Imputed rental value, preferential rent, profit costs and other deductions

Case 1: The imputed rental value

1. facts of the case

Mrs. Meier lives with her husband and three children in a detached house in the canton of Zurich. The family has also purchased a vacation apartment in Graubünden and recently a vacation home in the south of France. The properties in Switzerland were mortgaged to finance the purchase (single-family home: CHF 1,000,000, apartment in Graubünden: CHF 500,000; apartment in Glarus: CHF 300,000; debt interest in the year in question CHF 54,000). Shortly after the purchase of the two other properties, one of the three children moves out, leaving his room "empty". The apartment in Graubünden is only used in the months of June/July and February. The imputed rental value of the house in Zurich is set at CHF 50,000 per year (property tax value CHF 1,400,000) and the properties in Graubünden and France at CHF 20,000 and CHF 10,000 per year (property tax value CHF 1,000,000 and CHF 500,000 respectively).

Mr. Meier still has a rented apartment in the canton of Glarus from a past inheritance (annual rent CHF 20,000; tax value CHF 800,000). As the electricity and water pipes have been renovated, the maintenance costs in the year in question amount to CHF 30,000.

The movable assets of Mr. and Mrs. Meier amount to CHF 200,000.

Questions

1. How do the properties affect the tax liability and how are the properties (in the canton of Zurich) treated under income tax law (assuming flat-rate property maintenance of 20%)?
2. Mrs. Meier thinks that the imputed rental values of her properties have been set far too high. She comes to you and wants to understand how they are determined. In particular, she does not understand why a different imputed rental value is used for direct federal tax in the canton of Graubünden than for state and municipal tax.
3. What is the effect of the fact that a children's room is "empty" in the house at the main residence in the canton of Zurich? What about the 9 months of the year in which the vacation apartment in Graubünden is not used? What would happen if the Meier family no longer used the vacation apartment and tried to sell it?
4. Would anything change in the analysis (question 3) if all three children had moved out and the Meier couple lived alone in the house with only a small pension (without any other property, income or assets)?

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Case 2: Preferential rent (based on BGE 146 II 97)

1. facts of the case

Mr. and Mrs. Anton are liable for tax in the Canton of Zurich. Mr. Anton is the sole shareholder and director of Anton AG, which has rented a property from an (independent) rental company for some time. Anton AG subleases the majority of the premises to third parties at a rent of approximately CHF 155,000 per year, which roughly corresponds to the rental expenses to Vermiet AG, so that there is hardly any profit from the sublease. The subletting agreement is for an indefinite period and only the subtenants have access to the premises.

Mrs. Anton (private) is now buying the property and subletting the premises to Anton AG for around CHF 50,000 per year. The subleases continue unchanged. As a result, the company generates an annual profit of around CHF 105,000 from the subleases. As the company recorded considerable losses in previous years, it uses this income to cover losses and pay off the existing shareholder loan.

Questions

1. How is the chosen legal structure to be assessed under tax law?
2. What did the court consider with regard to the offense of tax avoidance? Is this fulfilled?
3. Variant: How would the situation be assessed under tax law if the property belonged to Anton AG and an apartment in it was rented to an employee at a lower price?
4. Variant: How should the situation be assessed under tax law if Mrs. Anton has an apartment in Thurgau that she makes available to her sister for a symbolic CHF 200 per month?

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Case 3: Maintenance costs and investments in real estate

1. facts of the case

Assign the following expenses to one of the categories. The work is being carried out on a property in Zurich.

Categories

1. Value-enhancing / non-deductible (but to be taken into account as investment costs)
2. Value-preserving / deductible
3. Mixed / partly deductible, partly non-deductible
4. Living expenses / not deductible

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Case 4: Economic new construction (based on BGE 149 II 27)

1. facts of the case

Mr. Müller, owner of an apartment building in Zurich, carried out a comprehensive renovation of his property in 2022. The building is over 140 years old and the refurbishment included, among other things

1. Renewal of the façade incl. historic windows
2. Installation of solar systems to improve energy efficiency
3. Installation of a geothermal probe
4. Replacement of all electricity and water pipes

The total cost of the renovation amounted to CHF 1,500,000. The house is listed in the Federal Inventory of Swiss Sites of National Importance (ISOS). With regard to the upcoming renovation, Mr. Müller contacted the tax authorities and obtained their recommendation, or more precisely, a specialist assessment.

The cantonal tax authorities classified all costs as value-enhancing investment costs according to the previous practice of economic new construction, which would mean that Mr. Müller could not deduct the costs from his taxable income. Mr. Müller was of the opinion that at least some of the costs were value-preserving and should therefore be tax-deductible as maintenance costs, contrary to the opinion of the tax authorities.

Questions

1. What is the current status of the tax assessment of major maintenance work?
2. What argument could Mr. Müller put forward in view of the fact that his house is listed in the ISOS?
3. The renovation costs exceed Mr. Müller's income in 2022. Can these be deducted in the following year?
4. What is Mr. Müller's procedural advice with regard to claiming the renovation costs as maintenance costs?