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Individual taxation based on unequality?

Taxation concerning sales profit of one’s home varies.

The sale price of condos and apartments consists of (1) the payment to the seller or (2) the payment to the seller and a debt to the limited company maintaining the house.

In the past, the transfer tax was payable only on the part of the sale price paid to the seller. It took years till the law was changed and the debt included in the selling price was included in the tax basis. The transfer tax levied was different even though the condos were in the same house and the sale price was the same. The tax payers were not equally treated in the taxation.

Before the change of the transfer tax law, the new condos were sold to the buyers so that the buyer paid … let’s say …. 50.000 euro and the housing company debt could be something like 200.000 euro. The transfer tax was levied on 50.000 euro. Nowadays the tax is levied on the whole sale price 250.000 euro.

All ready before the new supplementary provision to the law, the tax administration could legally have levied tax on the total sale price the buyer took to pay. The tax losses have been quite big.

When the shares entitling to possess the condo are sold – and if the sale is not tax free – the seller cannot deduct the payments concerning the housing company loan if the payments have been made in the form of monthly financial dues.

The actual amount of the housing company loan included in the sale price has been reduced but the payments covering loan payments and interests to the bank are not deductible from the sale price. The tax authorities have again left the judicial aspect and bookkeeping reality without notice.

The mistake included in the taxation praxis is quite clear – especially after the alteration of the transfer tax act (a part of the housing company loan is part of the sale price). The tax authorities – and even the Supreme Administrative Court – kid with the way the bookkeeping has been done: if the financial dues are part of the income of the housing company, they can be deducted from the sale profit, but if the financial dues are written in the balance sheet, they are not deductible. The fact how the financial dues have been used (payments to the bank reducing the debt to the bank) is irrelevant according to the tax administration.

In 2013, Nikula received a decision from the administrative court in Helsinki. The decision is final. According to the administrative court, the financial dues paid can be deducted from the sale price if they have been used to the payment of the housing company loan taken for the construction of the building. The tax authorities have neglected to accept this decision of the administrative court.

Only now, in 2020, the administration has started to study the tax treatment of financial dues with regard to a possible tax law rectification. From the tax payers’ point of view, the taxation praxis can be regarded to be contrary to the law and contrary to the equality of the tax payers. The indeterminate taxation policy may lead to unequal and unfair taxation.