Inseparable improvements and property tax from 2021

What are inseparable improvements to property, apartments - differences from separable ones

In accordance with Article 623 of the Civil Code of the Russian Federation, improvement should be understood as changes in the condition of property in order to increase the efficiency of its use, expand its application, or to increase the value of the property.

Property improvements may be separable or inseparable. Inseparable improvements always cause damage to common property, not just the apartment. It is impossible to carry out transformations, eliminate them without compromising the integrity of the building, etc.

For example, an inseparable improvement is considered:

1. Redevelopment of housing and demolition of the main walls of the building.
2. Installation of a new ventilation system.
3. Reconstruction or replacement of utilities, systems, pipes, batteries, equipment.
4. Carrying out major renovations in the apartment.
5. Replacement or demolition of an elevator, elevator shaft.
6. Reconstruction of the continuation of the room in the balcony part.
7. Kitchen equipment on the balcony.
8. Installation of additional technical equipment.
9. Replacement of electrical wiring.
10. Installation of heated floors.

This list can be expanded. You must understand that permanent improvements may cause damage to common property. If we are talking about an apartment, then most likely the building of an apartment building will be damaged due to the dismantling or moving of certain elements.

And separable improvements are not harmful.

For example, these include furniture, equipment located in the apartment, household items and household items.

What refers to inseparable improvements?

Inseparable improvements include, for example, the installation of a fire alarm system, a stationary heating and ventilation system (split system), etc.

Advice: you can distinguish separable improvements from inseparable ones by the following criterion: whether damage is caused to the leased property if you try to separate the improvements made from it.

If an improvement cannot be separated without harm to property, then such an improvement is inseparable (for example, dismantling a stationary heating system can harm the capital floors of the building).

This conclusion allows us to draw paragraph 2 of Article 623 of the Civil Code of the Russian Federation. This legal norm does not explain what is meant by causing damage to leased property. Therefore, the exact criterion for classifying improvements as one type or another can be specified in the lease agreement or a specific list of works can be provided indicating what type of improvements they relate to. Such a list will help the parties to the transaction understand the definition of the work performed (for example, when resolving disputes about payment for the cost of improvements).

However, for tax purposes, tax inspectors are unlikely to follow it when auditing. In each specific case, the situation will be resolved depending on the type of work performed and the possible harm that dismantling the improvements may cause. For example, depending on what kind of porch the organization added to the rented building (an easily dismantled plastic canopy or a permanent brick extension), this improvement may be classified as separable or inseparable.

Situation: Are repairs considered permanent improvements to the leased property for accounting and tax purposes?

No, it doesn't apply.

It follows from the norms of civil legislation that repairs of leased property (both current and capital) do not apply to work to improve it. Improvements are new additional properties of property, without which it existed and could be used for its intended purpose. Repair cannot be considered an improvement, since its main purpose is to maintain (restore) the property in working condition.

This conclusion can be made on the basis of Articles 616, 623 of the Civil Code of the Russian Federation and paragraph 3.1 of the Regulations approved by Resolution of the USSR State Construction Committee dated December 29, 1973 No. 279. It is confirmed by arbitration practice (see, for example, the resolutions of the Federal Antimonopoly Service of the Moscow District dated May 11, 2011 No. KA-A41/3691-11, Far Eastern District dated February 22, 2005 No. F03-A51/04-1/4525 and Northwestern District dated September 14, 2005 No. A56-4372/04). Let us apply this conclusion for both accounting and taxation purposes (clause 2 of Article 1 of the Law of December 6, 2011 No. 402-FZ, clause 1 of Article 11 of the Tax Code of the Russian Federation, letters of the Ministry of Finance of Russia dated November 18, 2009 No. 03 -03-06/1/762, dated February 25, 2009 No. 03-03-06/1/87).

Situation: does reconstruction (modernization, additional equipment, addition) refer to inseparable improvements to leased property for accounting and tax purposes?

Yes, it does.

According to the norms of civil legislation, improvements are new additional properties of property, without which the leased property existed and could be used for its intended purpose (Articles 623, 616 of the Civil Code of the Russian Federation). Reconstruction (modernization, retrofitting, completion) is also classified as work as a result of which the property acquires new or additional properties (increasing production capacity, throughput, etc.) (letter of the USSR Ministry of Finance dated May 29, 1984 No. 80). Thus, reconstruction work (modernization, additional equipment, completion) of the leased property can be considered as its improvement. If the result of such capital investments is inseparable from the leased object, this is an inseparable improvement (Article 623 of the Civil Code of the Russian Federation).

