Due to the 30% ruling period being reduced significantly, we receive more and more the question if income from assets are taxed in Box 1 (progressive tax rate) or Box 3 (more or less 1.2% taxed income)?
Asset management Box 3 or Box 1 taxable income
This is a difficult subject to touch as it is as gray as the sky in the Netherlands during Autumn. There is a lot of jurisprudence on the subject, but all is very case specific.
The rule is that normal asset management activities are regarded Box 3 activities. So when you have a portfolio and you trade a number of times per year, that is regarded normal asset management. When you hire a professional to do the trading for you, that is regarded normal asset management.
The moment your assets are not traded on a stock exchange, but you own property that is not your main residence, this property is taxed in Box 3. Even if you have the so called 30% ruling where you do not need to report your worldwide assets, exception to the rule is property situated in the Netherlands.
If you have or do not have the 30% ruling Dutch property is taxed in the Netherlands. Property you own abroad is reported in the Netherlands, but a credit is provided as tax treaties state the property can only be taxed in the country where it is actually situated.
So you own property in the Netherlands that is not your main residence. Maybe you rent the property maybe not, what you do with the property is not so relevant. Even if you have your parents live in the property for no rent, it is an asset that is subject to tax.
The tax office has the opinion that when you start painting for instance the gutter yourself, you already do more than normal asset management. In other words, the property you manage has then moved to Box 1. I think it is debatable, but please hire a company to paint the property for you. It would be terrible to see that the capital gain you make on the house that is basically tax free, as we do not know capital gain tax, this income is taxed in Box 1 because you needed to paint the gutter yourself.
Asset management Box 3 or Box 1 taxable income – source of income
Recently clients contact me that they are trading on the stock exchange themselves and they are worried their efforts are taxed in Box 1 instead of Box 3. Such a message is often send in the early days of trading, when success is still part of the operation. I have done some trading a ‘blue Monday or two’ and it became very clear in which area my expertise is lacking. I could cut lose break even barely.
My reply to my clients is to give it some time. One sunny spring day does not imply summer has started. Trading on the stock exchanges makes people create poetry, maybe to soften their sorrow in their losses. Poetry like ‘cut lose when you are ahead’, ‘sell in May and go away’. Over time your luck might change as the markets can be unpredictable, and then your profit has turned into a loss.
The Dutch tax system is rather hypocrite in this field. If you trade yourself and you gain a profit, the Dutch tax office is keen to state this income is taxed in Box 1. However, the moment you trade yourself and you lose more than you invested, nobody with the Dutch tax office will accept your loss in Box 1. A bit of a one way system.
What amount is the source of income?
The moment you do some trading on the stock exchange yourself and you make some money, what is the threshold it to be regarded source of income money? Does it start with EUR 1 gain, or EUR 1.000? Box 3 tax rate is based on the assumption you make a certain percentage of income. See the brackets below.
Tabel berekening rendement op vermogen over 2019
The first bracket starts at zero up to EUR 71.650 and if there is a yield the expected taxable result is 1,935% income over your assets. Does that imply if you make 1,935% profit or less over your investments, it is not regarded Box 1 source of income as this is already the bases of Box 3 taxation? I think it very well might be. Again gray area and the tax office is keen to state your income on your assets are taxed in Box 1.
Example of source of income
I have post an article about bitcoins and the result was that bitcoin holders contacted me to ask about how or if they should report the bitcoin. A silly question, because if you read my article my answer is crystal clear.
But this bitcoin holder was able to share with me that he trades every night and last night he gained EUR 8.000 in 20 minutes trading. That was at the time the bitcoin value went through the roof.
He was able to inform me that in those 20 minutes he earned more than he does in a month gross salary with his employer.
That is for me the moment to inform him that the proceeds are a source of income subject to the progressive tax rate in Box 1. Of course not the answer this person was looking for, hence we never learned from him again. The poetry would be: do not play with dogs you cannot run with.
Orange Tax Services
Asset management Box 3 or Box 1 taxable income is a gray subject. The costs you save by painting the cutter of the house you rent out or the accidental profit you make playing Mr Buffet can make this income subject to the progressive tax rate in Box 1, or can it. Again gray area as the tax office is not keen to accept losses you make in Box 3.
So why this article, to make you aware that the possibility exist that your massive yield in Bitcoin income, stock exchange income or the capital gain made with the sale of the rented house, might be taxed in Box 1. It all depends on facts and circumstances.