Non-Commercial Loss Provisions

When the GST was introduced, there was further legislation passed to counter what was presented as tax avoidance by the rich through such activities as hobby farms.

The provisions meant that a business which ran at a loss in a particular year would not be able to get a tax deduction for that loss (offsetting the losses against other income) unless:

  • The business had gross income (before expenses) of at least $20000;
  • there was a profit in three out of five years;
  • the business had business assets of more that $100000, or
  • had business real estate of more than $500000

This represented a serious threat to emerging arts businesses which were unlikely to be able to satisfy any of the tests, and which would mean that the loss from the arts business would not be able to give rise to a refund of tax.

Following a public campaign the proposed legislation was amended to provide that the above tests did not apply to those conducting an arts business, unless the person conducting the arts business has other income of more than $40000 in which case the tests do have to be met.

This means that anyone conducting an arts business who earns more than $40000 a year outside the arts business will need (typically) need to have gross income of at least $20000 or must have made a profit in each of the preceding three years.

We consider the provisions, notwithstanding the relaxation of the tests, to nevertheless be discriminatory, unfair, and damaging to artists.

There are, however, actions that may be taken to minimize the effect of these provisions.

See also Submission to Taxation Board of Review