Deductibility of disability-related costs

The impetus for this presentation was provided by two recent rulings of the Federal Supreme Court. The first was the ruling of 15 September 2020 (2C_450/2020), which dealt with the question of the extent to which the construction of a private swimming pool can be disability-related. Secondly, the ruling of 8 April 2020 (2C_500/2018) concerning a taxpayer who supports her disabled son, whereby the distinction between living expenses and disability-related costs for the mother providing care were disputed. We have already looked at this ruling from the perspective of the imputed rental value (see our blog post).

Note: The FTA has, among other things, specified Art. 33 para. 1 let. hbis in "Circular No. 11 of 31 August 2005 on the deduction of illness and accident costs as well as disability-related costs".[1] In this context, however, it should be noted that the circular is not legally binding as administrative order for the courts. However, the Federal Supreme Court does not deviate from a lawful administrative order without good reason. Provided that the administrative order allows for an interpretation of the applicable statutory provisions that is adapted to the individual case and does it justice, and contains a convincing concretisation of the statutory requirements, it will be recognised by the court and adopted in the decision-making process.[2]

1. General remarks

The tax system classification of the deduction of disability-related costs (cf. art. 33 para. 1 let. hbis DBG; art. 9 para. 2 let. hbis StHG) is decisive for understanding the following remarks. This deduction, which is accepted for tax purposes, is an exception to the principle that living expenses cannot be deducted from income (Art. 34 para. 1 let. a DBG). For this reason, the term "disability-related costs" is to be interpreted narrowly or restrictively.[3] These costs must have been incurred in addition to the ordinary living costs in the tax period concerned.[4]

From a procedural point of view, it should be mentioned that the disability-related costs are a tax-reducing fact and therefore the burden of proof lies with the taxpayer. It is therefore up to the taxpayer to present and prove it in a legally adequate manner. The proof can be provided, for example, by medical certificates, invoices, insurance receipts, etc.[5].

2. Concept of disability-related costs

General

Disability-related costs are the necessary costs that arise as a result of a disability within the meaning of Art. 2 para. 1 BehiG (causal connection) and are neither living expenses nor luxury expenses. The provision is intended to reduce the tax burden for people who have to spend income on costs that are related to a disability.[6]

For reasons of practicability, lump sums based on empirical values are used in practice, which are generally oriented to the degree of helplessness (simple, moderate, severe). It should be noted that it is possible to deviate from the lump sums if higher amounts can be proven. These are therefore rebuttable lump sums.[7] See for the Canton of Lucerne the directive of the Director of Finance of 7 September 2005 on § 40 para. 1 let. h StG/LU.

Furthermore, reference should be made to the model questionnaire as an enclosure to KS No. 11 of 31 August 2005, which is intended to simplify the assertion of disability-related costs for taxpayers.[8] For the Canton of Lucerne see.

Distinction from cost of living

Living expenses include those expenses that serve to satisfy general personal needs and are thus not a direct consequence of a disability. This includes the usual costs of food, clothing, accommodation, health care, leisure and pleasure.[9]

In the Federal Supreme Court's ruling of 8 April 2020 (2C_500/2018, E. 5), the complainant claimed, among other things, the following costs as disability-related: costs for health insurance premiums, television fees, cleaning/ tidying, travel to Africa, and electricity costs as well as (unpaid) rent. These costs are, in principle, ordinary living expenses and are therefore not deductible. Costs for "tidying/cleaning" require a closer look: Costs for household help are deductible if help in the household is necessary due to a disability. This requires a medical certificate stating which household activities can no longer be performed without assistance as a result of the disability.[10] In the present case, the complainant had a medical letter stating that her son can perform household activities at a modest level, so that if left to his own devices, he would live in a household of great disorder and dreariness. According to the Federal Supreme Court, this is not enough. It is true that the court recognises that the management of the household is associated with certain difficulties for the complainant's son. However, the dirty condition of a flat does not make domestic help indispensable. Rather, it had to be proven that the person concerned, due to the disability, was not at all capable of performing the relevant household activities.[11]

