That was interesting, I would have thought that losses made running a sports club would have been deductible but in this instance they apparently were not.

Looks like the ATO viewed the money he poured into the club as more like an expensive hobby, a venture that wasn't entered into for the purpose of producing assessable income - seems like a pretty harsh ruling but I don't know the full story.

Paging Rat10, we need your input.

CA's represent Billo!

Interesting case. The Commiss spells it out pretty clearly in paragraphs 19-29 why the losses weren't deductible.

He clearly didn't treat the "investment" with the level of commerciality necessary for it to be considered as a business and claim the losses as a deduction.

I would have thought the losses are more capital in nature so he could offset them against future capital gains.

Never thought I'd be talking about this on a Hoops forum!

Rat10, I would have thought those losses were more capital in nature as well.

He injected his money into the Hawks in the form of a share purchase, so one would expect that the capital loss as a result of share sales be brought forward (it can be advanced for up to 3 years I believe) The only other way would have been to inject it as a loan with a nominal interest rate.

It could be assumed that the share value of an NBL team would be pretty static. Seems to me the smart way would be to have 100 $2 shares and if he wanted to invest in the team, buy a set amount of shares from other directors and get on the board.

Sporting teams never give a massive return and the likelihood of a loss is great, so prepare to lose some money. I think that the best way to invest in a NBL club is to inject the money in as sponsorship. Any sponsorship investment is tax deductible as an operating expense and any return from that investment (ie excess to operating expenses) would be achieved either as a Directors fee, or as a dividend from shares.

that's right anon, if sponsorship is done right with the proper acknowledgement etc, then it is a legit expense.

If they purchase a nominal set of shares (eg 10 off @ $2 each), then they jump on board as a director and any "excess" left over at the end of the year, can be paid to them as a director's fee, or else divided up amongst all shareholders. Then, when they want to leave, the company, or others can buy the shares back at a set nominal rate of $2. Everyone is happy and there's no capital gains issues.

It's dangerous to invest in something like this by buying shares, particularly if the money is being used for day to day expenses, which I assume the $350K was used for. It's a different story if the Hawks went capital raising for a new stadium or the like.

Just a question. If he managed to make a profit from the investment would the Tax man then come knocking? Or would this ruling make the profits Tax free?

Hack, good question. Keen to hear some guesses from those working in this field.