(2023)
Are residents' contributions also tax-privileged?
Expenses for craftsmen's services are directly deductible from the tax liability at 20%, up to a maximum of 1.200 Euro per year. Eligible are works in the owner-occupied home or "in the household" as well as on the property. But are contributions for road renovation also eligible?
Consequently, the tax authorities only want to grant the tax relief for house connections (TV, internet), supply and disposal lines (electricity, gas, water), drain cleaning, sewage disposal, leaf removal, outdoor facilities, paving work, etc. within the property boundary and reject it for measures outside the property (BMF letter dated 10.1.2014, BStBl. 2014 I p. 75, para. 15, Annex 1).
However, the Federal Fiscal Court ruled against the tax authorities, stating that the tax benefit is not limited to services provided exactly within the property boundaries. The necessary connection to the household is still present if it is a measure that extends beyond the property boundary and exclusively serves the property. According to the BFH judges, not only are craftsmen's services that are provided "in" a household eligible, but also those provided "for" the household.
This is because the term "in the household" is to be interpreted spatially-functionally. Therefore, the boundaries of the household - contrary to the tax authorities' opinion - are not exclusively defined by the property boundaries. Rather, craftsmen's services carried out beyond the property boundary on third-party or public land can also be eligible. However, these must be services carried out in the immediate spatial vicinity of the household and serving the household (BFH judgment of 20.3.2014, VI R 56/12).
The question of whether contributions for a municipal road or for the expansion of pavements and street lighting can also be eligible had not yet been decided by the highest court. The Federal Fiscal Court has unfortunately recently ruled that contributions for the expansion of a public road do not constitute eligible craftsmen's services and are therefore not eligible for tax relief under § 35a (3) EStG (BFH judgment 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 road from the junction with 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.
The 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.
Recently, the BMF decreed (BMF letter dated 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 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 judgment of 28.4.2020 (VI R 50/17).
