RUDD STIMULUS – ANY
TAX BREAKS FOR RACING? PAUL CARRAZZO COMMENTS
Our good friend and
Racing’s Night of Champions supporter, Mr Paul Carrazzo
has kindly prepared the following update to give members
some idea as
to where racing/breeding sits
with the new tax changes.
One of the welcome initiatives to come out
of the recently announced Federal Government stimulus package
is the bonus tax deductions, at a rate of either
10% or 30%, available
to businesses investing in depreciable
Since the announcement of these initiatives
in mid February, I’ve had many queries
from my horse industry clients and associates as to whether
are eligible for these bonus deductions,
so I now take the opportunity
of explaining the specifics
the bonus, their eligibility
whether commercial breeders
and racehorse owners can take
advantage of them.
Rate of tax bonus – 10% or 30%?
It must first be noted that there are minimum
asset expenditure thresholds depending on what category of
tax business you have. For businesses defined under the Tax
Act as “Small Business Entities” (“SBE”),
a minimum of $1,000 (exclusive of GST) must be spent. For
all other businesses,
spend is $10,000 (exclusive of GST).
NB. An SBE is a business with an aggregate
group turnover of less than $2 million, in this year and
the previous two income years. If the business
has been in existence less than 3
years, only those year(s) must meet
the $2 million criteria.
The bonus tax deduction for an SBE for eligible
assets costing $1,000, is:
30% of the asset's cost, if the asset is acquired, begins
to be constructed or is held under contract between 3 Dec
2008 and 30 June 2009, and installed
for use by 30
June 2010; or
10% if acquired, constructed or held between 1 July 2009
and 31 Dec 2009, and installed before 31 Dec 2010.
As indicated above, businesses will get
the higher 30% rate if the asset is acquired on or before
June 2009. Other businesses will be eligible to access
the same concessions for assets costing more than $10,000.
The deduction will be either 10 per cent
or 30 per cent of the asset's cost. When lodging its income
tax return, the business will be able to claim
this deduction in addition to the usual
in respect of the asset.
What are the eligible assets?
the deduction will be available for depreciating assets that
qualify for capital allowances.
It must be especially noted that land and
trading stock are excluded from the definition of depreciating
assets, and will not qualify for the deduction.
Commercial Breeders and the bonus?
Firstly, the bad news - broodmares within
a breeding business are classified as trading stock and thus
are not eligible for the concession. This will also apply
to situations where, say, the breeder buys weanling for “pin-hooking”,
such horses also being classified as trading stock.
Of course, other depreciable assets acquired
in the business would be entitled to the concession, for
example computers, sheds, floats, business
Unfortunately, certain capital expenditure
of breeders/primary producers are specifically excluded
from eligibility, including installation of telephone
lines, land degradation measures
and the cost of installing
new water facilities,
Commercial Racehorse Owners and the bonus?
Plenty of confusion in this area and well
worth commenting on. First and foremost, it is very “
difficult” to demonstrate to the ATO that you run a
stand-alone horse racing business (without associated breeding
This has been a long held
ATO view and was reinforced when
the new horse industry tax
TR 2008/2, was released
If you have been successful in demonstrating
this, the racehorses you acquire would be eligible assets and
the tax concession would be available. Great
news if you can meet this difficult
ATO criteria. In the face
of the current economic woes, any
yearlings acquired prior to
June 2009 would be entitled to a bonus
If you are contemplating starting a stand-alone
horse racing activity and have these concessions in mind, I
would certainly take appropriate professional
advice as to your chances of
meeting the strict ATO “business” criteria
in this area. A private ruling seeking the ATO’s opinion
before you start would be highly recommended. Tax ruling
would be a useful reference as to the
Racing within my breeding activity – where
does this sit?
Racing activities can also be accepted by
the ATO if they considered an “integral” part
of the breeding activity and are, in the words of TR 2008/2, “inherently
connected with it and be consistent with the furtherance
of the business activity”.
What is clearly contemplated here is where
a breeder decides to race a “home-bred” horse
for entirely legitimate reasons, e.g. a filly to be retained
for future breeding
or a yearling that failed to reach a
Are these “racehorses” also eligible
for the new tax concession?
Regrettably, the answer is still NO. Per TR
2008/2, such horses are considered to be part of the breeding
business and are classified by the ATO
I’ll leave on a positive note – a
breeder would be able to use the concessions on racehorses
only if they could establish to the ATO that they
had two distinct and separate tax businesses,
i.e. one of “standalone” horse
racing (see above), the other a commercial breeding operation.
for the small breeder, but not impossible
for the major operators.
Draft legislation to implement the investment
allowance will be released for public consultation later this
You are welcome to contact me if you wish
me to clarify or expand upon any of the matters raised in this
PAUL CARRAZZO CPA
CARRAZZO CONSULTING CPAs
TEL: (03) 9329 7044 FAX: (03) 9329 8355 MOB: 0417 549 347
E-mail: email@example.com Website: www.carrazzo.com.au
DISCLAIMER: Any reader intending to apply
the information in this article to practical circumstances
their interpretation and the information’s
applicability to their particular circumstances with an accountant
in this area.