Furthermore, transportation costs , among other things, are only considered disability-related if the transport is incurred in connection with a visit to a doctor, therapy or a visit to a day care centre that is necessary due to the disability. The costs of leisure trips and other transport are therefore generally considered to be ordinary living expenses.[12] The distinction between disability-related costs and ordinary living expenses must be made in a very fine-grained manner. One example is the costs for the stay of disabled persons in special day structures. In principle, such costs are considered to be disability-related. The costs incurred for ordinary meals are not allowed as a deduction.[13] The same applies to stays in residential or nursing homes for the disabled. In this case, the costs are to be reduced by the amount that would have had to be spent on living costs in the person's own household.[14] The same applies for stays in residential or nursing homes for the disabled.

Another illustrative example of the distinction from living expenses is the ruling of the Administrative Court of the Canton of Bern (100.2015.73/74) of 21 October 2016 (confirmed in the Federal Supreme Court ruling of 2 February 2017, 2C_1187/2016, E. 3.3).[15] In these proceedings, the taxpayer claimed, among other things, that she only had a mobile phone to contact doctors or pharmacists because of her disability. The Administrative Court referred to statistics from the Federal Statistical Office, which show that 91.7% of households had a mobile phone in the tax period in question, and from this it follows that the expenses for mobile telephony are part of the cost of living. The fact that the taxpayer is subjectively convinced that she would not afford a mobile phone if she did not have a disability does not change this (see E. 3.1). Furthermore, the insured person claimed the maintenance of a computer and printer as disability-related costs, as she only needed these devices for extensive correspondence with insurance companies and authorities and would not have purchased the respective devices without the disability. The Administrative Court acknowledged that the administrative activities in connection with the disability were time-consuming, but again attributed those costs to the cost of living with reference to statistics from the Federal Statistical Office (see E. 3.4).

Distinction from luxury expenses

Luxury expenses are expenses that exceed the scope of usual and necessary measures and are incurred only for reasons of personal convenience or are particularly costly.[16] Luxury expenses are thus not considered to be disability-related costs. In detail, however, there is some legal uncertainty due to a recent decision:

In the Federal Supreme Court ruling of 15 September 2020 (2C_450/2020), a married couple living in the Canton of Thurgau claimed disability-related costs of CHF 18,474 for the installation respectively the therapy-suitable design of a swimming pool . The wife undisputedly suffers from a disability within the meaning of Art. 2 (1) of the Disability Act. However, according to the circular no. 11 (no. 4.2), the installation of a swimming pool is a luxury expense. According to the Federal Supreme Court, it can be concluded that the same applies to the costs of a therapy-suitable design of the swimming pool.

With regard to the deductibility of luxury expenses, the Federal Supreme Court considered that any deductible costs would only arise in exceptional cases, namely if the swimming pool was indispensable for therapeutic purposes and - cumulatively - the visit to an external swimming pool was completely unreasonable (E. 3.4.1). If these conditions are met, the costs incurred or claimed would then have to be divided into a deductible part (disability-related) and a non-deductible part (luxury expense) (E. 3.4.4). The Federal Supreme Court thus establishes a three-part test scheme, which, as will be shown below, is not derived from previous Federal Supreme Court practice and, in our opinion, is not very convincing in this form.

