Alimony payments to children are not always deductible

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Complainant A, who lives with his wife B in the Canton of Fribourg, is the father of E, who was born in September 1990. In 2003, A committed himself in an alimony contract to pay a monthly contribution of CHF 15'000.00 in favour of E until he had reached the age of 18 or had completed an ordinary education.


A did not fulfil this alimony obligation as agreed and was then legally pursued by E. E claimed that complainant A owed him alimony contributions of approximately CHF 800,000. The complainant A put forward a legal proposal against this. In November 2010, the Cantonal Court of the Canton of Fribourg

dismissed an appeal in favour of E regarding the definitive opening of legal proceedings against the claim.

As a result, A and E resolved the existing disagreements by means of a settlement in December 2010. A committed to pay the E a total of CHF 800,000 in two instalments. The first instalment of CHF 400,000 was paid by 30 December 2010, the second instalment by 10 January 2011, whereby A paid alimony contributions of CHF 550,000 in January 2011, thus more than originally agreed.

In the tax return for 2010, A then claimed a deduction for the alimony he had paid to E in the amount of

CHF 400,000. The tax authorities and the Cantonal Court of Fribourg refused to recognise the right to deduction. The last cantonal instance based its refusal of the deduction claim mainly on the following argument: The payment of CHF 400,000 in 2010 as part of a global alimony payment is not an admissible deduction under DBG 33 I lit. c/StHG 9 I lit. c. The Federal Supreme Court assesses an appeal lodged by A against the cantonal decision in the Ruling 2C_945 and 946/2015 of 12 February 2016.

A then did not declare the alimony payment of CHF 550,000 from January 2011 to the adult son E for the tax period 2011. A and B were assessed by the tax authorities on the basis of the tax return filed for 2011. Although the alimony was not claimed in the tax return, the taxpayer lodged an objection to the tax administration or rather an appeal to the Cantonal Court of Fribourg in due time, requesting that the alimony contribution of CHF 550,000 be allowed to be deducted in the 2011 assessment. The cantonal authorities rejected the appeal. As a result of the rejection of the appeal and complaint before the Cantonal Court, A and B appealed to the Federal Supreme Court in matters of public law. The Federal Supreme Court issued its judgment in BGE 2C_429/2017 of 21 February 2018.

Identity of the legal question

The right to deduct the alimony contributions in the form of a global sum in the form 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 as set out below.

Lines of argumentation of the lower instance and the complainants

The cantonal authorities classified the alimony payments as non-deductible capital settlement and not as subsequent payment of a periodic alimony payment. However, the Cantonal Court also pointed out that in the present case it was irrelevant from a tax point of view whether the payments were in fact a non-deductible capital settlement or a subsequent fulfilment of an alimony payment, since the beneficiary was already of age when the alimony was paid, which in any case rules out deductibility.

However, the complainant A took the view that it concerned a tax-deductible subsequent payment. The fact that the beneficiary E is already of age does not change this. In the complainant's view, the decisive factor is that the payment was made for the period when the person was a minor. In fact, the complainant A thus criticises the violation of the principle of equal treatment (Art. 8 para. 1 BV) and the taxation according to economic capacity pursuant to Art. 127 para. 2 BV.

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 Art. 23 lit. f DBG. On the other hand, the person with support obligations may deduct such contributions from his income in accordance with Art. 33 para. 1 lit. c DBG (so-called correspondence or congruence principle). 

However, parental custody is a prerequisite for this. What is meant by this is laid out in Art. 296 para. 1 ZGB. However, it should be noted that parental custody only exists until the age of 18. With the termination of parental custody after reaching the relevant age, both the deductibility and the taxability of alimony payments cease to apply in the opinion of the Federal Supreme Court. Against the background that the will of the legislator clearly manifested a restrictive handling of the deductibility of alimony payments, the Federal Supreme Court rejected the complaints with reference to the direct federal tax.

With regard to any deductibility of alimony contributions for cantonal taxes, the Tax Harmonization Act must be consulted. The provisions of this decree undoubtedly contain the same wording as those of Art. 33 para. 1 lit. c DBG. The cantons therefore have no leeway. In this case, too, the complaints proved to be unfounded.

Conclusion

It can be stated that parental custody is a necessary criterion for the deductibility (and controllability) of maintenance contributions. If parental custody exists, the alimony contributions are considered deductible payments in accordance with Art. 33 para. 1 lit. c DBG. If parental custody ceases due to reaching legal age, any alimony contributions paid after 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 that is made for alimony contributions still owed.