Property acquired for business use

Mixed use buildings (buildings that combine commercial areas and residential areas) that are not sectioned, can be depreciated if more than half of the building is used for a purpose that allows depreciation.

The share of the building that is used for purposes that allow depreciation is determined on the basis of rental value, not floor area. In the total assessment of whether the building is depreciable or not, the rental value of the owner’s own residential share of the property must be included in the calculations.

Example of a non-depreciable building:
45 percent of the building (according to the rental value) is rented out to a business, 25 percent is rented out for residential purposes, and the owner lives in 30 percent of the building. The owner’s own residential share must be included in the assessment of whether the building can be depreciated.
The non-depreciable share of the building amounts to (25 + 30) 55 percent and this means that the building cannot be depreciated.

Example of a depreciable building:
The owner uses 40 percent (calculated according to rental value) of the office building as their own residence.
The building has a value of NOK 1 million.
The building will then be depreciated by 60 percent of the basis, that is, NOK 600.000.

Private limited company – AS

A property is the company's fixed asset, even if the property is used by shareholders, partners, or employees. This also applies if the property is used by shareholders or partners in related companies.

The property is also the company's fixed asset when the shareholders, partners or employees pay for its use and the use is taxable. The company must pay tax on the withdrawal or benefit of the use.

Example: If an employee uses the company's holiday home privately, the company must pay tax on the use.

Tax liability may arise for the company when a property is taken out for its own use, transferred as a gift, or distributed as a dividend.

Read about withdrawal of assets or services.

Businesses assessed as a partnership – SDF

In companies assessed as partnerships (SDF), private use or withdrawals are treated as distributions or remuneration for work.

The acquisition cost of property is typically the purchase price. Costs associated with the purchase can also be included, such as estate agent costs, public fees such as registration fees and stamp duty, and costs for the preparation of a contract and negotiations.

Only costs from the time when the property is likely to be acquired can be included in the acquisition cost. Costs for negotiating a purchase agreement and preparing a contract for a specific property are included in the acquisition cost.

The acquisition cost must be allocated to the individual property. If a property purchase concerns a building with an associated plot, the acquisition cost must be divided between the plot of land and the building. This has an impact on the depreciation. 

The acquisition cost of the property must be entered in the balance sheet (capitalised) without deduction for the cost if the value of the property does not decrease in value (deteriorate in value) due to use over time.

Property that does not decrease in value due to wear and tear, age, inappropriateness, or technological development applies to, among other things:

• land
• roads
• residential properties

The enterprise can claim a deduction for the acquisition costs at a later date, through the calculation of gains and losses on divestment/sale.

The main rule is that you must spread the deduction for the acquisition cost over several years if all the following conditions are met:

• the property costs more than NOK 30,000  
• the property’s expected lifetime is more than three years
• the property decreases in value due to use or age

Capitalise the property's cost in the accounts in the year of acquisition.

When you depreciate the property, you spread the acquisition cost over several years.

You get the deduction as you use the property and it loses value.

Small private limited companies, which are defined in the Accounting Act, can use tax rules for depreciation, if there is a reasonable depreciation schedule. That is, to assess how long the property is expected to last. 

The business depreciates the property up to a maximum fixed percentage rate each year, until the residual value of the property is below the threshold amount, NOK 30,000.

The property type determines the balance group and depreciation rate – property is depreciated in balance groups h and i.

Here you'll find balance groups and depreciation rates.

Assessment of whether the building is depreciable

 

The property's acquisition costs are depreciated by equal amounts over the property's estimated lifetime. This is straight-line depreciation.

Entities with an accounting obligation must convert from straight-line depreciation to declining-balance depreciation when they submit the tax return. The company or business receives a temporary difference between the accounting method and the tax method that evens out over time.

According to the Accounting Act, real property with a limited economic life as a result of use and age must be depreciated according to a reasonable depreciation schedule. This means that the property is depreciated over the property's assumed, (economic) life in the business. The life of the property in the business may be shorter than the economic life of the property.

If the company does not expect to own the property for its entire lifetime, the depreciation basis must be reduced by the property's assumed sales value, residual value. For example, if the company believes they will sell the property in 10 years, the expected sales value is equal to the value of a similar, 10 years older property today.

Example of straight-line depreciations

The business must follow the accounting rules for depreciation. The company bought a warehouse building for NOK 10,000,000 in November 2023.
The company considers that a reasonable depreciation plan is to depreciate it over 20 years, with equal amounts each year (that is, NOK 500,000 each year, but not year 1 since the warehouse building was purchased in November).

