Tax-free profit allowance 2018: you may still save some tax this year!

25. October 2018 | Reading Time: 3 Min

The tax-free profit allowance for self-employed individuals and traders is also available in 2018: the limitation of securities eligible for taking advantage of the tax-free profit allowance to mortgage bonds was cancelled in the previous year already. Please find below all further relevant information.

Nowadays, most self-employed individuals and traders know about the tax-free profit allowance. This year, natural persons can again make up to 13% of their taxable profit (excluding capital gains) tax-free. 13% of profits of up to EUR 30,000 (basic tax-free allowance) are automatically made tax-free without the need for any further requirements to be met. In the case of partnerships, it should be noted that the basic tax-free allowance of EUR 30,000 is only available once per company and not per partner.

If profits exceed an amount of EUR 30,000, investments in 2018 need to be made in eligible assets so as to be able to benefit from the investment-related tax-free profit allowance. Eligible assets include:

  • Tangible depreciable fixed assets – the most important exceptions being:
    • Cars (except for driving school cars and taxis)
    • Low-value assets
    • Used assets
    • Service life < 4 years
  • Eligible securities (pursuant to Sec. 14 para. 7 no. 4 of the Austrian Income Tax Act [EStG]).

Taxpayers applying cash accounting and those preparing a balance sheet must make the investments required to take advantage of the investment-related tax-free profit allowance until 31/12/2018.

TPA Tip:
Prepare the forecast for 2018 as soon as possible in order to duly determine the amount of required investments that is optimal in fiscal terms. Your TPA advisors will be glad to assist you.

The provisions governing the tax-free profit allowance have been subject to numerous amendments by the legislators over the years. The limitation to mortgage bonds was cancelled in 2017 already. Therefore, those securities that may be used to cover pension provisions may be purchased this year again.

Securities must be booked to the securities account by 31/12/2018 and stay there for at least four full years (calculated on an actual/360 basis).

TPA Tip:
This means that securities orders must be placed in time before the end of the year, taking into account the public holidays. Moreover, offers may get scarce with the end of the year approaching, so that earlier purchases are recommended. The advantage: the four-year period will end earlier as well.

Experts agree that the four-year period is not observed if you shut down your business prior to expiry of the period, for instance due to retirement.

TPA Tip:
Take account of the four-year period when planning your retirement. We would be pleased to assist you with devising counter strategies. The tax-free profit allowance is phased as follows:

  • 13.0% for a profit of up to EUR 175,000
  • 7.0% for a profit between EUR 175,000 and EUR 350,000
  • 4.5% for a profit between EUR 350,000 and EUR 580,000

This means that the maximum tax-free allowance is EUR 45,350 with maximum tax savings of EUR 22,675.

Note: If profit is calculated using the consolidated business expenses method (Betriebsausgabenpauschalierung),
only the basic tax-free profit allowance may be claimed. This means that self-employed individuals
and traders that consolidate their expenses into a lump sum may benefit from tax savings through the basic tax-free allowance.

TPA Tip:
Investing in depreciable fixed assets to take advantage of the investment-related tax-free profit allowance means that, with a tax rate of 50%, the investment is fully covered by the tax savings!


More News:

TPA Newsletter October 2018
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