Privileged liquidation taxation upon leasing of the agricultural business and sale of the operating inventory; definitive cessation of self-employment affirmed

Facts

Parties and instances: The appellants are a married couple who ran an agricultural business independently in [U.] /AG until 2015. The husband was over 55 years old at the time of the assessment. The respondents are the Municipal Council of [U.] and the Cantonal Tax Office of Aargau. The prior instance was the Administrative Court of the Canton of Aargau, 2nd Chamber (decision WBE.2018.398 of 14 March 2019). Previously, the Special Administrative Court of the Canton of Aargau, Tax Division, ruled (judgment of 20 September 2018). The subject matter of the dispute is the cantonal and municipal taxes of the Canton of Aargau for the 2015 tax period.

Facts: In October 2015 the husband leased to his son, retroactively from 1 January 2015, the immovable assets (958 Aren of agricultural land, outbuilding, garage, shed, stable and barn). At the same time he sold the operating inventory (stocks, animals, machinery and equipment) to the son. The gain on disposal amounted, according to the taxpayers, to Fr. 23'810.--, which they booked on a tax-neutral basis through account 2810 ('Private Compensation').

Tax return: The taxpayers declared the commercial profit of Fr. 3'072.--, which included the rent (Fr. 1'644.--), as income from self-employment. They declared the disposal gain of Fr. 23'810.-- on a supplementary sheet as a gain from the cessation of self-employment, which was to be taxed separately from other income under DFTA § 37b and StA AG § 45f.

Procedural history: The local tax commission denied the requirements for privileged liquidation taxation and assessed the gain as ordinary income (assessment of 19 April 2017, objection decision of 13 December 2017). The Special Administrative Court affirmed a definitive cessation within the meaning of Art. 11 para. 5 DTHA and § 45 para. 1 lit. f StA AG and allowed the appeal. The Administrative Court allowed the appeal of the Tax Office. It reasoned that the taxpayers had only requested the privileged treatment of the inventory sale, not the transfer of the immovable business assets into private assets. The self-employment therefore continued. A waiver (Revers) under § 23 para. 1 StA AG would have allowed a different assessment.

Requests before the Federal Supreme Court: The taxpayers request that the prior decision be set aside and that a separate annual tax be levied on the gain of Fr. 23'810.--. The prior instance and the Municipal Council waive a position. The cantonal Tax Office requests that the appeal be dismissed. The FTA likewise waives a position.

Considerations

Admissibility and facts: The appeal in public law matters is admissible (Art. 82 lit. a, Art. 86 para. 1 lit. d FSCA in conjunction with Art. 73 DTHA). The Federal Supreme Court reviews federal law ex officio and with full cognition (Art. 106 para. 1, Art. 95 lit. a FSCA). Cantonal law and constitutional rights are reviewed only with the qualified duty to raise and substantiate complaints (Art. 106 para. 2 FSCA). Findings of fact may only be corrected in cases of obvious inaccuracy, i.e. arbitrariness (Art. 105 para. 2 FSCA). The assessment of evidence is treated as a question of fact.

Principles on business assets and transfer: The business assets of a natural person are linked to self-employment. The allocation is based on the totality of circumstances, with the technical-economic function being weighted most heavily (Art. 8 para. 1 DTHA). Upon transfer into private assets, the hidden reserves are realised. The transfer of agricultural land ownership is subject to the real estate gains tax insofar as it falls under the RLRA (Art. 12 para. 1 DTHA). The deferral facts and the privileged liquidation taxation were introduced with the Second Business Tax Reform (Art. 18a, Art. 37b DFTA; Art. 8 para. 2ter, Art. 11 para. 5 DTHA). The DFTA and the DTHA are verbatim identical in these facts, which is why practice and doctrine may be drawn upon reciprocally.

Definitive cessation and de minimis practice: Art. 11 para. 5 DTHA requires a definitive cessation of self-employment after the age of 55 or due to disability. According to the materials, the final and complete liquidation of assets and liabilities must in principle take place. Doctrine permits a minor self-employment to be continued after the liquidation. The FTA bases this on the OPA entry threshold (Circular No. 28). The Federal Supreme Court has so far only endorsed this de minimis limit, without examining it. The circular does not address a second cessation of the minor activity.

Lease and perpetuated business assets: The leasing of a business is considered a transfer into private assets only upon request. Under the new law, it is presumed that the lease does not constitute a definitive cessation. To rebut this presumption, a declaration of intent made to the assessment authority is required. According to FTA practice, the sale of the operating inventory where land is leased does not lead to a transfer. Doctrine distinguishes the complete transfer, the partial transfer (report partiel) and the…