Business owners who own property can usually set aside a provision for major maintenance against their profits. What happens to this provision when the property is sold?
Freefall
The answer to this question is quite simple: the provision is released. Following the sale of the property, the conditions for establishing the provision are simply no longer met: after all, no major maintenance work on the property will be carried out at the seller’s expense in future. The state of repair of the property has been factored into the purchase price.
The Supreme Court recently confirmed in a ruling that this release must be recognised as profit in a single instalment in the year in which the property is sold. The party concerned in this case recognised the provision as profit spread over five years.
Complex
The Supreme Court considers that the maintenance provision was linked to major maintenance work on the sold property. It is not clear whether the Supreme Court thereby refers to a provision in the Decision on facilities rejects the position taken by the Tax and Customs Administration. In this decision, the Tax and Customs Administration states that, where maintenance expenditure is spread across the entire (property) business, it is not possible to recognise a provision for (major) maintenance. The creation of such a provision could not, in that case, be considered on a property-by-property basis.