11.02.08

The Constitutional Court (CC) heard the complaints of individuals contesting the rules for income tax deductions after an apartment purchase. An individual has the right to deduct the cost of the purchased residence from his income amount. This deduction must be made within three years of purchasing the residence. The maximum deduction is one million rubles, so, given Russia's tax rate of 13%, up to 130,000 rubles may be returned to the taxpayer.

If the apartment is wholly owned by two people (with no shares or definition), the tax deduction will be split by the tax inspection according to owners’ written request. This is according to an FTS representative. However, in the case of shared ownership (with shares or definition) the Tax Code requires that the deduction be distributed according to the shares owned. If one of the owners does not have any income, no deduction can be claimed, and the other owner will only have rights to part of the total deduction.

One of the plaintiffs in the case explained that further complications were caused by a requirement of the Social Services, which state that a purchased apartment must be registered as shared ownership with a minor child holding 50% of the shares. Since the child had no income and could not pay taxes, the tax authorities stated that no refund could be made to the child.

The Ministry of Finance does not see the challenged rule as unconstitutional. A deputy head from the Ministry of Finance has explained that, “defining the basis for tax deduction is in the competency of the legislator – this has been confirmed by the Constitutional Court in the past.” However, representatives of the president, the government and prosecutor-general sustained the claim of the plaintiffs to the CC.

The final decision will be made by the CC in the next few weeks. If the court sustains the claim, share owners will be able to claim the rest of the deductions by filling in a tax form. If tax inspectors refuse, taxpayers need to file a court claim. The CC decision is a ground for review of earlier cases based on new evidence.

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