When the tax authorities deem that tax must be paid first before obtaining a tax exemption

The taxpayer purchases a property. They sell it to a property developer and purchase one of the flats to be built off-plan. The capital gain is taxed at a rate of 0% due to the long period of ownership. Once the development is complete, the taxpayer moves into the new flat. The taxpayer then sells this new flat.

The tax authorities are taxing the property gain at the maximum rate due to the short period of ownership.

The taxpayer believes that the new dwelling was a replacement for the first one and therefore that the long-term ownership rules should apply.

For the tax authorities, «the taxpayer did not meet the conditions of reinvestment because they had not to pay any tax on capital gains on the profit they had made from the sale of their share in the property».

The first-instance judges rule in favour of the tax authorities.

The second-instance judges rule in favour of the taxpayer: «the recognition of a reinvestment case did not require that the taxpayer concerned had paid tax on capital gains on the reinvested profit.»

Federal judges resume the conditions laid down by federal law (LHID 12 III e): «For tax deferral to occur, the following conditions must be met cumulatively
The building that was alienated was used for the alienator's own use
this use has been continuous and exclusive
3. the proceeds of the sale are used to finance the purchase of the replacement property (reinvestment)
4. the purchase of the replacement property takes place in Switzerland and
5 within an appropriate timeframe.» (para. 4.2)

The result is that federal law «does not stipulate that the alienator must have paid capital gains tax on the gain realised from the alienation of the first property in order to benefit from this deferral of taxation. In other words, the payment of such tax is not a legal condition for the admission of a reinvestment.» (para. 4.4.1.)

The federal judges continue: «If reinvestment were made conditional upon the actual payment of capital gains tax, all persons eligible for a rate of 0.1% would be automatically excluded from the scope of federal law due to the specific features of the cantonal tax scale. Such reasoning would amount to accepting that a provision of cantonal law could influence whether or not a case of reinvestment arises. However, the conditions giving rise to the right to deferred taxation fall exclusively within the scope of federal law and leave no room for manoeuvre for the cantons» (para. 4.4.3.)

The ruling is in French. This is a Genevan case.

Federal Tribunal, judgment 9C_177/2025, of 11 March 2026