Housing at the company's expense...
sometimes yes, sometimes no
February 2022 – The case law is not unequivocal: when a company owns a house and this house is used solely or mainly as accommodation for the manager, are the costs for this house deductible? The Court of Ghent recently ruled no, but at almost the same time the Court of Appeal of Ghent ruled yes.
The Ghent Court of Appeal on not one, but two dwellings
A man and a woman have a company that they themselves call a real estate company. The company was formed through several mergers and had a commercial building, a flat in Knokke-Heist and a house in Grembergen in its portfolio. In October 2014, the couple transferred their residence, as well as the company's registered office, from the house in Grembergen to the flat in Knokke-Heist. In March 2015, the house in Grembergen was destroyed by fire. The compensation for the loss yields a capital gain. The company intends to temporarily exempt it. This is possible on condition that the compensation is reinvested.
In 2017, the company undergoes a thorough audit for the tax years 2015 and 2016. The tax authorities found that the buildings made available to the manager were not used for the company's activities. The costs for the houses are therefore not deductible. Furthermore, the capital gain on the house in Grembergen cannot be exempted because the first condition for this exemption is not met - namely that the property must be used for the company's business purposes. The capital gain is therefore fully deductible.
The Ghent judge questions the qualification of "real estate company" from the outset.
It is undeniable that there are buildings in the company, but the court seems to regard the company as a patrimonial company (i.e. a company that manages its own assets) rather than as a real estate company (i.e. a company that sells and buys buildings).
The court concludes that the fact that the company is registered as a real estate company does not mean that the costs of the two buildings should automatically be considered as deductible business expenses.
The couple confirms that they personally use the houses, but that the aim is to sell them in the long term and realise a capital gain in the process.
But this theoretical consideration did not convince the court: the fact that the buildings would one day yield a capital gain was not sufficiently demonstrated. And even if they were to generate a capital gain, the condition for deductibility is not fulfilled, since the capital gain is not yet certain.
What about the remuneration theory?
According to this theory, a company may qualify as deductible business expenses the costs incurred in order to grant a benefit of any kind to its director by virtue of his professional activity within the company.
This is also the case here: the manager receives a taxable benefit through the free accommodation.
But here's the thing... The manager paid a personal contribution for the accommodation. This personal contribution was debited from his current account. The contribution corresponded exactly to the amount of the benefit, so that in practice the manager did not have to pay tax.
According to the court, the tax authorities were right to conclude that the benefits could not be regarded as remuneration, since the equivalent of the benefit had been fully accounted for and the manager should therefore repay the benefit.
The theory of remuneration therefore does not apply.
The Court of Appeal in relation to a villa with a swimming pool
The case before the Ghent Court of Appeal concerned a villa with a swimming pool and poolhouse, owned by a management company. The company used the building for 20% of the time. The rest of the time, the building was put at the disposal of the company director who paid taxes on the benefit.
The company invoked the above-mentioned remuneration theory to deduct 100% of the costs of the house.
The tax authorities rejected the deduction, arguing that the provision of the accommodation was not intended to remunerate the executive for his services to the company. The manager was also paid in cash and nowhere in the contract was the house mentioned as remuneration for services. However, the company director refers to the minutes of the general meeting, which explicitly state that the remuneration of the manager for the exercise of his mandate consists of both a periodic salary in cash and a benefit in kind, namely the private use of the dwelling.
The tax authorities also draw attention to the disproportion between the amount of the taxable benefit and the amount of the expenses. However, this argument is rarely, if ever, accepted: the fact that the taxable benefit is much lower than the real value of the benefit is due to the flat-rate assessment imposed by the tax authorities themselves.
Finally, the court rejects the argument that the real value of the advantage is particularly high. This is a judgment of opportunity. The court notes that there is only one manager and shareholder. The company does not employ any staff. Thanks to this manager, the company generates a considerable income and can grant a considerable remuneration to its manager.
The difference?
The ruling of the Ghent Court of Appeal proves that it is still possible to own a house - with all the tax benefits to which it gives entitlement - in a company. The Ghent court ruling, on the other hand, proves that this is not a given.
The main difference between the two cases seems to be the extent to which free accommodation constitutes alternative remuneration. There must be a reason for the remuneration. This seems to be the case in the court's judgment, but it is much less obvious in the tribunal's judgment. The fact is that if you want too much, you end up meeting resistance from the tax authorities. And that can take a long time...
