Facts
The appellants [A.A.] and [B.A.] , who live in their own home in [U.] and are owners of a holiday home in France, declared in their tax return 2007 a gross income of CHF 22'777.-- (direct federal tax) and CHF 21'090.-- (cantonal and municipal taxes) for the property in [U.] and a gross income of CHF 8'400.-- for the property in France. They claimed interest on debts of a total of CHF 13'275.--.
The tax administration allocated the interest on debts proportionally according to the location of the assets, resulting in a negative taxable income (from capital gains) of CHF 19'395.-- in France. The Cantonal Tax Commission of Schaffhausen confirmed the tax assessments, and the High Court of the Canton of Schaffhausen dismissed the appeals lodged against them.
The appellants filed an appeal in public law matters with the Federal Court, requesting that the decisions of the High Court be set aside and that the taxable income in Switzerland regarding direct federal tax 2007 be fixed at CHF 103'000.-- and that regarding cantonal and municipal taxes 2007 at CHF 115'000.--.
Considerations
The Federal Court dismissed the appeal regarding direct federal tax 2007, as the lower court had not correctly interpreted Art. 6 para. 3 DFTA. The rule that a surplus of interest on debts from a property located abroad may not be deducted from the tax base of the income of a person with unlimited tax liability in Switzerland is to be considered as a corollary to the rule that income from real estate…