Arnhem-Leeuwarden Court of Appeal ruled that expenses incurred to prevent the foreclosure of the owner-occupied home by the bank are not deductible as money loan expenses. The ruling contains some more instructive elements.
Execution
The interested party financed the owner-occupied home with a loan from a bank and a loan from its own private limited company. At some point, the bank demands repayment of over €600,000 on the loan it provided. As holder of a right of mortgage as security for repayment of the loan, the bank has the right to have the property sold if the obligation to pay interest and repayment(s) is not met. Such a sale is referred to as foreclosure.
Interested party deducted an amount of €10,000 as loan expenses in its tax return. This amount related to costs incurred by the interested party to prevent the foreclosure of the house by the bank. He stipulated with the bank that the foreclosure be postponed for 6 months. During that time, the interested party could arrange the funds to make the repayment demanded by the bank.
The Inland Revenue does not accept the deduction of these costs and the court agrees. Foreclosure prevention costs are not directly related to taking out, extending or repaying the money loan. Rather, they are directly related to the source of the income: the owner-occupied home (and costs for maintaining the source are not deductible).
Self-triggered
Interested party triggered this correction itself. Indeed, in 2017, he requested the Tax Administration to reduce the assessment imposed for 2012 ex officio. Instead of the reduction (a tax refund), he received an additional assessment from the Tax Administration on which he had to pay tax.
The contention that the new fact required for the imposition of the additional assessment fails the Court of Appeal. The fact that, for the year 2012, the Tax Authorities asked questions about the current account held by the interested party with his BV does not mean that the deduction of interest and costs for the owner-occupied home was also assessed.
The request for reduction of the assessment is also reason for the Tax Administration to review the substantiation of the owner-occupied home debt (according to established case law, the Tax Administration is allowed to require this evidence to be provided again each year). And then it turns out that the interested party cannot submit the underlying invoices for all the renovation costs. The court confirmed that for that part of the renovation costs there was no owner-occupied housing debt.
Interested party also argues that the interest payable on the BV's (additional) loan should be much higher, than the 4% deducted in 2012. That interest should be 8.58% in connection with a hefty mark-up because only limited collateral could be provided. However, the court notes that nowhere was an interest rate other than 4% agreed and this rate was also used in the BV's records.