The decision to write off the debt results in a reduction of the borrower’s liabilities.
A customer using the bank’s favor does not receive any cash benefits
Despite this, the tax authorities believe that a person who does not conduct business activity after the loan has been redeemed should pay a higher tax.
The said interpretation meets with the disapproval of banks and their clients. The last word in this dispute, however, belongs to the tax office. Therefore, people who benefit from the redemption of a loan should show them in the annual PIT declaration and pay the tax due …
The tax office may postpone or even cancel your tax
A few months ago, tax authorities gained another argument in a dispute with people who do not want to pay tax on forgiven loans. I am talking about the judgment of the Supreme Administrative Court of February 14, 2013 (file reference number II FSK 1269/11). The NSA referred to the situation of spouses who did not include the amount of the canceled credit obligation (PLN 110,000) in their PIT declaration.
This taxpayer action resulted in sanctions from the tax authorities. The Supreme Administrative Court confirmed in a final judgment that the tax office was right to demand payment of the tax on forgiven debt. An identical position on the same matter was also presented by the Voivodship Administrative Court.
The ruling of the Supreme Administrative Court perfectly fits into the case-law which has been representing national courts and offices for several years. Borrowers, unfortunately, have to accept it. In this context, it is worth adding that people in financial difficulties may request that the amount of income tax due be divided into several installments (see Article 67a of the Tax Code). The tax office does not have to agree to this form of repayment. In the event of a positive decision of the tax office, the debtor is obliged to pay an additional extension fee (its annual amount is 5.75% of the tax liability).
Amortized interest is also taxable
As a supplement, it should be noted that the tax obligations relate not only to the amount of redeemed capital. Similar consequences for the debtor are caused by the situation in which the bank waives its right to credit interest. Detailed guidelines of the Ministry of Finance indicate that due interest should be included in the tax base and capitalized interest. The inclusion of criminal interest is justified only if the bank provides for its unconditional application in every situation (i.e. it does not leave the right to discretion).
Detailed information on the amounts canceled can be found in the annual PIT-8C form. The bank that redeems should provide such a document within two months of the beginning of the following year. On the basis of the received PIT-8C form, the taxpayer must complete a PIT declaration – 36. Some tax offices make it possible to show the amount of redemption in the PIT-37 form (unless the taxpayer does not conduct business activity ). In both cases, the value of the proceeds from the write-off of the debt should be entered in the column entitled “Other sources, not mentioned in lines from … to …”.
The reduction in interest may be more favorable than redemption
It is worth knowing that the reduction of accrued interest as opposed to redemption is not treated as tax revenue. This rule, which consistently applies the national tax authorities, leads to bizarre situations. After taking into account taxation, it turns out that a significant reduction of interest (e.g. by 90%) is more favorable than the option consisting in their cancellation.