of September 26, 2012 No. 2593/0/61-12/15-1415
About consideration of the letter
The State Tax Service of Ukraine considered the letter concerning reflection in tax accounting of expenses on reconstruction and upgrade of the building and reports.
According to subitem 139.1.5 of item 139 of Art. 139 of the Tax code of Ukraine of December 2, 2010 No. 2755-VI (with changes and amendments) (the Code is farther) in the expenses does not include expenses on acquisition, production, the construction, reconstruction, upgrade and other improvement of fixed assets and expenses connected with mining, and also with acquisition (production) of intangible assets which are subject to depreciation according to Art. 144 - 148 NKU taking into account item 146.11 and item 146.12 of Art. 146 and item 148.5 of Art. 148 of the Code.
Expenses on carrying out repair, reconstruction, upgrade and other types of improvement of fixed assets which exceed 10 percent of aggregate book value of all groups of fixed assets, subjects depreciation, for the beginning of accounting year (item 144.1 of Art. 144 of the Code) are subject to depreciation, in particular.
Expense amount which is connected with repair and improvement of the fixed asset objects including leased or received in concession or created (constructed) by the concessionary in the amount of which does not exceed 10 percent of aggregate book value of all groups of fixed assets for the beginning of accounting year, belongs the taxpayer in structure of expenses (item 146.12 of Art. 146 of the Code).
Depreciation of fixed asset object is charged during useful life (operation) of the object established by the taxpayer, but it is at least minimum admissible term established by item 145.1 of Art. 145 of the Code, monthly, since month which comes after month of introduction of fixed asset object in operation and stops for its reconstruction, upgrade, completion, additional equipment, conservation and other types of improvement and preservation (item 146.2 of Art. 146 of the Code).
At the same time the depreciation is performed during useful life (operation) of object which is established by the order on the company in case of recognition of this object asset (in case of transfer on balance), but is at least determined in item 145.1 of Art. 145 of the Code and stops for its conclusion from operation (for reconstruction, upgrade, completion, additional equipment, preservation and other reasons) based on documents which confirm removal of such fixed assets from operation) (subitem 145.1.2 of item 145.1 of Art. 145 of the Code).
Determination of primary fixed asset cost after the return putting into operation is performed based on item 146.11 of Art. 146 of the Code, namely: primary fixed asset cost increases by expense amount, connected with repair and improvement of fixed asset objects (upgrade, modification, completion, additional equipment, reconstruction) that leads to growth of the future economic benefits which are initially expected from use of objects in the amount which exceeds 10 percent of aggregate book value of all groups of fixed assets, subjects depreciation, for the beginning of accounting tax year with reference of the amount of improvement on object of fixed asset concerning which repair and improvement is performed.
Considering brought, taxpayers carry in structure of expenses repair expenses and improvement of fixed assets in the amount of which does not exceed 10 percent of aggregate book value of all groups of fixed assets for the beginning of accounting year.
Expenses which exceed the specified amount join in primary project cost of fixed asset concerning which repair and improvement for the purpose of depreciation, since month which comes after month of introduction of fixed asset object in operation is performed. At the same time for removal of such fixed assets from operation for reconstruction, upgrade, completion, additional equipment and other improvements the depreciation stops.
Thus, if the building was used for designated purpose and not taken out of service in case of work on its reconstruction and upgrade, then for the purpose of depreciation primary cost of such fixed asset shall increase by expense amount which exceeds 10 percentage limit of aggregate book value of all groups of the fixed assets which are subject depreciation for the beginning of accounting year, since the month following after month of signing of the act of priyemasdacha repaired, reconstructed and the modernized objects.
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