The Ministry of Finance in Taiwan has issued a notice, on 3 June 2024, stating that expenses related to preparing land for sale should be accounted for as part of the land cost when calculating net income.
According to Paragraph 1, Article 24 of the Income Tax Act, the amount of the profit-seeking enterprise income should be calculated by net income after deducting costs, expenses, losses, and taxes.
Expenditures incurred by profit-seeking enterprises in tearing down superficies and grading the land should be classified as the cost of land. Simultaneously, based on matching principle, net income of selling land should deduct the expenditures.
The Bureau explained this using an example: Company A declared other loss more than TWD 14 million in profit-seeking enterprise income tax return of 2020. After inspection, it was found that expenditures were incurred by the company in tearing down superficies and grading. Based on matching principle, the expenditures were used to render land available for sale, and should be reported as the cost of land. The Bureau corrected the classification from other loss to the cost of land, leading to additional tax liability of TWD 2.9 million.
The Bureau also reminded enterprises, when declaring expenses or losses, to pay attention to the above regulation and report items under the correct classification.
