How does one differentiate between business and private assets?

The classification of assets as business or private assets is significant for the determination of taxable income for self-employed individuals. Assets belong to business assets if they are used entirely or predominantly for self-employed activities (Art. 18 Para. 2 DBG). In addition to clearly determinable goods, there are also alternative and mixed-use goods.

The determination of taxable income for self-employed individuals is based on the net profit of the company. The net profit is significantly influenced by the classification of assets as business or private assets, as the taxed income (the net profit of the company) is calculated exclusively based on the change in business assets. Business assets further differ in that depreciation is permissible, capital gains are taxable, and capital losses are deductible. Private assets are not relevant for determining the net profit. From the different tax treatment, it follows that transfers of assets between the two asset classes have tax implications. Capital gains from disposals are included in corporate profits. A disposal is also considered a transfer of business assets into private assets or into foreign enterprises (Art. 18 Para. 2 DBG). A transfer of real estate from private assets into business assets may, however, trigger a real estate gains tax in some cantons.

Classification of assets in sole proprietorships

In sole proprietorships, all assets that are used entirely or predominantly for self-employed activities are considered business assets, so the actual use is decisive (Art. 18 Para. 2 DBG). The accounting treatment serves merely as an indication for the correct classification. In addition to goods that are clearly used for business or private purposes, there are also alternative and mixed-use goods. Alternative goods can be used privately or for business due to their versatility. The classification is based on the actual use of the item (Mäusli-Allenspach/Oertli, Swiss Tax Law, 2010, p. 96). Examples of alternative goods are cars and properties, as both can be used for business or private purposes. However, the private residence of the business owner constitutes private assets, even if it is accounted for on the balance sheet of the company. Mixed-use goods serve both business and private purposes simultaneously. The classification is based on the predominant actual use.

In the case of general partnerships and limited partnerships, the classification, as in the sole proprietorship, is primarily based on actual use. These types of companies do not have legal personality, but they can still acquire rights and incur obligations under the company name (Art. 562 CO). In addition to actual use, the civil law relationships between the company and the partners must also be considered in the classification. Objects that are located in the company's assets belong to the business assets. However, if these objects are used predominantly for private purposes, they are considered private assets.