Gifting money to my parents

Taxes
41

as @rez says, it’s not a good comparison. Gift tax follows the same pattern as inheritance tax (afaik it’s true for most countries), since otherwise there would a too obvious loophole.

I’m fairly sure that cantons are a lot more proactive with inheritance because they can easily enforce it (at least they’re notified about it). It’s possible some cantons don’t care for small amount either because it’s under the threshold for “customary” gifts (e.g. if you have high income, giving a 10k gift to someone for their birthday doesn’t sound like cheating inheritance tax), or because it’s hard to enforce/won’t bring much revenue.

I someone doubt that if you had 100M wealth, live in a Canton with gift/inheritance tax, were donating half of it to someone outside of Switzerland, that wouldn’t raise questions when they’ll look at the difference between the two years of tax filing :smiley: (I actually have some friends where the tax office asked questions because their wealth dropped a lot, so it definitely happens)

42

Let’s say that this happens and then you tell tax office that you donated the money to someone else abroad. If that person declared it as their income, I don’t understand why this is a problem.

I think we cannot assume that everything that looks strange is illegal. If the law is that recipient abroad doesn’t trigger tax event, then it has to be the law for everyone and for every amount.

Of course we don’t know for sure what’s the actual law. So that needs to be clear.

Inheritances are different or course as they depend on the domicile of deceased person. But for gifts the documentation is not robust

43

I think that’s my point, inheritance and gift have the same rules (it’s not a coincidence it’s treated on the same documentation, same law).

edit: one way to see it is at a “wealth transmission” tax (it’s definitely not an income tax) that’s being imposed at the domicile of the wealth (residence of the donor/deceased for movable property, location of real estate for immovable)

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44

For what it’s worth I think the documentation there is quite clear and does not mention the residence of the recipient. Of course we have this case of OP receiving a contradicting answer and it’s interesting to understand more. If the tax office confirms that there is no tax due (which I am obviously hoping for for the OP) there are probably multiple different scenarios there: if they will point to some federal legislation that we missed and that confirms that donations to abroad are not taxed that will be great. Maybe they will point to the BS law instead and the rest of the cantons do no do it, or maybe they’ll just tell no taxes are due without much explanation - and in this case the next person with the same problem should probably approach it carefully as there is just an email to OP but no official documentation.

By the way, for curiosity, do you agree that a donation from a Swiss resident in canton A to a Swiss resident in canton B triggers a Swiss gift tax liability? Because if yes, the rules I pasted above are quite clear that canton A will levy the tax, but your idea of the fact that it must be taxed as income to the recipient would surely not hold there, since canton A and not B would get the tax

45

FWIW, gifts and inheritance are not taxed at the federal level (so I don’t expect there to be any federal legislation).

The BS law is pretty readable (and makes it clear gifts and inheritance are treated roughly the same way): LexWork (search for (1. Teil) 7. Abschnitt: Die Erbschafts- und Schenkungssteuer)

46

I see it as following.
When a gift event occurs, there are few questions to be answered

  1. Who is liable to be to pay tax
  2. Is tax deducted at source (like Quellensteuer) or tax is paid after the recipient gets money
  3. Which authority levies the tax
  4. What type of asset

#1 = recipient
#2 = after payment
#3 = canton of donor
#4 = immovable asset or movable

For #3, I believe it’s canton of donor because the original wealth was created by donor & Swiss tax laws would like to recognise this part even though beneficiary is in another canton. But we need to recognise that the money stays in CH and the tax stays in CH too. How cantons split it is internal matter. It could very well be second canton and at national level it wouldn’t make any difference

I cannot say if the same can be true for gifts (not inheritance) that are involving two countries. When two countries are involved, the jurisdictions are driven by DTAA. Otherwise there would be double taxation and it will be a problem.

Last point -: I think gift tax and inheritance taxes are unfair in general because same income is taxed twice (while building wealth and then again at time of distributing) . However in Swiss context since there is a no capital gains tax for most assets, I believe it’s a way to levy capital gains tax without calling it capital gains tax.

47

Double taxation can happen, even with close neighbors (France is a famous one where the DTA expired recently, tho you can claim the swiss tax against your french liability)

https://backend.sif.admin.ch/fileservice/sdweb-docs-prod-sifadminch-files/files/2024/12/19/7ba6ccac-8278-448d-aa37-5097e7d95f5b.pdf has the list of DTA, only the countries with an S have a DTA for gift/inheritance.

