Allocation of compensation for waiver of a right of usufruct

The Federal Court dealt with the question of whether the renunciation of a usufructuary right is added to taxable income because it corresponds to compensation for not exercising a right; or whether it represents a tax-free capital gain from the disposal of private property.

Taxable income refers to recurring or one-time income, which is listed in Art. 17 to 23 DBG. According to Art. 23 lit. d DBG, compensation for not exercising a right also falls under taxable income. However, capital gains from the disposal of private assets are tax-free. Assigning these, however, is often not easy. On June 21, 2017, the Federal Court decided on a case where the allocation of an asset was disputed. The complainant lived with his cohabiting partner in a house in Geneva, which they had financed equally. He transferred ownership to his partner, for which he retained a usufructuary right for his financed half. However, the couple separated, after which the complainant moved to Valais and received compensation of 703,000 Fr. from his former partner. This amount was classified as taxable income by the cantonal tax administration of Valais, which led the taxpayer to take the case to the Federal Court.

The Federal Court had to assess whether the compensation for the renunciation of the usufructuary right (as assumed by the Canton of Valais) would be added to taxable income because it corresponds to compensation for not exercising a right; or whether it (according to the view of the taxpayer) represents a tax-free capital gain from the disposal of private property. The Federal Court reminded that the usufructuary right is a real right that is not transferable and thus cannot be transferred. Therefore, the usufructuary right itself also has no market value. The disposal of this right is merely a tax-neutral reorganization of assets. Only if the value of the compensation is higher than the value of the usufruct, a possible net asset increase is to be assumed, which would fall under tax-free capital gain. However, it was not possible to determine whether the compensation value was higher than the usufruct value since the latter had not been calculated by the lower court. Possibly, the Canton of Geneva could levy a property gain tax. This question was left open, as it was not the subject of the dispute.

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