In many instances the transition from a hobby to a micro business to a small business, is quite blurred.In a recent tax decision, a taxpayer argued that losses from his farming activities should be deductible because he was in business.  He measured himself against the tax office guidelines and argued that he was able to pass more than half of the fourteen tests and therefore it was automatic that he was in business.  As you might imagine – he lost.

Unfortunately, the reality is far different than a simple test measured in this manner.  It is often apparent sometime down the track that a business has started or that it started on a particular date, but in the early periods when losses are occurring the tax office will be reluctant to agree.

As with many tax matters, it is an experienced practitioner that will often know the likely tax office response, drawing on their years of experience or first-hand knowledge and study of the relevant case law.