Year 1	NOK 10,000.000/20	= NOK 83,333 (NOK 500,000/12x2)
Year 2	NOK 10,000.000/20	= NOK 500,000
Year 3	NOK 10,000.000/20	= NOK 500,000
Year 4	NOK 10,000.000/20	= NOK 500,000

 

 

The Accounting Act and the Taxation Act use different ways of depreciation straight-line depreciation and declining-balance depreciation. You must adjust for the temporary differences when calculating the tax basis for the business.

Example – Temporary difference between declining-balance depreciation and straight-line depreciation

 

YEAR	Declining-balance depreciation	Straight-line depreciation	Temporary differences
Year 1	NOK 400,000	NOK 83,333	NOK 316,667
Year 2	NOK 384,000	NOK 500,000	NOK -116,000
Year 3	NOK 368,640	NOK 500,000	NOK -131,360
Year 4	NOK 353,894	NOK 500,000	NOK -146,106

 

 

 

Upgrades to the business' property must be capitalised and depreciated, even if the upgrades are below the threshold amount or expected to last less than three years.
This also applies if the property is completely written down or has a negative balance.

This does not apply to residential property, because residential property does not normally depreciate in value with normal maintenance. The upgrade is capitalised and added to the acquisition cost.

Maintenance costs are deductible in the year in which the costs are incurred.

The business can claim a deduction for rental costs.  

The business cannot depreciate a rented property, for example, a warehouse.

If a business has rental income, it's taxable income for the business. This applies to both rental for commercial and residential purposes.

Example: Rental of office space, warehouse, or garage facilities that are fixed assets in business.

The profit from the rental is taxed, that is, the rental income less operating costs such as insurance, ground rent, property tax, municipal fees, and maintenance costs. Correspondingly, the business can claim a deduction for losses in connection with the rental activity.

Business income or capital income

If the rental activity is part of the company's business, the rental income is business income.
If the rental activity is not part of the company's business, the rental income is capital income.

If a sole proprietorship rents out property in business, the rental income will be included in the basis for tax calculation on ordinary income and personal income.

If you, as the owner of the business, use parts of your own property for your business, you cannot charge rent from yourself as a private individual. The business does not receive a deduction for rent costs that are paid to you as the owner.

The business cannot rent from a spouse/registered partner.

Read about working from home

The shareholder pays market price

When the shareholder or the shareholder's family (related parties) use the property privately, they must generally pay the market price when renting. Market price is the rent that can be expected on the open market.

The rent must be entered as income in the accounts.

The shareholder pays less than market price

When a shareholder or the shareholder's related parties pays less rent than the market price, the business must enter the difference between the market price and the actual payment as a taxable withdrawal.

The withdrawal must be entered as income in the accounts.

The company's costs are higher than market value

If the business has purchased a property that is primarily for the shareholder's private use and the cost is higher than the market price, the business must enter the total cost as a withdrawal in the accounts.

When the business calculates the benefit of the withdrawal, all the annual costs relating to the asset must be included.

Examples of costs:

• interest on debt relating to the property, calculated interest benefit on used equity
• operating expenses, such as insurance, electricity, and maintenance
• actual depreciation due to wear and age
• the depreciation in the accounts can be used as a starting point

The shareholder pays a lower price than annual costs

When a shareholder pays a lower price than the annual costs, the business must enter the difference between the annual costs and the price paid by the shareholder as a taxable withdrawal.

The business must enter the withdrawal as income in its accounts.

For a shareholder who works in the business, the business must consider whether the benefit should be considered salary or dividend.

If the enterprise has upgraded a property in order to adapt it to a shareholder, without it having value for the business, the value of the adjustment must be entered as a withdrawal in the year of the upgrade.

When a lower price than the annual costs has been agreed, the difference between the annual costs and the rent paid must be entered as a taxable deduction for the business. The withdrawal is entered as income in the accounts.

Example

The purchase price including the upgrade is NOK 6,000,000. 

Fixtures	NOK 50,000
Maintenance and repairs	NOK 55,000
Miscellaneous other costs, insurance, electricity, etc.	NOK 25,000
Interest expenses	NOK 0
Return on invested capital *	NOK 84,000
Rental price	NOK 214,000
Paid rent or reported dividend	NOK 100,000
Underpaid rent or dividends	NOK 114,000

 

*In the example, it is assumed that the company has used unrestricted equity in the acquisition, with an interest rate of 1.4 per cent on the acquisition cost.

The estimated rental price is NOK 214,000. 

