Thanks to the so-called "principal residence exemption," the sale of private homes, including land, is exempt from real estate income tax (ImmoESt) under certain conditions. In a recent case, the Administrative Court (VwGH) had to decide whether the tax exemption under Section 30 Paragraph 2 Item 1 of the Income Tax Act (EStG) also applies to a property larger than 3,600 m² – or whether there is a limit on the area.
A married couple sold a property located in the state capital, comprising a house and garage with approximately 3,646 m² of living space. The built-up area amounted to 317 m².2The couple used the house as their main residence from April 2002 to September 2012 and subsequently sold it for a purchase price of €3.2 million. The requirements for the main residence exemption according to Section 3 Paragraph 2 Item 1 of the Income Tax Act (EStG) appeared to be met, which is why the purchase price for the land measuring 3,646 m² was left tax-free in the self-assessment.
The focus of the legal dispute was the interpretation of the term "owner-occupied home including land" within the meaning of Section 30 (2) (1) of the Income Tax Act (EStG). According to this provision, the sale of owner-occupied homes including land is exempt from real estate income tax if the home has served the seller as their primary residence for at least five years within the last ten years prior to the sale and the primary residence is given up (Section 30 (2) (1) (b) of the Income Tax Act). A owner-occupied home is a residential building with no more than two apartments if at least two-thirds of the total usable space of the building is used for residential purposes. The owner-occupied home can also be owned by two or more people (Section 18 (1) (3) (b) of the Income Tax Act). The key question in this context was whether the term "owner-occupied home including land" is limited in terms of area and whether a maximum area could result in tax disadvantages upon sale with regard to the "primary residence exemption."
As part of an audit, the tax office subjected a significant portion of the capital gains to real estate income tax. The tax exemption under Section 30 Paragraph 2 Item 1 of the Income Tax Act only applies to the "land usually required as a building siteThe proceeds from the sale of the area exceeding 1,000 m² (approximately €2.2 million) were not covered by the exemption. The Federal Finance Court (BFG) disagreed and annulled the tax assessment. The Income Tax Guidelines 2000 (EStR 2000) define the "usually required building site“ in accordance with the case law on real estate transfer tax, with a maximum size of 1,000 m2, but this interpretation is not mandatory. The Income Tax Act does not provide for a rigid upper area limit, and it must be assessed on a case-by-case basis which share of the land belongs to the owner-occupied home. The Administrative Court (VwGH) overturned the Federal Finance Court's ruling and clarified: The term "Home including land" is not unlimited with regard to the tax exemption. The exemption only covers the extent of the reason that "is usually required as a building siteThe boundary must be drawn according to common understanding. This means that only the area considered customary and necessary for residential use is tax-exempt. The Federal Fiscal Court misjudged the legal situation by assuming that there is no size restriction.
This decision demonstrates that land sales should be carefully planned to avoid costly surprises later on. Just because a property is used as a home does not automatically qualify its sale for the "principal residence exemption" as defined in Section 30 (2) of the Income Tax Act. Rather, it must be examined on a case-by-case basis to determine what area can be considered customary for the area.
22.10.2024