The “chain deferred”
The “chain carryover” of tax on real estate gains is based on the harmonized tax law of the cantons and municipalities.
By “chain deferral” we mean the (theoretical!) possibility of deferring the tax on real estate gains indefinitely based on different constituent elements of the deferral chained together.
Real estate gains tax
In the event of the alienation of buildings, the capital gains are subject to tax on real estate gains. This results in a gross profit insofar as the product exceeds the investment costs (acquisition price or other value replacing it, expenses) (art. 12 al. 1 LHID). According to the cantonal arrangement of tax law on real estate gains, certain deductions may be made on the gross profit.
The law assimilates several other legal acts (art. 12 al. 2 LHID) to the real change of ownership under civil law, which constitutes the most important case of application. One thinks, for example, of the sale of shares in a real estate company (“economic transfer”), the transfer of a building from private wealth to commercial wealth (“change of system”) or the creation of legal servitudes private on a building.
The decisive parameters for the calculation of tax , such as "income", "investment costs " and "replacement value", are legal concepts which are not specified by the law of harmonization .
On the other hand, the notion of " replacement building" is considered to be prescribed by the harmonization . On the whole, the Confederation therefore leaves the cantons and municipalities a certain leeway in defining the concept.
In the last 25 years since the entry into force of the harmonization legislation, have experienced an astonishing diversity of practices, particularly with regard to deferred taxation .
As long as a cantonal or communal practice is not the subject of proceedings before the Federal Court, it remains uncontested. Federal law does not provide for any other “instrument of harmonization ”.
This is the reason why it is possible that the tax base ( the gross profit) varies from one canton to another , despite the facts being identical in themselves , and not only because of the different scales.
For the deferral or the transfer of the real estate gain in another canton, it is therefore decisive to know in which canton the amount of the deferred real estate gain is determined. As we will see below, the deferred profit is always determined in the canton where the building is sold. This canton applies its own law.
Deferred from taxation
The deferred tax suspends the calculation of the increase in value operated on the building, although there has been a change of owner or a similar event.
Deferral of taxation is therefore an exception to the general principle of realization. The legal transaction is somehow treated as if the gross profit had not (yet) been realized.
Deferral of taxation can only be granted by the cantons in the five cases expressly and exhaustively mentioned by the federal legislator in art. 12 par. 3 lit. a — e LHID. These are the following:
- In the event of transfer of ownership by succession ( devolution of heredity, inheritance sharing, bequest), advancement of inheritance or donation (case of inheritance law);
- In the event of transfer of property between spouses in connection with the matrimonial regime or in the event of compensation for extraordinary contributions by a spouse to the maintenance of the family (art. 165CC) or claims arising from the law of divorce, provided that both spouses agree (case of family law);
- In the event of parcel reorganizations (case of forced transfer);
- In the event of total or partial alienation of an agricultural and/or forestry property, provided that the proceeds of the alienation are used, within a reasonable time, for the acquisition of a replacement property operated by the taxpayer itself or for the improvement of agricultural or forestry buildings belonging to the taxpayer and operated by him. (scenario “agricultural replacement acquisition”);
- In the event of alienation of the dwelling (house or apartment) having been used for the long term and exclusively for the alienator's own use, insofar as the product thus obtained is allocated, within an appropriate period, to the acquisition or construction in Switzerland of a dwelling serving the same purpose. (case of the acquisition of a replacement building).
These five scenarios generating the tax deferral are systematically subdivided into clearly defined groups of cases , in particular:
A group of replacement acquisitions ( Figure 4 and 5), a group in which the owner does not receive any consideration for the transfer of the property (inheritance law, ( number 1 ) a) or within the family framework ( family law, ( figure 2 ), as well as a group which includes transfers of buildings based on constraint (plot reorganizations, ( figure 3 ).
It is possible to distinguish two types.
In the first case, the tax subject remains the same, while the building “changes” (in particular for replacement acquisitions [ numbers 4 and 5 ]).
In the other case, the building is not affected and the modification takes place via the exchange of the tax subject (in particular in the event of transfer of ownership between spouses or transfer of a deferred taxation is replaced by another tax deferral event, the corresponding conditions are also exchanged.
The reason why the federal legislator created the five scenarios, thus introducing the deferral of taxation, lay in important reasons of economic, social and social (privileged) policy.
In the event of a change of ownership, the cantons and municipalities are obliged to temporarily waive taxation of the gross profit. The principle is in a way the following: “not now, but later”.
Due to the exhaustive enumeration, the cantons and municipalities are also not authorized to create other scenarios as events giving rise to deferred taxation. Building as a donation, p. ex. ( digit 1 or 2 ). As part of the systematization, it should be borne in mind that each case has different conditions that must be met for the tax deferral to be granted.