Taxable dividend is the difference between the rent paid and the calculated rental price, that is, NOK 114,000

Even if the price on the open market corresponds to a rental price of NOK 100,000, the shareholder must pay, or declare as taxable dividend, NOK 114,000 more because the acquisition is mainly in the shareholder's private interest.

If the business has made upgrades to the property it rents, the costs must be entered in the accounts over the rental period.

In exceptional cases, the upgrades can be capitalised and depreciated in the balance group to which the property belongs.

Example:
If you upgrade an office building, you must depreciate according to the rules that apply to the building.

When a company buys property from a shareholder or the shareholder's related parties, the company should use the market value as a basis. The market value is the price at which the property can normally be sold.

The company must be able to prove the market value

The market value at the time the company bought the property must be proven. The proof can be, for example, an appraisal from a real estate agent or a valuer.

Related parties

A related party is a spouse and persons with whom the shareholder is related to by blood or marriage in an ascending or descending line, or in the collateral line, as close as an uncle or aunt.

If you rent out a home or holiday home with furniture and home contents, you can deduct the entire cost of the home contents in the year of purchase if:

• they’re mainly purchased for use in the rental property, and
• their value is reduced through wear and tear and/or ageing, and
• they have a cost price that is below the threshold amount or a useful life of less than three years

Example – amount limit

If you buy a bed for NOK 13,000, you may claim a deduction for the entire amount in the year you purchased the bed. The same applies if you buy a snow shovel that costs NOK 700.

If the cost price for furniture and fixtures is above the amount limit, you can depreciate on a declining-balance basis (balance group d – passenger cars, machinery and equipment, etc. – depreciation rate 20 percent). In practice, it will never go to zero, but when the amount is less than the amount limit before this year's depreciation, the entire residual value (balance) is deductible.

Depreciation example:

If you buy a couch that costs NOK 50,000 in year 1, you can claim a deduction for depreciations amounting to (NOK 50,000 x 20 percent) NOK 10,000 in the first year.

In year 2, the residual value is (NOK 50,000 – NOK 10,000) NOK 40,000, and your deduction for depreciations amounts to (NOK 40,000 x 20 percent) NOK 8,000 for the second year.

If the rental period is less than 3 years, and you use the furniture yourself before and after the rental period, you can claim a deduction for 15 percent of the gross rental income instead of using declining-balance depreciation.

Example – renting out furnished housing

You can rent out your furnished residential property for two years. The agreed annual rent is NOK 200,000. Instead of declining-balance depreciations, you can then claim a deduction of (NOK 200,000 x 15 percent) NOK 30,000 in both year 1 and year 2. That is NOK 60,000 in total.

For newly purchased home contents, you must calculate the deduction based on the price you paid for the home contents. For home contents used by the owner, you must set the opening value to the presumed sales value at the time the rental period starts.

If you rent out a fully furnished home for a shorter period, and you use the home contents privately both before and after the rental, you can claim a discretionary deduction for the home contents that is set to 15 percent of the gross rental income. If you have income from short-term rentals of your own home, you must exclude it. This rule must not be applied when the rental period is more than three years.

Each piece of furniture is considered a separate fixed asset, but the purchase of several pieces of furniture below the threshold amount may in some cases be considered as a single unit, so that the total purchase price must be capitalised and depreciated. The furniture can be considered as a unit if it's of the same nature and has the same function. This may be the case, for example, when purchasing a sofa section with an accompanying table and chair.

If the business loses or must expropriate property in balance groups e to h and receives a gain when the property is replaced, it may be entitled to tax exemption under certain conditions. This occurs in the event of involuntary realisation and applies when the property:

• has been completely lost in an accident, for example, natural damage, fire, shipwreck, vandalism, or
• has been expropriated

Conditions

For the business to be exempt from recognising the gain from the involuntary realisation as income, it must:

• use the compensation (consideration) to buy a new property of the same type
• the new property must have been purchased, or a binding purchase agreement must have been entered into, by the end of the third year after the involuntary realisation

If the business has not purchased a new property by the deadline, 80 percent of the gain must be placed in the profit and loss account in the year in which the deadline expires. The last 20 percent of the gain must be recognised as income in the year in which the deadline expires.

The rules also apply to property that is depreciated on a separate collective balance for each building.

If the business has a negative balance when it writes down with the compensation on the collective balance for fixed tecknical installation in the building in question, it can be granted tax exemption for this amount.

The business must not calculate the gain for property in balance group j - technical installations in commercial buildings and other commercial buildings.