Facts
Spouses A.A. and B.A. live in Zurich and are subject to limited tax liability for several properties in U. and V. In 2008, B.A. received an undeveloped plot of land in V. as an advance on an inheritance. In order to realize the residential development "Z., V." on this plot, the partially contaminated soil had to be remediated. In the 2011 tax assessment, the assessment authority did not grant the requested deduction for these contaminated site remediation costs of CHF 746,364.55. However, the tax authorities of the Canton of Zurich recognized the remediation expenses as maintenance costs.
A.A. and B.A. filed an objection against the assessment decision, which was rejected by the Tax Department of the Canton of Lucerne. The Administrative Court of Lucerne also dismissed their appeal. A.A. and B.A. ultimately appealed to the Federal Supreme Court in public law matters.
Considerations
The Federal Supreme Court states that maintenance costs according to Art. 9 para. 3 of the Federal Act on Direct Federal Tax (DBG) must be directly and immediately related to the generation of income. Expenses associated with a change in use are generally considered to be value-enhancing and not maintenance costs. The contaminated site remediation of the appellants served to make the property usable for a…