The Council of States Committee on Economic Affairs and Taxes has dealt with the remaining differences in the proposal for a change in the system with regard to the net rental value. It has finally come out in favor of a complete change in the system.

In the spirit of a compromise with the National Council, the Commission voted 9 to 4 in favor of a complete change of system, i.e. the inclusion of secondary properties (17.400). At the same time, however, it included a clause in the draft according to which the Federal Act on the change of system can only enter into force together with Federal Decree No. 22.454, which creates the basis for the introduction of a special property tax. In this way, it wants to ensure that the mountain and tourism cantons, which are skeptical about a complete system change due to the impending loss of revenue, are actually given the possibility of compensation. Accordingly, the Commission is proposing that this federal decision be adopted by 8 votes to 4 (with no abstentions).

With 6 votes to 4 with 2 abstentions, the Commission agrees with the new approach adopted by the National Council at the request of its Commission in the autumn session on the issue of interest deduction on debt. Minority applications have been submitted for retention on both the second properties and the interest deduction on debt, and a further minority has also requested that Federal Resolution 22.454 not be accepted. The two proposals are to be put to the final vote in the winter session.

Commission removes obstacles to the abolition of the «own-rent» tax

As the Swiss Homeowners’ Association (HEV) summarizes, the Council of States Committee on Economic Affairs and Taxes wants to eliminate both differences between the Council’s decisions. On the one hand, it is now asking the Council of States for a complete change of system, i.e. the abolition of «own rent» also for second homes. This would significantly simplify the tax system. The majority of the Commission also wants to accommodate the National Council with regard to the deduction of private debt interest and supports the “quota-restrictive” deduction of debt interest. However, this is highly complicated in practice. The HEV Switzerland supports the minority of the Commission, which upholds the previous decision of the Council of States for a debt interest deduction amounting to 70% of taxable asset income.

Both councils have already discussed the federal law on the taxation of residential property twice. However, differences remain on two points: on the question of whether the “own rent” should also be abolished for secondary properties, and on the deduction for private interest on debt.

According to the National Council and now also the Commission of the Council of States, the «own rent» for all self-occupied properties is to be abolished. The HEV Switzerland is fundamentally open to a general change in the system and welcomes the fact that the difference is to be rectified. «This creates a greater acceptance of the proposal, especially since a majority of the cantons had declared themselves in favor of a general change in the system including secondary properties during the consultation process», says the HEV.

Headwinds coming from the tourism cantons

However, due to the impending tax losses, there is a threat of headwinds from the tourism cantons. The proposed introduction of cantonal competence for a property tax on secondary properties to compensate for these tax losses requires a constitutional amendment and thus a mandatory referendum.

In the case of debt interest deduction, the Council of States has already twice advocated a private debt interest deduction amounting to a maximum of 70% of taxable asset income. Such a deduction ensures that private owners of rental properties are not disadvantaged. They must continue to tax their rental income and must therefore, in return, be able to deduct at least part of their expenses, because: Anyone who taxes an income (e.g. rent income) must also be able to deduct the associated costs for the debt interest. The National Council supported a «quotal-restrictive» deduction (based on the ratio of immovable assets without self-occupied home ownership to total assets).

The majority of the Commission of the Council of States now wants to go along with this highly complicated solution of the National Council. «Such a proposal is administratively very cumbersome and runs counter to the administrative simplification of the tax system», criticizes HEV Switzerland. It therefore supports the request of the minority of the Commission, which wants to uphold the decision of the Council of States, according to which private debt interest is possible up to a maximum of 70% of taxable wealth income.

The proposal will now go back to the Council of States in the winter session.