Inseparable improvements to an apartment: a sample contract for the sale and purchase of housing, and why they use such a document, how to draw up a receipt?

What it is?

Let's consider what the concept of inseparable improvements means when drawing up an agreement for the purchase and sale of an apartment. Inseparable improvements are improved living conditions created by the previous owner:

the presence of built-in household appliances in the apartment at the time of sale;
replacement of old furniture, heating systems, building materials;
as well as redevelopment and reconstruction of rooms.

And they are called inseparable because the former owner cannot separate them from the real estate. This is the basis for rising prices for secondary housing.

It is worth noting that the Civil Code does not contain the concept of “inseparable improvements”. It was invented by sellers to reduce the amount of tax on the sale of real estate, the value of which has increased due to renovations.

Despite this, the contract is legal. If the home has been remodeled, this must be indicated in the technical documentation, otherwise it will be considered illegal.

Perhaps you will

Is compensation necessary?

Since all inseparable improvements to the leased property, according to domestic legislation, at the end of the lease period will become the property of the lessor, the question arises of possible compensation for the costs of the tenant incurred in the course of the improvements made.

This issue is regulated by the same Article 623 of the Civil Code of the Russian Federation, which clearly states that only those inseparable improvements to the leased property, for which the consent of the lessor was obtained, are subject to compensation.

Simply put, if a tenant wants to change a door or window in the premises and wants to receive compensation for this in the future, he must obtain the consent of the owner of the premises to carry out this work.

If the owner’s consent has not been obtained, the issue of compensation for inseparable improvements remains at the discretion of the owner of the rented premises, that is, it may or may not be compensated.

Thus, the key issue for compensation becomes the landlord’s awareness of upcoming improvements.

Why is this document used when selling housing?

Rosreestr employees transmit data on completed real estate transactions to the tax office, which obliges the seller to pay tax on the profit received based on this information.

To reduce the amount of tax or completely avoid paying it, the owner of the apartment often offers the buyer to lower the actual price in the contract.

The difference between the actual price and the price stated in the contract is the additional payment for inseparable improvements that the seller receives after completion of the transaction.

Pros of the deal:

The seller can reduce his tax costs.

Disadvantages of making a deal:

The buyer, if the real value of the purchased property is underestimated, risks losing part of the money if his rights need to be defended in court.
The seller, in turn, additionally runs the risk that the fiscal authorities may become interested in the legality of the transaction on inseparable improvements and hold the seller accountable. He may be forced to pay not only taxes, but also penalties.

In such a situation, the tenant can insure himself in several ways:

witness statements of persons confirming receipt of oral permission from the owner of the rented premises;
photographic and video evidence, if, of course, such can be obtained;

concluding a written additional agreement, this method is the simplest and most reliable, because in the agreement itself you can list the entire full scope of the improvements being prepared, which, together with the written consent of the landlord, will become a 100% guarantee of compensation for the costs incurred by the tenant to improve the premises he rents;
actual compensation for expenses incurred by the tenant or owner of the home. In this case, we can talk about making improvements using funds transferred by the landlord directly to the tenant or reducing the rent to compensate for expenses incurred by the tenant during repairs or other work. It is desirable that this be reflected in documents, for example, a monthly rent payment schedule;
Already in the rental agreement itself, it is possible to reflect the conditions for carrying out and compensating for future improvements; this method, however, is usually used infrequently.

Who can apply for improvements?

According to the current housing legislation, there are categories of citizens who have the right to apply for registration as a person in need:

Low-income citizens

Recognition of a citizen as such occurs by assessing his income and property, which is subject to taxation, and varies depending on the subject of the Russian Federation,

disabled people,
war veterans,
minor children and orphans,
heroes of the USSR, heroes of the Russian Federation,
rescue workers, police officers,

citizens who are not social housing tenants and members of their families;
citizens who do not own living space and are not part of the family of those who do;
citizens who are not provided with the minimum living space per person according to the norm;
citizens living in the same living space with a person who has a chronic illness that prevents the possibility of living together with him.

Types of receipts

A receipt is a universal document that can be drawn up in many situations. That’s why there are many types of it. Let's look at all of them.

About loan repayment

The most common type of document is a receipt for the return of money that was previously provided as a loan. Its function is official confirmation that the money has been returned. The document automatically confirms the absence of claims from the creditor. The latter will not be able to present claims to the borrower in the future. That is, the receipt allows you to protect the rights of borrowers. It has legal force. That is, the document can be presented in court if conflicts arise.

