Clarification regarding the deductibility of costs in case of a premature dissolution of a mortgage (2 leading cases)


In the first leading case (Zurich case), the Federal Supreme Court granted the complainant, the owner of a property, the deduction of the early repayment penalty in the event of a dissolution of a mortgage.


The complainant prematurely terminated the mortgages on the business premises by paying a prepayment penalty prior to its sale. The ruling states that prepayment penalties are deductible as investment costs and must be credited against the real estate profit tax if the dissolution of the mortgage is inextricably linked to the sale of the property. This means that the mortgage must be finally and completely dissolved immediately prior to the sale of the property and must not be replaced by a new mortgage.

In a second leading case (Neuchâtel case), the complainant wished to claim the prepayment penalty not as a deduction against the real estate profit tax but as a debt interest in the ordinary tax assessment. The Federal Supreme Court finds that, in the event of a definitive dissolution of the mortgage when selling the property, the prepayment penalty cannot be deducted from income tax as debt interest. When selling a property burdened with a mortgage, there is no connection between the prepayment penalty and the debt in the sense of debt interest according to Art. 33 para. 1 lit. a DBG. The connection fails due to the fact that the prepayment penalty is awarded a certain punitive character, which cannot be found in normal private debt interest. A deduction of this compensation from income tax is only justified if the dissolved mortgage is replaced by a more lucrative mortgage from the same creditor. In this case, there is a link between the old and the new mortgage contract, which allows the debtor to deduct the compensation from the first contract as private debt interest.

According to previous jurisprudence, a double deduction of the prepayment penalty for both real estate profit tax and property income tax is excluded in any case.

Also commented on in the article published in the NZZ.