Delimitations
Deferral of taxation must be distinguished from exemption ; the two legal institutions present important conceptual differences: the tax deferral lasts until the privileged reasons disappear. If the reason for the deferred taxation disappears or if all the conditions of a specific scenario are no longer met, there is taxation and the "profit on the capital gain" on the building constitutes the object of the tax. 'tax.
Taxation therefore remains possible after years of deferment.
On the other hand, in the case of tax exemption, the right to tax disappears from the moment the conditions are met and subsequent taxation is no longer possible after several years – which can be illustrated using the formula “not now, not later”.
It should also be specified that the deferment does not constitute an event giving rise to the reminder of tax within the meaning of art. 53 LHID, since the removal of the tax deferral does not constitute a fact within the meaning of art. 53 para. 1 or 51 par. 1 let. a LHID: It is not imposed retroactively, which should have already been imposed at the time. Rather, it is about taxing when the reasons for deferring taxation disappear.
Replacement Acquisition Requirements
The concept of "replacement building" is defined in a binding manner for the cantons and municipalities by the harmonization rule of art. 12 par. 3 lit. d and e LHID. The cantons and municipalities cannot independently define the legal concept governed by federal law .
This is all the more fair since replacement acquisition is also authorized beyond cantonal borders.
On the other hand, it remains within the competence of the cantons to set the scales, rates and amounts exempt from tax (“social deductions”) (cf. art. 1 al. 3 2 sentence LHID).
Both the alienated original object and the acquired replacement object must be occupied as a "dwelling used durably and exclusively for the alienator's own use".
"Dwelling" means that the owners establish their civil or fiscal domicile instead of the property relocation.
By "dwelling used for the alienator's own use", we therefore only mean the main residence, while a secondary tax residence cannot be taken into account for the deferred taxation in the case of a vacation property. .
In the case of a two-year lease by a third party, the Federal Court decided that there was no longer any own use.
In principle, use by a third party (such as rental to third parties) therefore excludes own use.
In the event of a deferral after a replacement acquisition, it is therefore recommended to authorize at most short-term use of the building by a third party. Otherwise, the tax authority risks no longer considering the condition of “long-lasting and exclusive use for its own use” fulfilled and charging for it through real estate gains tax.
The Federal Supreme Court explicitly leaves open the question of the period during which the replacement acquisition must take place. The cantons can themselves set the duration of the "appropriate period" within which the replacement acquisition must take place.
Most cantons generally provide for a period of two to five years. The Federal Supreme Court then ruled that a difference of seven years between the sale and the replacement purchase was in any case no longer appropriate.
Moreover, the replacement acquisition can be carried out not only retrospectively, but also in advance. In this case, one speaks of an “early replacement acquisition”.
Tax-deferred gain transfer method
The transfer of the tax-deferred gain is based on two methods approved by the Federal Court.
Application of the "absolute method"
The “absolute method”. According to this provision, deferred taxation is granted only for the part of the profit invested in the acquisition of the replacement object after reuse of the investment costs of the object sold (and any third-party services) .
If the means allocated to the replacement object do not exceed the investment costs of the alienated building, the real estate gain is taxed in full.
In this case, there is no deferred tax on real estate gains. The profit is considered realized and not reinvested. The profit not reinvested is taxed immediately. Therefore, the tax deferral according to Art. 12 par. 3 lit. e LHID should only be granted if and insofar as the proceeds reinvested in the replacement building exceed the investment costs of the initial building.
Application of the “unitary method”
It becomes interesting that the deferred taxation of real estate gains takes place beyond the cantonal borders.
The question that arises is to know to which canton the fiscal sovereignty over the initial real estate profit is attributed.
In intercantonal relations, the Federal Court ruled in favor of the application of the “unitary method” while excluding the “division method”
Thus, the deferred gross profit (and therefore the latent tax substrate) is allocated as a whole to the canton of arrival in the territory of which the alienation of the replacement property occurs, without any other tax deferral..
Gross profits form one and the same tax object in the (last) canton of arrival, hence the designation “single method”.
The splitting method , also discussed in doctrine, according to which the last taxable gross profit is distributed proportionally between the canton of departure and the canton of arrival (or the cantons of arrival), finds no basis in federal law.
The Federal Court thus confirms that not only are latent reserves transferred to the other canton, but that jurisdiction and sovereignty in matters of taxation also change from one canton to another.
In other words: “not now, but later” means, from a procedural point of view, that only the taxation authority of the “last” canton must act, applying exclusively its own law.
From the material point of view, the entire last gross profit goes to the "last" canton alone; the other cantons receive nothing.
Deferred by change of tax subject
The second type of deferred, through a modification of the tax subject, includes the assumptions of inheritance law and family law (numbers 1 and 2).
