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Old 13.02.2021, 23:48
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Deductions Wealth

Hi everybody!

Its a tax season and i'm battling with the deductions considering wealth. More precisely "deductions for capital investment". I know that some of you used a "Pauschal" of 0.3% for all the "capital investments" costs. However, I don't find it on the papers or in the online software. I'm wondering if the "pauschal" got canceled. After all, some brokers have these days almost 0 chf account costs. I did however find a paragraph 7 and it's active since November 2020.

"Bei Vermögenskosten im Zusammenhang mit Kapitalanlagen oder Wertschriftendepots, die in ihrer Höhe zwar feststehen, bei denen aber eine Trennung in abziehbare Verwaltungskosten (Gewinnungskosten) und in nicht abziehbare Vermögensanlagekosten nicht oder nur unter unverhältnismässigem Aufwand möglich ist, lässt die Veranlagungspraxis einen pauschalen Abzug von maximal 3‰ des Verkehrswertes der betreffenden Kapitalanlagen als Verwaltungskosten zu, ohne den Nachweis ihrer Gewinnungskosteneigenschaft zu verlangen. Bis zur Limite von 3‰ muss also nur die Existenz effektiv angefallener Vermögenskosten nachgewiesen"

Merkblatt zur Abzugsfähigkeit der Kosten für die Verwaltung von Wertschriften und Kapitalanlagen des Privatvermögens - BaselStadt
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  #2  
Old 14.02.2021, 00:35
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Re: Deductions Wealth

Isn't that "6. Abzüglich Vermögensverwaltungskosten" in Wertschriftenverzeichnis for BS?
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Old 24.02.2021, 14:42
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Re: Deductions Wealth

Can this 0.3% Pauschal be applied also to securities bought with a margin loan?

Example: I put 100'000 CHF of my own cash and borrow additional 400'000 CHF with a margin loan to buy securities for total amount of 500'000 CHF. Can I deduct the 0.3% from the whole amount of portfolio (i.e. from 500'000 CHF) or just from the net-liquidation value of my portfolio (which is 100'000 CHF)?
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Old 24.02.2021, 14:45
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Re: Deductions Wealth

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Can this 0.3% Pauschal be applied also to securities bought with a margin loan?

Example: I put 100'000 CHF of my own cash and borrow additional 400'000 CHF with a margin loan to buy securities for total amount of 500'000 CHF. Can I deduct the 0.3% from the whole amount of portfolio (i.e. from 500'000 CHF) or just from the net-liquidation value of my portfolio (which is 100'000 CHF)?
You will be classified as a professional trader, will cost you a fortune as profits taxed as income & AVS contributions also payable. RUN for cover. You can deduct interest separately.
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Old 24.02.2021, 15:07
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Re: Deductions Wealth

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You will be classified as a professional trader, will cost you a fortune as profits taxed as income & AVS contributions also payable. RUN for cover. You can deduct interest separately.
From what I understand, investors are not automatically considered as professional traders just by meeting one criterion. It must be a combination of multiple criterions to be marked as professional. Other criterions are: day trading, hight transactions volume, capital gains are >50% of my net annual income, use of advanced financial instruments (such as derivates etc.).
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Old 24.02.2021, 17:22
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Re: Deductions Wealth

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From what I understand, investors are not automatically considered as professional traders just by meeting one criterion. It must be a combination of multiple criterions to be marked as professional. Other criterions are: day trading, hight transactions volume, capital gains are >50% of my net annual income, use of advanced financial instruments (such as derivates etc.).
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Old 24.02.2021, 19:41
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Re: Deductions Wealth

I really hate this aspect of taxation in Switzerland...you don't know in advance how much tax you will pay (could be 0, but could be 40% in the worst cases), and it also depends on the employee that will process your tax return.
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Old 24.02.2021, 19:51
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Re: Deductions Wealth

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I really hate this aspect of taxation in Switzerland...you don't know in advance how much tax you will pay (could be 0, but could be 40% in the worst cases), and it also depends on the employee that will process your tax return.
The rules are fairly clear, if you are a buy to hold style investor you will not have any issues, if you day trade with borrowed funds you will be in trouble.
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Old 24.02.2021, 20:05
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Re: Deductions Wealth

I guess if you get "caught" you could always stop and change canton. Drastic but could work.
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Old 24.02.2021, 20:08
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Re: Deductions Wealth

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The rules are fairly clear, if you are a buy to hold style investor you will not have any issues, if you day trade with borrowed funds you will be in trouble.
I'm not doing any day-trading. It's true that I borrow funds (since the interest rates are very low these days), but I hold the investment long-term and receive dividends.

From my understanding, even if I borrow money to invest, but if I keep the dividend yield higher than the interest paid on the loan, I would still be classified as a non-professional trader according to the tax rules.

Reference: https://www.taxadvisors.ch/media/666...2_english_.pdf
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Old 24.02.2021, 20:32
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Re: Deductions Wealth

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I'm not doing any day-trading. It's true that I borrow funds (since the interest rates are very low these days), but I hold the investment long-term and receive dividends.

From my understanding, even if I borrow money to invest, but if I keep the dividend yield higher than the interest paid on the loan, I would still be classified as a non-professional trader according to the tax rules.

