Determination of the real estate gain of real estate of private assets as well as problems of taxation of the real estate gain in case of gift, advance withdrawal of inheritance and inheritance
ISIS) seminar on 11 September 2017
Case 1: Economic change of ownership
Lukas Müller holds 100% of the shares in Seno AG, which operates a residential and health centre for elderly people in need of care in an Aargau community. In mid-July 2016, he will sell his shares to Kappa AG, which is not related to him, at a price of around CHF 5 million (share deal). On the same day, Seno AG sells its operational business, i.e. the residential and health centre, to Omega AG, which is also remote, for around CHF 3 million (asset deal).
Does the sale of Seno AG shares have tax consequences for Lukas Müller?
Case 2: Sale of real estate with retention of right of residence
Hans and Anna Meier sell their residential and commercial property (private assets) to the electrician Anton Müller.
The following easement of personnel is entered in the land register: "Wohnrecht z.G. Hans und Anna Meier". The following can be seen from the purchase agreement:
Various contractual provisions:
Should the persons entitled to the right of residence waive the right of residence for any reason whatsoever and agree to the deletion in the land register, the remaining cash value is to be paid out to the persons entitled to the right of residence by the current purchaser.
- What sales proceeds are to be used as the basis for the real estate profit tax assessment?
- Three years later, the beneficiaries of the right of residence go into old people's homes and receive compensation for the waiver of the right of residence in the amount of CHF 150,000. How is this compensation to be treated for tax purposes
- by the sellers?
- with the buyer, if the real estate represents private assets?
- with the buyer, if the property constitutes business assets?
- What would be the consequences if the renunciation of the right of residence were to be free of charge?
Case 3: Tax deferral
On April 19, 2006, Hans and Anna Meier acquired a jointly owned floor unit (4 1⁄2 rooms) including two parking spaces in the municipality of Dielsdorf (Canton Zurich). The object serves the married couple from now on as a marital home.
On December 15, 2007, the spouses purchased a piece of land in the municipality of Niederwenigen (Canton of Zurich), also in joint ownership, which they parcelled out on March 24, 2010 (establishment of condominium ownership). They are having an apartment building with five residential units built, three of which they are selling. They will keep two floor units (each with 3 1⁄2 rooms) with five parking spaces in the hall, so that they can use them themselves in future. The couple will move into the new building on 12 February 2013 and subsequently sell their previous property in the municipality of Dielsdorf on 9 May 2013. On April 12, 2015, the tax commission approved the new property as a substitute and affirmed the existence of a tax-suspending substitute procurement in accordance with § 216 para. 3 lit. i StG ZH and Art. 12 para. 3 lit. e StHG.
On December 12, 2016, Mr. and Mrs. Meier will transfer the two new floor units, including parking spaces, to their daughter, Fabienne Meier. The legal transaction is carried out as an advance withdrawal of inheritance, whereby the parents reserve the right of lifelong usufruct. Thereupon, the tax commission revokes the tax deferral pronounced on 12 April 2015 and demands that Mr. and Mrs. Meier pay the property gains tax as a result of the sale of the floor unit including parking spaces in the municipality of Dielsdorf.
Is the revocation of the tax deferral justified?
Case 4: Real estate gains tax on divorce
Andrea and Bernd are co-owners of 1⁄2 of a single-family house they purchased in 2000 for CHF 1,000,000. In 2012 they will be divorced. At that time, the property had a market value of CHF 1,600,000.
As part of the matrimonial and divorce proceedings, Andrea takes over half of her husband's co-ownership share at a value of CHF 800,000 and sells the property for CHF 1,800,000 in 2016.
What are the tax consequences?
Andrea and Bernd sell their detached house for CHF 1,600,000 as part of the divorce proceedings. Andrea subsequently buys a condominium for CHF 850,000. Bernd moves into a rented apartment.
What are the tax consequences?
Case 5: Mixed gift with right to share in profits
Urs (51) and Tamara (50) Baumann are married. They have two daughters Heidi (25) and Paula (19). The parents decide to transfer their self-occupied single-family house in Zurich to their daughter Heidi, as they would like to move into a smaller apartment themselves and Heidi is married and already has two small children of her own.
