(2022)
Is the connection to the sewage disposal system eligible for tax relief?
Expenses for craftsmen's services are directly deductible from the tax liability at 20%, up to a maximum of 1.200 Euro per year. Only labour costs and any invoiced machine and travel costs plus VAT are eligible.
However, the tax deduction is only granted for work on and in the self-used property. While the tax authorities only want to subsidise measures within the property boundaries, the Federal Fiscal Court considers the necessary connection to the household to still exist if the measure exceeds the property boundary and exclusively serves the property (BFH ruling of 20.3.2014, VI R 56/12).
Currently, the Federal Fiscal Court has ruled as follows: The spatial-functional connection to the taxpayer's household required by § 35a EStG is not present if a construction cost subsidy is charged for the new installation of a public combined water pipe as part of the public collection network (BFH ruling of 21.2.2018, VI R 18/16).
It is therefore necessary to distinguish whether the public supply or disposal network is being created or renewed for the first time (= not tax-privileged) or whether the home is being connected to the public collection network (= tax-privileged). The actual property connection to the public collection network begins at the branch point from the respective collection pipe and ends with the property connection shaft at the property boundary. Unlike the house or property connection, the public supply or disposal network is no longer considered part of the household within the meaning of § 35a para. 4 sentence 1 EStG.
The question of whether residents' contributions for a municipal road or for the development of pavements and street lighting could also be eligible had not yet been decided by the highest court. The Federal Fiscal Court has now ruled that residents' contributions for the development of a public road do not constitute eligible craftsmen's services and are therefore not tax-privileged under § 35a para. 3 EStG (BFH ruling of 28.4.2020, VI R 50/17).
The case: A couple had to pay a contribution to the municipality for the development of the unpaved sand road in front of their property and wanted to deduct part of it as a tax-privileged craftsmen's service from their income tax. As the advance payment notice from the municipality only showed a total amount, they estimated the labour costs at 50%. The tax office did not recognise the expenses for the construction of the road. The couple argued that the principles established by the BFH for the consideration of the connection to the public water supply should also be applied to the development of the municipal road, as the transport connection to the school and workplace was necessary for household management.
According to the BFH, the work on the road - as opposed to work on an individual property access from the branch off the main road - is not property-related and therefore not household-related. General road construction is no longer considered a craftsmen's service provided in the household. This is because services in general road construction benefit not only individual property owners but all users. The fact that road construction is also "economically advantageous" for the individual property owner is irrelevant in this respect.
Billing based on the property area and a usage factor does not change the lack of a spatial-functional relationship to the household. This merely serves to distribute the total costs remaining after deduction of the municipal share among the contributors and does not mean that the individual resident pays for the section of road in front of their property.
Even small businesses within the meaning of § 19 UStG or public authorities can provide tax-privileged craftsmen's services. This is particularly the case if a legal entity under public law (e.g. a special-purpose association) has acted entrepreneurially by laying house connection pipes against cost reimbursement as part of a commercial operation.
The BMF recently decreed (BMF letter of 1.9.2021, IV C 8 - S 2296-b/21/10002 :001):
For craftsmen's services provided by public authorities that benefit not only individual households but all households involved in the public authority's measures, a benefit under § 35a EStG is excluded. In this respect, there is no spatial-functional connection between the craftsmen's services and the household of the individual property owner. This applies, for example, to the expansion of the general supply network or the development of a road. This position corresponds to the BFH ruling of 28.4.2020 (VI R 50/17).
