A proposal on amending the procedure for taxation of individual’s income fr om disposal of assets
The Ministry of Finance of Russia has published a blueprint of The Guidelines of the Fiscal Policy of the Russian Federation in 2014 and Planning Period of 2015 and 2016 and 2017. Overall, the blueprint contains no proposals which previously were not considered.
At the same time, the foregoing document contains a few proposals which may be regarded as material. In particular, it has been suggested that the procedure for taxation of individuals’ income generated from the disposal of assets (property) should be changed.
The currently applicable procedure for taxation of individuals’ income generated from the disposal of assets has some weak points. For example, even where a single residential property is owned at the moment of disposal of the living quarters and purchase of a new residential apartment, if the former has been owned for less than three years, the owner as physical body is to pay the tax. In practice, many individuals (physical bodies) tended to understate the value of purchase and sale transaction to avoid taxation and were exposed to the risk of losing their property.
The blueprint suggests the income generated from the disposal of residential real property should be exempted from taxation regardless of ownership period, provided that the taxpayer owns no residential real property other than this one. Should the physical body (individual) owns more than one real property at the moment of disposal of the residential real property, the income from the disposal of the same is to be exempted from taxation if the following terms and conditions are met:
- income generated from selling this real property is not beyond Rb 5m (the amount may be reduced by the government authorities of a constituent entity of the Russian Federation on whose territory the residential property for sale resides);
- the real property has been owned within three years or beyond (the government authorities of a constituent entity of the Russian Federation on whose territory the residential property for sale resides may extend the period up to 10 years).
It should be noted that if this proposal is introduced in the Customs Union member countries, the terms of taxation of individuals’ income generated from the disposal of assets would look less appealing. In Kazakhstan, income from sold assets are subject to taxation, provided that the real property is owned less than a year, while in Belarus, to the extent that more than one real property of the same type have been sold within 5 years, i.e. the rule doesn’t cover the disposal of a residential apartment or a dacha (country house).
This proposal will prevent the usage of tax avoidance schemes where no more than one residential property is owned, however residential apartments may become less appealing in terms of investment while revenues from taxation of individuals’ income generated from the disposal of assets (property) are expected to grow.
Elena Velikova, a senior researcher of Gaidar Institute’s Tax System Development Department
The Ministry of Finance of Russia has published a blueprint of The Guidelines of the Fiscal Policy of the Russian Federation in 2014 and Planning Period of 2015 and 2016 and 2017. Overall, the blueprint contains no proposals which previously were not considered.
At the same time, the foregoing document contains a few proposals which may be regarded as material. In particular, it has been suggested that the procedure for taxation of individuals’ income generated from the disposal of assets (property) should be changed.
The currently applicable procedure for taxation of individuals’ income generated from the disposal of assets has some weak points. For example, even wh ere a single residential property is owned at the moment of disposal of the living quarters and purchase of a new residential apartment, if the former has been owned for less than three years, the owner as physical body is to pay the tax. In practice, many individuals (physical bodies) tended to understate the value of purchase and sale transaction to avoid taxation and were exposed to the risk of losing their property.
The blueprint suggests the income generated from the disposal of residential real property should be exempted from taxation regardless of ownership period, provided that the taxpayer owns no residential real property other than this one. Should the physical body (individual) owns more than one real property at the moment of disposal of the residential real property, the income from the disposal of the same is to be exempted from taxation if the following terms and conditions are met:
- income generated from selling this real property is not beyond Rb 5m (the amount may be reduced by the government authorities of a constituent entity of the Russian Federation on whose territory the residential property for sale resides);
- the real property has been owned within three years or beyond (the government authorities of a constituent entity of the Russian Federation on whose territory the residential property for sale resides may extend the period up to 10 years).
It should be noted that if this proposal is introduced in the Customs Union member countries, the terms of taxation of individuals’ income generated from the disposal of assets would look less appealing. In Kazakhstan, income from sold assets are subject to taxation, provided that the real property is owned less than a year, while in Belarus, to the extent that more than one real property of the same type have been sold within 5 years, i.e. the rule doesn’t cover the disposal of a residential apartment or a dacha (country house).
This proposal will prevent the usage of tax avoidance schemes where no more than one residential property is owned, however residential apartments may become less appealing in terms of investment while revenues from taxation of individuals’ income generated from the disposal of assets (property) are expected to grow.
Elena Velikova, a senior researcher of Gaidar Institute’s Tax System Development Department