A receipt is not the main, but an additional document. That is, in itself it has no meaning. It is an annex to the main paper - to the agreement on the provision of money. The receipt should contain the following information:

Full name of the creditor and debtor.
Loan amount.
Date of drawing up the main loan agreement.
Signatures of both parties (debtor and creditor).

As a rule, it is the borrower who proposes to draw up a receipt, since he is more interested in its availability. Such a document will confirm that the debtor no longer has debt obligations.

About receiving a loan

If the previous document confirmed the return of money, then this confirms its receipt. Let's look at an example. One friend borrows money from another. Drawing up an agreement, going to a notary – all this is a waste of time. Most people are not ready to be bothered by paperwork. It's easier to make a receipt. This document is quickly drawn up and does not require certification by a notary. However, if required, the parties to the transaction can contact a notary.

In any case, the document has legal force. That is, if the borrower does not return the money, the lender will be able to go to court. A receipt will be a confirmation of the loan. Based on it, the debtor has obligations to return funds. A receipt is an additional insurance in case the borrower does not repay the money. It needs to reflect these provisions:

The city in which the document was drawn up.
Date of.
Full name of the creditor and debtor.
Loan amount (in numbers and words).
Signatures of the parties.

If there is a loan agreement, you need to indicate the date it was drawn up.

About receiving documents

Documents may be transferred to third parties for temporary use or for safekeeping. It makes sense to make a receipt for receipt of documents. The law does not establish strict requirements for the document. However, it must contain mandatory details: full names of the parties to the transaction, their passport details, a list of papers that were transferred to a third party. It makes sense to provide detailed information about each document: registration number, name, number of sheets in one copy, signatures of the parties, date of formation of the paper.

FOR YOUR INFORMATION! There should be no corrections in the receipt. If they are still present, each amendment is certified.

No complaints

Various conflicts may arise between legal entities and individuals. They can be resolved both in court and pre-trial. The second option is simpler and faster. If the parties were able to resolve the conflict between themselves, it makes sense to document this. The receipt allows you to confirm that the parties have no claims against each other. It may be drawn up in the following circumstances:

road accident;
property division;
employee leaving his position;
refund.

The document will only be valid if it contains a signature and date.

Accounting for inseparable improvements to leased property

It should be remembered that when making improvements to the leased property, the tenant has the right to include the expenses incurred by him for making inseparable improvements into the base of current expenses, that is, to reduce the tax base of the enterprise. True, this can only be done with the consent of the landlord to make such improvements and the availability of appropriate documents confirming the tenant’s expenses.

In this case, inseparable improvements made by the tenant will be considered property owned by him until the expiration of the lease agreement, and accordingly, will be subject to property tax.

In general, the issue of tax accounting for inseparable improvements carried out by a tenant is an extremely complex and often controversial issue and requires the involvement of competent lawyers and tax experts, but one way or another it is necessary to remember that resolving the issue of permission from the owner of the premises for the tenant to carry out such improvements will greatly help to clarify this issue. So, in any case, before starting improvements in the rented premises, the tenant is recommended to obtain the landlord’s consent to carry out such work.

VAT and expenses for inseparable improvements: reflections on the Metran case

The Supreme Court reached VAT on inseparable improvements to rental property[1]. It’s a pity that the case was won by the taxpayer.

It is possible to hope that the cassation ruling, which is positive for the taxpayer, will remain in force. But it's not worth it. The case was transferred shortly after the Uralbroiler case with a different “texture”, but a very similar fate. Both cases were resolved in favor of the inspection in the courts of first and appellate instances. In both cases, the court decisions were overturned by cassation, resolving the dispute in favor of the taxpayer. The presiding judge in both cases was the same judge. Such are the coincidences. In which the probability of a coincidence based on the results of the review in the second cassation is considerable.

It's a pity. An objective examination of the issues raised in this case would not hurt.

Spoiler: I think in this case the taxpayer has enough reasons to lose. The only question is how he will lose:

on arguments that should lead to loss, or
on arguments that should not lead to it.

I'm betting on the first one.