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48

Without discussing if it’s fair/unfair (let’s not debate politics :wink:). It’s usually explicitly to take a part of wealth when transmitting it, so not related to income but a way to reduce wealth accumulation/inequality to grow.

(The tax is sometimes called wealth transmission tax)

49

Okay, I see what you mean in terms of why we shouldn’t compare it to income, with such perspective I agree it makes sense we care more about donor’s residency. But tbh that’s why I find this whole topic both confusing and interesting at the same time, because it’s pretty relative - for example, in terms of Poland:

Article. 2. [the taxation of the acquisition of the ownership of things located abroad or property rights carried out abroad]

Acquisition of the ownership of things located abroad or property rights carried out abroad shall be subject to the tax if, at the time of the opening of the fall or the conclusion of the agreement the customer donation was Polish citizen or had their habitual residence on the territory of the Republic of Poland.

So in that case, Poland is like:

  • you live in Poland? You, as a receiver, pay a gift tax
  • you don’t live in Poland, but you are still a Polish citizen? You, as a receiver, pay a gift tax
  • we don’t really care where you get the gift from, but who & where you are

And that’s exactly the issue - inheritance and gifts are out of scope of most DTAAs! And it raises very serious implications. If you are a Polish citizen living in Basel and you receive a gift from someone living in Zurich - it’s quite clear that both Zurich and Poland expects the gift to be reported and taxed on their side (how much - depends on your affinity with a donor).

Sorry for linking a Polish website, but it’s a pretty good letter describing exactly the above issue of such double taxation (and a disappointing answer from the Polish government being like “it’s a minor issue, we don’t care to change it anytime soon”), so I can definitely recommend to translate and read:

Having Polish citizenship therefore means that each activity covered by the scope of the act will imply a tax liability - regardless of whether the event falling within its scope occurred in Poland or abroad.

Since individual countries impose tax based not on one but on more than one relationship between beneficiaries and testators or donors (residence principle, domicile principle, citizenship principle), double or even multiple taxation of the same asset by several countries may occur.

The problem is not solved by double taxation treaties because they concern income and property taxes (mainly personal income tax and corporate income tax).

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50

Heh, reading that - it’s indeed hard to find any article which explains why a foreigner wouldn’t need to pay a gift tax in Basel. That one seems to be related:

Im internationalen Verhältnis besteht die Steuerpflicht ferner, wenn im Kanton gelegenes bewegliches Vermögen übergeht, das nach Staatsvertrag dem Betriebsstätte- oder dem Belegenheitsstaat zur Besteuerung zugewiesen ist.

In international relations, tax liability also exists if movable assets located in the canton are transferred that are allocated for taxation to the country of permanent establishment or the country in which they are located in accordance with a treaty.

but tbh - I don’t fully understand that point.

51

Luckily I am not gifting anything to anyone :slight_smile:
This whole drama is not my life yet.

By the way, supporting dependent parents is actually tax deductible in ZH. So if the intention is to support parents (local or abroad) who need help perhaps that could be better option.

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52

I heard about it once, but when I tried to Google that - I have mostly found articles about questions when such financial assistance is compulsory, not about a way how to do it voluntarily :upside_down_face: If you can link sth related to Zurich, I will try to look for an equivalent in Basel.

53

I do it myself for many years. But in my case my parents are actually dependent. It’s not a scheme to hide wealth. I am actually helping them

You are right, tax office might ask for proof if they want. I think it also depends on age of parents. I have heard from one colleague that he was asked to provide income tax returns from his parents.

In tax return, there is a segment called support for dependents. That’s where it is used and is limited to certain amount per annum for deduction purposes

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54

Hi all, I wanted to provide an update on the situation. I won’t quote a response I received from Deloitte (for their own good…), but “a bit” more reliable one, coming from Assessment Expert for Inheritances/Gifts of Basel-Stadt Tax Admin - so as close to the source as possible.

It’s a pretty detailed one, so TL;DR is: my father living abroad is obligated to report the gift and pay the tax in Basel-Stadt, together with respective interest (3.5% / year) as one-year deadline already passed.

If there is only one lesson to be learned from this situation - never trust your tax advisors and always double-check whatever they say by reaching out to the most appropriate authorities by yourself.

