Resetting cost basis before FIRE

Taxes
#1

As you probably all know: Capital gains of non-professional investors are tax free in Switzerland. The criteria are a bit suboptimal and stuff, but in general: Let’s assume we don’t want to pay taxes.

Could we - in the years approaching retirement - sell off a lot of our initial positions (since the tax office uses FIFO) to reduce the cost basis. So maybe you sell for 100 or 200K and buy back 1 day later and next year the same etc… If you do that for even just a couple of years, it resets your cost basis by quite a lot. Not all of your NW will be capital gains to start with, but I hope you get the idea.

This would be an easy way to eliminate the possibility of beieng classified as a professional for pretty low costs and possibly even some profit, depending on market fluctuations.

#3

I’ve been doing some of that and some more. So far I’ve managed to stick to the safe haven rules in years where I had (large) realized profits and in years where I’ve traded a lot (incl. derivs) I made sure to only realize losses. That way the tax office would probably not want me to be a professional trader (in my realized loss years) and in my realized profit years I can claim the safe haven rules.

#4

Do you have a link to that? I’ve been wondering this for a long time if they use FIFO or not.

#5

How would they know? It is broker that indicates profit and loss, I guess.

#6

And they typically use FIFO, but you can control it at IB.

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#7

In tax certificates issued by Swiss brokers the tax office knows all transactions and can compute profit and loss in any way they like, FIFO or other. Transactions are optional for most of us, but I guess that for professional traders they ask for all the details.

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#8

I never submitted those and was never asked to.

#9
#10

If they want to do it, they’ll easily classify that as tax abuse.

#11

How so?
A lot of people use this type of strategy in other countries and how would they forbid me selling my shares lol. Any proof for that statement?

#12

I’m in no way learned on the topic but I was under the impression that the tax office would calculate gains/losses on a yearly basis, using the value of our assets on the 31st of December of the year before as basis for any capital gains/losses (that or the value at which we buy/sell them during the year).

Any inkling on how they would actually handle it?

#13

Only realized gains/losses matter usually.

But still agree, that if something is done purely to avoid tax (e.g. no economical reason), there’s usually a provision that gives freedom to the tax office to ignore the event.

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#14

There is no tax that is being avoided as there is no capital gains tax…

#15

I’ve always thought that if I were to leave Switzerland and move to a country with capital gains tax, before the move I would sell all my ETFs and buy them back the same day. As far as I understand it (which admittedly is not very far), there’s nothing wrong with doing this. Is there? There’s no capital gains in CH so no tax is due, I wouldn’t be classified as a professional investor just because of this operation and the new country can’t have any issues with something I did before moving there.

#16

Well, it might be considered to be a tax evasion if they really want. At least don’t buy exactly the same ETFs.

#17

Why would it? What tax is being evaded in Switzerland?

#18

No one forbids you selling your sharing. Tax authorities may just not agree on taxation with you.
Not proof but evidence: You aren’t legally prohibited from selling your shares one day before the yearly cut-off date for dividend distributions - and repurchase them the next day, thereby avoiding receiving the dividends each year. Swiss tax authorities (and you can read up on that) have made it clear though that that would be considered abusive behaviour.

Doesn’t mean you can’t and won’t get away with it though to at least some degree. They’ll most likely not bother about you if you do it once or twice - but may when they notice a systematic pattern.

In any case, there will be real and practical limits to what they’ll bother.

Also, don’t forget that the countries that are “most advanced” in taxing capital gains will - upon giving up tax residence there - likely tax you on the basis of a deemed disposal (tax your capital gains as if you sold the securities even though you actually did not) themselves. By the same logic, your initial cost basis should under no circumstances go further back than your actual purchase.

Bottom line:
Yes, good idea to “reset” the cost basis for any gains you’ve made before moving away from somewhere.
But expect trouble if you do regular wash sales within the same jurisdiction.

Side note:
Re-purchasing after having moved tax residence to a new country may be easier for reporting purposes.

#19

Not in Switzerland, in your new country of residence.

#20

If the operation is carried out while being a Swiss resident, the new country can’t tax me for it, so no crime is committed there either.

Good point, that’s probably safer.

#21

If there is no other reason for a transaction except to avoid taxes, they can classify it as a tax evasion.