Arguments of the inspection

The Determination states that the inspector's arguments deserve attention. These arguments are based on the fact that inseparable improvements are transferred free of charge if, under the terms of the contract, they are not subject to compensation. Here are the arguments given by the inspectorate in support of this:

inseparable improvements were created by the company after the conclusion of lease agreements and were not the object of the lease;
inseparable improvements were made by the tenant with the consent of the landlord, but the corresponding expenses were not compensated for,
the parties did not discuss the landlord's counter-obligations;
the parties did not conclude any additional agreements to reduce the amount of rent or to offset against the rent the costs of inseparable improvements made by the tenant;
Based on the principles of tax accounting, the expenses of one party to the contract must correspond to the income of the other party. Since the cost of capital investments in the form of inseparable improvements, by virtue of subparagraph 32 of paragraph 1 of Article 251 of the Tax Code, is not taken into account by the lessor as part of income, the corresponding right of the tenant to account as expenses for the costs incurred in the form of the residual value of inseparable improvements is also absent.

These specific arguments are not suitable to justify the gratuitous nature of the transaction. Neither together nor separately.

Hostile fragmentation

I call this set of arguments from the inspectorate “hostile fragmentation.” Its essence is the division of a single set of interrelated operations into separate functions to determine the adverse consequences of the selected function. In this case, neither the final goal nor the final result of a set of interrelated operations are taken into account.

Now, let’s imagine a purchase and sale agreement for something, for example, a car from a manufacturer to a dealer.

In order to fulfill it, the manufacturer instructed the workers to produce it, transported the parts from the warehouse to the assembly shop, turned on the conveyor, checked the quality of the assembly, moved the product from the workshop to the warehouse, notified the buyer about its readiness, organized delivery of the car to the dealer's store and handed it over there. to his dealer. At this point, title transferred to the dealer and the sale occurred. And now we take and give tax qualification to each operation: separately, without taking into account other operations and the end of the entire cycle of contract execution. Then the VAT object arises only upon transfer. There is a counter-representation (payment) for the transfer. There is no doubt: the costs of transferring the car to the dealer are deductible when calculating income tax. VAT on them is also deductible.

All other operations listed above, taken in isolation from the general context that unites them into one indivisible whole, are not accompanied by payment for this particular (separate) operation. Therefore, they must be qualified as gratuitous (according to the logic of the concept based on “hostile fragmentation”).

In a rental situation, the transfer of inseparable improvements without compensation for their cost by the lessor cannot be taken out of the general context of the contract. Otherwise it will be the same “hostile fragmentation”. The property was leased under the conditions established by the lease agreement. The price of such transfer, incl. for tax purposes, takes into account the distribution of functions, assets and risks between the parties to the transaction (subclause 2, clause 4, article 105.5 of the Tax Code of the Russian Federation).

The condition of the agreement that the cost of inseparable improvements is not subject to compensation is an element of the legal relations that this lease agreement gives rise to. Within the framework of these relations, the parties are allowed to agree on the absence of compensation (clause 2 of Article 623 of the Civil Code of the Russian Federation).

Since the scope of the lease covers this condition, the contract is not mixed. Therefore, it does not need to be divided into a lease transaction and a transaction for the use or disposal of the results of work on inseparable improvements. Neither these nor other terms of the lease agreement should be assessed for consideration or gratuitousness in isolation from the other terms of the lease agreement.

It is no coincidence Art. 423 of the Civil Code of the Russian Federation gives definitions to a paid and gratuitous “contract”, i.e. such a distinction is appropriate for the contract as a whole, and not for some of its separate (from other) conditions.

The definition of gratuitousness given in paragraph 2 of Art. 248 of the Tax Code of the Russian Federation, also does not lead to a different result: “For the purposes of this chapter, property (work, services) or property rights are considered received free of charge if the receipt of this property (work, services) or property rights is not associated with the occurrence of an obligation on the recipient to transfer the property ( property rights ) to the transferor (perform work for the transferor, provide services to the transferor).” The rights to improvements in the property arose with the lessor as a result of the lease agreement. Under this agreement, the lessor transferred the right to use the property. Consequently, the receipt of improved property without compensation of costs to the tenant is conditioned by the transfer of this property earlier for use and (or) ownership to the tenant.

All the above arguments are based on the impossibility of “hostile fragmentation”. On the illegality of separating from a set of economically inextricably linked transactions one or more for their separate (independent) tax qualification, in isolation from other operations from the same set, as well as in isolation from the final result and their final purpose that unites all these operations. But where is this directly said?

I will refer to the authority of the judiciary. Let's use a precedent.

