> The same applies in the US. You cannot deduct losses from hobbies 
(legally, anyway). An enterprise that loses money year after year and 
still keeps at it is obviously a hobby. If people are getting away with 
deducting hobby losses, it is because nobody has turned them in to the 
IRS yet.

That's not entirely true.   3 years is a rule of thumb and is not the 
IRS definition.   They presume it is a business (vs hobby) if it makes a 
profit in at least 3 of the past 5 years (which is where I assume the 3 
year rule you often hear quoted is derived from). However, failing that 
you can still be ruled as a business.   The real test is much more 
complicated and arbitrary.  It depends on the answers to questions that 
determine if the intention is to make a profit, is profit reasonably 
expected in the future, do you have the knowledge to run a successful 
business, etc.

There are also a few expenses you can deduct from a hobby (though it is 
extremely limited)

See 
http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions 
for more information.

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