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Q.
I have a legitimate taxation thoroughbred breeding business and want to know more about the mare and stallion "write down" provisions. Can you help?
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A.
If a breeder uses the Special Closing Value method for valuing closing stock, broodmares can be written down on a straight line basis until they are $1 by the age of 12 years. Mares acquired at the age of 12 years or greater can be written down to $1 in the year of purchase.
Stallions (or shares therein) can be written off by up to 25% per annum.
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Q.
I own a share in a racehorse. Do I pay CGT if I sell it for profit?
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A.
If the share in the horse was acquired for $10,000 or less, and it was disposed of on or after 1 July 1998, it is exempt from CGT on disposal.
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Q. Can I offset a capital loss on the sale of a
broodmare against the capital gain I realised on the sale of one of my rental
properties? |
A. No. The real inequity for hobby breeders
arises where a capital loss is realised on disposing of a horse - capital
losses on horses are not recognised under the current Tax Act. Thus a capital
loss on one horse cannot be used to offset a capital gain on another, which
differs from the tax laws relating to normal capital assets.
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Q.I've heard that there are new rules in relation to taxation breeders being able to claim losses in the year that they are incurred? When do they apply from? |
A. These new rules apply from 1 July 2000. They only apply to individuals and partnerships.
For more information, refer to Jennifer Stynes' interview with Paul Carrazzo which was
published in the November 1999 "Financial Review" article,
Tax Crackdown Ready to Fall on Breeders.
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Q.
I keep hearing that I need a Business Plan to support the claiming of my tax
losses in the early years of my breeding activities. Who says so? |
A. The ATO have made it quite clear in the past 5 or so years that the preparation of a Business Plan is very important if a taxpayer wants to demonstrate that they are conduction a taxation thoroughbred breeding business.
The requirement for a Business Plan was reinforced when it was referred to as an important
business factor in the 1997 ATO ruling, TR 97/11, titled "What is a business of Primary
Production".
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Q.If I conduct a legitimate business of thoroughbred breeding and/or racing, can I claim a depreciation deduction for racehorses that I acquired?
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A. Yes. However, the depreciation can only commence when the racehorse reaches two years of age, as noted in the special 1993 ATO ruling, TR 93/26, titled "Income Tax: Issues Relating to the Horse Industry".
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