Material Tax Liability - Basic principles

Question 1

Expenses related to a gainful activity

Answer 1

General rule
Generally all income related to gainful activity is taxable. As a result, the tax payable increases.
Generally all costs related to gainful activity are tax deductible. As a result, tax payable decreases.

Exception
There are several rules in the tax law according to which certain income is not taxable (i.e. the income is tax free) and certain costs are not tax deductible although they are related to a gainful employment.

Question 2

Expenses related to private life

Answer 2

General rule
In principle, costs which are incurred privately may not be deducted from the assessment basis. According to the subjective net principle, an exception only exists if this is explicitly regulated by law.

Exception
There are several rules in the tax law according to which certain costs are tax deductible although they are not related to a gainful employment but privately incurred.

Question 3

Profi income types

Business assets

Answer 3

• Profit determination
• § 2 II no. 1, I no. 1 - 3 EStG
• Accretion theory (G. von Schanz) Fruits and asset base
• §§ 4 to 7k EStG

Question 4

Profit income & accretion theory

Answer 4

All income in a certain period can be considered as tax-relevant income. This means both income from continuously flowing sources (e.g. the dividend from a share) and the one-off gains and losses from the disposal of the source (e.g. the profit from the disposal of the share).

Question 5

Surplus income & source theory

Answer 5

All income derived from continuously flowing sources (e.g. a dividend
on a share) is considered income tax relevant.

Question 6

What is the purpose of defining different types of income?

Answer 6

In this way, the taxable sector is separated from the non-taxable sector. Only income that can be assigned to one of the 7 types of income is subject to income tax.

Question 7

Why differentiate between different income types?

Answer 7

Depending on the class of income, different > tax allowances and exemption limits
> regulations on offsetting rules
> income tax rates
> income determination periods > tax collection methods
apply.

Question 8

Why distinguish between main and ancillary income types?

Answer 8

If income of a main income type is generated and also income of an ancillary income type is generated in connection with this main income type, the income and expenditures are uniformly assigned to the main income type. The tax regulations applicable to the main type of income also apply with no restrictions. → The subsidiarity of the secondary income types to the main income types applies.

Question 9

Why distinguish between profit and surplus income types?

Answer 9

Each of the seven income types is either a profit income type or a surplus income type. All profit income types are taxable. Within the surplus income types, there is also non-taxable income.

Question 10

Non taxable income

Answer 10

No income within the meaning of the seven types of income
→ Income is not subject to income tax

e.g. hobby, private game proceeds, inheritances

Question 11

Tax free income

Answer 11

Income within the meaning of the seven types of income
→ Income is subject to income tax

e.g. tax free acc. to § 3 EStG or tax free foreign income acc. to DTT

Question 12

Taxable income

Answer 12

Income within the meaning of the seven types of income
→ Income is subject to income tax

e.g. Income based on an employment contract