When Hérens breeding becomes a fiscal hobby

The taxation of Hérens breeders is no longer just a matter of agricultural declaration: it is becoming a test of economic credibility. According to Le Nouvelliste, a couple from Valais who own a dozen Hérens cows contested the tax authority's decision to no longer recognise the profitability of their farm. At stake: nearly 4500 francs of losses that the taxpayers wanted to deduct. The Cantonal Court sided with the tax administration.

For breeders, part-time agricultural self-employed individuals and their fiduciaries, the message is clear: attachment to a breed, even one deeply rooted in regional heritage, is not enough to convince the tax authorities. When the activity does not demonstrate an organisation oriented towards profit, losses risk being classified as private expenses. And a non-deductible loss, even modest in appearance, can weigh heavily when it recurs year after year.

A tax battle over 4500 francs of losses

The case revealed by Le Nouvelliste illustrates a frequent situation in regions where Hérens breeding is both part of the agricultural economy, family tradition and passion. The couple in question owned a dozen cows and intended to claim the losses related to their farm for tax purposes. The administration refused, considering that the activity no longer met the criteria of a profitable independent activity.

The concept is essential. A profitable independent activity implies an economic approach: services or products offered to third parties, identifiable organisation, entrepreneurial risk-taking, bookkeeping, revenue seeking and reasonable profit prospects. Conversely, an activity classified as a hobby remains fiscally in the private sphere. Expenses incurred for pleasure, tradition or personal interest cannot then be used to reduce taxable income.

This is not a judgement on the cultural value of breeding. It is a fiscal assessment. A farm can be serious, require a lot of work, be locally recognised and yet not be considered profitable if it accumulates deficits without documented economic prospects. For a fiduciary, the challenge is therefore to distinguish what is part of the client's legitimate passion from what can be defended as a professional activity.

Hobby or independent activity: the costly boundary

The case fits into a well-known line in Switzerland: the distinction between hobby and independent activity determines the tax treatment of results. According to the analysis published by Findea, losses from an activity considered a hobby are not deductible. However, when an activity is recognised as a profitable independent one, its losses can in principle be included in the tax calculation, while profits are taxable.

The Federal Court has already faced this boundary. Findea notes that in 2018, it dealt with the case of a mechanical engineer who ran a farm part-time. The activity was considered a hobby, with the effect of making the losses non-deductible; the case also mentions the tax treatment of liquidation gains. This precedent reminds us that an ancillary agricultural operation is not automatically admitted as an independent activity simply because it uses professional means or generates financial movements.

For a Hérens breeder, several elements can be examined by the tax authorities: the regularity of sales, the ability to cover costs, the coherence of investments, the documentation of prices, the existence of outlets, the separation between private and operating expenses, or the way animals and equipment are tracked in the accounts. No criterion is sufficient in isolation. It is the whole that builds, or weakens, fiscal credibility.

The difficulty lies in the hybrid nature of some farms. A breeder may have another job, keep a few animals for family tradition, participate in regional events, occasionally sell an animal or products, and then declare a deficit. In such a context, the central question becomes: is the activity conducted as a business seeking to make money, or as a passion whose costs are personally borne?

Profitability is proven in the accounts, not in passion

For an agricultural SME or an independent, the first protection remains a readable accounting. It is not just about recording invoices: it is necessary to be able to tell the activity through the figures. What revenues are expected? What costs are necessary? What investments are justified? Are the losses occasional, related to a development phase, or structural?

A fiduciary can help formalise this reading. An operating budget, margin tracking by type of activity, a clear separation of bank accounts, complete supporting documents and documentation of important decisions strengthen the taxpayer's position. Conversely, expenses mixed with the private household, poorly explained withdrawals or the absence of a commercial strategy provide arguments to the administration.

In breeding, some costs may be emotionally obvious to the owner, but fiscally questionable if they do not fit into an operational logic. The question to ask is not only: is this expense real? It is also: is it necessary for an activity that aims for an economic result? The tax authorities do not require a business to make a profit every year, but they generally expect it to be organised to be able to do so.

Proof of profitability does not necessarily mean an immediate profit. It can involve a trajectory: improving revenues, adapting the herd, controlling costs, seeking clients, setting coherent prices, abandoning non-essential expenses. When a taxpayer wants to claim losses, they must be able to demonstrate that these do not simply reflect the cost of a hobby.

VAT, salaries and social insurance: the domino effect to anticipate

The reclassification as a hobby does not only concern income tax. It can lead to a review of the entire administrative mechanics of the activity. A farm recognised as a business raises questions of VAT, independent status, asset accounting, possible remuneration of relatives, social insurance or the treatment of vehicles and buildings used. If the activity falls into the private sphere, part of this architecture may lose its justification.

For fiduciaries, the risk is often retrospective. Past declarations have sometimes included losses, depreciations or charges in a professional logic. When the administration challenges this logic, it is necessary to reconstruct the years concerned, verify the documents, measure the tax impact and prepare an argument. The cost then is not limited to the amount of the refused loss: it includes time, exchanges with the tax authorities and sometimes a procedure.

Breeders who occasionally employ labour or involve relatives must also be attentive to the coherence of the arrangement. A declared remuneration, social contributions or expense reimbursements must correspond to a real organisation. Again, the point is not to conclude generally that a model would be accepted or refused, but to verify if the facts, contracts, financial flows and accounts tell the same story.

The sale of agricultural or real estate assets adds a layer of complexity. The research file mentions a clarification by the Federal Court in 2024 on the taxation of capital gains related to agricultural properties when the land is primarily intended for non-agricultural purposes. Even if this question goes beyond the case of Hérens cows, it reminds us that a farm can have tax implications when assets are sold, transformed or liquidated. The tax classification of a property and its actual use must therefore be examined before any major operation.

A Valais tradition facing a very accounting reading

The Hérens breed occupies a special place in Switzerland, particularly in Valais. The Swiss Federation of Hérens Breed Breeding, founded in 1920, brings together 63 syndicates and two breeding circles, according to information published by the organisation. This structuring shows that breeding is not reduced to an isolated activity: it is part of a network, a selection, competitions, a regional identity and a local economy.

But cultural recognition does not replace fiscal demonstration. For the administration, the question remains that of the activity's ability to be qualified as profitable. A breeder may be part of an organised environment, participate in regional agricultural life and still have to prove that their farm, on its scale, pursues a credible economic goal.

The right approach is therefore not to wait for an audit to defend the activity. It consists of preparing the file in advance: clarifying the economic model, documenting revenues, isolating private expenses, keeping supporting documents, regularly discussing with the fiduciary and, when the situation is borderline, requesting an individualised tax analysis. Practices may vary depending on the cantons and the specific facts of the case; a valid response for one breeder is not automatically valid for another.

The Valais case acts as a signal. Traditional, agricultural or family activities are not immune to a strict reading by the tax authorities. For Hérens breeders, the challenge is not to give up the passion, but to clearly choose the framework: hobby assumed fiscally as such, or independent activity documented with the rigour of a small business.