Thus, the Presidium indicated that the zero rate applies to services for the transportation of petroleum products for export, provided from the beginning of the transportation route to the end[2], and not just those provided on the last section of this route.

In Resolution No. 2196/10 of June 22, 2010, the Presidium of the Supreme Arbitration Court of the Russian Federation considered a dispute where property was transferred to a joint activity for its subsequent use in carrying out VAT-taxable transactions. The inspectorate insisted on restoring VAT at the stage of transferring property to joint activities, because such transfer is not subject to VAT. At the same time sub. 2 clause 3, sub. 4 clause 2 and sub. 4 p. 3 art. 39 of the Tax Code of the Russian Federation directly provide for the restoration of VAT on property transferred to joint activities.

The Presidium considered it impossible to break up the operations united by a single goal of transferring property into joint activities and its subsequent use. The transfer of property into joint activities is not the final purpose of the operation subject to qualification. It only mediates joint activities. And if the latter consists of carrying out operations recognized as a VAT object, then this imposes a marker of connection with the VAT object on all operations that mediate joint activities, incl. for the transfer of contributions by participants. And it doesn’t matter that in the chain of interconnected operations leading to a taxable goal, there are elements that are not recognized as subject to VAT.

In Resolution No. 9202/10 dated November 23, 2010, the Presidium of the Supreme Arbitration Court of the Russian Federation considered additional charges based on arguments about the gratuitous nature of operations for the free transfer of coal to preferential categories of the population. The Presidium responded to these arguments as follows: “... the main activity of the company is the continuous process of mining and selling coal, that is, carrying out operations recognized as objects... VAT. As a condition for carrying out this activity, the company is required by law to provide rationed coal to certain categories of persons, including those who were not and are not in labor relations with it and are not directly involved in the production process.” Once again, we see how the Presidium does not allow an operation to be taken out of the general context for its qualification without taking into account the main goal and the inseparability of the operations through which it is achieved.

In Resolution No. 14630/09 dated June 22, 2010, the Presidium considered such a case. The organization provided car repair and maintenance services. For this activity I applied UTII. When providing these services, the taxpayer replaced defective parts. At the same time, there were even 2 agreements concluded: an agreement to replace the part and an agreement for its purchase and sale to the client.

The inspectorate took advantage of this, pointing out that purchase and sale does not fall under UTII. The Presidium did not agree with her, saying: “ mere fact of using spare parts and additional equipment belonging to the company in the repair and maintenance of motor vehicles cannot serve as an unconditional basis for qualifying such activities as trading... the company carried out the sale of spare parts and additional equipment for automobiles as part of the provision of repair and maintenance services for motor vehicles.”

In Resolution No. 12987/11 of January 31, 2012, the Presidium allowed VAT deductions for the dismantling of fixed assets. The inspectorate justified the refusal to deduct the same: dismantling is not related to operations recognized as a VAT object and is not recognized as a sale. The Presidium objected as follows: “ The use of a fixed asset in economic activity is complex in nature and includes installation, operation, and, when production needs arise, the liquidation of a fixed asset …. the liquidated objects were related to fixed assets used to carry out activities aimed at obtaining products, the sale of which is recognized as subject to VAT.”

I think enough has been written on hostile fragmentation.

Expenses for income

Let’s move on to another argument, this one: “based on the principles of tax accounting, the expenses of one party to the contract must correspond to the income of the other party. Since the cost of capital investments in the form of inseparable improvements, by virtue of subparagraph 32 of paragraph 1 of Article 251 of the Tax Code, is not taken into account by the lessor as part of income, the corresponding right of the tenant to account as expenses for the costs incurred in the form of the residual value of inseparable improvements is also absent.”

First of all, what kind of principle is this? Where is he from? Unlike VAT, income tax does not condition the deduction of expenses on the fact that the beneficiary would have a tax base for the corresponding benefit. In Art. 270 of the Tax Code of the Russian Federation there is no such principle. Exceptions corresponding to cases of non-inclusion of a payment in income according to the rules of Art. 251 of the Tax Code of the Russian Federation are specifically specified. This means that this is not a principle, but special cases.

Do you remember, by the way, the controversy that private security units’ fees for this security were recognized as non-taxable target financing[3] in accordance with the same Article 251? At the same time, Article 270 directly provided that the costs of targeted financing are not recognized as expenses. But practice did not support this approach. This is due to the fact that the income tax “catches” the real increase in the taxpayer’s solvency. And it does not depend on whether the costs are recognized in the tax base by the beneficiary or not.

