Profits and losses are taxable if the taxpayer earns them under one of the seven types of income – so far, so clearly. However, an unwritten requirement for recognition by the tax office is a so-called income-generating intention. It only exists if the taxpayer intends to generate a sustained positive surplus or profit from his activity. Decisive for this is the so-called total surplus forecast.
1st Principle and Background of Income Intention
In addition to § 12 no. 1 EStG (private lifestyle), the principle applies in German income tax law that purely private or hobby-related activities are irrelevant for taxation. For this reason, for example, occasional neighbourhood assistance does not lead to income tax income, nor does the practice of sport and other activities, even if it generates income or expenses. Also, the expenses for a privately used property are not tax deductible, because they are not in contrast to taxable income.
A tax-relevant activity must therefore always be distinguished from private activities in individual cases. In practice, this is done by examining the so-called income-generating intention, which is derived from § 2 (1) EStG and the word “achieved” used here. The Bundesfinanzhof (BFH) sees a tax-relevant action only if it is aimed at generating positive income – i.e. surpluses or profits – in the long term (for example BFH of 11.10.2007, IV R 15/05).
Because: If it is clear from the beginning that "no money can be earned" with the respective activity, from the point of view of the Supreme Federal Court the necessary seriousness of the activity is missing. Since it is already established in principle that the attainment of taxable – positive – income is excluded, the tax office does not subsequently recognize any negative income (losses). Some examples of this are:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.