Child alimonies are not always deductible

A did not fulfil this maintenance obligation as agreed and was then pursued by E. The complainant A claimed that he owed him alimony of around CHF 800,000. E claimed that complainant A owed him alimony of around CHF 800,000. Complainant A filed a legal challenge against this. In November 2010, the Cantonal Court of the Canton of Fribourg dismissed an appeal for the definitive judicial initiation of the claim in E's favour. Subsequently, A and E settled their differences in December 2010. A undertook to pay E a total of CHF 800,000 in two parts. The first payment of CHF 400,000 was made by 30 December 2010, the second tranche by 10 January 2011, whereby A made maintenance contributions of CHF 550,000 as a tranche in January 2011, i.e. more than originally agreed.

In the tax return for 2010, A then claimed a deduction for the maintenance contributions paid by him to E in the amount of CHF 400,000. The tax authorities and the Cantonal Court of Fribourg refused to recognise the deduction. In justifying the rejection of the deduction claim, the last cantonal instance mainly relied on the following argument: the payment of CHF 400,000 in 2010 as part of a global maintenance payment was not a permissible deduction according to DBG 33 I lit. c, as well as StHG 9 I lit. c. The cantonal court also rejected the deduction claim. The Federal Supreme Court assessed an appeal filed by A against the cantonal decision in judgement 2C_945 and 946/2015 of 12 February 2016.

For the 2011 tax period, A then did not declare the maintenance payment of January 2011 to the adult son E in the amount of CHF 550,000. Based on the tax return for 2011 that was then submitted, A and B were assessed by the tax authorities. Although the maintenance was not claimed in the tax return, the taxpayer filed an objection with the tax administration in due time, or an appeal with the Cantonal Court of Fribourg, requesting that the maintenance contribution of CHF 550,000 be allowed as a deduction in the 2011 assessment. The cantonal courts rejected the application. As a result of the rejection of the objection and the appeal before the cantonal court, A and B filed an appeal in public law matters with the Federal Supreme Court. The Federal Supreme Court issued its judgement in 2C_429/2017 on 21 February 2018.

Identity of the legal question

The entitlement to deduct maintenance contributions in the form of a total sum by means of a staggered one-off payment was assessed by the Federal Supreme Court in two rulings. In essence, both rulings deal with the same question, which is presented below.

Lines of argumentation of the lower instance and the complainants

The cantonal instances qualified the maintenance payments as a non-deductible lump-sum settlement and not as a subsequent payment of a periodic maintenance payment. However, the cantonal court additionally pointed out that in the case at hand it was irrelevant from a tax point of view whether the payments were actually a non-deductible lump-sum settlement or a subsequent fulfilment of a maintenance payment, since the beneficiary was already of age when the maintenance payment was fulfilled, which excluded deductibility in any case.

The complainant A, on the other hand, took the view that it concerned a tax-deductible subsequent payment. The fact that the beneficiary E had already reached the age of majority did not change anything. According to the complainant, the decisive factor is that the payment was made for the period during which he was a minor. In fact, the complainant A thus complains of a violation of the principle of equal treatment (Art. 8 para. 1 of the Federal Constitution) and of taxation according to economic capacity pursuant to Art. 127 para. 2 of the Federal Constitution.

Significance of parental custody

The Federal Supreme Court qualifies alimony contributions received by one parent in the event of divorce or separation for children under parental custody as taxable income in accordance with Ar. 23 lit. f DBG. On the other hand, the person with support obligations can deduct such contributions from his income according to Art. 33 para. 1 lit. c DBG (so-called correspondence or congruence principle).

Please also read our article on the general tax consequences of divorce or separation.

However, the existence of parental care is a prerequisite. What is meant by this is defined in Art. 296 para. 1 CC. It should be noted, however, that parental care only exists until the child reaches the age of 18. In the view of the Federal Supreme Court, once parental care ceases to exist after the child reaches the relevant age, both the deductibility and the taxability of the maintenance payments cease to apply. Against the background that the legislator's intention clearly manifested a restrictive handling of the deductibility of maintenance payments, the Federal Supreme Court dismissed the appeals with regard to direct federal tax.

With regard to a possible deductibility of maintenance contributions for cantonal taxes, the Tax Harmonisation Act must be consulted. The norms of this decree undoubtedly contain the same wording as that of Art. 33 para. 1 lit. c DBG. Accordingly, the cantons have no room for manoeuvre. Accordingly, the appeals here also proved to be unfounded.

Conclusion

It can be stated that parental care is a necessary criterion for the deductibility (and taxability) of maintenance contributions. If parental custody exists, the maintenance contributions are considered deductible benefits according to Art. 33 para. 1 lit. c DBG. If parental custody ceases due to reaching the age of majority, any maintenance contributions paid after reaching the age of 18 can no longer be deducted (and consequently no longer have to be declared as income by the recipient). It is irrelevant whether this is an additional payment made for owed maintenance contributions.