Thursday 21st August, 2008

WAKE UP CALL FOR HORSE BREEDERS

The Administrative Appeals Tribunal ("AAT") in Sydney has affirmed an earlier Australian Taxation Office ("ATO") decision that a taxpayer (D'Arcy) was NOT carrying on a horse breeding enterprise despite selling 21 of 22 progeny produced, over a period of time.

This unfavourable decision for the taxpayer will have far reaching consequences for horse breeders in Australia. The worrying aspect of the tribunal’s decision is that racing, often viewed as being the pleasure or hobby component, was not a dominant factor in this case.

The horse industry has faced a period of serious examination by the ATO. As a result of such audit activity the industry now has two recent AAT decisions, one favourable (Block’s case) and one unfavourable (D'Arcy's case), together with a new tax ruling for the horse industry TR 2008/2, upon which to draw guidance from when considering the long running debate: business vs hobby.

Although D'Arcy's main activity was breeding and selling horses, his ownership interest ranged from 10% to 30% for each broodmare and progeny. The tribunal made specific comment to this lack of "control", which is consistent with the approach taken by the ATO during their audits.

In this case the tribunal was also concerned with the absence of written documentation to support the decision making process of the taxpayer. Clearly this contributed to their overall impression that the horse activities were not carried on in a businesslike manner.

"The overriding theme to arise from recent tax precedent for the horse industry is that, in order to appease the ATO, your horse business needs to be run in a commercially savvy manner," said Stable Financial Director Adam Tims.

"These recent findings illustrate that each case is different and will be assessed based on the unique facts and circumstances of that case."

"Horse businesses are expected to display commercial attributes found in other industries such as good accounting systems, strong management, inherent controls and above all else a sound business plan supported by conservative projections," said Tims.

"D'Arcy's case is a wake up call for horse breeders to give their horse business the time and resources required to improve the running and success of the operation."

Stable Financial provides a range of high quality, specialist financial and professional services to horse owners, breeders, syndicates, trainers & jockeys in Australia and overseas.

In recent years the firm has played a pivotal role in targeted ATO audits of the horse industry. Adam Tims represented Thoroughbred Breeders Australia (TBA) on these issues and helped to enable a better working relationship with the ATO and a new tax ruling for the horse industry titled TR 2008/2 that was released in May 2008.

The Firm changed its name on 1 August 2008 and was formerly known as Martin O'Connor & Partners.

"This is an exciting time for us as we look to release a new service offering to be known as "Stable Advantage" said Stable Financial Director Adam Tims.

"D'Arcy's case reinforces our long held view that horse owners and breeders need to devote more time and resources to managing and monitoring their significant investment in the horse industry."

"Stable Advantage will enable horse owners and breeders to adopt prudent business practices with a more structured management approach," said Tims.

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PLEASE CONTACT:
Adam Tims
Phone (03) 9629 3023
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