Recovery of the debt in the PPE renovation fund upon purchase of the PPE share

Judgment 9C_391/2023 delivered by the Federal Court on 5 January 2024 addresses an issue that, to our knowledge, had never been judged before:

When the buyer takes over the debt in the PPE renovation fund along with the acquisition of the PPE share, is this debt assumption considered deductible building maintenance costs for income tax purposes? 🤔

There are two methods, depending on the cantons:
Some consider that the funding of the PPE renovation fund corresponds to building maintenance costs, tax-deductible for income tax purposes, during the year in which the fund was funded and regardless of the underlying reality, i.e. whether there were any deductible maintenance costs during the tax period in question.
Other cantons completely ignore the provision of the PPE renovation fund and focus on the actual maintenance costs, undertaking only these as tax-deductible for income tax (pro rata to the PPE share).

The assumption of the debt within the renovation fund is an integral part of the transaction price. The buyer pays a price to the seller to take over this debt. The seller was able to deduct the contribution to the PPE renovation fund from their income – depending on the canton. Upon sale, the tax authorities do not adjust the seller's income tax for the balance of the debt in the PPE renovation fund. 😁 As the maintenance costs have already been deducted by the seller and cannot be rectified retrospectively, the buyer cannot claim a deduction on their part for the assumption of the balance. 😡

At the seller's level, this part of the selling price is included in the base for property gains tax and is therefore taxed as property gains. Indirectly, there is a correction of previous deductions.,
but it is not the same tax
and the rate of property gains can be very different from that of income tax depending on the length of ownership and the amount of the gain.
When the buyer subsequently sells the property, they will deduct, for the calculation of capital gains tax on property, the purchase price in its entirety, including the portion relating to the assumption of the debt in the PPE renovation fund. Therefore, it is only at the level of capital gains tax on the property that there is a neutralisation between the price paid on purchase and the price paid on resale… provided that the debt in the PPE renovation fund is identical for each transaction or has increased.

In a similar vein, the price paid for the assumption of existing mortgages is also included in the sale price and subject to real estate gains tax (the question of income tax treatment does not arise in this case).

Ruling in German (Bern); publication in the ATF planned.

TF, judgment 9C_391/2023, of 5 January 2024