VwGH: Deduction ban for income-related expenses with standard taxation

Oct 20, 2021 Benn-Ibler Rechtsanwälte

The Administrative Court (Verwaltungsgerichtshof, VwGH) ruled on the question of whether a ban on deducting business expenses and income-related expenses also applies when exercising a standard taxation option with regard to income from capital assets. 

The appellant exclusively acquired income from capital assets in 2018. He applied for standard taxation and claimed income-related expenses with regard to the standard tax assessment. In its assessment, the tax office (Finanzamt, FA) provisionally determined the income tax, but did not take the income-related expenses into account. The appellant filed an appeal against this.

The Federal Fiscal Court (Bundesfinanzgericht, BFG) held that Section 20 para 2 of the Income Tax Act (Einkommensteuergesetz, EStG) prohibits the deduction of business expenses and income-related expenses if they are directly related to income under Sec. 27a para 1 of the EStG. This also applied if the standard taxation option was exercised. The appellant appealed against this decision to the Constitutional Court (Verfassungsgerichtshof, VfGH).

The VfGH refused to handle the appeal and referred it to the VwGH for a decision.

With regard to the current appeal, the VwGH stated that in Sec. 20 para 2 EStG the legislator expressly and deliberately differentiates between

• income to which the special tax rate is applicable (investment income according to Sec. 27a para 1 EStG), and
• income to which the special tax rate is applied (real estate sales according to Sec. 30a para 1 EStG).

The different formulations are intended to ensure that the prohibition of deductions in the case of the standard taxation option does not apply to the sale of real estate (because the special tax rate according to Sec. 30a para 1 EStG is not actually applied). For income from capital gains, the deduction ban continues to apply even in the case of the standard taxation option (since the special tax rate according to Sec. 27a para 1 EStG is theoretically still applicable), according to the VwGH. Thus, the prohibition of deductions also existed in the present case with regard to the appellant's income from capital assets, and the appeal was therefore to be dismissed.

Ra 2021/13/0036 (26.05.2021)