Investments in environmental protection pay off

The leeway concerns direct federal tax and state and municipal taxes, insofar as the cantons have made use of their regulatory option.

Under the previous laws, investments in energy-saving and environmental protection measures are counted as deductible maintenance costs for a property. The in the following considered investments are expenditures on measures which contribute to the rational use of energy or the use of renewable energies, such as ground-source and air-source heat pumps, pellet heating systems, solar hot water and heating systems and photovoltaic systems (cf. Art. 5 of the Property Cost Ordinance, which was in force until 31 December 2019).

New regulation as of 1 January 2020

Since 1 January 2020, any dismantling costs incurred for energy-saving and environmental protection measures are being considered as deductible building maintenance. In other words, this means that in addition to direct investments in energy-saving and environmental protection measures, deconstruction costs are no longer considered as value-adding investments but are also attributed to deductible building maintenance.

For the application of the new regulations, 2 items are particularly relevant: dismantling costs and the replacement of new buildings. These items are defined in the new Real Estate Costs Ordinance:

• Art. 2: The costs of dismantling installations, demolition of the pre-existing building and the removal and disposal of the construction waste are considered as dismantling costs with regard to the replacement of a new building.
• Art. 3: Replacement buildings are buildings which, after completion of the demolition of a residential building or a mixed-use building, are erected on the same plot of land within a reasonable period of time and are of similar use.

It follows from the definition that only dismantling costs with regard to a replacement building are regarded as building maintenance. With regard to tax optimisation, an eye has to be kept on the possibility of transferability of costs for the two subsequent tax periods (see Art. 4 of the Real Estate Ordinance).

It remains to be seen how the tax authorities will deal with these new concepts. The first court rulings on this issue are eagerly awaited. This practical specification will show how far dismantling costs can be deducted for tax purposes. Until the first practical decisions have been made, the explanations provided by the FDF are the most important indicator. We'll keep You updated.

Calculation example

Taxable person X owns an old residential building. She would like to demolish this residential building and replace it with a new residential building that is energetically up-to-date. The investment costs are as follows:

Demolition of the old residential building

CHF

100’000

Removal and disposal costs of the old residential building

CHF

50’000

Extension of the excavation

CHF

10’000

Construction costs (without investments in energy measures)

CHF

800’000

Costs of the energy measures (without public subsidies)

CHF

100’000

Under the previous law, X could only deduct the costs of the energy-related measures as neutral building maintenance.

Under the new legal situation, the tax factors are as follows:

• The costs of the old residential building can be claimed as building maintenance, since the demolition is being carried out with prospect for a replacement building, in this case a new residential building.
• Also included in the building maintenance are removal and disposal costs.
• The expansion of the excavated material and the construction costs are not considered to be building maintenance, and are therefore regarded as value-adding investment.
• However, with regard to the construction costs, it should be noted that the portion spent on rational energy-related measures is considered to be building maintenance.

Final account: to be deducted as neutral building maintenance:

• Previous right: CHF 100'000
• Regulation since 1 January 2020: CHF 250,000

Level of the state and municipal taxes

The vast majority of the cantons have made use of the possibility of deducting investments in energy-saving and environmental protection measures and have also applied these provisions to the state and municipal taxes. In these cantons, the new law applies from 1 January 2020 (cf. Art. 9 para. 3 StHG). From a Central Swiss perspective, it is regrettable that the Cantons of Lucerne and Obwalden do not provide for such a deduction. Outside Central Switzerland, only the Cantons Basel-Stadt and Graubünden have not made use of the option.

Conclusion

The tax measures created by energy policy objectives offer great potential for tax optimisation, which is why investments in environmental protection pay off. In any case, it is recommended for property owners to consider the possibilities offered by the fiscal leeway when planning energy-saving and environmental protection measures and to adjust accordingly.