Sale of property that has been used in business
If you sell property that has been used in the business, the gain is taxable income for the business. Similarly, you can claim a deduction if you lose money on the sale.
Here you'll find information about what you need to do to calculate the correct tax when you sell property that has been used in the business.
Specific information if you
run a business and are going to sell property that’s used in business.
A business is a specific economic activity that aims to have a certain duration, has a certain scope, is likely to generate a profit, and is also carried out at the expense and risk of a specific natural person, company, or entity.
A property is a fixed asset that is primarily acquired for or used in the business' (business' or company's) economic activity.
The property is a fixed asset if the economic activity is at least half of the total use, calculated according to rental value.
If the property is acquired for resale, it is a current asset (commodity), and not a fixed asset.
If the property was originally acquired for resale, but is used in the business, it must be reclassified from a current asset to a fixed asset.
Example: Real property as a fixed asset in business activity:
- A business owns an office building that is used by employees of the company.
- A business runs a rental business and rents out the property to customers.
Example: Types of real property that can be a fixed asset in business activity:
- retail space
- office space
- warehouse
- premises for industrial activities and garage facilities
- residential properties and holiday homes can also be fixed assets in business activity
The property is a fixed asset if the commercial use is at least half of the total use calculated according to rental value.
Specific information about plots of land and land area
- Land that is used, for example, as a storage site or parking space in economic activity, is a fixed asset.
- A naturally associated plot for building is a fixed asset in economic activity.
- Agricultural and forestry land that is part of an agricultural/forestry property is a fixed asset if the business has not been closed and the area has not been reallocated for another purpose.
Example: Fixed asset outside business activity:
- A person owns and rents out real property (for example, office buildings, warehouses, apartments), but on such a small scale that the rental activity is not considered a business.
Sale of property – fixed asset – in business
When selling property, the business must calculate the tax gain or loss.
- Gains are taxable income. You can spread the income over several years.
- Losses are deductible. You must spread the loss over several years.
View balance groups and depreciation rates
Gains from sales or withdrawals from the company
Gains from the sale or withdrawal of property that are depreciated on a declining-balance basis are taxable income.
You can choose to enter all or part of the gain as income in the year of sale. Any remaining amount must be entered in the company's profit and loss account.
Then you spread the gain from the sale over several years.
Losses from sales or withdrawals from the company
Losses from sales are deductible, but you cannot deduct the entire loss in the year of sale. Enter the loss in the profit and loss account and deduct a maximum of 20 percent each year.
You cannot choose to deduct the entire loss in the year of sale.
A loss means that the property is sold for less than the tax-depreciated value at the start of the year.
If the sole proprietorship withdraws property at a loss, the loss is not deductible, because the property has not changed hands.
If the company withdraws property at a loss, the loss is deductible and can be transferred to the profit and loss account. This applies if the property is withdrawn at market value.
Withdrawal of property
The rules on withdrawals do not apply when the property is sold at retail value or market value. The rules may apply to sales at a lower price.
Even if the retail value has been paid, withdrawal taxation may be relevant in the case of dealings that are not in the company's interests when there is a commonality of interest and the company's property costs exceed the sales value.
The business uses a profit and loss account to keep track of the distribution of income and deductions for the years ahead.
Both gains and losses must be recorded in a profit and loss account. Each sale must be recorded as a positive or negative amount, and the account has a balance that’s the sum of all the amounts.
You can only have one profit and loss account in your business, except if you have several different types of business activity, for example, if you're an independent consultant and also engage in agriculture.
Positive or negative balance
If the balance in the profit and loss account is positive (positive balance), the business must enter at least 20 percent of the amount as income.
If the balance in the profit and loss account is negative (negative balance), the enterprise may claim a deduction for a maximum of/up to 20 percent of the amount.
The amounts are calculated with percentages, so the income and deductions will therefore be the largest in the first year.
Each year, the business can choose to recognise more income or deduct less than 20 percent.
Positive balance under the amount limit
If the positive balance is below the amount limit of NOK 30,000 at the end of the year, the business must recognise the entire amount as income that year.
Negative balance under the amount limit
If the negative balance is below the amount limit of NOK 30,000 at the end of the year, the business may recognise the entire amount as a deduction that year.
The business sells a building in balance group h (buildings, installations and hotels). The value of the building was NOK 700,000 (depreciated value) and the building was sold for NOK 1,000,000. The business enters the gain of NOK 300,000 in the profit and loss account.
