Individual taxpayer A entered into a contract for the sale and purchase of an apartment, but the contract was terminated due to the buyer's fault. The contract deposit of approximately 50 million won received upon signing the contract was attributed to A as penalty income.
The following year, taxpayer A filed a comprehensive income tax return but did not report the contract deposit received as a penalty. It should have been reported as other income, but this was omitted.
The National Tax Service sent a clarification notice for comprehensive income tax to A after comparing A's comprehensive income tax return with real estate sale contract data from the Ministry of Land, Infrastructure and Transport. A ultimately admitted to not reporting the contract deposit income as income and had to file an amended comprehensive income tax return with additional tax.
On the 7th, the National Tax Service stated that if a contract for the sale of an apartment is executed and the contract deposit is received from the buyer, but the contract is canceled due to the buyer's circumstances, the penalty income must also be reported as "other income" when filing the comprehensive income tax return. If the reporting is omitted, the individual will be designated as a subject for preliminary analysis for a tax investigation by the National Tax Service, and additional tax may also apply.
A National Tax Service official explained, "We are selecting taxpayers who generated penalty income as 'analysis targets' based on an analysis of real estate sale contract data collected from the Ministry of Land, Infrastructure and Transport."
If a taxpayer sold dwelling B and was trying to buy dwelling C, but the contract for dwelling B fell through and the taxpayer had to forfeit the contract deposit for dwelling C, how should income reporting be handled? Can the loss penalty incurred from the failure of the dwelling C contract be considered an expense and deducted from the penalty income?
Regarding this, a National Tax Service official noted, "There is a precedent that even if other contracts are subsequently terminated due to the cancellation of the sale contract, the corresponding loss cannot be settled as an expense," and emphasized that only the penalty income should be reported as other income.
In a related lawsuit in 2008, the Seoul Administrative Court ruled, "The penalty received due to the cancellation of the real estate sale contract by the other party is not an expense corresponding to the penalty paid for canceling another real estate sale contract by the plaintiff," and stated that it should be excluded from necessary expenses.
To prevent omissions in reporting during the May comprehensive income tax return period, the National Tax Service plans to provide personalized compliance guidance to 1.19 million individuals designated as subjects for pre-guidance.
A National Tax Service official emphasized, "Disposal amounts of business-related tangible assets (such as construction machinery and equipment) must be reported as business income," and added that foreign income amounts received from overseas platforms (such as Google, Facebook, and Apple) must also not be omitted.