Abolition of the imputed rental value and its tax implications: Renovation funds for condominium associations are increasingly becoming a focus of strategic tax planning

With the planned abolition of the imputed rental value, contributions to renovation funds managed by condominium associations are becoming increasingly important. Since such contributions generally qualify as tax-deductible property maintenance expenses under current regulations, there is currently a growing incentive to make targeted additional contributions before the reform takes effect and to take full advantage of existing opportunities for optimization.

However, this is precisely where tax authorities set clear governance guidelines. Flat-rate or sudden increases in contributions to renovation funds without a verifiable economic rationale are unlikely to hold up under tax scrutiny. However, there is potential for acceptance, particularly where specific renovation projects—such as roof, facade, window, or heating system replacement projects—are already foreseeable and can be supported by cost estimates, quotes, or a robust financing plan. The Lucerne Tax Office, for example, has effectively published a safe-haven practice in this regard, according to which annual contributions of up to around 1% of the building’s insured value are generally considered appropriate.

On the other hand, anyone who expands the renewal fund primarily as a tax optimization tool without an operational foundation quickly enters a zone of tax risk. The consequences range from the disallowance of the deduction, through corresponding offsets in the assessment process, to a critical review from the perspective of tax avoidance. Tax-wise, situations are problematic where consistent contributions have been made over the years and, immediately before the system change, a multiple of that amount is suddenly paid in without any apparent documented investment need. Such patterns are likely to be scrutinized more closely in future tax assessments.

While this continues to offer tax planning opportunities for owners, these opportunities are limited to clear parameters. Anyone wishing to continue benefiting from the existing tax deduction should plan their investments, make decisions, and prepare documentation early on and in a strategically sound manner. It is crucial that increased capital contributions are transparent and do not appear to be a short-term tax-saving scheme.

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