Input Tax Treatment Phases
The law demands a chronologically graduated input tax treatment of the fixed assets in the case of input tax opting.
The input tax treatment of the Real Estate Component differentiates three phases of the treatment in the system:
Phase 1: Input tax revision
Phase 2: Input tax correction
Phase 3: Input tax adjustments
The type of treatment results from the input tax phase of the correction items taken as a basis correction item .
Option rate determination in the phases
Option rates |
Composite Rates |
Base Rates |
Option rates are determined in all phases of the input tax treatment . |
Composite rates are determined for each month in the input tax correction phase. The composite rate is the arithmetic means of the monthly calculated option rate in the input tax correction phase (=Year when the asset was used for the first time). In this phase it is the basis for calculating the deductible or non-deductible input tax amounts of the acquisition/production costs of an asset. It is newly calculated every month. The composite rate in December of the calendar year of the first use is used as base rate in the input tax adjustment phase. |
The base rate is the current composite rate from the last month of the input tax correction phase(=December of the calendar year when the asset was used for the first time). It is the basis for correcting the input tax in the input tax correction phase according to § 15a and § 44(2) German sales tax law. |
Phase 1: Input Tax Revision
Period
The input tax revision includes the period of the construction phase of an asset under construction (AuC) up to when the asset is first used.
Input tax revision
If a concluded provisional lease-out exists for a rental unit, you can deduct input tax from the acquisition/production costs.
The actual input tax deduction amount, however, can only be definitely determined when the object is used for the first time. For this reason, it is necessary in the construction phase to revise the original input tax distribution up to the end of the construction phase when the option rate changes.
Input tax distribution and account determination
The input tax amount entered or calculated with the posting is redistributed in a deductible and a non-deductible amount by means of the steps Option rate determination and Input tax distribution and making use of the currently valid option rate of the correction items.
Distribution, input tax |
Account determination |
In this phase, the option rate valid in the month of the posting date is used option rate .
Asset 1 will be used until 08/31/97 as an asset in construction. Using the provisional lease-out (lease-outs with system status
End of the example. 1000 m2 (rented area liable to sales/purchase tax) x 100 2000 m2 (overall rental area of the rental units) = 40 % ( Option rate ) i.e. from the total monthly costs, 40% of the input tax is posted as deductible for the input tax distribution. |
For the resulting difference between the old and new input tax distribution (e.g. in the previous month an option rate of 45%), a input tax revision posting is generated. The non-deductible input tax is posted to the acquisition/production costs, that is the asset value increases or is reduced ( postings to the balance sheet ) |
ExamplePhase 2: Input Tax Correction
Period
The input tax correction includes the period from the first time the asset is used up to the end of the respective calendar year.
Input tax correction
In this phase, correct the input tax amounts of the acquisition/production costs for an asset, if there is a change in the composite rates.
Input tax distribution and account determination
If the composite rate of the calculation month differs from the composite rate of the previous month, the deductible input tax is recalculated. This input tax amount is balanced with the amount from the previous month. Posting records are automatically created for the balance.
Input tax distribution |
Account determination |
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In this phase, the composite rate valid in the month of the posting date is used for the distribution.
Asset 1 runs from September until December 1997 (period 4 months) in the year of that it was first used (correction phase) . In the correction phase the composite rate is used for the input tax distribution. If you start with the following option rates: End of the example. |
For each invoice, a correction posting is created for the resulting monthly difference. The non-deductible input tax is posted to the acquisition/production costs, that is the asset value increases or is reduced ( postings to the balance sheet ) |
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Sept.:50% |
Oct. :40% |
Nov.:40% |
Dec.:50% |
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The following composite rates are then calculated: |
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Sept.:50% (50+50+50+50) / 4 |
Oct.: 42.5 % (50+40+40+40) / 4 |
Nov.: 42.5% (50+40+40+40) / 4 |
Dec.: 45% (50+40+40+50) / 4 |
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Phase transaction
A transaction to phase 3: Input tax adjustment only begins if the total of the input tax amounts up to the end of the input tax correction phase exceeds 500 DM (§ 44 (1) German tax law)
Base rate
The composite rate of the input tax correction valid in the last month (December) is defined as a base rate for Phase 3: Input tax adjustment defined.
Phase 3: Input Tax Adjustments
Period The input tax adjustment phase begins after the input tax correction phase. It lasts up to the end of the correction period.
Threshold values § 44 (1), (2) German tax law The phases of input tax correction are missed out completely if the total of all the deductible and non-deductible input tax amounts to the end of the input tax phase does not total 500 DM (§ 44 (1) German tax law)
In accordance with § 44 (2) German tax law, an adjustment of the input tax deduction is not required for a calendar year in the input tax adjustment phase
if the average option rate of a calendar year differs from the base rate by less than 10% and
if the correction amount of this fiscal year amounts to less than USD500 the same time.
Input tax adjustment
Through the input tax treatment posting in December of the year of the first use (input tax correction phase), the following phases are automatically set on the correction items:
Phase 3: Input tax adjustments |
Phase 4: No input tax adjustment |
If the total of input tax > USD 500. The monthly adjustment amount is calculated from: (Current option rate - Base rate) x Inp.Tax from APCNumber of correction months |
If the total of input tax USD 500. |
In the input tax adjustment phase (phase 3), the input tax treatment has to be carried out once a month .
Input tax distribution and account determination
Input tax distribution |
Account determination |
The base rate is compared with the current option rate of a calendar month. The difference between the base rate and option rate results in an input tax adjustment.
Example 1: There is no change to the option rate of Asset 1 during the entire correction period. Result: No further postings are made. Example 2: The correction period of asset 1 finishes on 31.12.1998(=16 months) for example, during which the option rate has been reduced by 10% in the first 3 months. The following calculations are carried out per month (see the formula above): End of the example. (35 - 45) x Inp.Tax from APC 16 = Amount that is entered as expenses in the P&L sheet |
Non-deductible input tax is posted as expense or revenue to the corresponding accounts to be defined in Real Estate Customizing (posting in the profit and loss statement). |
Reversing input tax correction amounts
Since the threshold values of § 44 (2) refer to a calendar year, these values are only checked at the end of a calendar year. If the calculated values fall below both threshold values, the input tax adjustment carried out during this calendar year is reversed.