Car taxation: corporate tax on capital gains
October 2022 – Deductions for passenger cars are limited based on the vehicle's CO2 emissions. Logically, therefore, a capital gain on the sale of the vehicle should only have limited taxability. But taxation does not always rhyme with logic.
Deduction
In corporate tax and, since 2020, also in personal income tax, the deduction of costs related to a passenger car depends on the CO2 emissions of the vehicle in question. The basic formula is as follows:
120 - (0.5 x coefficient x CO2 emissions gr/km).
The coefficient in this formula is:
1 for diesel-powered vehicles;
0.90 for natural gas vehicles with less than 12 fiscal horsepower; and
0.95 for all other vehicles.
The result of this calculation cannot be higher than 100% (e.g. for electric vehicles) and cannot be lower than 50%, except if the vehicle has C02 emissions above 200 g/km. For those vehicles, the deduction is limited to 40% by default.
This is the formula for the year 2022, but over the next few years car taxation will be thoroughly overhauled and the deduction for CO2-emitting passenger cars will be gradually reduced to zero over the next 5 years.
Taxability
If the company sells a vehicle whose depreciation, as well as other costs, were subject to the above deduction limitation, the taxable basis of the capital gain is generally limited in the same way.
But that principle apparently does not always apply.
Sale after renting
A company can acquire a vehicle in three ways:
via a simple purchase;
through financial leasing (which is generally considered a form of financing); and
finally, through operating leasing (also known as 'renting').
Renting is really leasing, where the contract may include a purchase option, but it does not have to. If the company does not light that purchase option, the vehicle remains the property of the lessor. If the company does light the purchase option, it buys the vehicle at the end of the contract at the pre-agreed price and on the pre-determined terms.
The rent paid by the company is subject to the limitation described above.
If a company purchases a vehicle at the end of an interest contract and it then sells that vehicle again with a capital gain, it seems logical that the taxable basis would also be restricted. But the minister has a different view and, according to the letter of the law, he is right.
After all, the parallelism between the deduction limitation and the taxable base limitation only applies if the 'depreciation' was limited. But the company leased the vehicle and therefore never booked depreciation, only rental income.
Suppose the company uses the vehicle for another year. In that case, the vehicle will indeed be depreciated in the company. The price at which the option was exercised will then be the vehicle's depreciable value, which can then be depreciated.
Prefer no more renting?
With the imminent reform of car taxation, it is not a good idea to buy CO2-emitting passenger cars anyway, but in the meantime, bear in mind that a company is best not to sell immediately after renting.
