Different ways of handling charges_
| Funding charges | Recognising charges | |
|---|---|---|
| In accounting | Treated as capital. | Treated as income. |
| In LLHC taxation | No effect until the funding is ended, and then all funded charges are taxed. | Treated as taxable income. |
| Can be used to cover costs or loan paybacks | Not without ending the funding. | Yes. The only way to do so if the LLHC does not have other income sources. |
| For an LLHC shareholder who lives in the flat | Monthly fee, not tax-deductible. | Monthly fee, not tax-deductible. |
| For an LLHC shareholder that lets the flat forward (investor) | Monthly fee, not tax-deductible. | Monthly fee, tax-deductible. |
| The tax effect for LLHC shareholder that lives in the flat when the flat is sold | Funded charges are added to the acquisition cost of the flat, therefore decreasing taxable profit. | No effect. |
| The tax effect for the investor when the flat is sold | Funded charges are added to the acquisition cost of the flat, therefore decreasing taxable profit. | No effect. |
Application of different tax laws in Finland_
| Income tax law | Business taxation law | |
|---|---|---|
| The legal form of entity Incomes taxed | Private and legal entities. | Natural and legal persons. |
| All incomes that are not taxed according to other business laws. | Business income. | |
| Applicable to undertakings (see, for example, Kukkonen and Walden 2015, chapter 5) | Yes, if they have other than business income, ie income from owning shares of a listed company and if they are not an investment company. | Yes. |
| Applicable to private persons | Yes. | Yes, if their way of earning is closer to active business than earning a wage or investing their savings. |
| Applicable to housing investments | In most cases, yes. | In cases where owning flats and property is actually an active business, which requires a significant number of flats (Ossa, 2013). |
| Treats legal entities and private persons differently | Yes, some tax advantages are only applicable to private persons. | No. |
Different options_
| Option | Funding or recognition | Presumed acquisition cost | Sale profits equation | Letting profits equation | Requirement |
|---|---|---|---|---|---|
| 1 | Recognition | Yes | 26 | 4 | OT × (FT − FI) ≥ 1.5 × A |
| 2 | Recognition | No | 24 | 4 | OT × (FT − FI) ≤ 1.5 × A |
| 3 | Funded | Yes | 26 | 6 | OT × (FT − FI) ≥ 1.5 × A |
| 4 | Funded | No | 24 | 6 | OT × (FT − FI) ≤ 1.5 × A |