In a recent ruling, the VwGH had to deal with the purchase price allocation made in the purchase agreement in connection with the main residence exemption (VwGH 24. 4. 2024, Ro 2022/15/0044).
In the underlying case, a developed property used as a main residence was sold and the capital gain achieved was treated as fully tax-exempt by claiming the main residence exemption. In accordance with the purchase price allocation provided for in the purchase agreement, of a total purchase price of EURm 21, a total of EURm 17.2 was attributable to the building and EURm 3.8 to the land.
The property sold had a total area of approx. 2,500m², of which approx. 200m² was developed. The undeveloped area therefore amounted to approx. 2,300m². In the opinion of the tax authorities (based on the established case law of the VwGH), the main residence exemption with regard to land is only applicable to a maximum of 1,000m², which is why any part in excess of this is subject to taxation.
Furthermore, the tax authorities objected to the purchase price allocation made in the purchase agreement and instead made an allocation according to the asset value method. According to this method, the purchase price is allocated in proportion to the market values of the land and building.
The use of this method was subsequently confirmed by both the BFG and the VwGH. As a result, a higher proportion of the purchase price was allocated to the land, which in turn led to increased taxable income due to the limitation to 1,000 m².
Conclusion: The allocation of the total purchase price to land and buildings must not be made arbitrarily for purpose of the main residence exemption, but must comply with strict objective standards. According to the case law of the VwGH, the most suitable method for this is the asset value method, by which the market values of the building and the remaining land are to be estimated and brought into a ratio. The total purchase price must then be allocated according to this ratio.
