Technicke zhodnoceni drobneho hmotneho majetku

Capital improvement of "small" tangible assets

In today's Alert, we would like to share with you some practical aspects concerning the capital improvement of tangible assets which are not defined as tangible assets for the purposes of the Income Taxes Act ("small tangible assets").

According to the currently effective wording of the Income Taxes Act, separate tangible movable assets whose acquisition costs do not exceed CZK 80,000 are considered to be small assets. In case of small tangible assets, their accounting depreciation is considered as tax-deductible expense.

The entry price of small tangible assets may be increased if they are technically improved.

If the new acquisition costs of such assets, determined as the original acquisition costs and the value of the capital improvement exceeds CZK 80,000, such assets will be depreciated according to the standard rules for depreciation of tangible assets, however, tax depreciation may be applied up to the maximum amount of the acquisition costs decreased by the accounting depreciation applied so far.

In practice, the application of this provision means that it is necessary to check whether the tax residual value considers the accounting depreciation already applied as a tax-deductible expense in accordance with the Section 24(2)(v) of the Income Taxes Act.

To give an example:

A company owns small tangible assets whose acquisition costs was CZK 70,000. In the first year, the accounting depreciation of CZK 7,000 is applied as a tax-deductible expense.

At the beginning of the second year, the company technically improves the asset, the value of the capital improvement amounts to CZK 100,000. The new acquisition costs of this asset now amounts to CZK 170.000 (the original price of CZK 70.000 and the value of the capital improvement of CZK 100,000).

In the second year, the company must classify this asset in the appropriate depreciation group and apply the depreciation for the first year of depreciation. Tax depreciation can be applied up to a maximum of CZK 163,000 (the total of acquisition price in the amount of CZK 170,000 decreased by already applied accounting depreciation of CZK 7,000).

In case the capital improvement is made during the second year, the company would apply the accounting depreciation as a tax-deductible expense until the capital improvement is put into use.

Finally, we would like to add that the above brief commentary cannot replace a detailed tax assessment of a specific tax situation.

If you have any questions, please contact the authors of this article or the EY tax team with whom you regularly work.

Authors:

Ladislava Zamazalová

Viktorie Bohmerová