Is a car considered part of a person’s private or business assets? The District Court of the Northern Netherlands confirms that it is often a matter of discretionary assets
Asset labelling
This question arises in the context of asset classification. Entrepreneurs subject to income tax must determine whether business assets fall within their:
- required personal assets;
- required business capital;
- discretion (the business owner may then choose whether the asset is classified as part of their private assets or business assets).
If your business is organised as a legal entity – usually a private limited company (BV) – this principle does not apply. The private limited company is an independent holder of rights and obligations. The car forms part of the business’s assets when the private limited company is the owner. If the car is to be transferred from the company’s assets to the shareholder’s private assets, the private limited company sells the car to its shareholder. Conversely, the shareholder may, of course, also sell a car to the private limited company.
(Almost) exclusively
It can be inferred from case law that the decisive criterion is: (virtually) exclusively. This criterion is quantified as: 90% or more. If a business asset is used (almost) exclusively for business purposes, it is classified as compulsory business assets. Where private use amounts to 90% or more, the business asset is classified as compulsory private assets.
In all other cases, the choice is optional. The business owner must then make that choice in the year in which the business asset is brought into use. In subsequent years, that choice may only be revised in the event of exceptional circumstances. The classification must, of course, be revised if, at any point, the asset is classified as compulsory private or business assets.
500 kilometres
In the case In the case before the District Court of the Northern Netherlands, the business owner drives a Toyota Prius. The Tax and Customs Administration has established that a total of 22,035 kilometres were driven in the Prius in 2012. It has been established that 1,870 kilometres were for business purposes. This means that almost 8.5% of the kilometres were driven for business purposes. This is less than 10%, which means that the car is driven (virtually) exclusively – that is to say, for more than 90% – for non-business purposes, and is therefore subject to the private use rule.
The entrepreneur wishes to include the Prius in the assets of his sole trader business. The court agrees with the entrepreneur that, in a 2001 judgement, the Supreme Court adopted the approach based on the number of private kilometres under the additional tax liability scheme (if an entrepreneur drives 500 or more private kilometres in a company car, a flat-rate additional tax liability must be added to the profit for private use). With 1,870 business kilometres, the entrepreneur has well exceeded the 500-kilometre threshold. The court ruled that the Prius therefore qualifies as ‘elective assets’ and may consequently, in accordance with the entrepreneur’s wishes, be classified as assets of the sole trader. It seems to us that, in this case, the Tax and Customs Administration pursued the case somewhat against its better judgement.