Investment or business venture?

A ranking regime applies in the income tax sphere enabling the determination of how to ear­mark tax benefits as taxable income where the benefit in question could in principle be involved in taxation in more than one way. According to the ranking regime, a tax benefit is allocated to the foremost chapter of the law to which it could be allocated. Earnings from operations in a statutory sense take precedence over result from other operations and over taxable income from savings and/or investments. The first question to be addressed is there­fore that of whether a particular benefit forms part of earnings from operations or, if not, of result from other operations or, if not, of income from savings and/or investments.

A business venture is an ongoing organisation of capital and labour which participates in the public production process with the aim of generating a profit. The scope of labour as a factor may be relevant to the distinction between profit from operations and income from savings and/or investments. The possession and administrative management of assorted immove­able properties does not in principle qualify as a business venture.

A holiday cottage owner had included the several properties he purchased in 2004 under box 3 (“taxable income from savings and/or investments”) from the date of acquisition onwards, then went on with effect from 1 January 2008 to earmark his operation of the cot­tages as a business venture. The District Court ruled that there were no special circum­stances warranting the requalification of the properties, nor was there any question of requalifica­tion to operating capital as the owner’s status had not changed. The owner both in 2008 and in previous years had used the services of a rental agency to let the holiday cot­tages. The operations which the owner had taken on with effect from 2008 had not come about as a result of his ownership but rather, as that of his family ties with the director cum shareholder of the rental agency.