On 6 December 2021, a press release of the General Financial Directorate was published on the website of the Financial Administration, which draws attention to the tightening of conditions starting from the 2021 tax period for the exemption of income from the sale of a family house or a unit (apartment) on the condition of using the acquired funds for satisfying one’s own housing needs.

In practice, this change applies to situations, where the taxpayer sells a family house (including the associated plot) or an apartment (including a garage, cellar, storage room and the associated plot), in which the taxpayer has resided for less than 2 years immediately prior to the sale (see article 4 paragraph 1 letter a) of the Income Tax Act (“ITA”)).

The first condition for the exemption of such income remains necessity:

1. the use of the funds received for the taxpayer’s own housing needs by the end of the taxable period immediately following the taxable period, in which the taxpayer received the funds, or
2. the use of the amount corresponding to the funds received for the acquisition of the taxpayer’s own housing needs prior to their acquisition, but at the earliest in the taxable period immediately preceding the taxable period, in which the taxpayer acquired the funds.

According to the new article 4b paragraph 2 of the ITA, the taxpayer must also notify the tax administrator of the acquisition of these funds no later than by the end of the deadline for filing the tax return for the taxable period, in which the acquisition occurred (i.e. for 2021 no later than 1 April 2022, or 2 May 2022 in the case of electronic filing, or 1 July 2022 with a tax advisor).

The above-mentioned conditions must be met simultaneously, i.e. in the case of a mere failure to notify the tax administrator of the exempt income, the tax exemption cannot be applied (although the condition of using the funds to acquire new housing is met) and the income becomes taxable under article 10 of the ITA.

The new notification requirement also applies in the case of tax exemptions on other grounds (e.g. exemption of income from the sale of immovable property, if the period between acquisition and sale does not exceed 10 years or exemption of compensation for vacating a flat.)