The Privy Council rules in favour of Mr Galea

On 08 April 2024, the Privy Council (PC) overturns the Supreme Court (SC) decision in the Galea case [2025] UKPC 17 and sets a legal precedent on the interpretation of the term ‘business’.

Background facts

Mr Galea was an associate of Société Agricole de Mont Sur Mont (“SAMM”). Land owned by SAMM was primarily used for breeding deer and as a hunting ground during the deer hunting season. Monkeys were also bred on the land.

Income derived by SAMM consisted of contributions from hunters as well as proceeds from the sale of venison during the hunting season. It also derived proceeds from the sale of live monkeys which was later interrupted because they could not be exported.

SAMM had incurred salaries and maintenance costs. It had constantly incurred losses during the period 1996/97 to 2006/07 and Mr Galea claimed his share of loss from SAMM as a deduction in his tax return for 2005/06 and 2006/07.

The MRA disallowed the loss on the ground that SAMM was not carrying on a ‘business’ as defined under the Income Tax Act (ITA). According to the MRA, the activities of SAMM qualify as a hobby without any profit-seeking motive. 

Mr Galea argued that although SAMM had continuously incurred losses, the sale of meat and monkeys was done in the course of business. He was thus entitled to the share of loss from SAMM as a deduction in computing his tax liability.

Appeal to ARC and SC

Both the Assessment Review Committee (ARC) and the SC ruled that Mr Galea would not be entitled to claim his share of loss from SAMM since the latter was not carrying any business activity. According to the SC, SAMM had constantly incurred losses for 10 years since the beginning of its activities and there was no hope or expectations that it would be making profits. 

“Gross income” is defined under section 10(1)(b) of the ITA to include “any gross income derived from any business”. Further, section 2 of the ITA provides that: 

“‘business’ includes any trade, profession, vocation or occupation, manufacture or undertaking, or any other income earning activity, carried on with a view to profit.”

Privy Council level 

At the PC level, both counsels agreed that:

(i) The test applicable to determine whether a taxpayer is carrying on a business activity is one of subjective intention. 

(ii) The aim to make a profit does not need to be the sole or main aim; it can be ancillary. 

(iii) The taxpayer’s asserted intention to make a profit can justifiably be viewed with circumspection in a case where, looked at realistically, there seems no real prospect of profit.

The PC held that the ARC applied the wrong legal test when it suggested that:

1. “with a view to profit” meant “with a reasonable expectation of making a profit in the near future” and
   
   
2. Profit had to be made in the future.

The PC acknowledged that it lacks information which might be relevant, for example, about Mr Galea’s other business interests, about whether the other members of the 'chassée' are friends or colleagues of Mr Galea, whether Mr Galea is himself one of the members of the chassée and if so, whether he paid to participate.

However, the PC noted that based on unchallenged evidence, SAMM invested in the land and attempted various ventures which had the potential to generate income, some of which were successful to some degree. The PC therefore concluded that, on the material available to it, Mr Galea’s evidence of intention should be accepted as credible. 

The PC held that future intentions are relevant to the question of whether SAMM intended to make a profit and that test needs to be applied. The PC concluded that SAMM intended to make a profit during the relevant periods and was in business, as defined by section 2 of the ITA. 

For more information please contact: