Is road repair a tradesman’s job?

When cities and municipalities renovate a street, it often becomes expensive for residents. Whether homeowners can deduct the costs as a tradesman's fee is now being examined in a test case.

This article is part of the special topic Tax bonus for tradesmen's invoices: What you should know

Can the costs of construction work in front of a house be deducted from income tax as tradesman's services? Germany's tax courts take a different view on this. The Nuremberg Tax Court classified the costs of road repairs as tradesman's services (case number 7 K 1356/14). The tax authorities, however, do not consider labor costs for such construction work for tax purposes.

Therefore, the Taxpayers' Association is asking the Federal Fiscal Court, the highest fiscal court, to clarify this issue. The model lawsuit has been pending there since mid-November (case no. VI R 50/17), the Taxpayers' Association has now announced. 

The case: The Brandenburg municipality of Schönwalde-Glien had a sandy road widened and required residents to contribute to the development costs (case number 3 K 3130/17). The plaintiffs had to pay several thousand euros for the road widening.

In their respective income tax returns for 2015, the plaintiff couple claimed the costs as a tradesman's fee. Since only labor costs, not material costs, are tax deductible, and the municipality's advance payment notice only showed a total amount, the tax advisor estimated the labor costs at 50 percent.

The tax office did not recognize the development contributions and referred to a letter from the Federal Ministry of Finance dated 9 November 2016, according to which public sector measures are not eligible for tax relief under Section 35a of the Income Tax Act.

The Berlin-Brandenburg Finance Court dismissed the model case in the first instance, as the judges failed to establish a spatial connection to the household. This, however, is a prerequisite for the craftsman's bonus, the court stated. However, the judges agreed with the model case plaintiffs on the second point: it makes no difference whether the construction project is billed by a private company or the public sector. For final clarification, the Finance Court allowed an appeal to the Federal Finance Court. 

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Tip from the Taxpayers’ Association: "Affected taxpayers can refer to this procedure and file an appeal against their tax assessment, as well as request a stay of proceedings if the tax office does not recognize the costs for road repairs. Since the case is now before the Federal Fiscal Court, the tax offices are obligated to grant a stay of proceedings. If the court rules in favor of the residents, the tax assessment can be amended, and any overpaid taxes can be refunded."

Which craftsmen’s services are deductible and what customers and businesses need to pay attention to can be read in a Flyer  Tax bonus for Craftsmen's services of the Central Association of German Skilled Crafts (ZDH) and in our Theme Special "Craftsman's invoice – What you should know".