The single-family house is estimated by an external property valuer at CHF 1,350,000. The assignment price is set at CHF 900,000. Payment of the purchase price is agreed as follows:
Sister Paula also signs the purchase contract and confirms that she agrees with the purchase price. At the same time, a right to a share in the profits is agreed for a period of 3 years in favour of the parents and sister Paula, if Heidi's property is sold at a higher price than CHF 900'000.
Two years later Heidi's marriage is divorced and she is forced to sell the property. It achieves a sales price of CHF 1'300'000.
- What are the tax consequences of transferring the property from the parents to Heidi?
- How is the granting of the profit-sharing right to be assessed from a tax perspective?
- What are the tax consequences of the sale of the land by Heidi if Heidi holds the land in her private assets?
- What are the tax consequences of Heidi selling the land if Heidi holds the land as part of her business assets?
- Does the assessment of Question 4 change if the property is located in the Canton of Aargau?
Case 6: Dumont practice
Fritz sold a condominium on 1 April 2016, which he had acquired on 15 April 2002.
He asks you whether and to what extent the Dumont practice abolished for direct federal tax as of 1 January 2010 should or should not be taken into account with regard to the following expenses:
- Repair of hidden construction defects in 2004, which had led to moisture damage;
- Replacement of fitted carpets in 2006 (after 15 years of service life);
- Replacement of a leaking flat roof with a gable roof in 2010;
- Replacement of a burst pipeline in March 2012.
Case 7: Dissolution of a preferential inheritance community after a long period of time
On August 7, 2013, Max Binder transferred two properties (Alpenblickstrasse and Sonnenbergstrasse) in Uster to all five of his descendants by "donation". In return, the donee took over, among other things, an existing mortgage and was entered in the land register as the joint owner of both properties according to a simple partnership.
Three months later, on 8 November 2013, Max Binder died. The five siblings acquired four more plots of land in Uster from their father by inheritance as sole heirs. With the contract of 4 May 2015 "concerning the withdrawal of partners and co-heirs from a community of heirs", three of the siblings left the community of heirs with regard to the Alpenblickstrasse property, so that brothers Tom and Ben Binder became co-owners of 1⁄2 of this property. On October 30, 2016, Tom Binder ceded his entire share of the Alpenblickstrasse property to his brother Ben Binder, who thus became the sole owner.
Will the changes of ownership on 7 August 2013, 4 May 2015 and 30 October 2016 lead to real estate gains tax consequences?
Case 8: Demolition/new construction
Questions on the delimitation of maintenance and investment costs
How are the following constellations of demolition and new construction to be assessed in terms of their value as maintenance or value enhancement?
- A 50-year-old holiday home in need of renovation is not comprehensively renovated, but - with hardly any higher expenditure - replaced by a new building that is functionally largely similar;
- A farmhouse with a residential and economic part will be comprehensively rebuilt and renovated (gutting, new roof, etc.) for CHF 1.2 million. In the process, the previous two-generation house will be converted into a single-family home. The newly constructed roof is raised to gain more space and large hatches are installed on both sides. In the attic two rooms as well as a vestibule and WC will be installed. The tiled stove of the living room on the ground floor is being expertly restored.
Question on the determination of the investment costs
How are the investment costs to be determined if a farmhouse with a barn in a core zone, built in 1900, which is just barely habitable in terms of housing hygiene and structural engineering, is demolished and replaced by a new building with six freehold flats?
Case 9: Congruence principle
On 1 December 2007, Hans sold the building plot Cat.No. x with an area of 1,000 m2 . At the decisive point in time, 20 years before the change of ownership, the property was located in the W2 construction zone; previously, the municipality had decided to rezon the property in the reserve zone, but this decision only became legally effective in 1992 due to pending appeal proceedings. The landowner did not receive any compensation for this. In 2005 the property was reassigned to a building zone.
In assessing the real estate gains tax, the municipality takes the view that the value of reserve zone land (CHF 85.00/m2 ) should be included in the investment costs; on the other hand, the seller claims to have included the value of building land at the time (CHF 440.00/m2 ).