The problem with taxation of transfers to one's children was reported by a Business Insider reader. He explained that he had two children in college and was giving them money to rent apartments and maintain them. The man emphasized that he had problems with obtaining a clear position at his tax office.
Therefore, we explain whether transfers to children exceeding the tax-free allowance limit must be taxed, how to calculate the five-year period during which the taxpayer is entitled to the tax-free allowance and what if a parent simply transfers money to support his or her child.
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Our reader emphasized that his children study in two different cities and they also try to earn extra money by working on jobs. He wanted to know whether, when transfers exceed a certain amount of money (the amount free from inheritance and donation tax), they will be treated as a donation. The man noted that he transfers almost PLN 30,000 to each child annually. PLN, and yet the tax limit is calculated in five-year periods.
Parent's transfers for the child's current maintenance. Is there tax?
— If transfers from a parent serve the child's current maintenance, i.e. cover the costs of renting an apartment, food or studies, and the child is not yet economically independent, then, as a rule, we are not dealing with a donation. – explains Jacek Dziuba. He explains that in such a situation we are talking about the fulfillment of an alimony obligation that is not subject to taxation at all, regardless of the amount.
Let us add that, in accordance with the Family and Guardianship Code (Article 71), the maintenance obligation results from kinship and includes the provision of means of subsistence, and, when necessary, means of upbringing.
The problem may only arise when the funds are transferred go beyond current maintenance or when the child is already financially independent. Then the tax office may consider such transfers as a donation.
When the transfer exceeds the threshold of PLN 36,120. Do I need to notify the tax office?
– If we are dealing with a donation, there is a limit of PLN 36,120 in the parent-child relationship – says Jacek Dziuba. This is how much it amounts to tax-free amount from inheritances and donations in the so-called I tax group, which includes, among others: parents, children or spouses. Up to the tax-free amount [w okresie pięciu lat, co tłumaczymy dalej — red.] you do not have to pay tax or inform the tax office about transfers.
Exceeding the tax-free allowance does not automatically mean that you have to pay tax. — The immediate family may benefit from the exemption [na podstawie art. 4a ustawy o podatku od spadków i darowizn — red.]but on condition that the donation is reported to the tax office – says Jacek Dziuba. The recipient has six months to report the donation. If a father transfers money to his son or daughter, the children must report the donation (they are the recipients).
The tax-free amount limit is calculated over a period of five years. So how?
Taxpayers are also often concerned about the method of calculating the tax-free allowance limit.
The regulations (Article 4a of the Act) state that in the case of a gift of money, its acquisition by the spouse, descendants (children), ascendants (grandmother, grandfather), stepson, siblings, stepfather and stepmother is exempt from tax if the value of this money is added to the value of property acquired so far from the same person in the year in which the last acquisition took place. and in the period of 5 years preceding this year exceeds the tax-free amount. The donation of money must also be documented with proof of transfer, e.g. to a payment account at a bank or cooperative savings and credit union, or by postal order.
— Contrary to popular belief, it is not about rigid five-year periods, but about the so-called floating time window – says Jacek Dziuba.
He explains that the limit of PLN 36,120 is counted backwards from the moment of receiving the last donation and includes all donations from the same person over the last five years. – This means that each new payment “postpones” this period and requires a new look at the total funds received – says Jacek Dziuba.
As we mentioned, you also need to complete formalities after exceeding the limit in order to benefit from tax exemption. If the total of donations from one parent exceeds the exemption amount, you must submit form SD-Z2 within six months to maintain your eligibility for the exemption.
— This is a moment that many people forget about. Once the limit is exceeded, kinship alone is not enough – a donation must be reported. Moreover, subsequent transfers during this period should also be reported so as not to lose the exemption – emphasizes Jacek Dziuba.
In practice, this means – advises the expert – that when regularly transferring larger amounts, it is worth adopting a consistent strategy for documenting such transactions.
Transfer title – what to enter so as not to arouse the attention of the tax office?
— The most important thing is that transfers are consistent with their actual purpose. It is worth describing them as “maintenance”, “rent” or “study costs” and avoiding a situation in which significant surpluses are accumulated on the child's account. This significantly reduces the risk of their nature being questioned by the tax office – says Jacek Dziuba.
Author: Łukasz Zalewski, journalist of the Law section, Business Insider Polska
