Are preliminary work in the craft business also eligible for tax relief?
Expenses for craftsmen's services are deductible from the tax liability at 20%, up to a maximum of 1.200 Euro per year. Only labour costs are eligible, and only for work on and in the owner-occupied home. For a long time, it was unclear to what extent work carried out in the workshop of the craftsman's business was also eligible.
Recently, the Federal Fiscal Court decided the matter: If work is carried out in a craftsman's workshop, the wage costs incurred are not eligible for relief under section 35a (3) EStG (BFH rulings of 13.5.2020, VI R 4/18 and VI R 7/18).
According to the BFH, services provided outside the household are not eligible, even if they are provided for the household. What matters is where the service is actually performed. A craftsman's service carried out in the craftsman's workshop on a household item does not have a (direct) spatial connection with the household for which it is provided, but only a functional one.
Therefore, it is generally irrelevant whether the service result is achieved in the household. The spatial-functional connection to the household cannot be established solely by the fact that the craftsman's service relates to a household item.
The first case involved the repair of a courtyard gate, which was removed by the carpenter, repaired in his workshop, and then reinstalled. A tax reduction for the repair of the courtyard gate is only possible to the extent that the carpenter carried out the work on the property and not in his workshop (VI R 4/18).
The second case concerned the manufacture, galvanisation, delivery, and installation of a door (workshop and installation work). There is no tax relief for the manufacture and galvanisation of the door in the workshop, only partially for the installation work in the household (VI R 7/18).
Ensure that the labour costs for the on-site service (installation) are itemised separately on the invoice. However, even if this is not the case, the labour costs can be apportioned on an estimated basis. According to the BFH, "it is actually possible to split the labour costs into a non-eligible 'workshop wage' and an eligible 'on-site wage'. Such a split does not contradict the legislative intent to combat undeclared work" (VI R 4/18, VI R 7/18).