In the present case, the lower court had not examined the cumulative requirements to be fulfilled (cf. E. 3.4.1) in more detail. For this reason, the decision was referred back to the lower court to supplement the facts of the case and to reexamine the deductibility. Despite the remittal due to the inadequately clarified facts, the decision already provides indications as to how the examination is to be carried out materially. With regard to the criterion of unreasonableness, the Federal Supreme Court primarily considers the reasonableness of the route to the public swimming pool suitable for the therapy to be decisive. In this context, the Federal Supreme Court refers to para. 4.3.6 of KS no. 11. It follows from this that the criterion of the unreasonableness of using the public swimming pool is only fulfilled when the unreasonableness of using public transport or a disabled transport service as well as the unreasonableness of using a private motor vehicle is proven. The Federal Supreme Court also comments on the procedure for the division into deductible costs and luxury costs. The deductible costs are limited to the amount of the costs that would be incurred for an external visit to the swimming pool. Furthermore, it should be mentioned that the Federal Supreme Court repeatedly refers to the exceptional nature of the assumption of unreasonableness. Thus, the Federal Supreme Court advocates a very restrictive approach in the area of luxury expenses.[17]

In the opinion represented here, the Federal Supreme Court's ruling entails an (actual) tightening of the previous (meagre) jurisprudence . Thus, in the ruling of 12 January 2017 (2C_479/2016) concerning disability-related intensive care at home, the Federal Supreme Court decided that, in addition to the reduction of the general cost of living (cf. above), there would be a reduction to the extent of those costs of the external stay or care at home that exceed the necessary and customary level. The amount of the reduction was based on the costs of the most expensive nursing home in the Canton. It should be noted that, according to the findings of the lower court, this nursing home would have been able to provide the medically necessary (intensive) care.[18] According to the condition of the complete unreasonableness of a less expensive alternative, which is now set out (without further justification) in the Federal Supreme Court ruling of 15 September 2020 (2C_450/2020), the entire intensive care at home would not be deductible, since a less expensive alternative would have been available.

This is objectionable and not in conformity with the system. In the Federal Supreme Court's ruling of 15 September 2020 (2C_450/2020), the Federal Supreme Court does refer to the Federal Supreme Court's ruling of 12 January 2017 (2C_479/2016) and states that the costs for the personal amenities of care at home qualified as a luxury expense.[19] However, in our view, the Federal Supreme Court improperly links the qualification as disability-related costs with the fundamentally downstream examination of an elimination of a luxury component.[20] The Federal Supreme Court is not in a position to make a clear statement on this.

It should also be borne in mind that the condition for the basic admissibility of the deduction of costs set out in the Federal Supreme Court ruling of 15 September 2020 (2C_450/2020), namely that the less expensive or usual alternative must be completely unreasonable, is not in conformity with the system:

The qualification of the luxury expense has to be made independent of the concrete income and asset situation of the taxpayer. The concept of disability focuses on the social and professional integration of disabled persons as full members of society. From this perspective, it is to be assessed whether or not the costs of a measure claimed for deduction serve the integration of physically, mentally or psychologically disabled persons in society. The degree of social participation that is facilitated by tax law is to be determined equally for all disabled persons and not according to their income or asset situation. Otherwise, there would be a danger of unconstitutional privileges that would go beyond the elimination of disadvantages caused by disability.[21] The decision of 15 September 2020 (2C_450/2020), however, amounts to a (likewise unconstitutional) disadvantage of well-off disabled persons: Just because a disabled person has a swimming pool installed at home, this does not change the therapeutic necessity or indication for water therapy. Conversely, as explained above, not all costs can be deducted, as this would constitute an unlawful privilege.

Therefore, we are convinced that the decision of 15 September 2020 (2C_450/2020) also requires a procedure in the sense of the ruling of 12 January 2017 (2C_479/2016), and the expenses exceeding the costs of the (necessary or disability-related) external swimming pool visit are not deductible as expenses for private inconveniences and thus constitute luxury expenses. For the disability-relatedness, reference should be made to the above explanations concerning the distinction from ordinary living expenses (among other things, also point 4.3.6 of KS No. 11).

