefore the conditions for tax exemption could not be met. The plaintiff therefore filed a supplementary tax return, taxing the income from the unoccupied part of the semi-detached house and, in respect of the other part, maintaining her conclusion that the condition for exemption from income tax – i.e. residence for 2 years immediately prior to the sale – was met.
The defendant pointed to the complainant’s numerous inconsistencies in the testimonies taken, which failed to refute the veracity of the evidence procured by the tax authorities from third parties (e.g. very low electricity supply, low water consumption, the building was not officially approved, etc.). According to the defendant, it cannot be concluded that the complainant resided in the property in question with the intention of staying there permanently only because she had stored her personal belongings, had the possibility to prepare refreshments or even to watch television in the building that had not received final building approval.
Further, the defendant noted that in order to qualify for the exemption, it is necessary to be resident there immediately prior to the sale, i.e. without unnecessary or unjustifiable delay. If the complainant claimed that she abandoned the property during the month of September 2018 and only entered into the contract of sale in November 2018, the sale took place in a property that was already abandoned. The condition of “residence immediately prior to the sale” could therefore not be met in this case.
For that reason, the SAC concluded that the plaintiff in the present case was not able to prove the primary condition itself, i.e. that she had a residence or a permanent apartment in the property sold. Even if she had met this condition, she would have had to be able to further prove that she had lived in the property immediately prior to the sale, i.e. to defend the relevant delay of approximately two months between moving out and the sale. The Supreme Administrative Court confirmed that the exemption from personal income tax could not be applied in this case and dismissed the cassation complaint.