That’s the finding of a case taken to the Taxation Review Authority, in which a self-employed artist had her rental losses disallowed.

They had been used in calculating a Working For Families entitlement.

The properties were bought between 2003 and 2007 with high loan-to-value ratios.

The TRA had to determine whether her rental investments amounted to a business. Losses incurred from a business cannot be taken into account when determining Working for Families tax credits.

Ng said: “ Generally whether or not activities carried on by a taxpayer amount to a ‘business’ involves consideration of whether or not there was an undertaking carried on for pecuniary profit. The term ‘pecuniary profit’ is not legislatively defined; however, its meaning has been considered in case law.”

The IRD commissioner argued that the rental operation was a business because of factors including its nature and scale, the amount of time, money and effort invested in it, and the profit derived.

The taxpayer said the rental operation was not a business because of the losses experienced and the properties were purchased with a view to long-term capital gains, not to make a “pecuniary profit”.

But the TRA agreed with the IRD because of the structure, seeking capital profits, the period over which she acquired the properties and the scale of operation and volume of transactions. The incentive of higher Working for Families payments was a key motivator, she said.

The TRA also looked at the results for the taxpayer: assessable rental income was derived, rental losses were used to increase Working for Families entitlements, and there was potential for long-term capital or equity gains. Each of these indicated an increase in the taxpayer’s wealth by profit in money’s worth.

It said the meaning of “pecuniary profit” was not restricted to taxable profit.

Ng said this raised questions of when other investment activities would cross the line into business.

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