The ruling of 16 December 2011 (2C_588/2011) concerning attendance at a public school is probably along the same lines as the ruling of 12 January 2017 (2C_479/2016). In this ruling, the Federal Supreme Court recognises that the costs of a public school are deductible, provided that the costs of a public school are necessary for the vocational training due to the disability and appear reasonable in view of other educational opportunities. However, the decisive factor for the concrete rejection of the deduction was that in the case at hand, a solution could be found on the normal educational path and no additional special measures were necessary. Thus, the disability-relatedness already ceased to apply.[22]

Conclusion: The decision of 15 September 2020 (2C_450/2020) is to be rejected in this form according to the above. The Federal Supreme Court also does not appear to have intended an actual change in practice, as the (alleged) change in practice in particular was not designated as such. However, the ruling is to be welcomed insofar as the decision confirms the mechanism for cost allocation between disability-related costs and luxury expenses established in the ruling of 12 January 2017 (2C_479/2016). Thus, the definition of a luxury expense used in the circular (expenses that exceed the scope of usual and necessary measures, are incurred solely for reasons of personal convenience or are particularly costly [luxury expenses such as the purchase of a racing wheelchair or the installation of a swimming pool]) is imprecise. The alternative elements of the definition are not convincing because nothing can be derived from the costliness alone for the disability-relatedness. Moreover, this definition does not provide for the apportionment of costs to be made according to federal court practice. In our opinion, the definition must therefore be clarified as follows: Disability-related costs that exceed the usual and necessary level are considered luxury expenses. It can be deduced from this that, with regard to Art. 33 para. 1 let. hbis DBG, there is no need to differentiate between general living costs and luxury expenses. Rather, it is a matter of assessing the disability-related costs. If there is no causal connection between the disability and the costs, the costs are generally disregarded for deduction under Art. 33 para. 1 let. hbis DBG, irrespective of whether the expense is ordinary or luxury. The assessment of the luxury expense therefore only comes into effect in a second step, when the disability-related causal connection has already been established (cf. the test scheme under point 4 "Conclusion").

Differentiation from illness and accident costs

Illness and accident costs include the expenses for medical treatment, i.e. the costs for measures to maintain and restore physical or mental health, in particular the costs for medical treatment, hospital stays or medication.[23] Sickness and accident costs are deductible under Art. 33 para. 1 let. h DBG. The difference between this deduction and the deduction of disability-related costs under Art. 33 para. 1 subpara. hbis DBG is that a deductible of 5% of taxable income must be taken into account when deducting illness and accident costs. For this reason, the delimitation is of essential importance. Medical treatment costs can only be deducted as disability-related if their cause lies in the disability. Thus, for example, treatment costs due to a flu illness of a disabled person are not disability-related. [24]

4 Conclusion:

The present explanations have shown that the assessment of (deductible) disability-related costs is not entirely trivial. In addition, the jurisdiction of the Federal Supreme Court is rather sparse. Above all, the qualification of luxury expenses proves to be unstable upon closer examination.

The main findings of the analysis are as follows:

In qualifying the disability-related costs , we believe that the Federal Court's jurisprudence suggests a two-stage test:

(1) Verification that the costs are due to the disability. In other words, a sufficient causal connection between the disability and the costs incurred must be proven. In particular, the therapeutic or integrative indication or necessity must be taken into account.

(2) Checking whether costs exceed the usual and necessary measure. It must therefore be decided whether the costs include a luxury expense. The costs that exceed the usual and necessary measure are considered as non-deductible luxury expenses. The costs are only deductible for the usual and necessary extent.

In conclusion, it remains to be repeated: This verification scheme, which results in particular from the ruling of 12 January 2017 (2C_479/2016), ensures equal treatment of disabled taxpayers. It would not be appropriate to deny a taxpayer a deduction for costs incurred due to a measure related to his or her disability merely because he or she has chosen a luxurious option. For considerations of equality, a deduction up to the usual amount must nevertheless be possible in this case. This was made impossible by the Federal Supreme Court's ruling of 15 September 2020 (2C_450/2020) with the requirement of the complete unreasonableness of a less expensive alternative. In our opinion, the ruling of 12 January 2017 (2C_479/2016) is still authoritative, according to which it is simply possible to reduce costs that exceed the usual and necessary level.

