Private ruling: Assessability of income from racing activity
Published: August 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Do you have to declare the prize money from your racing activity as part of your assessable income? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Detailed Reasoning - Carrying on a business: Section 995-1 of the Income Tax Assessment Act 1997 defines business as including any profession, trade, employment, vocation or calling, but not occupation as an employee. The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the facts provided. Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes. In the Commissioners view, the factors that are considered important in determining the question of business activity are: · whether the activity has a significant commercial purpose or character · whether the taxpayer has more than just an intention to engage in business · whether there is regularity and repetition of the activity · whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business · whether the activity is planned, organised and carried out in a businesslike manner such that it is described as making a profit · the size, scale and permanency of the activity, and · whether the activity is better described as a hobby, a form of recreation or a sporting activity. No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a business is carried on depends on the large or general impression. Taxation Ruling TR 2008/2 sets out the Commissioner's view on the question of whether the racing of horses as a stand alone activity can constitute the carrying on of a business. These same principles could be applied to other animal racing. 28. In the Commissioner's view, the racing of horses as a stand alone activity would not amount to the carrying on of a business if either one of the following significant non-business features were present: · a significant element of chance – meaning that whether or not a profit is made will depend largely on considerations other than system and organisation of the tax payer; and · the activities are no more than the mere pursuit (albeit vigorous in many cases) of a hobby, recreational pursuit or pastime. 29. To overcome the non-business features described above, the Commissioner considers that the taxpayer would need to demonstrate that: · There is a system and organisation, rather than chance, driving the prospect of profit, which is consistent with a business; and · There is a reasonable expectation that the activity will be commercially viable within a timeframe consistent with industry standards. 30. In assessing commercial viability, it is emphasised that a genuine intention to make a profit does not of itself establish a reasonable prospect of making one. | Detailed Reasoning - Application to your circumstances: We consider that you are not carrying on a business of animal racing for tax purposes. You breed animals for your own use and not for resale. You are involved in the training and race animals with the intention of winning a share of the prize money. You purchase some young animals to race and these may be used for breeding at the end of their racing careers to introduce new bloodlines and reduce interbreeding defects. You have been involved in the industry for a long period of time. You have been racing this number of animals over a long period and intend to continue with this number into the future. It is considered that a large number of animals would be required to consider someone to be carrying on a business. Even in that situation it does not change the activity from being a game of chance, but you may be able to increase average prize money. You consider that your activity relies purely on chance and is therefore a hobby. You do little research into breeding, mainly using your own animals. You keep limited records regarding breeding, performance and financial records. The income from your racing activity is not assessable and the related expenses cannot be claimed as deductions.

Relevant facts: You have registered stud animals and females. Only one stud animal is commercial (receive service fees), all other animals are used to breed to race (not bred to sell). | You currently have a number of young animals, two of which were purchased. | Young animals are purchased and raced when they are older. Animals retired from racing are used as stud animals. | You do not pay for any expenses associated with the animal during training/racing, for example food or nominations, these are covered by the trainer. If the animal wins the trainer gets a percentage of the prize money. | The breeding income/expenses have been declared in previous tax returns. | For the last three years you have had a small number of stud animals. Racing animal numbers have grown. Successful racing animals may become stud animals at the end of their racing career. | Stud fees are dependent on the proven track record of the animals racing career. Not all race animals will be kept for breeding purposes nor will all stud animals be commercially viable. You will often have a few stud animals at any given time that are commercially viable. | Your intention is to predominantly own and race animals. Breeding is conducted to support the replacement of the animals. Stud fees are limited and only conducted when you have a commercially viable animal. | You are a registered owner / trainer. | You spend a total of x hours per week on duties associated with the animals. About half of this time is spent travelling to the track. | Your intention is to buy or breed animals to win prize money. Purchased animals may be used for breeding at the end of their racing career to introduce new bloodlines and reduce interbreeding defects. | Very limited records are kept regarding breeding, performance and financial records. | Very limited research has been done on breeding.