07/09/2020
Claiming Expenses for Non-Breeding Bloodstock

Taxpayers that breed horses as part of their business can claim expenses for non-breeding bloodstock that may be used for racing.

If, as part of your breeding business you have bred a colt that is subsequently gelded for racing, you will need to apply to Inland Revenue to claim further expenses for the animal.

If the taxpayer expects to use the gelding as part of the business of breeding for sale or exchange, they may apply to Inland Revenue to treat the horse as used in the course of their business. The taxpayer needs to apply to Inland Revenue under section EC 46(3) of the Income Tax Act 2007 before the horse is preparing for racing or before the horse is raced, whichever is earlier. Otherwise the cost to care for the horse and costs for preparation for racing are not deductible as part of their breeding bloodstock for sale or exchange. The horse has technically dropped out of the taxpayers business.

Preparing a horse for racing or for sale on the trial market can be difficult to ascertain when the racing preparation begins. The taxpayer may have a gelding that is prepared for the trial market for potential sale and is not intended to be raced. The fact that a horse races may be a ‘fallback’ position if the horse cannot be sold on the trial market. Therefore the timing of the race preparation cost is difficult to determine.

If you are in the business of breeding horses and you have an animal that you cannot sell and decide to race and claim the cost of caring for the horse and preparing a horse to race, you must apply to the Commissioner of Inland Revenue before the horse races. If you are racing a horse as a hobby or for recreation, these rules do not apply as the expenses are not a taxation deduction. All situations are different and a discussion should always be held to determine when a horse is starting to be prepared for racing.

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