This conclusion is valid for both accounting and taxation purposes (clause 2 of Article 1 of the Law of December 6, 2011 No. 402-FZ, clause 2 of Article 257 of the Tax Code of the Russian Federation, letter of the Ministry of Finance of Russia dated November 18, 2009 No. 03 -03-06/1/762, dated November 23, 2006 No. 03-03-04/1/794).

The influence of inseparable improvements to the property, apartment on the relationship between the landlord and the tenant

In the case where inseparable improvements were made at the expense of the tenant, he has every right, after termination of the lease agreement, to ask the owner of the property to pay him compensation equal to the amount spent. This is discussed in Chapter 60 of the Civil Code of the Russian Federation .

It is very important to pay attention to this nuance when concluding and signing an agreement .

The clause about who will pay for inseparable improvements if necessary, and the possibility of the tenant receiving compensation, must be stated in the document . Otherwise, you won’t be able to get the money back from the landlord.

Inseparable improvements cannot be carried out without the consent and notification of the owner of the apartment or property. The tenant must give notice - preferably in writing - of this and provide all the information he knows on the matter. You can’t just go and want to radically change something in the apartment. To do this, you must obtain permission from the competent authorities!

How to check the legal purity of an apartment or house before buying it yourself

If this clause on the coordination of work was written into the contract, but the tenant did not follow it, then the likelihood of receiving compensation is reduced to zero.

Moreover, if a situation occurs with damage to the building, causing harm to other owners of the apartment building, the landlord can recover the damage caused from the tenant.

Also, non-approval of apartment improvements may cause termination of the lease agreement due to violation of the requirements specified in the document.

Concept of property improvements

The rules of law applied to legal relations between counterparties depend on the type of improvements made. The law distinguishes two types of improvements:

• separable improvements;
• inseparable improvements.

These types of improvements are prescribed in Article 623 of the Civil Code of the Russian Federation (hereinafter referred to as the Civil Code of the Russian Federation). As inseparable improvements, we can define those improvements to property that cannot be separated from the latter without causing harm to its quality characteristics.

Separable ones can be dismantled without causing damage to property. Any adjustments regarding the regime of improvements made may be stipulated by the parties to the contract at its conclusion or in additional agreements to it. In this case, additional agreements to the contract must be made in the same form as the primary contract. At this stage, it is quite important to provide for all possible future risks. This will allow you to avoid problems with taxation and litigation in the future. In general, improvements to leased property can be defined as modifications made to the property by the tenant in order to improve its quality and performance characteristics. The purpose of improvements may be:

• increasing the functionality of the rented property;
• improvement of its technical characteristics and properties;
• general improvement in the quality of rental property.

Quite often, improvements to a rented property are not just a desire, but an urgent need for the tenant. The law places the obligation to make major repairs on the rental property on the landlord. Repairs during operation must be carried out by the tenant. However, these norms are not always fully complied with by the parties to the contract, and repairs, for example, of the roof of a building are carried out by the tenant with these repairs counted as improvements made.

Inseparable apartment improvements and purchase/sale of real estate - pros, cons for the parties, risks

When buying or selling real estate, you also come across the concept of inseparable improvements, but they can be furniture, household appliances, designer renovations, etc. - that is, those things and elements that can make up the total cost of housing.

When concluding a purchase and sale transaction, inseparable improvements are prescribed in the contract indicating their price . They are used to understate the tax base and reduce the tax for the purchase of housing from the seller. This is the main advantage of a deal of this nature. The tax is paid in a smaller amount.

The disadvantages of such a deal can be different:

1. First of all, the tax service can audit the transaction and prosecute the seller who hides additional income.
2. Upon termination of the contract, the buyer may not receive the full amount for the property if an agreement for the purchase of inseparable improvements has not been drawn up. He will return only the one that was specified in the main contract.

It is worth paying special attention to the purchase and sale agreement .

If you doubt the purity of the transaction, contact our lawyers. They will help you understand the documentation and draw up the correct agreement, taking into account all the nuances.

