The subject of the income tax

Income tax in Switzerland can be levied by the Confederation, the cantons, and the municipalities (Art. 128 para. 1 BV). What exactly is taxed—the question of the tax object—is presented in an overview in this blog post.Object of the Income TaxThe basis of income tax are "all recurring and one-time income" (Art. 16 para. 1 DBG) from natural persons. The taxable income (Art. 25 DBG) is taxed. It is calculated by deducting the expenses and general deductions (regulated in Art. 26-33a DBG) from the sum of all taxable income.

As soon as the income results in an increase in economic performance, it is considered to be accrued and is taxed. The taxable income can be divided into four categories:

• Earned Income (Art. 17-19 DBG), from self-employed or non-self-employed activity
• Investment Income (Art. 20-21), from movable and immovable assets (e.g., income from securities).
• Income from Pension Plans (Art. 22 DBG), such as pensions and capital benefits from pension institutions.
• Other Income (Art. 23 DBG), such as insurance benefits, lottery winnings, and maintenance payments.

Not all incomes are subject to income tax. In Art. 24 DBG, the legislator lists conclusively the incomes exempt from income tax. These can be divided into:

• Increments of wealth due to inheritance, legacy, gift, or matrimonial property settlements (Art. 24 lit. a DBG). Inheritances and gifts are generally taxed by the cantons.
• Private Capital Gains (Art. 16 para. 3 DBG), except for the cantonal real estate gains tax.
• Other Tax-Free Income, e.g., pay for military and protection service (Art. 24 lit. f DBG), capital payments at job change (lit. c), lottery winnings up to an amount of CHF 1,000 (lit. j).

From the taxable income, the legally permissible deductions are deducted to obtain the taxable income (Art. 25 DBG). The deductions can be divided into costs of obtaining income, general deductions, and social deductions:

• Income Generating Costs (Art. 26-32 DBG), are special costs for earning taxable income (e.g., costs for commuting between home and workplace for earning professional income). To be distinguished from non-deductible living expenses (Art. 34 DBG, e.g., the costs for the maintenance of the taxpayer and his family), which represent a use of income.
• General Deductions (Art. 33-33a DBG), are usually living costs, but they diminish the taxpayer's economic capacity and are therefore deductible (e.g., interest on debt, maintenance payments during separation and divorce, contributions to pensions and insurance, costs for externally provided childcare).
• Social Deductions/Tax Allowances (Art. 35 DBG), are deductions for certain conditions of the taxpayer. There is a statutory presumption of too high actual expenses, which diminishes economic capacity (e.g., deductions for children or support).

The entire calculation of taxable income can be simplified in a diagram (Art. 25 DBG):

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