Federal Supreme Court, 21.05.2026, 9C_594/2025
Facts
A married couple acquired two plots of land in 1987 and 1997, which they initially held as private assets. In 2005, they transferred these properties to their business assets, then reclassified them as private assets in 2013. In March 2023, they sold both plots for CHF 2,662,000. (A.a.)
In its initial tax assessment, the cantonal tax authority calculated the taxable real estate capital gain based on the value of the properties at the time they were returned to private assets in 2013. However, it granted a holding period discount calculated from 2005, the date of the first transfer to business assets. (A.b.)
The taxpayers filed an objection, requesting that the holding period be calculated from the initial acquisition dates (1987 and 1997). In response, the tax authority not only rejected their request but also corrected the assessment to their detriment (reformatio in peius) by setting the start of the holding period to 2013, which effectively eliminated the discount entirely. (A.c.)
Upon appeal, the administrative appeals commission partially upheld the claim, restoring the holding period calculation from 2005. The taxpayers then took the case to the Cantonal Administrative Court, which ultimately rejected their appeal and confirmed the tax authority's position—namely, that no holding period discount was due, as the relevant holding period only began in 2013. The taxpayers have now appealed to the Federal Supreme Court, maintaining their original position. (B., C.)
Law
The Federal Supreme Court reiterates that its scope of review depends on the nature of the cantonal law. It freely reviews the application of cantonal tax law harmonized by the Federal Act on the Harmonization of Direct Taxes of the Cantons and Municipalities (LHID). Conversely, it only reviews the application of autonomous, non-harmonized cantonal law under the limited standard of arbitrariness (Art. 9 of the Constitution). (2.1.)
According toArt. 12 para. 1 LHID, gains realized from the sale of real estate held as private assets are subject to real estate capital gains tax. Art. 12 para. 2 let. b LHID treats the transfer of real estate from private assets to the taxpayer's business assets as a sale. This transaction therefore triggers the taxation of the gain accumulated up to that point. (4.1.)
The tax law of the Canton of St. Gallen (StG/SG) provides in Art. 141 for surcharges for short holding periods and discounts for long holding periods. A discount is granted if the property has been held for more than 15 years.Art. 131 para. 2 StG/SG confirms that the transfer from private assets to business assets is treated as a taxable alienation. The holding period discount falls under autonomous cantonal law; therefore, its application is only reviewed by the Federal Supreme Court under the standard of arbitrariness. (4.2., 4.3.)
The historical objective of the holding period discount, as evidenced by the preparatory work for the St. Gallen law, is to compensate for purely nominal gains caused by inflation. Logically, this correction should only apply to the capital gain that is actually taxed. In the St. Gallen dualist system, gains on private assets are subject to real estate capital gains tax, while gains on business assets are taxed as ordinary profit, with the possibility of offsetting losses. (5.1.1., 5.1.2.)
Application to the specific case
The Federal Supreme Court ruled that the lower court's interpretation was not arbitrary. The holding period discount is intended to offset the effects of inflation over the period during which the gain is taxed. In this case, the appellants transferred their assets into their business assets in 2005. At that time, the capital gain accumulated since 1987/1997 was taxed as real estate capital gains tax. (5.1.3.)
Between 2005 and 2013, the properties were held as business assets. Any increase in value during this period was subject to ordinary corporate income tax, and any business losses could be offset against these gains. Upon the sale in 2023, only the gain realized since the assets were returned to private assets in 2013 was subject to real estate capital gains tax. It is therefore logical and not arbitrary to limit the calculation of the holding period discount to this period alone (2013–2023), as it is the only capital gain subject to the tax in question. (5.1.3.)
Granting a discount calculated on the total holding period (since 1987/1997) would amount to applying an inflation adjustment to periods (1987–2005 and 2005–2013) for which the capital gain had already been taxed or was subject to a different tax regime. This would create unequal treatment in favor of the appellants compared to taxpayers who keep real estate in their private assets at all times. As the holding period was less than 15 years (from 2013 to 2023), the lower court did not act arbitrarily in refusing any discount. (5.1.3.)
Finally, the appellants' argument based on Art. 12 para. 5 of the Federal Act on the Harmonization of Direct Taxes (LHID), which imposes higher taxation on short-term gains, is irrelevant. This provision concerns tax surcharges for holding periods of less than five years, whereas the dispute concerns a discount for long-term ownership. (5.2.)
Outcome
The Federal Supreme Court concluded that the lower court applied cantonal law in a non-arbitrary manner. The relevant holding period for calculating the discount begins only when the property is returned to private assets, i.e., in 2013. As the holding period is below the 15-year threshold, no discount is due. The appeal is therefore dismissed. The court costs are to be borne by the appellants. (1., 2., 6.)
Silex Tax Newsletter published in collaboration with Anna Vladau, Attorney at Law
