Some questions repeatedly come back. Among them the question to deduct the costs of a private home as company costs from the company result. That looks like heaven, but will most certainly turn into hell experience learns.
Conditions for the costs of a private home as company costs
The rules in the Netherlands determine what costs you can deduct in the income tax return. One of the rules is that you can deduct costs of your office/company in your home under the condition that:
- The office has a separate entrance
- The office has separate bathroom facilities
- The office has a separate postbox.
Basically you need to be able to rent out this office to any third party. If that is possible, you can deduct the costs.
Not only nearly no Dutch house can meet these requirements, but is this a desired tax deduction?
What is the gain?
If the house is yours, then you can already deduct the mortgage interest, so what more can you gain? The costs of a private home as company costs imply you can also deduct the utility fees. Maybe write off the house a little and you can fully deduct the interior costs of your office.
What is to be lost?
What makes the deduction of the costs of a private home as company cost hell is that there will come a point that you either terminate the company, sell the company, you retire or you simply move house. That is the moment the capital gain tax kicks in, that does apply to companies.
I can only assume the private home has increased in value over time and that value increase, plus possible deduction that was claimed, is the gain. Over that gain the highest tax bracket, currently (2017) 52%, is due. From experience I know that medical doctors that had their office at home, hence put the home in the company, did not want to retire as they simply could not pay the tax without actually selling the house. In the end they had to stop as the tax office simply did not believe that the old aged medical doctor still had clients. Hence he sold the house to pay the tax.
But it can be worse.
How not to put the costs of a private home as company costs in your business?
When you are looking for a career move, become a dentist that does implants. This court case is about such a dentist that employs 20 employees. In march 2012 he build a house that he put on the company. A 363 square meter house on a 3.750 square meter lot. Twin door garage with car elevator, boathouse, storage, docking for the boat. Inside swimming pool, sauna, steamcabine. Total investment 3,6 mln euro.
Reading this I assume a substantial part of the house was used to facilitate the 20 employees staff, but only a 55 square meter room was assigned for the company, plus 6 square meter storage.
The tax office successfully challenged the fact that the costs of a private home as company costs applied in this case. This is a 100% private home and not required to successfully fulfill the needs of a dental company. Only the personal taste of the house made it that expensive, hence the house was not at all a company cost.
In this case you need to understand that the builder charged the dentist 21% VAT over most of the building costs, which he of course claimed as prepaid VAT from the company. That needs to be paid back, plus penalty. Moreover I can only assume the house was financed with the thought that all costs were tax deductible. Now that is not the case, can de dentist afford the monthly financial costs?
Orange Tax Services
We are tax advisors, but we also have the opinion to keep it simple. A complex tax situation might save you some tax, but can bring a headache about the thought if it keeps on standing during an audit. An audit that always takes place over a 5 year period. A correction over such a period can break your financial position. So please do not consider putting your private home up as business costs for mickey mouse utility costs. The mortgage costs are already deductible if all is well.