The minimum length of stay for the replacement of owner-occupied homes is an essential element of the property gains tax and cannot be laid down in an administrative ordinance. The Federal Supreme Court annuls the contested decision of the Administrative Court of the Canton of Zurich and states that the application of a circular of the Finance Directorate of the Canton of Zurich concerning the deferment of the real estate gains tax in the case of replacement purchases is contrary to the principle of legality with regard to the minimum period of stay laid down therein.
In its ruling of 7 March 2017 (2C_306/2016), which is scheduled for publication, the Federal Supreme Court dealt with the real estate gains tax of the Canton of Zurich.
This concerned (in connection with the replacement of owner-occupied housing) the abolition of the conditions for granting tax deferral in the event of a move abroad.
Under harmonization law, the taxation of a realized real estate gain on the sale of a permanently and exclusively owner-occupied residential property (single-family house or condominium) is deferred if the proceeds from the sale are used within a reasonable period of time to acquire or construct an equivalent replacement property in Switzerland (Art. 12 para. 3 lit. e StHG).
The complainant and his wife had first moved their residence to the location of the new property (replacement property) in Switzerland and then, for professional reasons, (permanently) to Great Britain, whereby the replacement property in Switzerland was used as a secondary residence (E. 2.2).
The concept of "permanent use of the replacement property" had to be interpreted, i.e. whether the use of the replacement property as a principal residence for 22 months could be classified as "permanent use".
The Federal Supreme Court initially held that the concept of "permanent and exclusively owner-occupied residential property" covers only the principal residence, while a secondary residence (such as a holiday home or apartment or a property for the duration of a week's stay away from home) does not meet the criteria. However, the cantons are entitled to determine the duration of the "reasonable period", i.e. the period between two changes of ownership, independently (E. 2.3.).
The Federal Supreme Court subsequently dealt with its previous case law on the concept of "permanently and exclusively owner-occupied residential property" and, with reference to the concept of residence for tax purposes (Art. 3 para. 2 DBG, Art. 3 para. 2 StHG), stated (E. 2.5.) that the opinion of the previous instance is not compatible with the Federal Supreme Court's case law on the concept of "permanently and exclusively owner-occupied residential property" within the meaning of Art. 12 para. 3 lit. e StHG. In the opinion of the Federal Court, and contrary to the opinion of the lower court, the complainant fulfils the requirements for taking up residence at the location of the replacement property and would have established his residence at the location of the replacement property even if he had intended from the outset to stay there for only 22 months.
Accordingly, he had used the newly acquired residential property (replacement property) permanently and exclusively for his own use. In the opinion of the Federal Supreme Court, there is also no abuse of rights in which the tax deferral would have to be refused, since the complainant subsequently changed his residence again due to external circumstances (professional reasons) and did not already have the intention at the time of taking up residence to convert the replacement property into a holiday apartment or to acquire the replacement property solely for speculative motives in order to be able to skim off an interim profit (E. 2.6.).
The Federal Supreme Court then states that there is a qualified silence on the part of the legislator with regard to the minimum holding period of the replacement object. Article 12(3)(e) of the StHG does not contain a fixed period as a condition for permanent and exclusive self-use.
The circular of 31 March 2014 from the Finance Directorate of the Canton of Zurich to the municipalities on the deferral of real estate gains tax in the event of replacement of a permanently and exclusively owner-occupied residential property (§ 216 para. 3 lit. i and § 226a StG) provides in point 11 in conjunction with Paragraph 28 states that a definitive misappropriation of the replacement property within 5 years of the sale of the original property leads to the abolition of the tax deferral and the subsequent taxation of the deferred profit (E. 4.). In the opinion of the Federal Court of Justice, application of this Circular is contrary to the principle of legality (E. 4.2.). In this context, the Federal Supreme Court held that a minimum period of stay for the replacement of owner-occupied homes is an essential element of the levy and therefore cannot be laid down in an administrative regulation. In this respect, an explicit provision in the law would be necessary. The same also applies if the abandonment of self-use without the replacement property being sold (change of use, misappropriation) is intended to constitute a taxable event.
Consequently, the circular in question issued by the Finance Directorate of the Canton of Zurich (as a mere administrative regulation) does not constitute a sufficient legal basis for a minimum holding period or taxation in the event of subsequent changes in the use of the replacement property (E. 4.2.).
The Federal Supreme Court overturned the contested decision of the Administrative Court of the Canton of Zurich of 17 February 2016 (SB.2015.00136).
