Tax News: Vaud tax system - main changes for 2024

In a few days' time, taxpayers in the canton of Vaud will begin preparing their 2023 tax returns. There have been a number of changes compared with 2022, particularly with regard to certain deductions. The purpose of this article is to briefly outline these main changes and look ahead to tax year 2024.

What are the main changes for the Vaud 2023 tax return?

Other business expenses :

In addition to meal and travel expenses, employees can generally claim a deduction of 3% from their net income for «other professional expenses» (minimum CHF 2,000 and maximum CHF 4,000). Under the practice applied until now, an employee who received lump-sum entertainment expenses could not, in principle, claim this deduction.

However, following a ruling by the Federal Court in 2023, practice in Vaud has changed. We therefore recommend that people receiving such allowances claim this deduction.

Health insurance :

For cantonal and municipal tax (impôt cantonal et communal - ICC), the deductible health insurance premiums are CHF 4,800 for a single taxpayer, CHF 9,600 for a married couple and CHF 1,300 for a dependent child. For DFI (direct federal tax), the deductible amounts are CHF 1,800 for a single taxpayer and a child, and CHF 3,600 for married couples.

Custody fees :

Deductions for childcare costs (crèche, day mother) have been increased for both the CCI and the DFI. They amount to CHF 13,000 for the ICC and CHF 25,000 for the IFD (per child under 14). It should be noted that this deduction is only available if childcare costs are actually incurred.

Wealth tax :

Preferential taxation of RETIF work tools (directive on the valuation of unlisted securities for wealth tax purposes)

Since the 2022 tax period, entrepreneur-shareholders have been able to claim preferential taxation of their work tools (shares in their company), provided they meet certain conditions set out in the RETIF. If the application of RETIF is accepted by the Cantonal Tax Administration (ACI), the tax value of the company's shares is valued taking into account a more advantageous capitalisation rate, which may result in a more or less significant reduction in the entrepreneur's wealth tax. It should be noted that, in certain cases, entrepreneurs can also claim a valuation based solely on the value of the company's assets.

Finally, we would remind you that entrepreneur-shareholders who have not claimed the RETIF in their 2022 tax return can still apply for the 2023 tax period.

2024: what if I planned my tax situation?

At the end of last year, taxpayers in Vaud realised that their 2024 instalments would be slightly lower than in previous years. This is because the Vaud Grand Council has decided to introduce a 3.5% reduction in the cantonal basic income tax with effect from 1 January 2024.

This tax cut is obviously good news for Vaud taxpayers (We would also point out that a popular initiative (Baisse d'impôts pour tous) was filed with the Vaud chancellery on 5 April 2023. The aim of this initiative is to reduce cantonal tax by 12%. The Council of State is expected to make a decision on the matter shortly).

However, despite this reduction, the canton of Vaud remains one of the most expensive cantons in Switzerland for individuals. To deal with this situation, taxpayers can use a number of «tools» to ease their tax burden, for example:

As an employee, you can make payments into a 3A (up to a maximum of CHF 7,056 in 2024) and/or plan BVG/LPP purchases into your pension fund; ;

As a self-employed person, it is possible to contribute to the «large» pillar 3A, i.e. to contribute up to 20% of your net profit (but no more than CHF 35,280 in 2024) if you are not affiliated to the 2nd pillar. You could also consider converting your sole proprietorship into a company; ;

As an entrepreneur-shareholder, you can optimise your remuneration strategy (salary versus dividend) and demand that RETIF be applied to wealth tax; ;

As a property owner, it may be a good idea to plan maintenance and renovation work on your home, or to consider holding your investment property through a limited company (société immobilière).