Tax Question

[Meista 3]

So just wondering,

I read that when you sell a horse through the sales the owner has to pay income tax on the profit, as it is then a "breeding" horse,

Is this the same for if you sell a racehorse?

And what are the income tax rates?

Tried doing some research on ird site but it's not very clear.

Thanks

[Insider 3,985]

You only pay tax on the profit if you are running your "breeding" activities as a business.

Many people with just one or two mares run their "breeding" activities as a hobby and thus have No tax liability.

In most instances "racing" is not run as a business therefore no income tax is payable on the profit, if there was one.

[TOM(the other Molloy) 1,774]

In fact the IRD is very clear that racing is not a 'business' for the average owner so you really do have to reach a higher threshold in order to prove that it is such. As a general rule if you are getting deductions for your expenses you will be liable for tax on your income. So if you aren't able to claim your costs and are lucky enough to sell one then there would be no tax payable.

Of course you have to be careful if you start making a habit of selling horses - like property if you buy(or brèed)with the intention of onselling at a profit then yes it is taxable.

[Catalano 951]

So Tom at what point do you suggest it is worthwhile setting the hobby up as a business?

[TOM(the other Molloy) 1,774]

No not really. There are specific rules in regards the actual racing activities anyway which are harder to get a claim on as against the breeding activities. I believe some people have the trainer separate the feed costs (deductible) and the training costs (non deductible). If however say you pinhole one that did not turn out and get sold through the sale ring or brèed one for sale that does not get there and you sell it once it has trialed/raced you would want to be very careful if you attempt to get away without paying tax on the proceeds/profit(because you intended at the time you brought/bred it to sell it at a profit.)

I know Mr T Notts is an expert on this sort of thing. I have a vague idea but that is not my area of accounting/tax expertise

[TOM(the other Molloy) 1,774]

So Tom at what point do you suggest it is worthwhile setting the hobby up as a business?

sorry misread that post.

Bottom line is it depends on your intention at the time of purchase of the horse.

Like a lot of things with the IRD they will decide and it is you who has to prove otherwise. One thing that would strike me is that if you are saying you are in business you would want commercially bred stock especially if it is a colt. Having the intention to breed from a Zabeel colt is a lot easier to believe than if say your pride and joy is by Edenwold (with all due rexpect of course to the Edenwold people)

Like I said I am not an expert in the field in regards racing/breeding tax. If you are going to try it get expert advice.