Taxation of cohabiting couples with children

Cohabiting couples are taxed individually, i.e. each partner has to fill out his or her own tax return. For this reason, reference can be made to the blog post of 14 September 2021 ("Taxation of parents living separately") for cases of non-joint children. Analogous to the blog post of 14 September 2020, the present explanations are divided into the three levels relevant from a tax perspective:

(1) Maintenance contributions

(2) Social deductions

(3) Tax rates

(1) Maintenance contributions

a) Child support

The mechanism is basically simple:

(1) The maintenance debtor or debtors may deduct the maintenance payments made.[i]

(2) In return, the maintenance creditor shall pay tax on the maintenance payments received as income.[ii]

In tax law, only the maintenance contributions actually paid and owed on the basis of family law are taken into account. It is irrelevant whether the maintenance debtor and the maintenance creditor live in a common household or not. The tax law provisions on the deduction of child maintenance payments make no reference to the household relationship. The only decisive factor is the basis of a legal, family-law maintenance obligation.[iii] In the case of cohabiting couples, a court judgment or a written agreement between the parties on the maintenance contribution to be paid is likely to be lacking as a rule.[iv] This is not detrimental, provided that the actual payment of the maintenance is proven. In principle, there must be a flow of funds from an account in the name of the maintenance debtor to an account in the name of the maintenance creditor. According to a new decision of the Federal Supreme Court of 28 May 2021, payments to a joint account cannot be taken into account.[v] In case of doubt, the actual use for maintenance must be proven, whereby the sole reason for payment "contribution to the maintenance of the children" is not sufficient.

b) Support payments between the cohabiting couples

In principle, all recurring and non-recurring income of a taxable person is subject to income tax. In particular, benefits in kind such as free board and lodging are also considered income.[vi] On the other hand, benefits in fulfilment of family law obligations are expressly exempt from tax.

Since benefits between cohabiting couples do not qualify as benefits in fulfilment of family law obligations, as cohabiting couples do not owe each other mutual support by law, the receiving cohabiting partner would actually have to count the (natural) contribution as income.

In practice, however, the tax authorities do not offset any salary (in kind) for the cohabiting partner in charge of the household. As a result, these benefits cannot be deducted from the income of the providing cohabiting partner [vii]. Any other approach would be both impractical and unconvincing. This is because cohabitation is not an employment relationship, but a marriage-like relationship [viii].

(2) Social deductions

In cases where child support payments are made by one cohabiting partner to the other cohabiting partner, the parent who receives the child support payments may claim the child deduction and the insurance and savings interest deduction for the child.[ix]

In the canton of Lucerne, in cases where no child maintenance payments are claimed, the social deductions (child deduction, insurance and savings interest deduction as well as also the child third care costs) are divided in half.[x] Other cantons partly provide for a different division key analogous to the tax rates (see below) or a mixed form.

Further reference should be made to the blog post dated September 14, 2020.

(3) Tax rates

In principle, the tariff is determined analogously to the allocation of social deductions. I.e. the maintenance debtor is taxed at the standard rate and the maintenance creditor at the family rate.[xi]

When determining the tariff, in cases without maintenance for a joint child, the cohabiting partner with the higher income is generally taxed at the family tariff and the other cohabiting partner at the normal tariff. This rule is based on the assumption that the partner with the higher income contributes more to the maintenance of the child. If, on the other hand, it is proven by the cohabiting partners that both parents contribute equally to the child's maintenance, the parent with the lower income will benefit from the family rate.[xii]

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[i] Art. 33 para. 1 lit. c DBG; § 40 para. 1 lit. c StG/LU.

[ii] Art. 23 lit. f DBG; § 30 lit. f StG/LU.

[iii] Cf. judgement of the Federal Supreme Court 2A.37/2006 of 1 September 2006 E. 3.1.

[iv] Cf. Art. 298a CC, according to which joint parental care can be established by means of a declaration to the civil registry office or the KESB. In this case, it is sufficient for the parents to declare that they have reached an agreement on custody and personal intercourse or on the shares of care and maintenance for the child. In particular, neither a written agreement on the modalities between the parents is required nor are maintenance contributions determined [see recommendations of KOKES of 13 June 2014, Implementation of joint parental care as the rule (esp. points 3.3.1 and 3.3.2)].

[v] See judgement of the Federal Supreme Court 2C_380/2020 of 28 May 2021, in: iusNet; also judgement of the Administrative Court ZH of 18 August 2004 E. 3, in: StE 2005 B 27.2No. 28; for detailed explanations, please also refer to the blog post of 14 September 2021 ("Taxation of separated parents").

[vi] Art. 16 DBG; § 23 StG/LU.

[vii] Explicitly for the canton of Bern or for the canton of Graubünden.

[viii] Decision of the Tax Appeals Commission OW VVGE 1997/98 No. 11, p. 38.

[ix] Circular letter FTA No. 30, taxation of married couples and families, para. 14.7.2; Lucerne tax book, § 42 No. 3 para. 6a.

[x] Lucerne Tax Book, § 42 no. 2 item 1.4 and § 42 no. 3 item 6b; see also circular letter FTA no. 30, taxation of married couples and families, item 14.8.1.

[xi] FTA Circular No. 30, Taxation of Married Couples and Families, para. 14.9.3.

[xii] BGE 141 II 338 E. 6.3.2; circular letter FTA No. 30, Married Couple and Family Taxation, para. 14.4.2.