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Endnotes

[1] Available on the website of the FTA, hereafter cited as "KS No. 11..".

[2] This is the constant practice of the Federal Supreme Court, see BGE 145 V 84 E. 6.1.1; BGE 142 V 442 E. 5.2; BGE 133 V 257 E. 3.2.

[3] Cf. analogously to the costs of illness and accidents, Federal Supreme Court ruling 2C_1005/2015 of 8 December 2015 E. 2.2; Federal Supreme Court ruling 2C_103/2009 of 10 July 2009 E. 2.1 with further references.

[4] Hunziker/Mayer-Knobel, in: Zweifel/Beusch (eds.), Komm. DBG, 3rd ed. 2017, Art. 33 N 33f with further references; Judgment of the Administrative Court of the Canton of Bern (100.2015.73/74) of 21 October 2016 E. 2.1

[5] Federal Supreme Court ruling 2C_500/2018 of 8 April 2020 E. 5.3; Federal Supreme Court ruling 2C_722/2007 of 14 April 2008 E. 3.2 with references; also KS No. 11, para. 6.

[6] KS No. 11, para. 4.2; Federal Supreme Court ruling 2C_450/2020 of 15 September 2020 E. 3.3.1; Federal Supreme Court ruling 2C_479/2016 of 12 January 2017 E. 3.4.

[7] KS No. 11, para. 4.4; on this in detail Hunziker/Mayer-Knobel, in: Zweifel/Beusch (eds.), Komm. DBG, 3rd ed. 2017, Art. 33 N 33d.

[8] KS No. 11, para. 6; sample questionnaire available on the FTA website.

[9] KS No. 11, para. 4.2; Federal Supreme Court ruling 2C_500/2018 of 8 April 2020 E. 5.3.

[10] KS No. 11, para. 4.3.2.

[11] Judgement of the Federal Supreme Court 2C_500/2018 of 8 April 2020 E. 5.3.

[12] KS No. 11, para. 4.3.6; Federal Supreme Court ruling 2C_258/2010 of 23 May 2011 E. 4.3.

[13] KS No. 11, para. 4.3.3.

[14] KS No. 11, para. 4.3.4.

[15] Judgment of the Administrative Court of the Canton of Bern (100.2015.73/74) of 21 October 2016

[16] KS No. 11, para. 4.2; Federal Supreme Court ruling 2C_450/2020 of 15 September 2020 E. 3.3.3.

[17] On the whole, ruling of the Federal Supreme Court 2C_450/2020 of 15 September 2020 E. 3; judgment summarised in: ASA 89 (2020/2021), vol. 5, p. 321 f.

[18] On the whole, ruling of the Federal Supreme Court 2C_479/2016 of 12 January 2017 E. 3.5 et seq.

[19] Judgement of the Federal Supreme Court 2C_450/2020 of 15 September 2020 E. 3.4.4.

[20] Cf. Hunziker/Mayer-Knobel, in: Zweifel/Beusch (ed.), Komm. DBG, 3rd ed. 2017, Art. 33 N 32w

[21] Federal Supreme Court ruling 2C_479/2016 of 12 January 2017 E. 3.7 with further references; see also Federal Supreme Court ruling 2C_588/2011 of 16 December 2011 E. 3.2; Hunziker/Mayer-Knobel, in: Zweifel/Beusch (ed.), Komm. DBG, 3rd ed. 2017, Art. 33 N 32z.

[22] Judgement of the Federal Supreme Court 2C_588/2011 of 16 December 2011 E. 3.5, E. 3.2-3.4 with further references.

[23] KS No. 11, para. 3.1 with further references, in particular on the negative delimitation.  

[24] Federal Supreme Court ruling 2C_500/2018 of 8 April 2020 E. 5.3; KS No. 11, para. 4.2 at the end.