Overview

In a recent decision, the Federal Supreme Court of Switzerland provided important clarification on the taxation of capital gains from the sale of agricultural properties. The court examined whether the gains from selling two parcels of land, mainly designated as building zones but partly as agricultural zones, should be subject to income tax or property gains tax. This ruling sets a significant precedent for future cases involving the sale of land with mixed-use zoning.

Case Background

The taxpayers managed an agricultural enterprise in the Aargau region, including two properties. Both properties were predominantly allocated to the building zone (W2), with a smaller portion designated as agricultural land. In 2012, the taxpayers sold these properties. The local tax commission decided to treat the capital gain as taxable income, subjecting it to income tax. The taxpayers contested this decision, arguing that the gains should be taxed under the property gains tax, given the agricultural nature of the land.

Legal Proceedings

The case progressed through various legal stages, ultimately reaching the Federal Supreme Court. Key legal questions included whether the parcels were still suitable for agricultural use at the time of sale and whether they qualified as agricultural property under Swiss tax law.

Key Legal Findings

The court found that the properties were primarily intended for building purposes, diminishing their classification as agricultural land. This finding was pivotal in determining the applicable tax treatment.

The Federal Supreme Court agreed with the local tax commission’s decision to subject the capital gains to income tax rather than property gains tax. The court emphasized that the properties, despite their partial agricultural zoning, were effectively treated as building land by the owners, who did not seek the necessary agricultural approvals before the sale.

The court noted the contradiction in the taxpayers’ approach. While they sold the land as building plots without obtaining the required agricultural permissions, they later sought the tax benefits associated with agricultural land. This inconsistency was deemed an abuse of rights, and the taxpayers were held to the income tax requirements.

Implications of the Ruling

The Federal Supreme Court’s ruling clarifies several critical points regarding the taxation of mixed-use properties:

• Properties must be consistently classified according to their predominant use and the intentions of the owners. Mixed-use properties will not automatically qualify for agricultural tax benefits if they are primarily intended for non-agricultural purposes.
• Taxpayers cannot selectively apply agricultural classifications to gain tax advantages if their actions and intentions suggest otherwise.

Conclusion

As indicated in Article 18.4 of the Federal Direct Tax Act (DBG) and corresponding cantonal laws, profits from the sale of agricultural or forestry properties are only added to taxable income up to the amount of investment expenses. The additional part of the gain does not constitute taxable income and is instead subject to capital gains tax, provided that the real estate can genuinely be classified as agricultural. To benefit from this advantage, it is crucial to accurately assess the tax implications of the sale and properly structure the transaction.

For assistance in understanding and applying these tax regulations, please contact contact@axcord.com.