BASIS: VAT

The amount of input VAT presented by the tenant on the cost of paid improvements shall be deducted in accordance with the generally established procedure. That is, after registration of inseparable improvements in the presence of an invoice and the corresponding primary documents (in addition, other conditions necessary for applying the deduction must be met) (subclause 1, clause 2, article 171, clause 1, article 172 of the Tax Code RF, paragraph 26 of the resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated May 30, 2014 No. 33).

Do not deduct input VAT on the cost of inseparable improvements that are not compensated to the tenant.

Options for contracts when executing a transaction with inseparable improvements to property, apartments

When concluding a transaction involving inseparable housing improvements, the contract can be concluded in one form. It should indicate not only the purchase of the apartment, but also the property located in it.

There is another option - to conclude two contracts:

1. Separately for the purchase of real estate.
2. Separately for the purchase of inseparable housing improvements.

The first agreement is the main one; it must be registered with Rosreestr.

The second one is additional, you can leave it in your hands, it does not require registration.

Inseparable and separable improvements

Inseparable improvements are especially often carried out in long-term leases (long-term contracts). If the tenant wants to “adjust” the specified property to his needs, while only increasing its quality characteristics, the first thing he must do is obtain the landlord’s consent to such an improvement. If such acceptance is received, the tenant, upon completion of the rental period, will be able to claim compensation for the money that was spent by him in the process of improving the quality of the property. In practice, inseparable improvements to property can be carried out in the form of:

• retrofitting;
• reconstruction;
• completions;
• modernization;
• repair.

That is, what is natural is that which cannot be physically separated from the walls, for example, their whitewashing. The property will suffer as a result, and the tenant will not receive any benefit. Separable improvements can be easily dismantled and separated from the main rental item.

Inseparable property improvements, apartments and taxes

When calculating and conducting tax transactions, inseparable improvements to property need to be declared if the agreement is concluded with the participation of legal entities. All individual entrepreneurs and legal entities are required to take these transactions into account when calculating taxes.

And individuals may not pay tax on compensation for inseparable improvements and not declare them. This does not contradict Russian legislation.

Legality of installing a vestibule door on the landing in the entrance

1. Property tax. Capital investments in the form of inseparable improvements accounted for as part of the tenant's fixed assets are subject to property tax until the end of the lease agreement. This position is confirmed in letters from the Ministry of Finance of the Russian Federation dated November 3, 2010 No. 03-05-05-01/48, dated November 1, 2010 No. 03-05-05-01/46.
2. VAT . When transferring inseparable improvements free of charge, the tenant is obliged to pay VAT (clause 1 of Article 146 of the Tax Code of the Russian Federation, where the provision of services free of charge is recognized as the sale of goods and services).
3. Income tax. Permanent improvements are considered depreciable property. If the cost of this property under the agreement is not reimbursed to the lessee, then he can “repay” the debt during the validity of the lease agreement, taking into account the useful life of the object (Article 258 of the Tax Code of the Russian Federation).

Please note that some nuances regarding tax and accounting payments can be specified in the contract. This way you can protect yourself from unexpected expenses.

simplified tax system

If a simplified organization pays a single tax on income, then the operation associated with obtaining inseparable improvements does not affect the tax base (clause 1 of Article 346.14, subclause 1 of clause 1.1 of Article 346.15 and subclause 32 of clause 1 of Art. 251 of the Tax Code of the Russian Federation).

Organizations that pay a single tax on the difference between income and expenses take into account operations to obtain inseparable improvements in the following order.

When receiving inseparable improvements on the balance sheet as a separate item of property, write off its value as expenses as part of the cost of acquiring fixed assets (paragraph 9, paragraph 3, subparagraph 1, paragraph 1 and paragraph 4 of Article 346.16, paragraph 1 of Art. 256 of the Tax Code of the Russian Federation).

The lessor may attribute the cost of separable improvements purchased from the lessee to an increase in the book value of the property (paragraph 9, paragraph 3, article 346.16 of the Tax Code of the Russian Federation, paragraph 14 of PBU 6/01). When calculating the single tax, the cost of such improvements after payment can also be written off as part of the costs of acquiring fixed assets (reconstruction, modernization, etc.) (subclause 1, clause 1, article 346.16 of the Tax Code of the Russian Federation).

Include the amount of input VAT presented by the tenant in the cost of the improvements received (clause 3 of Article 346.11 and subclause 3 of clause 2 of Article 170 of the Tax Code of the Russian Federation).

