Capital gains generated through securities trading do not account for a significant portion of your basic income. The rule of thumb: Capital gains should account for less than 50 percent of your net income.
It seems that this rule could be easy to break if one funds FI by selling parts of an ETF portfolio. Does anyone have experience with this rule? Is it rigorously enforced or will the authorities look at someone in such a situation and decide that slowly selling assets isn’t a professional trader, at least in spirit?
Surely this depends on the size of the pot? If one had a pot of 2M CHF a 4% withdrawal rate is 80k CHF/year. Depending on how much additional income one has from dividends etc the capital gains could comprise > 50% income. Or is there something fundamental I’m missing here?
Just one thing as an afterthought: im pretty sure the 4% rule applies to the initial savings at reaching FIRE. So I can imagine that when the markets shrink by 50%, then 4% might not be enough, so you need to sell more.
Otherwise i could tell you that each year you can withdraw 99% of what you have left, and youre mathematically guaranteed never to run out of money
In comparaison to other countries, Swiss tax laws can be interpreted. Depending of the case, canton, tax office employee, a closed/similar situation could result of two different treatments.
Based on the custom until now, the likelyhood that a retire only selling ETF on a regular basis (non linked to the market condition) would be considered as a pro trader is low. If you have a legal insurance, you can always dispute the tax administration decision in court.
Hey everyone! New member, long-term lurker (registered to ask exactly about this, smart forum function guided me here before posting…)
Regarding the question if somebody who is retired might face professional trader tax status and therefore be taxed on capital gains: I also read the relevant guidelines (Kreisschreiben 36) as such that living off your principal is an indication, but in no way would trigger that tax status.
Does anyone have any practical first/second-hand experience on this? Has anyone ever heard details of any professional trader ruling at all? Seems to be extremely rare to find anyone with that status in general…
You mean the capital gains of the trading, or also capital gains for his ETFs? Also, did he have to pay and social security stuff like AHV on top?
Do you know which canton the guy lives in?
I met someone who was also assigned the status in canton Schwyz three years ago. He was “just” trading options. No algorithms, no bot. I don’t know about the number of transactions, but from what he told me it was not crazy.
I’m not aware if he has/had ETFs or not or if he sold any during that year. To my knowledge it was only shares and options. I would assume all capital gains for that tax year were taxed the same. He was in Basel (not sure of BS or BL). He didn’t mention anything about AHV.
SZ is one of the tougher ones to my understanding. They may have favorable taxation for withdrawing your 2nd or 3rd pillar but are really strict when it comes to more active investing/trading or derivatives. If one were to really follow the letter of the law and challenge the SZ Steueramt, better make the options positions look like they are an insurance for an existing asset like some shares (this is a legit scenario which is explicitly mentioned by many cantons and from memory also at the Bund level).
When discussing this topic, we need to account for the whole picture. the criteria provide only part of that.
I guess selling 10+ year old ETF shares won’t make you a professional investor, no matter how much you sell, because there is clearly no intention whatsoever to act professionally here.
But In the end, I find it quite daunting as well, to be depended on a random tax employee to determine that. As far as I know, you can call the tax office and write them an email with concrete numbers and they have to respond in a legally binding number.
(f. e. “Hello, I earned 30K in Dividends this year. I plan to sell 70K in stocks and realize 60K in capital gains. Are those 60K going to be taxed as ordinary income?”
But I believe that the situation will clear up more and more, since it is more common to invest in stocks. And prey that the left doesn’t oppose taxes on our already double- and tripple taxed wealth buildup.