The first tax issue to consider with owning a racehorse is whether you are operating as a hobby or a business. Generally, it is difficult to demonstrate to the ATO that you have a racing business unless it is associated with breeding or training activities and is of significant scale.
The tax benefits of owning a racehorse(s) as a hobby include:
- All winnings are not taxable.
- Non-residents are not taxed on any capital gains made.
- Horses owned for more than 12 months receive the 50% CGT discount on sale.
- Capital gains tax exemption applies if the horse, or share in the horse, costs $10,000 or less.
- Racehorses (as personal use assets) do not form part of the small business CGT concession 'net assets' calculation.Normal capital losses can be offset against a capital gain on a racehorse sale.
The tax benefits of owning a racehorse(s) as a business:
- Refund of the GST on buying racehorses and associated business costs.
- Tax deductions from conducting a racing business.
- Small business CGT concessions apply.