The only condition is that all expenses when written off as a reduction in the single tax base must be paid (compensated to the tenant). The form of payment - cash or rent - does not matter. This procedure is based on the provisions of paragraph 2 of Article 346.17 of the Tax Code of the Russian Federation.

If the landlord does not compensate the tenant for the cost of permanent improvements, then do not include their cost:

• nor in the taxable income of the organization (subclause 1, clause 1.1, article 346.15, subclause 32, clause 1, article 251 of the Tax Code of the Russian Federation);

• nor in tax expenses (clause 2 of article 346.17 of the Tax Code of the Russian Federation).

Cost recovery or improvement department

When considering the consequences of implementing different types of improvements, one should proceed from three main possible types of situations in relations between counterparties to a transaction:

• the tenant has received the landlord’s consent to carry out improvements (the so-called acceptance), and the latter is not against reimbursement of their cost in cash;
• the tenant has received acceptance for the changes, but the owner of the property does not want to reimburse their cost;
• the tenant did not receive the landlord's acceptance for the improvements.

The last case is the simplest and most clearly regulated by the legislator. In the case of separable improvements, the tenant has the right to dismantle them and secure them on his private property. At the same time, he provides (returns) the exploited property to the lessor in the form in which it was originally accepted after the conclusion of the transaction. From a legal point of view, the situation with inseparable improvements is more complex for the tenant. It is important to pay attention to the moment of loss of property and damage. The tenant cannot take them back, but he cannot claim compensation for the costs incurred. Therefore, before physically carrying out improvements, it is very important that the owner of the property or the person leasing it accepts it. Improvements made with the consent of the lessor can be recognized as depreciable property in accordance with Article 256 of the Tax Code of the Russian Federation (hereinafter referred to as the Tax Code of the Russian Federation). However, it should be noted that the owner of these improvements will be the landlord. According to Article 623 of the Civil Code of the Russian Federation, improvements made with the consent of the lessor are his property. A more complex situation is when the tenant has made some improvements to the leased property with the consent of the lessor, but the latter does not express a desire to reimburse their cost or give the latter, if they are separable, to the lessee (regardless of the verbal agreements of the counterparties established previously). In this case, the employer will not be able to receive reimbursement of costs. However, a solution can be found by analyzing tax legislation. In general, the taxation process for properties that have undergone improvements varies depending on three main criteria:

• type of improvement (separable or not);
• the presence of the landlord's acceptance for improvements;
• availability of the lessor's acceptance to reimburse the tenant's expenses.

The procedure for performing work and receiving compensation

There is no mandatory procedure for manipulating housing. Our portal recommends that the tenant adhere to the following option:

1. Determine the scope of work, draw up preliminary settlement documents and estimates.
2. Agree in writing with the owner of the apartment about the upcoming repairs. This must be done not just with a formal notification, but with the help of a full-fledged additional agreement, which specifically indicates what work will be performed, how much it will cost and how compensation will be paid.
3. Carry out the work, accept it from the contractor, collect all checks and receipts and transfer copies to the landlord for reimbursement.

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Note! If the homeowner refuses to compensate for inseparable improvements, they can be recovered in court.

What is movable property

The difference between movable and immovable property is outlined in Article 130 of the Civil Code.
It says that real estate is plots of subsoil and land, as well as everything that is firmly connected to the land. An explanation is also given here: objects are considered firmly connected to the ground, the movement of which is impossible without disproportionate damage to their purpose (in particular, buildings, structures, unfinished construction). In addition, real estate includes aircraft and sea vessels subject to state registration, space objects and inland navigation vessels. Movable property is things that are not recognized as immovable. Movable property includes, in particular, money and securities. In general, registration of rights to movable property is not required.

Unfortunately, the definition of movable property is very vague. Therefore, it is not completely clear which movable things are exempt from property tax in accordance with subparagraph 8 of paragraph 4 of Article 374 of the Tax Code of the Russian Federation. Let us consider separately the objects that most often raise questions among accountants (hereinafter we are talking about property put on the balance sheet from January 1, 2013).

Tax issue

Under an agreement between individuals, inseparable improvements do not need to be declared. And legal entities - firms of any organizational and legal forms - must take these transactions into account when calculating taxes.

At the same time, the nuances of accounting and taxation will depend on the company’s accounting policy, taxation regime and even the period of use of improvements in the company’s activities.

Attention! On the issue of accounting for improvements to the premises in the balance sheet of the enterprise, you can consult with the portal’s on-duty lawyer.