Rejection of recognition of losses from a bird of prey park as independent gainful activity

Facts

The Federal Court had to decide on a complaint by the Cantonal Tax Office of St. Gallen against a decision by the Administrative Court of the Canton of St. Gallen. The subject of the proceedings was the question of whether the losses from the operation of a bird of prey park by the respondents in the tax period 2009 could be recognized as losses from independent gainful activity.

The respondents have been operating a bird of prey park with a kiosk and restaurant in [U.] (SG) since 2001. The business was initially operated as a collective company, then as a sole proprietorship, and since 2013 as a limited liability company (Ltd.). The losses from the operation of the bird of prey park were offset against other taxable income by the tax authority in the years 2001 to 2008.

In 2009, the respondents claimed a loss of CHF 140,879 from the operation of the bird of prey park. The tax authority rejected the recognition of this loss, as it considered the operation of the bird of prey park to be a hobby and not an independent gainful activity.

The respondents lodged an objection against this tax assessment, which was rejected. The Administrative Court of the Canton of St. Gallen dismissed the complaint by the Cantonal Tax Office against the decision of the Administrative Appeals Commission, which had annulled the objection decision and referred the matter back to the tax authority for further examination and a new decision.

Considerations

The Federal Court examined its jurisdiction and the admissibility of the appeal ex officio. It found that the appeal in public law matters is admissible and that the Tax Office of the Canton of St. Gallen is entitled to appeal.

The Federal Court applied the law ex officio and examined the complaints raised. It found that the lower court had rightly assumed that the operation of the bird of prey park by respondent 1 in the tax period 2009 did not constitute an independent gainful activity within the meaning of Art. 7 para. 1 sentence 1 DTHA.

The Federal Court found that the long-standing recognition of losses by the tax authorities did not create a basis of trust that would have obliged the tax authority to notify the respondents of the intended new assessment of the facts and to give them the opportunity to abandon the business, organize it in a business management way that would make the realization of taxable income realistic,…