Accounting for capital investments in progress as non-operating expenses

<p>The organization has accounted for the cost of capital investments in progress when liquidating construction in progress as non-operating expenses</p>

<h2>Description of the situation</h2>

<p>The company has included the cost of capital investments in progress in non-operating expenses when liquidating construction in progress. This amount contained the costs of creating design documentation and constructing objects of the fixed assets that were related to the implementation of investment projects.</p>

<h2>Position of the tax authorities and courts</h2>

<p>The tax inspectorate has considered that these expenses are not directly related to the liquidation of property, such as dismantling, disassembling and removal of non-assembled property. In the inspectorate&#39;s opinion, these costs must be attributed to the expenses of forming the initial cost of construction in progress. The courts have supported the inspectorate&#39;s position, recognizing it as justified.</p>

<h2>Position of the Supreme Court:</h2>

<ul>
	<li>It is necessary to consider the rule on the prohibition on accounting for expenses of creating depreciable property in the context of Article 253 of the Tax Code of the Russian Federation. This prohibition indicates a special procedure for accounting for such expenses &ndash; through depreciation.</li>
	<li>If the organization has incurred justified expenses of creating depreciable property, the prohibition itself does not prevent them from being accounted for. There is a reasonable assumption that the taxpayer will eventually create a fixed asset (FA) and depreciate its cost.</li>
	<li>In case of refusal to create the FA for objective reasons, the expenses already incurred normally do not lose their production purpose properties. That is, they are still aimed at getting income.</li>
	<li>Costs incurred for the purpose of deriving income may be accounted for in non-operating expenses. This allows them to be recognized in tax accounting, despite the initial prohibition.</li>
	<li>If the continued creation of the fixed asset does not have economic feasibility, then the costs cannot be accounted for. This means that they can only be accounted for if the work has been stopped for a reason.</li>
</ul>

<p>Thus, the Supreme Court has confirmed that the accounting for capital investments in progress as non-operating expenses is possible provided that the liquidation of construction in progress is justified and the work has been stopped for objective reasons. This decision provides a more flexible approach to recognizing expenses in tax accounting and promotes fair taxation.</p>

<p>Document: Decision of the Supreme Court of the Russian Federation dated 28.08.2024 No. 305-ЭС24-1023</p>