The taxation of imputed rental value has been discussed for a long time. Taxing income without an inflow of money can be particularly problematic for retired homeowners. The difficulties in determining the market rent also lead to many unequal treatments that are difficult to justify constitutionally. Ultimately, imputed rental value taxation leads to incentives for debt and thus represents a risk to Switzerland’s financial stability. For all these reasons, a consistent system change is necessary.
According to current law, the rental value of an owner-occupied property is taxable income. This is justified by the net asset acquisition theory, according to which all asset acquisitions are taxable. This also includes the usage values, as these also increase economic performance. The homeowner saves the costs of renting an apartment. Therefore, contrary to popular belief, the imputed rental value is not “fictitious” income, but rather a form of income in kind. However, since the homeowner does not receive any liquid funds, it is ultimately so-called “dry income”.
In return, the homeowner can deduct the maintenance costs of the property as well as the mortgage interest. It is possible that the deduction for maintenance costs and mortgage interest is higher than the imputed rental value.
Heavy burden for pensioners
Imputed rental value taxation has long been criticized. In the winter session, the Council of States will again have to deal with a parliamentary initiative that calls for a change in the system of residential property taxation.
“There is little understanding that a tax has to be paid on income purely in kind.”
What is particularly criticized is that the current system privileges home ownership with a high mortgage burden. From a tax perspective, the amortization of mortgages is therefore unattractive. This debt incentive leads to private debt in Switzerland that is very high by international standards, which is problematic with regard to the country’s financial stability and is therefore criticized by the OECD and the International Monetary Fund.
Another point of criticism of imputed rental value taxation is the so-called pensioner problem. If pensioners with only a modest real income have largely paid off the mortgage, the imputed rental value taxation can lead to a tax burden that is no longer bearable. Certain cantons wanted to defuse this problem through hardship regulations. However, the Federal Court recently classified the Ticino hardship regulation as unconstitutional. Hardship regulations are therefore not a suitable way to solve the problem for pensioners.
All attempts so far have failed
In practice, determining the imputed rental value is not an easy undertaking and involves a lot of effort. In order to avoid overtaxation in individual cases, many cantons deliberately set the imputed rental value below the market rental value. In combination with the deduction for property maintenance and mortgage interest, this in turn leads to unequal treatment of home owners compared to tenants, which is difficult to justify constitutionally.
Last but not least, taxpayers’ acceptance of imputed rental value taxation is low. In general, there is little understanding of the fact that a tax has to be paid on income purely in kind. For decades, this has led to many political initiatives calling for imputed rental value taxation, but so far they have always failed.
Problem of second homes
Parliament is currently discussing a parliamentary initiative submitted by the Council of States’ Commission for Economic Affairs and Taxes five years ago. However, this wanted to abolish imputed rental value taxation only for primary residences and retain it for self-used second properties. The background is the particular interests of the tourism cantons, which are disproportionately represented in the Council of States. However, such a merely partial system change can hardly be reconciled with the constitutionally enshrined equal treatment requirement. The National Council was therefore right to demand a consistent system change.
However, since the preparatory commission of the Council of States is sticking to the exclusion of second homes, it must be assumed that the Council of States will not resolve the difference with the National Council in the winter session. This is not necessary to do justice to the legitimate fiscal interests of the tourism cantons. It would be entirely possible to at least partially compensate for the tax losses resulting from the abolition of imputed rental value taxation in another way. It would be conceivable, for example, to levy a special wealth tax in the sense of a property tax.
Delete maintenance and debt interest deductions
It is largely undisputed that the abolition of imputed rental value taxation will mean that property maintenance costs will no longer be deductible in the future. It is also clear that interest on debts associated with home ownership can no longer be deducted. However, do debt interest lead to taxable investment income from movable assets, such as: B. securities or rented properties, these are still deductible acquisition costs. A differentiated solution is therefore needed when deducting interest on debts.
It would not be appropriate to simply no longer allow the deduction of mortgage interest on the owner-occupied property. A direct allocation of this interest to the resulting income is not possible. Such a system could result in the mortgage on the owner-occupied property being largely amortized and any other assets such as: B. to lend against rented properties or securities and so the interest deduction could continue to be claimed.
Unusual system
This problem could be solved relatively easily by a proportional reduction in the debt interest deduction. The debt interest deduction could, for example, be reduced to the extent of the home owned by the taxpayer’s total assets. However, blanket approaches were proposed during parliamentary deliberations. For example, the Council of States favors a system in which the deduction of debt interest is limited to 70% of taxable investment income. However, it is doubtful whether such a blanket reduction will lead to an appropriate result. Since a proportional reduction could also be implemented with relatively little effort, this clearly deserves preference.
The Swiss system of taxing the imputed rental value of primary and second homes at the market rental value is highly unusual. Against this background, it is not surprising that there have been calls for a system change for decades. But it is well known that those who are declared dead live longer, and so it is questionable whether the initiative for a system change currently being discussed by Parliament is more fortunate than its predecessors. This is not least because it has not been possible to take advantage of the low interest rate phase of recent years, which was politically ideal for such a business. Finally, the regional policy concerns of the tourism cantons must also be taken into account, which are likely to conflict with a majority in the Council of States in favor of a consistent system change that includes second homes.
Stefan Oesterhelt is a lawyer and partner at Homburger AG.
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2023-11-21 14:08:58
#Opinion #abolish #imputed #rental
– Abolish imputed rental value
The system change away from taxing the imputed rental value is necessary and overdue for various reasons. But the chances of this finally succeeding are not very good.
Stefan Oesterhelt