Secondly, we are talking about the costs of inseparable improvements, i.e. about the costs incurred to create improvements. These costs correspond to the income not of the tenant, but of contractors and suppliers whose purchases improved the property.

Well, now let’s return to the promised “exposure”. Why, despite what was previously stated, can a taxpayer lose in this particular dispute?

The Court of Appeal in this case indicated that “the lease agreements provide for the offset of expenses for inseparable improvements against the rent.” If this is so, then the first block of our reasoning is not suitable. We found out that it is impossible to separate an operation from the totality of legal relations regulated by a lease agreement in order to qualify it independently. But it turns out that within the framework of these relations the tenant has a right to compensation. Forgiveness of this debt is already outside the scope of the lease agreement, since the lease agreement does not provide for such forgiveness. On the contrary, he says: we need to compensate.

Under such an agreement, the costs to be compensated must go to the lessor. This is how it should be [4]: “In the case of compensation by the lessor for capital investments made, the corresponding inseparable improvements in the leased property should be considered transferred to the lessor who paid for them. In this case, the tax amounts previously accepted by the tenant for deduction are presented to the lessor in relation to the provisions of paragraph 1 of Article 168 of the Code. In turn, the lessor, as the owner of the leased object, who has assumed the burden of capital investments, the tax amounts presented by the tenant in this manner can either be deducted in accordance with Article 171 of the Tax Code of the Russian Federation, or included in expenses when calculating income tax (personal income tax) on the basis of Article 170 of the Code.”

In other words, the tenant had to recover VAT on compensable costs. Submit it as an invoice to the lessor. The latter would compensate him.

Therefore, yes, the inspectorate’s arguments deserve attention. But these arguments can work to the advantage of the inspectorate only in the context of the terms of the contract. But in this case, this context does not give rise to consequences favorable for the taxpayer.

What should a taxpayer do in this matter?

In such a situation, the tenant should apparently refer to the fact that the lack of compensation does not indicate that the transfer was gratuitous, but rather the unjust enrichment of the lessor. Such enrichment must be returned, i.e. transfer of the results of completed work (improvements) to the lessor is associated with the latter’s reciprocal obligation to compensate for them.

In this case, the question can be posed differently. Judging by the contents of the judicial acts, the costs of inseparable improvements should have been included in the rent, but they were not. As a result, it is appropriate to consider the issue of overpaid rent and the obligation to return the excess. This will also exclude gratuitousness.

Incomprehensible

It remains unclear why, in such a situation, the improvements were amortized by the tenant. Clause 1 of Art. 258 of the Tax Code of the Russian Federation allows the latter to depreciate those improvements, “the cost of which is not reimbursed by the lessor.” Since the contract provided for compensation, this provision could not be applied. Then it turns out that the tenant could not expense either depreciation or the residual value of the improvements.

But the inspectorate does not argue with depreciation. Why?

It may be that the condition on the offset of improvements against the rent implied that:

Rent = rental rate + improvements,

but not

Rent = rental rate. This rate must be paid minus the tenant's costs for improvements.

That would explain everything. And it would also acquit the taxpayer at the same time.

Resolution of the Plenum No. 33 states in this regard: “If the tenant makes capital investments in the leased property as a form of rent agreed upon by the parties, the tax amounts presented to him on the goods (work, services) acquired in this regard, property rights, are accepted by the tenant to deduction in the same manner as the tax amounts claimed by lessors as part of the rent.

In this case, the tenant has no improvements. He has only rent, part of which is paid in money, and the other by purchasing improvements. If the rental period covered by these costs has expired, then there are no grounds for reinstating VAT or refusing to recognize the costs. If it has not expired, then the costs and payments not covered by the lease are the landlord’s debt. Advance payment or unjust enrichment subject to refund. It can be written off as expenses only after the expiration of the statute of limitations for presenting relevant claims to the lessor.

It’s not clear, in general. There are not enough details in the motivational part of judicial acts to fully understand.

[1] Determination of December 21, 2021 No. 309-ES20-16872

[2] Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated February 25, 2009 No. 13893/08.

[3] Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation of October 21, 2003 N 5953/03

[4] Clause 26 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation of May 30, 2014 No. 33.