When more than 50% of a building is used for business, it is considered as commercial real estate. However, the entrepreneur must pay rent.
To differentiate fiscally between real estate used privately and for business, it is essential to determine the main purpose of the real estate. If more than 50% of a building is used for business purposes, the tax authorities will consider the property as commercial premises (using a system called the “preponderance method”).
However, if the owner lives on the commercial property, he or she must pay a reasonable rent to the company. If the rent is not in line with market prices, the tax authorities will compensate for the difference by adding extra income to the operating profits.
Selling commercial property can be expensive in some cantons, as the company will be taxed according to its net turnover—considered as capital gains. Private sales, however, will only incur the tax levied on real estate gains which, as a rule, is more advantageous.
Consequently, the tax consequences of a real estate transaction must be considered:
- For sales of real estate property forming part of the company's assets, the tax authorities will consider the difference between the book value and the market value. The difference is taxed as taxable income. The Confederation and certain cantons will levy income tax or tax on profits on this amount. Other cantons add a tax applied to real estate property gains to the cantonal income tax.
Tip: owners are therefore advised to clearly establish a separation between themselves and any real estate property that forms part of the company's assets and then ensure such property is rented out by the company.
- It is often useful to legally establish a separation between the private and commercial parts of the real property by getting the company to purchase the property floor by floor, or by transferring the residential part of the building to the name of the spouse. Note: if this is the case, it is no longer possible to depreciate this part of the real property.