Deposits forfeited by individuals due to other party’s breach of contract shall be declared in income tax returns.

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　National Taxation Bureau of Taipei, Ministry of Finance expressed that deposits forfeited by individuals due to other party giving up the purchase were to be counted as other income and should be declared in income tax returns in consolidation with other earnings of the year. 
　　The Bureau explained that, according to the interpretation of Letter Tai-Cai-Shuei No. 30131 issued by Ministry of Finance on January 9, 1979, deposits forfeited by individuals in a land sale transaction due to other party giving up the purchase were counted as “Category 10: other income” as prescribed in Paragraph 1 of Article 14 of Income Tax Act and should be declared in income tax returns in consolidation with other earnings of the year.
　　The Bureau provided an example: Party A signed a contract with Party B in 2015 for selling Land A thereto. The agreed land price is NTD 30 million with a deposit of 5%. In 2016, Party B was unable to pay off the rest of the amount within the prescribed period due to loss of liquidity and expressed to give up the purchase. Party A then forfeited the deposit (NTD1.5 million) previously paid by Party B as liquidated damage. According to the Bureau, Party A should list the said deposit as other income and declare it on income tax returns together with other earnings of the year. 
　　The Bureau reminded that deposits forfeited by individuals due to other party breaching the contract were counted as other income according to the Income Tax Act and should be declared in consolidated income tax returns in May of the following year. The Bureau said that the declaration must not be voided or forgotten for penalty will be imposed on the taxpayer accordingly. In case of having any other questions, welcome to dial the free hotline 0800-000-321 or contact your local taxation office. The Office will serve you sincerely. 

(Contact Person: Head of Third Examination Division Liang, Tel: 2311-3711 Ext. 1750)
 

Reference URL：https://www.mof.gov.tw/Eng/singlehtml/f48d641f159a4866b1d31c0916fbcc71?cntId=ab396161c3e24660aa665fadcb1ee4d7