Capital gains and reinvestment:
no additional period due to coronavirus
April 2021 – Entrepreneurs who realize capital gains on certain intangible and tangible fixed assets can benefit from a tax deferral, provided that they reinvest the market value or the compensation within the time limit. The capital gain is then taxed at the rate of depreciation of the asset in which it was reinvested. This reinvestment period is a foreclosure period... even during the coronavirus crisis.
Which capital gains?
The following capital gains are eligible for staggered taxation:
forced capital gains on tangible and intangible assets. These are capital gains resulting from an accident, an expropriation, etc. that are beyond the control of the beneficiary of the compensation;
voluntary capital gains on intangible assets on which depreciation has been allowed for tax purposes and which have been in the nature of fixed assets for more than five years;
voluntary capital gains on tangible fixed assets which have been in the nature of fixed assets for more than five years (in a company, this condition is met by definition).
Time limit for re-investment
Voluntary capital gains are subject to a reinvestment period of three years. However, if you reinvest the capital gain in a building, ship or aircraft, this period is five years.
In principle, the period starts on the first day of the tax period in which the capital gain was realized (if you realize the capital gain in 2021, the period therefore in principle starts on 1 January 2021).
Past investments can, under certain conditions, also be taken into account as a valid replacement.
In the case of forced capital gains, you must reinvest within a period that expires three years after the end of the taxable period in which the compensation was received. If a building is destroyed by fire in 2020 and you receive compensation in 2021, you have three years from 31 December 2021.
Coronavirus does not justify a longer reinvestment period
Let's assume that you have realized a capital gain and that you have undertaken to reinvest the market value or the compensation. If the reinvestment period expires in 2021, this may be particularly difficult. Perhaps there are fewer opportunities for reinvestment or perhaps you are experiencing cash flow problems due to the coronavirus crisis.
The Minister was presented with a parliamentary question concerning a taxpayer who had planned to reinvest in the construction of a new building. The construction work was at a standstill for a while because of the crisis (lockdown, problems with the delivery of materials, etc.).
However, the Minister considers that he has no legal basis to grant an extension. The law literally provides for two deadlines (three years or five years) and no corona law explicitly provides for the extension of these reinvestment deadlines.
The Minister added that force majeure cannot be invoked according to the letter of the law.
However, if you look at the case law, you will find that force majeure is a general cause of exemption in tax law. You could therefore invoke it, even if it is not expressly provided for in the law.
In any case, it would seem that it is better to respect the deadlines. The tax authorities will certainly agree with the Minister. And even if you take the case to court, it is relatively unlikely that the judge will actually see the coronavirus crisis as an obstacle to compliance with the reinvestment obligation.
