Taxation of compensation for the statutory termination agreement of an employment contract

How is compensation for a redundancy agreement taxed? As a lump sum from a provident fund? As a capital payment replacing periodic payments? As ordinary income?

🙄 Whereas the taxpayer wanted the allowance to be taxed as a capital payment from long-term care insurance (because they were 57 years old),
the tax authorities taxed it as a lump-sum payment replacing periodic benefits.
😬 Cantonal judges, approached by the taxpayer, ruled that the compensation could not be taxed as a capital payment replacing periodic benefits, but rather as ordinary income 😱
The federal judges have upheld the cantonal ruling
The taxpayer is therefore taxed more heavily than the tax office initially imposed 😭... and CHF 7,000 in legal costs between the two instances 🤯

For cantonal and federal judges
✅ Given the taxpayer's profile in the labour market, they had every chance of finding employment again at the time their employment relationship ended. Therefore, taxing the severance payment as a lump sum benefit from a pension fund is not permissible.
✅ as there was an agreement to end the employment, the taxpayer was able to influence their outcome. Consequently, this is ordinary income.

Before rushing headlong into legal proceedings against the tax authorities, consulting a qualified professional can save you time and money.

Better: such a qualified professional should already have been involved in the discussions at the time of the termination of the employment contract…

order in French (Vaudois file) – order from the CDAP-VD: FI.2022.0012.

TF, judgment 9C_237/2023, of 5 March 2024

Professional expenses deductible in addition to the flat-rate representation allowance? Confirmation by case law.

The ruling is in Italian. It is a Ticino case.

Federal Tribunal, ruling 9C_643/2022, of 24 July 2023