The liquidated damages collected by individuals belong to other types of income, and should be declared for comprehensive income tax in the collection year

The Taipei National Taxation Bureau of the Ministry of Finance stated that the liquidated damages collected by the public according to the contract should be incorporated into the total comprehensive income of the year in which they are obtained to declare and pay taxes.
The Bureau stated that based on the principle of freedom of contract, in order to ensure the smooth performance of the contract, the parties to the contract often pay liquidated damages when the contract states that one party fails to perform the contract. , which is classified as other income, and those who receive it according to the contract shall submit the relevant income and expense documents according to the facts, and the balance after deducting costs and necessary expenses from the income amount shall be the income amount, which shall be incorporated into the total comprehensive income of the year for tax declaration.
The bureau gave an example. Mr. A (seller) and Mr. B (buyer) signed a real estate sales contract for 108 years. Mr. B regretted not buying it after signing the contract due to capital turnover difficulties. Mr. A requested from Mr. B to pay 1 million yuan in accordance with the contract. The liquidated damages were rejected, and after Mr. A filed a lawsuit with the court, Mr. B began to pay the liquidated damages of 1 million yuan in 109 years according to the court's judgment. In order to obtain the liquidated damages, Mr. A paid 100,000 yuan in legal fees and other related necessary expenses , according to the above-mentioned regulations, Mr. A should report other income of 900,000 yuan (1 million yuan in liquidated damages - 100,000 yuan in legal fees and other necessary expenses) when handling the 2010 comprehensive income tax settlement declaration.
The bureau appeals that the liquidated damages collected by the taxpayer belong to other types of income, and the taxpayer is requested to incorporate it into the annual comprehensive income tax declaration. If you have any questions about the declaration, you can also consult the local taxation bureaus in various regions to avoid missing the report. In addition to paying taxes, the income from this item shall also be punished according to the provisions of the Income Tax Law.
(Contact person: Chief Huang of the Second Division of Legal Affairs; Tel. 2311-3711 ext. 1961)