Facts

Parties: The spouses [A.A.] and [B.A.] (appellants) against the Canton of Zurich Tax Office (respondent).

Facts:

  • The spouses operate an inn in [V.] /ZH, which was acquired in 2001 and reopened as a high-end hotel and gastronomy business in 2007 after extensive renovations.
  • From 2007 to 2012, accumulated losses of CHF 3,100,000 were incurred, including a loss of CHF 516,000 in the year 2012.
  • The tax return for 2012 claimed the annual loss and uncompensated previous years' losses, which the Canton of Zurich Tax Office rejected due to lack of profit-making intent, thus not recognizing self-employment.
  • The appeal against the negative decisions of the Administrative Court of the Canton of Zurich was filed with the Federal Supreme Court.

Considerations

Procedural: The Federal Supreme Court examines federal law ex officio with full cognition. The previous instance has established the facts, which can only be corrected in case of obvious inaccuracy or violation of law.

Direct Federal Tax: The dispute is whether the self-employment of the taxpayer in 2012 generated tax-deductible losses or whether it is a hobby. The previous instance denied profit-seeking due to accumulated losses and a low marketing budget.

Profit-Seeking: Self-employment requires profit-seeking, which consists of objective profit suitability and subjective intent to make a profit. The previous…