The canton of location cannot, despite a change of owner under civil law, impose the capital gain on the transferred building. According to the case law of the Federal Court, the reserve of usufruct does not lead, from an economic point of view, to a result significantly different from that of the transfer of property under civil law in the event of death.
The Federal Tribunal thus underlined that Art. 12 par. 3 lit. a LHID expressly includes deeds of succession inter vivos ("advancement of inheritance") and even gifts based on the law of obligations.
With regard to the advancement of inheritance (which also applies to the donation) of a building, the Federal Court recently ruled that the tax deferral could also be invoked in the event of a mixed legal act. The “free” part must not exceed a certain threshold.
The “chain delay”
It is particularly interesting to know what happens to the extension of the tax deferral when an event giving rise to deferred taxation is followed by another event giving rise to deferred taxation, i.e. say when case groups are combined.
Example 3: Daughter C. receives a co-ownership share from her mother. As the apartment does not meet her own needs, she sells the co-ownership share for 700,000 fr. and acquires a replacement building for 850,000 fr.
Combination possibilities and limitations
The law on tax harmonization does not expressly provide whether an event giving rise to deferred taxation can be replaced by another event giving rise to deferred taxation.
As we have seen, the harmonized tax law of the cantons and municipalities only regulates the five cases of facts giving rise to deferred taxation listed exhaustively.
Given the principle of horizontal and vertical harmonization and the fact that the condition, existence and revocation of tax deferrals are of fundamental importance, the Federal Court considered that the possibility of combining these two elements is not than a matter of federal law. It follows that the cantons cannot provide for their own combination possibilities, which is fair, since the cantons and the municipalities cannot create new events giving rise to deferred taxation either.
As long as the uninterrupted attachment of a new element to the old constituent element of an event giving rise to deferred taxation is guaranteed and the latent tax burden is fully maintained, the taxpayer may, of his own free will, switch from one event giving rise to deferred taxation to another.
The Federal Tribunal thus denied establishing a fact or a link between the facts.
The change between the different events giving rise to deferred taxation is thus based on federal law and the different scenarios can therefore be combined in different ways.
Informative processing of the “deferred chain”
In the case of a somehow “infinite” chain deferral, it can be problematic that the deferred profit can no longer be replenished after decades.
This becomes particularly difficult when several replacement acquisitions have already taken place beyond the cantonal borders.
In this respect, it is important that the taxpayer is obliged to cooperate (in particular to inform) with all the tax authorities involved in the intercantonal replacement acquisition.
Then, the canton which grants the replacement acquisition (“canton of departure”) communicates its decision to the tax authority of the canton where the replacement property is located (“canton of arrival”).
These obligations to inform and inform aim to guarantee information on the reference values which define the amount of the real estate gain and the amount of the reinvestment.
It is only when the reference values are known that it can be determined, when applying the absolute method, whether and to what extent the tax deferral should be granted.
In addition, according to the case law of the Federal Court, there is a right to obtain a finding decision fixing the amount of the (deferred) real estate gain .
In the interests of legal certainty, taxpayers would do well to have the extent of the tax deferment determined as soon as possible after the replacement investment. To do this, the tax authority must, as we have seen, issue a decision in finding, which is subject to the ordinary legal and appeal procedures.
The end of the “chain delay”
The tax deferral ends when:
A requirement is not met or disappears within a case group (e.g. the replacement property is no longer used "permanently and exclusively" or a spouse does not accept the deferral during the transfer of a building in the matrimonial regime); or if switching to another case group fails (eg there is no replacement investment within an “appropriate time”); or a final disposition takes place.
At the end of the chain, the count must relate to the last real estate gain made.
Profits made previously and which are subject to the tax deferral are not taken into account.
In particular, there is no accumulation of all winnings ever made . The calculation is “completely normal”, that is to say on the basis of the gross profit obtained last, without any other tax deferral.
The taxation of real estate gains occurs, as we have seen, in the absence of another event giving rise to deferred taxation ("at the end of the chain"). The terms and conditions in force at that time (scale, tax base, etc.) are decisive
Conclusion
Any event giving rise to deferred taxation may be replaced by a similar or legal event giving rise to deferred taxation, without there being immediate taxation. Thus, a “slaloming” exchange between the various events giving rise to deferred taxation is also authorized.
Challenges arise in particular when events giving rise to deferred taxation occur in inter-cantonal relations.
According to the “unitary method”, the last canton of situation, that is to say the one in which there is no new deferred taxation, is authorized to tax the gross profit realized during the last alienation. , applying its own tax law. The documentation of chain tax deferrals is therefore of great importance, not least for this reason.
Source: steuerportal.com
13.12.2022
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