Context

According to Belgian domestic income tax legislation, individuals letting out a built property in Belgium to an individual who does not use the property (partly or entirely) for business purposes, are taxed on the indexed rateable (“cadastral”) income of the property, increased by 40%. If, however, the property is let out to an individual who does use the property for business purposes, the lessor is taxed on the total amount of the rent and rental benefits.

Due to the fact that the amount of the actual rent is generally substantially higher than the amount of the increased deemed rental income, a discussion often arises between lessors and the tax authorities with respect to the definition of ‘use for business purposes’ in this respect.

Case law

The Court of Appeal in Brussels has recently decided (23 May 2007) that the fact that a lessee deducts the rent as business expenses, due to the fact that he is using a property as a second residence closer to the working place, does not automatically give rise to taxation based on the actual rent in the hands of the lessor.

The case in question regards a teacher who has her main residence on the Belgian coast and who is working in Leuven. In order to avoid difficult and lengthy commuting, she rents a student room in Leuven and consequently deducts the rent as business expenses. The tax authorities argued that the fact that the lessee deducts the rent as business expenses means that the property is let out to an individual who is using the property for business purposes. However, the lessor did not agree and brought the case before the court in Leuven, and the latter ruled in the lessor’s favour. According to the court, it was not proved in this case that there was an actual business use of the property by the tenant, as the dwelling was only being used for overnighting. The fact that the rent is deducted as business expenses was not sufficient. Upon appeal by the tax authorities, the Brussels Court of Appeal confirmed the point of view of the court in Leuven.

We noted that this issue has been the subject of many court cases, with quite divergent results. These days, courts tend to follow the opinions of fiscal authors, as was also the case for this ruling of the Brussels Court of Appeal.