IRD advised against good looking racehorse tax break

IRD advised against giving tax breaks to the race horse breeding industry nine years ago, as they did recently, this time warning it could cost ten times what Winston Peters has suggested. But the Government went ahead with the only tax cut included in this year’s budget.

Stuff: Officials warned against racing tax breaks

Inland Revenue officials have warned against tax breaks for the racing industry, saying they could cost the Crown up to $40 million in lost revenue – but the Government is proceeding regardless

NZ First and its leader Winston Peters had been backed at the election by prominent racing industry figures, who demanded those bloodstock tax breaks, as well as an all-weather track and control of the NZ Racing Board.

Peters’ policy was a big win for the racing industry, because they had failed to convince the previous National Government to implement the tax relief. Inland Revenue documents seen by Stuff warn of the potential for race horse owners to game the system.

Officials saw no need for tax relief to the industry, but worked on tax rule changes with tighter restrictions. But that policy was dismissed by industry players just before the election.

Peters’ policy allows tax deductions for an investor who buys a race-horse and declares an “intention to breed for profit.” He said it would cost $4.8m.  He’d previously tried to introduce the deductions when racing minister in the previous Helen Clark government.

Details of Peters’ new policy are vague. But a strikingly similar proposal was advanced by the Racing Board last year. Officials cautioned against it because the deductions could be claimed even if a breeding business never eventuated.  The Racing Board believed the policy would cost around $5 million a year.

IRD didn’t accept that figure and put the cost at around $40 million a year because it had the potential to apply to an extra 7000 horses a year.

My mother loved horses and every one of them looked good to her. It wouldn’t be hard to find someone who has an eye for good looking horses – which could be any that apply for the tax break.

I don’t know where the ‘7,000 horse a year’ come from – NZ Racing: “In 2015-16, the industry produced 3500 foals and exported 1700 horses”.

Stuff;

Former Revenue Minister Judith Collins confirmed she couldn’t reach agreement with the Racing Board. She said a 2013 court case involving IRD and a racing syndicate, known as Drummond vs the Commissioner of Inland Revenue, made it difficult to implement the tax breaks that the industry was asking for.

“I wouldn’t have or couldn’t have opened up a complete change in policy without actually complying with the law. The law was pretty clearly stated in [that case] that just buying a horse and hoping you might breed from it one day was not actually a business.”

Collins said she would be “deeply surprised” if Peters wasn’t given the same advice. “It does smack of a lack of rigor when it comes to policy development.”

A similar claim from former revenue Minister Peter Dunne.

Peters said:  “The same arguments against bloodstock tax rules were raised during my previous tenure as Racing Minister, they were false then and they are false now.  The evidence comes from when the previous Finance Minister Michael Cullen agreed to a similar approach and the positive impact that generated for the industry.

What would the IRD and previous Revenue ministers know.

“There are legitimate reasons bloodstock tax investment helps create investment in horse racing which in turn will generate greater revenue for the taxpayer.  It will become fiscally positive.

“The National Party has been naïve and poorly managed the racing industry, nor did it maintain the previous rules on tax write downs.  The racing industry has become at best static and has not been achieving its genuine potential. The bloodstock tax write downs announced in Budget 2018  help attract new investors to the breeding industry.  And next year’s Yearling sales at Karaka will be one to watch.”

Peters’ party got vocal and financial support at the election from industry players. ​

With the tax breaks he has given them there could be more spare cash available for donations and campaign assistance.

See Bloodstock tax rules to change

Minister for Racing Winston Peters today announced changes to bloodstock tax rules for the New Zealand racing industry as part of Budget 2018.

“The Budget allows $4.8 million over the next four years for tax deductions that can be claimed for the costs of high-quality horses acquired with the intention to breed”.

“These changes mean that a new investor in the breeding industry will be able to claim tax deductions for the costs of a horse as if they had an existing breeding business. To qualify, the horse must be a standout yearling.”

Yearlings don’t race. I don’t know how it will be decided if a yearling is a stand out so it qualifies for the tax break. This hadn’t been decided by budget time a month ago.

Stuff: NZ First gets tax change for race horse investors through the gates

Each yearling would need to be assessed based on the “virtue of its bloodlines, looks and racing potential”.

“Further consultation with the industry will be undertaken to finalise policy settings, draft legislation and set up administrative processes,” a statement released by Peters said.

Will IRD get to determine “virtue of its bloodlines, looks and racing potential”, or will ‘the industry’ be allowed to decide this for themselves?