Transfer of real estate to private assets and donation of real estate – the donation ends the deferral

The Federal court confirmed this in a case concerning a farmer from Vaud who, after having stopped his independent activity, gave parcels of land to his children. The taxpayer requested the tax deferral provided for by art. 18a LIFD in case of transfer of real estate from business assets to private assets. It was refused to him by the Vaud tax authorities on the grounds that the donation constituted a “disposal” which, under the terms of this provision, put an end to the deferral. In a decision intended for publication (2C_284/2021 of April 11, 2022), the Federal Court confirms the position of the tax authorities after a thorough interpretation of art. 18a LIFD, first literal (a donation does constitute an alienation from a civil point of view), then historical (it is not clear from the legislative work that only alienations generating a flow of money are covered by art. 18a LIFD), systematic (in particular by reference to the rules on AVS and real estate gains tax) and finally teleological (the deferral is aimed at the transfer between two masses of assets of the same taxpayer, not at subsequent acts decided by the entrepreneur – or former entrepreneur – in the context of the management of his private assets). Circular no. 26 of the Federal Tax Administration of December 16, 2009 is therefore validated on this point, but also on another one: the Federal Court also confirms that art. 18a LIFD establishes a deferral of taxation, not of payment. Consequently, the capital gain accumulated between the deferral and the disposal constitutes self-employed income rather than a private capital gain (which confirms the hybrid character of the property subject to the deferral).