Reference: https://www.taxadvisors.ch/media/666...2_english_.pdf
The line "use of substantial borrowings for the financing of trades" would rule out your trades if your example numbers are correct - it's clear that 5x leverage is substantial borrowing.
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Old 24.02.2021, 20:46
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Re: Deductions Wealth

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The rules are fairly clear, if you are a buy to hold style investor you will not have any issues, if you day trade with borrowed funds you will be in trouble.
If I mostly buy and hold for months, but then for a few securities I buy and sell after a few days (for whatever reason)...are they going to consider me a professional investor?

The rules are far from clear...there are a lot of grey cases that fall in-between the buy and hold investor and the day trader who leverages his trades, where it's not clear how you are taxed.
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Old 24.02.2021, 20:56
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Re: Deductions Wealth

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If I mostly buy and hold for months, but then for a few securities I buy and sell after a few days (for whatever reason)...are they going to consider me a professional investor?

The rules are far from clear...there are a lot of grey cases that fall in-between the buy and hold investor and the day trader who leverages his trades, where it's not clear how you are taxed.
Anyone leveraging trades is going to be classified as a professional trader very quickly especially as you buy & sell after a few days. I cant believe how you can't see your trades are not normal for an average buy to hold investor.

If you make as profit, you will be classed a trader, if you make a loss you will become a normal individual for that year, the tax office know how to take the piss too
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Old 24.02.2021, 21:16
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Re: Deductions Wealth

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Anyone leveraging trades is going to be classified as a professional trader very quickly especially as you buy & sell after a few days. I cant believe how you can't see your trades are not normal for an average buy to hold investor.

If you make as profit, you will be classed a trader, if you make a loss you will become a normal individual for that year, the tax office know how to take the piss too
I‘m not sure I agree with the part in bold. Plenty of our clients use leverage together with a buy and hold strategy.

What I would love to know though is who is giving the OP 4x leverage on a portfolio. On a well diversified equity portfolio you‘re looking at 0.7x leverage.
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Old 25.02.2021, 01:25
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Re: Deductions Wealth

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I‘m not sure I agree with the part in bold. Plenty of our clients use leverage together with a buy and hold strategy.

What I would love to know though is who is giving the OP 4x leverage on a portfolio. On a well diversified equity portfolio you‘re looking at 0.7x leverage.
It was just an example. Anyway, these margin rates are realistic if you are using portfolio margin. Indeed, most traders use only the Reg-T margin which is limited by the credit available on your Special Memorandum Account (SMA). If you are trading very low-volatility instruments, portfolio margin with 4x leverage can be relatively safe.
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Old 25.02.2021, 10:31
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Re: Deductions Wealth

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If you are trading very low-volatility instruments, portfolio margin with 4x leverage can be relatively safe.
Hahaha, until the market moves against you & your margin calls men you have to sell quickly, having said that even without margin calls you would have been tied out last March.
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Old 25.02.2021, 12:15
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Re: Deductions Wealth

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It was just an example. Anyway, these margin rates are realistic if you are using portfolio margin. Indeed, most traders use only the Reg-T margin which is limited by the credit available on your Special Memorandum Account (SMA). If you are trading very low-volatility instruments, portfolio margin with 4x leverage can be relatively safe.
I think you need to make up your mind whether you are trading or not.

Without back-testing I cannot say for sure, but the idea that you can arbitrage the difference between dividend yield and your borrowing rate from the fundamentals doesn‘t make any sense. In theory the ex. Div price of the equity is going to decrease by the amount of the distribution. You just have the same amount of asset value, except some of it is now in the value of the equity and some in the value of the cash you now hold. However, you now have a tax liability on the dividend (and interest on the loan to pay).

To the original question which doesn’t involve make believe scenarios. If you have a 100k buy and hold portfolio and borrow another 70k against it and invest in further securities for your portfolio, you will be able to deduct the interest on the 70k from your income, the 70k principle of the loan from your wealth and claim management fees on 170k of the gross assets that make up your wealth.
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Old 25.02.2021, 12:56
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Re: Deductions Wealth

Regarding being classed as a pro trader, I found this:

https://www.moneyland.ch/en/stock-ma...ofits-tax-free
You can only be sure that you will not be categorized as a professional investor if you meet all of these criteria:

You hold securities for at least 6 months before you sell them.

The transaction volume of all of your securities trades combined (total spent on purchases and total earned on sales) is not higher than 5 times the total value of your securities at the start of a tax year.

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.

You use your own assets to finance the purchase of securities. Or: Taxable returns like interest and dividends are higher than interest owed on loans.

If you invest using derivatives – and options in particular – these can only be used to hedge your own securities.
Tax offices are free to implement these criteria in keeping with their own standard practices, so the way in which you are categorized varies between cantons and municipalities
So it's a bit of a grey area and you can only be 100% sure you arent classed as a pro if you meet ALL of the above.

I wanted to use options in my portfolio (writing puts) but have avoided doing so to not risk falling foul of these rules...
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Old 25.02.2021, 16:28
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Re: Deductions Wealth

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Hahaha, until the market moves against you & your margin calls men you have to sell quickly, having said that even without margin calls you would have been tied out last March.
By low-volatility instruments, I mean for instance 10-years government treasuries, etc. Not Tesla stocks where I probably wouldn't risk it even with Reg-T margin.
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Old 25.02.2021, 17:04
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Re: Deductions Wealth

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I wanted to use options in my portfolio (writing puts) but have avoided doing so to not risk falling foul of these rules...
I am not advocating doing it under the radar, but I am curious. How would the authorities find out?

A. Do the authorities have direct access to this information?
B. In the event that you are randomly audited?
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