Pillar 3a was taxed too much

Taxes
1

Here is the situation I am dealing with for a close relative:

  • In 2021, my relative was independent in his last year before retirement and maxed out his pillar 3a contribution (i.e., CHF 34,416 as this was per our estimate below 20% of his net income, so he could contribute to the max).
  • In 2022, he withdrew all his pillar 3a accounts and was taxed on the full amount.
  • In 2024, he was (finally) taxed on his income of 2021. The tax office determined he paid too much in his 3rd pillar (more than 20% of his net income) and provided a certificate to be sent to the 3rd pillar provider so he could withdraw the surplus.

Since the 3rd pillar account was already withdrawn, we wrote a letter to the tax office that they should instead change their capital tax decision of 2022. They replied:
"Each credit paid [into the 3rd pillar] must be taxed, also in the case where the amounts paid could not be fully deducted. Therefore, we cannot comply with your request.".

This results in a situation where he was taxed twice (once on the income in 2021, and a second time on the capital at withdrawal in 2022). What’s your thoughts?

Note: we are talking about a surplus of about 1,100 CHF, so the amount he should get back on the capital tax is below 100 CHF. We don’t mind giving up on this amount, we are just very surprised of the tax office position.

2

There’s some logic behind the tax office reasoning. It doesn’t seem obviously bogus that it’s on the person to withdraw from the 3a to avoid the taxes.

Your stance also have some logic but by the time the withdrawal happened the money was still in 3a, and I bet there’s no legal basis for doing a partial withdrawal taxation (no “except if a pending withdrawal due to over contribution is there”)

Given the amounts I wouldn’t pursue it further (if it was a few ks maybe would be worth a lawyer consultation).

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3

The tax laws are not covering such cases adequately. Unfortunate, but I believe the tax authority is correct.

I think the only thing you could have done is tentatively contest the taxation of the withdrawal, to formally allow it to be open for a correction after all buy-ins were finally assessed.

There was a case where, I believe, a guy was twice fully taxed with full income tax rates on (A) the rejected buy-in, because it was ultimately deemed tax evasion (having bought in with a loan and already planning the withdrawal shortly thereafter) and (B) the withdrawal of his full pillar 2, because his claim to have become self employment was ultimately rejected too. Having therefore lost the reason that allowed the withdrawal, and, having left any employment, he couldn’t put the money back into a pension fund. Court said that is on you, and you must ensure to hold up the law yourself (this was through multiple years and the guy tried the illegal withdrawal twice, meaning he had multiple cases open at the same time and lost them all in the worst possible sequence). I am a bit fuzzy on remembering all details and didn’t find the case immediately, but the learning at the time was that you should tentatively contest everything that is based on facts that are not yet fully assessed. Tax authorities might not necessarily accept that, but its relevant to uphold formal grounds for contesting in court.

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4

Just to understand
What was the reason for different calculations for max amount that could have been deposited into 3a? It seems that’s the main cause of this problem.

Tax office says X was possible while you are saying 34.4K was possible. Why is X lower than 34.4 ?

In my view , Tax office position is driven by two different tax types. Capital withdrawal tax is not dependent on income tax paid on the money at time of deposit.Capital withdrawal tax is simply based on how much is withdrawn.

I know that they are somehow linked in philosophy but I don’t think you can look at it as one.

5

When you are independent you always guesstimate (to some extend) the amount you can contribute as you must do so before year end but you will know your net income only once you are done with your accounting. As written above, we weren’t too far off, and you better contribute a bit too much into your 3rd pillar (even if taxed twice) rather than not enough given the respective tax rates.

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6

Thanks all for your inputs. We will not pursue it further then.

I was also posting it here to share our experience and the main take away:
When you are independent and during the years that could be taxed only after the withdrawals, do not blindly pay the maximum contribution thinking you can anyway get it corrected. Instead, guesstimate as best as you can the contribution you are allowed to avoid being taxed twice.

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7

Another option is don’t do a (full?) withdrawal until after your taxes have been assessed?

8

In this case we triggered the withdrawal, the money was required, thus we could not keep it blocked for 3 years… also it was on a single account, so partial withdrawal would not have been possible.

One possibility would have been to open 2 accounts back in 2021, put most of the contribution on one account (so it could be withdrawn right away) and keep a small buffer on the second account to be withdrawn only after the final assessment.

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