And the second lesson - never rely on phone calls, always ask for written confirmation, as the response I received from Basel-Stadt Tax Admin previously was obviously wrong.

Thank you for your request. According to current law and without knowing further details, we can answer your inquiry as follows.

§ Section 118 StG BS, Tax liability in the canton of Basel-Stadt exists if:

a) the testator’s last place of residence was in the canton or the succession was opened in the canton;
b) the donor is resident in the canton at the time of the gift;
c) real estate or rights to real estate located in the canton are transferred.

In international relations, the tax liability also exists if movable assets located in the canton are transferred that are allocated for taxation to the country of permanent establishment or the country of domicile under an international treaty.

§ Section 120 StG BS, In the canton of Basel-Stadt, the following are exempt from inheritance and gift tax

a) the spouse, descendants, adopted descendants and foster children of the deceased or the person making the gift;
b) public authorities and legal entities exempt from tax within the meaning of § 66 StG; those domiciled outside the canton, however, only to the extent that federal law provides for an exemption or a reciprocal agreement exists (see Appendix 2 to § 120 StG; Tax Administration of the Canton of Basel-Stadt - Tax Laws and Tax Agreements (bs.ch)).

As you have informed us, the gift is movable property and you, the donor, are resident in the Canton of Basel-Stadt. In this case, the canton of Basel-Stadt is responsible for levying gift tax. The donee is liable for tax (§ 117 para. 1 StG BS), but the donor is jointly and severally liable with the donee for the gift tax (§ 119 para. 2 and para. 3 StG BS).

The gift must be declared with the gift tax return. This form is published under: Inheritance and gift tax | Canton of Basel-Stadt. Alternatively, the gift can also be declared in section 5 of the ordinary tax return, whereby it should be noted that the gift tax is due no later than 12 months after the tax claim arises (= date of gift). To avoid any interest charges, it is recommended that you declare the gift tax promptly with your tax return.

Enclosed you will find the tax return for gift tax and the FAQ on inheritance and gift tax as well as the rate table.

In the canton of Basel-Stadt, the exemption for inter vivos gifts is limited to a maximum of CHF 10,000.00 per donee and applies once only. This is not a tax-free amount, but an exemption limit. This means that if the limit is exceeded, all previous gifts are included in the tax calculation.

We cannot give you any information about the tax treatment in your father’s country of residence; you must clarify this in your country of residence.

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55

Thanks for updating us (and it’s nice to see that it confirms how many of us understood the gift/inheritance legislation).

56

Yeah, at the moment I trust MP folks much more than Deloitte consultants (and not even joking) :upside_down_face:

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57

Thanks for the update!

A random thought: in case you regret having made the gift (i.e. knowing the tax liability at play you would not have done it) - maybe you did not gift this money to your father at all, but just gave it as a loan? In this case your only sin is having to forgot to include that money as your wealth on the 2023 tax return (assuming you did one), so it might be sufficient to amend your 2023 tax return and then for your father to pay back the loan, and you’re back to the starting point and no gift taxes due, and you can rethink about how to go about all of it

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58

Thanks for the update!

Yet another bewildering Swiss tax office incident. (Regarding that they first gave you an incorrect answer.)

59

That’s exactly the thought which I still have in my mind. I haven’t submitted my 2023 tax return yet because Deloitte had to make some adjustments, so they asked for an extension, which means I still have an option to handle that differently. And to be honest - it wouldn’t be even a dirty workaround, as that was an initial plan to receive that gift back one day, so that would reflect the actual intention (at that time I just haven’t known there’s such option).

My only problem with that is - I have no good example how to do such things between two individuals not to cause yet another sort of issues by coincidence (e.g. loan agreement done incorrectly). Ofc I can ask Deloitte to handle that, but you already know why I don’t want to rely on them exclusively :wink: In English-speaking Internet it’s hard to find any valuable materials on that topic, but if there’s anyone here having a good reference in any language - I would be really grateful and would definitely consider that path.

60

Depending on the canton - they might not even ask for any supplying documentation (e.g. in ZH).

You could maybe just state that X amount is in a personal loan to Y; and report in year Z when (if) you receive interest of amount W.

Otherwise drafting a simple contract with basic info and conditions (parties, amounts, dates), and signing it between the two of you should be no complex matter.