Levy of property gains tax after sale of the replacement purchase

The taxation of the profit made from a real estate sale can be deferred in certain cases, for example when a new property is purchased as a replacement. Then the property gain is transferred to this new property, and taxes are only levied when the property is sold again without acquiring a new replacement property.

If a profit is made from the sale of a property, it is taxed with the property gain tax, which is regulated differently by each canton. In particular, the regulations regarding the duration of ownership vary by canton. However, in cases such as property transfers in inheritance processes, advance inheritance withdrawals, compensation for matrimonial and inheritance claims, or replacement purchases, the tax can be deferred. With a replacement purchase, the sales proceeds are used within a reasonable period for the acquisition or construction of a similarly used replacement property, which is also located in Switzerland. If the purchase price of the replacement property exceeds the sales price of the sold property, the property gain can be transferred to the replacement property, thereby deferring the taxation. This process can also be repeated. Only when no new replacement property is acquired, does the location of the replacement property tax the accumulated gain. On September 28, 2017, the Federal Court was asked for clarification in a case concerning this issue. A taxpayer, who resided in the canton of Bern, sold her Bern property on April 1, 2008, with a gain of 5'733'539 Fr. and bought a replacement property in the canton of Geneva. Subsequently, the property gain tax was deferred. However, in June 2010, the woman sold this property again without having acquired a new replacement property. In 2012, the tax administration of the Canton of Bern assessed a property gain of Fr. 4'816'100 Fr, resulting in a tax claim of Fr. 1'906'682.70 Fr. The taxpayer resisted, but was rejected by the tax administration, the tax appeal commission, and the administrative court of the canton of Bern, after which she appealed to the Federal Court.

The canton of Bern argued that it was entitled to the property gain taxes accrued in Bern and wanted to apply a division of tax substrates between Bern and Geneva (apportionment method) as provided for in the Bern tax law. According to the recommendation of the Swiss Tax Conference SSK, a period of 5 years was provided during which the apportionment method could be applied. This recommendation treated resales of the replacement object within the 5-year period differently than later resales. After the period expired, the unitary method would be applied, where all taxes would belong to the canton of arrival, Geneva. The Federal Court did not follow this view. The recommendation has no binding effect and cannot stand above federal law, which does not foresee such a period. Thus, the taxes would belong to Geneva. Taxation of the same tax substrate by the canton of Bern violates the prohibition of (virtual) inter-cantonal double taxation.

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