The deduction in respect of a newly constructed residential house on a plot of land should be given after registration of title to the house.
The property deduction can be claimed in three ways:
- In the personal income tax return for the period when the above-mentioned documents are gathered. The tax return should be submitted by 30 April of the next year if the taxpayer received income subject to inclusion into the tax return (eg income not taxed by a tax agent at source).
- By submitting the above-mentioned documents along with the appropriate official claim to the tax authority by the end of year when all the above-mentioned documents are gathered. In response to the claim, the tax authority should, within one month, present to the individual written notification of a special form relating to the deduction amount. The individual should present this notification to their employer. On receipt of the notification the employer should accordingly provide the deduction (decrease of taxable salary and amount of tax payable) from their employee’s taxable salary in the current year.
- In simplified way after a year end for which the property deduction is claimed. Application for the deduction should be submitted in electronic form via taxpayer’s personal account on web page of tax authority. The application should consist of bank details of the taxpayer on which the PIT refund (attributable to the property deduction) will be made. The deduction can be claimed for three years previous to the year. Tax authority should place all appropriate tax data into the taxpayer’s personal account to fill in the application. Once the application is submitted, tax authority is allowed to conduct its desk tax audit in 30 calendar days. The period of the desk tax audit can be prolonged to three month if incompliance to tax legislation in the application is revealed. Tax authority should notify the taxpayer on the extension of the tax audit within 3 working days after the prolongation decision. During the tax audit tax authority is allowed to request explanations or documents if mistakes or controversies are revealed.
The deduction also can be made in respect of other income taxable at the standard rate of 13% - ie benefits in kind, gifts above limits, etc.
The following example illustrates how the above deduction works in practice.
EXAMPLE 1
Igor and Irina are a married couple working as programmers for the same employer, OOO Crown. Both are residents of Russia in 2022. The couple purchased a flat for their family for 3,000,000 RR paid from couple’s savings. The documents required to claim the property deduction were gathered on 1 August 2022. The couple have never used the property deduction in respect of a residential property purchase.
Igor managed to get notification from the tax authority on 15 August 2022 for the deduction of 2,000,000 RR and presented it to OOO Crown.
However, Irina submitted the claim along with the documents but did not receive the notification in respect of the remaining amount due to inefficiencies in the tax authority where she is living. So, she decided to claim the remaining deduction (including the finishing expenses noted below) in her personal income tax return.
The finishing works for the flat, which is clearly stated in the purchase contract, have not yet been completed. The finishing works will cost 200,000 RR plus a further 100,000 RR for materials. The works were confirmed by appropriate documents, but documents in respect of the purchase of materials were subsequently lost.
Igor and Irina each receive a salary of 3,200,000 RR during 2022 and do not have any other income, benefits or deductions.
Required:
Calculate the personal income tax (PIT) liabilities of Igor and Irina for 2022 and state the amounts withheld by their employer, OOO Crown, and the amounts reported in their PIT returns if required.
Note: List all the items referred to in the question, indicating by the use of zero (0) any item which does not impact the calculation.
Answer (click here)
*The deduction should be given in respect of salary for the whole year not for the remaining months following the notification being presented to the employer.
As Irina did not manage to get the property deduction from employer, she decided to submit her PIT return and recognise the deduction there. She notified the tax authority in written form that all documents confirming the property deduction have been submitted to the tax authority along with the claim in August 2022.