The gain to be recognised as income in the year of sale is NOK 60,000 (20 percent of NOK 300,000). For year 2, there’s NOK 240,000 left in the account (300,000 – 60,000), and the business recognises NOK 48,000 as income in year 2 (20 percent of NOK 240,000).
When the balance falls below the amount limit, the remaining amount must be recognised as income.
The business sells a building in balance group h (buildings, installations and hotels). The value of the building was NOK 1,000,000 (depreciated value) and the building was sold for NOK 700,000. The business enters the loss of NOK 300,000 in the profit and loss account.
The loss that can be deducted in the year of sale is a maximum of NOK 60,000 (20 percent of NOK 300,000). For year 2, there’s NOK 240,000 left in the account (300,000 – 60,000), and the business can deduct a maximum of NOK 48,000 in year 2 (20 percent of NOK 240,000).
When the balance falls below the amount limit, the remaining amount must be deducted.
For property that cannot be depreciated on a declining-balance basis, the business must calculate the gain or loss in the year of sale.
A gain can be recognised in whole or in part as income in the year of sale. It's up to the business to choose. The part of the gain that’s not recognised as income in the year of sale is transferred to the profit and loss account.
A loss on a sale must correspondingly be transferred to the profit and loss account.
Examples:
- property that’s depreciated according to rules other than balance rules
- property that cannot be depreciated, such as rental properties or plots of land
In the event of the sale of property that’s a fixed asset outside of business, the gain/loss can be entered in a profit and loss account, (but only) if the property is depreciated on a declining-balance basis.
Plots of land and residential properties cannot be depreciated on a declining-balance basis.
Gains on the sale of property that’s a fixed asset outside business
- Gains that are not depreciated in the balance must be recognised as income in the year of sale.
- Gains that are depreciated on a declining-balance basis may be entered in a profit and loss account.
Losses on the sale of property that’s a fixed asset outside business
- Losses that are not depreciated on a declining-balance basis must be deducted in the year of sale.
- Losses that are depreciated on a declining-balance basis must be entered in a profit and loss account.
Profit and loss account
- A positive balance must be recognised as income with at least 20 percent of the balance.
- A negative balance may be deducted by up to 20 percent of the balance.
Each year, the business can choose to recognise more income or deduct less than 20 percent.
Sale of land area, such as leasehold land, on agricultural/forestry property.
Special information when you
The company must follow the normal rules for calculating gains and losses also in connection with the sale and transfer of property to shareholders or related parties.
When the company sells property to a shareholder or someone in the shareholder's family (related parties), it must generally sell at market price.
The market price is the amount the company can expect to get on the open market.
The sale price must be entered as income in the accounts.
When a lower price than the market price has been agreed, the difference becomes taxable withdrawal for the company.
The difference is the market price minus the amount paid by the shareholder.
The withdrawal is entered as income in the accounts.
If a company buys property to make it available for the shareholder's private use, it's a withdrawal on which the company must pay tax.
If the company has spent more money on the property than the market price, the company must pay tax on the total costs.
When a lower price than the cost price has been agreed, the difference is taxable withdrawal for the company.
The difference is the total costs minus the amount paid by the shareholder.
The company must enter the amount as income in the accounts.
Exception:
This does not apply to upgrades specially adapted to the shareholder, when they’re of no value to the company and in previous years have been taxed as withdrawals.
Losses due to market fluctuations shall not be included in the withdrawal benefit.
Exception:
If the intention was to sell the property on to a shareholder, losses due to market fluctuations must be included in the withdrawal benefit.
As a general rule, the rules on withdrawals do not apply when the property is sold at retail value/market value. However, the rules may apply to sales at a lower price. Even if the retail value has been paid, withdrawal taxation may be relevant in the case of dealings that are not in the company's interests when there’s a commonality of interest and the company's property costs exceed the sales value.
If the company sells or withdraws property, the tax-related depreciated value must be used as the opening value/acquisition cost when calculating gains or losses. The retail value at the time of withdrawal/sale is the closing value.
If the property is withdrawn/sold at a loss, it must be considered whether the loss is due to a market downturn or the commonality of interest. The withdrawal benefit for the shareholder can be calculated if there’s a commonality of interest, a reduction in income for the company, and there is a causal link between the commonality of interest and the reduction in income.
If the loss is due to the commonality of interest, the company’s not entitled to a deduction for the loss. However, the company is entitled to a deduction for the part of the loss for which it has previously been taxed on withdrawals.
If, at the time the company purchased the property, there was an intention/plan for the shareholder to become the owner at a later date, the entire loss must be assessed, including a reduction in value due to market changes, which may be due to the commonality of interest.