Tax Alert - March 2023

The Supreme Court confirms that hobby loss is not an allowable deduction

On 15th March 2023, the Supreme Court (“SC”) upheld the decision of the Assessment Review Committee (“ARC”) and ruled in favour of the Mauritius Revenue Authority (“MRA”) in a recent case (2023 SCJ 113). 

Mr G was an associate in a partnership called Societe Agricole de Mont Sur Mont (“SAMM”). SAMM used its land for breeding animals as well as hunting ground during the deer hunting season. Mr G claimed a tax deduction for his share of loss in SAMM.

The MRA disallowed the loss on the ground that SAMM was not carrying on a ‘business’ as defined under the Income Tax Act (“ITA”). According to the MRA, the activities of SAMM qualify as a hobby without any profit-seeking motive. 

Mr G contended that although SAMM had continuously made losses, the sale of animal products was done in the course of business. He relied on the principles laid down in UK VAT cases on the meaning of ‘business’ which does not require a profit seeking motive (in line with the Mauritius VAT Act) to argue that the share of loss in SAMM is an allowable deduction.

The SC ruled that Mr G is not entitled to claim his share of loss in SAMM since the latter did not carry out a business activity within the meaning of ‘business’ under the Income Tax Act. According to the SC, SAMM had constantly incurred losses for 10 years since the beginning of its activities and there was no hope or expectations that it would make profits. The SC concurred with the ARC that the sale of animal products was not done in the course of business but as a means of disposal and as a means to reduce costs. 

Our Comment:

The SC judgment confirms that the meaning of ‘business’ under the VAT Act is wider than under the ITA. For income tax purposes, the profit seeking motive is essential to satisfy the definition of business. Otherwise, the loss is not considered as a trading loss and no deduction is allowed.