Just wanted to share my bitter-sweet story for today.
Last year our assets grew by more than our combined salaries for the first time ever. That feels pretty amazing - after more than 12 years being diligent and disciplined and patient, our portfolio has reached escape velocity!
On the other hand, it also means I now have to explain to overzealous tax authorities why our wealth increased more than our income.
So somewhere in the tax office, someone will be going through a decade of our tax returns and probably just facepalming and wondering why they did not get started themselves (I assume they have not, otherwise they would not be asking such a stupid question).
Fingers crossed they will not make us pay capital gains.
Wealth increasing more than income itself doesn’t mean anything.
But I agree that the taxman sounds like a moron. One look at your portfolio would explain how your wealth grew.
And what does your historical investment have to do with the increase in this tax year?
Honestly, sounds like an absolute shit show.
Like they should have your historical tax returns and should already be able to see all that. And in theory had they done their work, they should have looked at it in each tax year and approved it.
Haven’t sold, nothing changed, everything declared every year accurately. I buy and hold. It’s just probably a default on their side that if wealth growth exceeds salary, there must be some fraud going on. Agreed, sounds moronic.
Aren’t you required to do that anyway? (Give EOY statements from current and broker accounts)
I was told, and imagine it makes sense, that this scenario shouldn’t happen for a diligent buy and hold investor, because the tax office can see your portfolio (positions and value) over many years, so when escape velocity is reached it’s not out of the blue.
I imagine and hope for the OP that this was a system flag that human eyes should clarify in seconds.
The (Walliser) tax office has accepted my reports of global amounts without disclosure of individual stocks positions for low amounts (sub 30k total portfolio value) without asking a question. I imagine there is a threshold after which they would have asked me for more detailed reports.
Edit: for the record, that meant <600.- dividends and less than 60.- they had to reimburse me from the already paid withholding taxes so probably not worth the time an employee would have had to spend on it). The dividends reports were global statements from the broker that included the ISIN of the shares so I guess they could have checked if they had wanted to).
Edit2: as they were global reports, I wouldn’t have expected them to notice if there was an $NVDA in there and the wealth trippled over a year and would have considered normal if they had asked questions about it.
Interesting to hear, but hard to comment and draw final conclusions. I think it becomes an interesting discussion once you receive the tax authority’s decision.
As for myself, I also had to explain to tax authorities (Kt. ZH) my frugal way of living and successful investments, increasing my total wealth at around my declared income. One answer with a more detailed cost of living settled the situation.
Looking forward to your follow-up!
Yes, it is routine to ask if wealth grows by more than salary minus normal living expenses. It’s a check in case you didn’t declare some income or other receivable.
A substantial portion of income being derived from investing is one of the criteria for being classified as a professional investor. That is likely what this is about.
One reason why in Switzerland it’s best to avoid returns that are classified as income (dividends/interest) and focus on capital gains.
But just fulfilling a single criterion does not automatically mean you’ll be classified as a pro investor. It’s up to the tax office, but you can dispute their decision.
They will absolutely not. If you just invested mostly buy and hold and paid your taxes on dividends, there is nothing that could come that would make them be able to legally do this.
Congratulations. I’d have partied already when the growth is equal to your salary, because it would have meant that your expenses are covered by the gains.
So double party for you then
By the way also goes the other way. I know someone where they asked why expenses were so high (compared to previous years), the reason was actually that they paid multiple years worth of owed taxes in a single year (probably after the catchup when no longer taxed at source in ZH, where there’s very long delays before final assessment).
(normally it wouldn’t show up as extra expense because you’d list it as debt in your prior tax year filings, but outside this forum I don’t think it’s very common for people to be this much on top of the tax filing process)
Wealth increase higher than salary is frequently the case for me since about 10 years. I must admit that due to the very high differential tax rate in Bern I had a strategy to maximize capital gain. The first time the tax man asked me how I managed to increase my wealth in spite of investing in 3rd pillar and buying back lots of second pillar it was clear to me that they expected I was bringing to the light some shadow money. However I was able to justify with capital gain. The question never came again and my bank explained to me it was a classical question.
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