Tax glossary
Tax allocation
Tax allocation is the process of dividing a taxpayer's income, assets, debts and interest between several cantons or countries, so that each one taxes only its share and nothing is taxed twice.
As soon as you are taxable in more than one canton, your income and assets have to be divided up. That division is called tax allocation (Steuerausscheidung). Typical triggers are a holiday flat in Valais or Graubünden, a rented-out flat in another canton, a business with premises outside your home canton, or a property abroad. The Swiss Federal Constitution prohibits double taxation between cantons, and tax allocation is the mechanism that puts this rule into practice.
The basic principle is simple: real estate is taxed where it is located, while employment income and all other assets are taxed where you live. It gets more complicated with debts and mortgage interest. These are not deducted where the mortgage happens to sit; instead they are spread across the cantons in proportion to where your assets are. So if you have a mortgage on your holiday flat, part of that debt ends up being deducted in your home canton — and vice versa.
The progression rule also matters. Each canton taxes only its share, but applies the tax rate that corresponds to your total worldwide income and wealth. Allocation reduces the tax base in each canton, not the rate. In the Canton of Zurich you therefore always declare your entire Swiss and foreign income and assets; the tax office carries out the allocation unless you enclose one yourself.
What is taxed where
Most of the allocation rules come from decades of Federal Supreme Court case law on double taxation. For private individuals they boil down to a handful of principles.
- Real estate and its income (imputed rental value or rent) in the canton where it is located
- Property maintenance costs with the property they relate to
- Salary, pensions and movable assets (accounts, securities) at your place of residence
- Debts and interest in proportion to the location of your assets
- Business assets and profits shared between business locations
- Tax rate everywhere based on your total income and wealth
Moving to another canton
If you move to another canton, the year is not split by months. What counts is where you live on 31 December: that canton taxes your full annual income and your assets at year-end. Move from Winterthur to Frauenfeld in October and you pay the full year's income tax in Thurgau. Lump-sum pension payouts are the exception — they are taxed in the canton where you live when the money is paid out.
Property in other cantons remains taxable there regardless of your move, so the allocation for those properties continues every year.
Property abroad
A flat in Italy, Spain or the UK follows a similar principle, based on Switzerland's double taxation treaties: Switzerland exempts the foreign property from tax but takes it into account when setting your rate. Debts and interest are again allocated proportionally.
- Declare the foreign property in full anyway — with its value and income
- Work out the income under Swiss rules, not from the foreign tax return
- List mortgages on the foreign property in your schedule of debts
- Keep documents in a Swiss national language or English, or have them translated
Allocation losses
If a property in another canton makes a net loss, for example because of a major renovation, that loss should not simply disappear. Under Federal Supreme Court case law, your home canton has to absorb a property loss that the other canton cannot offset. Cases like this justify a close look at the allocation in your assessment notice.
Example: A Winterthur tenant with a holiday flat in Flims
A tenant living in Winterthur owns a holiday flat in Flims with a tax value of CHF 400,000. He also holds securities and savings worth CHF 200,000. His total assets are therefore CHF 600,000 — two thirds in Graubünden and one third in Zurich. The flat carries a mortgage of CHF 300,000 with annual interest of CHF 4,500.
The debt is not assigned to Graubünden alone but split in proportion to the assets: CHF 200,000 of debt and CHF 3,000 of interest go to Graubünden, CHF 100,000 of debt and CHF 1,500 of interest to Zurich. Graubünden taxes the flat's imputed rental value minus maintenance and its share of interest; Zurich taxes his salary and investment income minus its share. Both cantons apply the rate for his total income and wealth.
Frequently asked questions: Tax allocation
Do I need two tax returns for my holiday flat in Valais?
Usually you file the full return in your home canton. The canton where the property is located normally sends you a simplified form or uses the figures from your Zurich return. You still have to declare everything in Zurich.
Who prepares the tax allocation?
The Cantonal Tax Office Zurich (Kantonales Steueramt Zürich) does it if you do not enclose your own. Preparing one yourself does no harm and makes it much easier to check the assessment notice.
Does allocation mean I pay less tax overall?
Not necessarily. It prevents double taxation, but your rate still depends on your total income. Differences mainly come from the different tax multipliers and rates of the cantons involved.
Does allocation also apply to the direct federal tax?
Not within Switzerland — the Confederation taxes all Swiss income at your place of residence. Foreign property, however, is only taken into account for the rate at federal level too.
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