Rental income

What it means

Rental income is an individual’s income from letting property, which the Income Tax Act keeps in a subsection of its own next to business income. The landlord is not a trader: nothing is supplied but the use of the owner’s own property, and no trade licence is needed for it.

Services draw the line. Letting a flat plainly stays rental income, while short-term accommodation with cleaning, linen and a reception desk is an accommodation service, meaning a trade licence and levies. Part of the income is exempt up to an amount set by the Act, and expenses are cut in the same proportion.

The separate regime covers real estate only. Income from letting a movable item, such as a car or a machine, that an individual does not hold as a business asset counts as other income, and when an s. r. o. is the landlord, the rent is ordinary company revenue taxed in its own return.

How it works in practice

The landlord signs up with the tax office: the registration is filed by the end of the month following the month in which the property was first let. The income then goes into a type B tax return, and it carries no social or health insurance levies.

Flat-rate expenses are not available here; only documented costs count. If the flat is not held in business assets, in practice only utilities and the services supplied with the lease are deductible; depreciation, repairs, insurance and property tax belong to a landlord who did place the asset into business assets.

Where property is held in shares, we prepare a return for each co-owner separately, according to their share of income and expenses. If a flat is in the joint marital property of spouses, only one of them is taxed on the income, so we go through with the clients in advance which of them it makes sense for, given their other income.

What to watch out for

Money is usually lost on depreciating a flat the owner never placed into business assets. An audit strikes those costs out, assesses the tax for every year still open and adds late-payment interest; a rental loss cannot be reported either, as expenses are recognised only up to the income.

A common mistake is declaring only the net rent and leaving out the payments for energy and services the tenant sends to the landlord. They are part of the income too, and only the actual payments to suppliers are expenses. Rent paid in advance for several years is also taxed in the year received, which can push the tax base for that one year sharply up.