In Family Circle: Supreme Court Exempts Entrepreneur from Tax on Gifted Property
According to Pravo.ru, the Federal Tax Service assessed additional personal income tax against a businesswoman on non-residential premises gifted to her by her mother, on the grounds that the premises were used for business purposes. The Judicial Chamber on Economic Disputes overturned the tax authority’s decision, stating that a gift between relatives who are entrepreneurs cannot be considered a commercial transaction. The Supreme Court provided a clarification: the property changes owners but remains within the family circle; therefore, such a transaction does not generate any property gain.
Maria Semenova, Director at FBK Legal, commenting on the case, notes:
‘It is not infrequent that Individual entrepreneurs face difficulties in classifying income as either personal or related to entrepreneurial activity.
This is due to the fact that current legislation not only lacks a universal rule for classifying the income of individuals but also establishes fundamentally different approaches to determining the tax liability for such categories of income.
It is not always obvious whether activities involving the acquisition and sale of real estate are of an entrepreneurial nature. This is confirmed by extensive case law from numerous disputes between tax authorities and entrepreneurs.
The Supreme Court’s new ruling is an important step towards greater legal certainty in distinguishing between personal and business income of citizens who run a business. It is designed to protect bona fide taxpayers who receive the benefits established by law without intending to unreasonably understate their tax obligations.
However, there have been cases where even the Supreme Court refused to protect the taxpayer. In Case No. А66-11560/2023, the tax authority demanded that an entrepreneur pay personal income tax on the value of a production workshop received as a gift from his father, who also ran a business. The lower courts found that, by its characteristics, this property was not intended for personal, family, or domestic needs, since a production workshop is by definition a commercial asset. Moreover, it was leased out for RUB 2.4 million per month, which confirms the intention to generate profit. The entrepreneur tried to challenge the decision, but the Supreme Court refused to refer the complaint to the Judicial Chamber.’