2006 legislation amends the bloodstock write-down rates relating to stallions and broodmares.

Sections EC 39, EC 40, EC 41, EC 42, EZ 4B and EC 4C of the Income Tax Act 2004

Write-down rates have been increased for stallions not previously used for breeding in New Zealand and for broodmares. Stallions not previously used for breeding in New Zealand will be written down over two years under the straight-line method, and the diminishing value rate will be 75%. Broodmares will be written down over varying periods depending on the age of the mare when first bought or brought into breeding, with older brood mares (aged eight or over when first used for breeding) written off in full in one year. These write-down rates will apply to bloodstock bought or brought into breeding on or after 1 August 2006.

Background

Stallions not previously used for breeding in New Zealand were previously written down over four years under the straight-line method, or at a diminishing value rate of 37.5%. Broodmares were previously written down over varying periods depending on the age of the broodmare when first brought into breeding. The effect was to write down broodmares not previously used for breeding in New Zealand over a maximum of eight years and a minimum of three years, and for broodmares previously used for breeding in New Zealand, a maximum of nine years and a minimum of three years.

Key features

The new write-down rates for bloodstock are in sections EC 41 and EC 42. Write-down rules for bloodstock that was bought or brought into breeding before 1 August 2006 are contained in new sections EZ 4B and EZ 4C. The effect is to transfer the old rules for bloodstock writedowns to a Terminating Provisions subpart of the Income Tax Act 2004, and to allow the new write-down rules to be used only for bloodstock brought into breeding on or after 1 August 2006.

Section EC 41 applies to bloodstock not previously used for breeding in New Zealand. Section EC 41(2) sets the annual reduction for stallions at 50% of the cost price of the stallion, unless the stallion is valued by the reducing value method. Section EC 41(3) sets the reducing value rate at 75%. The annual reduction for stallions previously used for breeding in New Zealand is set in section EC 41(1) at 20% of cost price.

The formula for broodmares not previously used for breeding in New Zealand is in section EC 41(6). The formula generates the annual amount to be used for writing down the broodmares to which it applies:

1.25 x cost price of broodmare
9 – age of broodmare

The age to be used in the formula is set in section EC 41(7). It is the age of the broodmare when first used for breeding, or if the broodmare is eight years of age or older, then the "age of broodmare" is set at eight.

The effect of this formula is to write down broodmares over a maximum of six years (for broodmares who begin breeding at age two), with broodmares aged eight and older written down in full in the year they are first used for breeding.

The formula for broodmares which have previously been used for breeding in New Zealand is in section EC 42(4). The formula generates the annual amount to be used for writing down the broodmares to which it applies:

cost price of broodmare
9 - age of broodmare

The age to be used in the formula is set in section EC 42(5). It is the age of the broodmare when it is first used for breeding, or if the broodmare is eight years of age or older, then the "age of broodmare" is set at eight.

The effect of this formula is to write down broodmares which have previously been used for breeding in New Zealand over a maximum of seven years (for broodmares who begin breeding at age two), with broodmares aged eight and older written down in full in the year they are first used for breeding.

Sections EZ 4B and EZ 4C contain the rules for writing down bloodstock that was brought into breeding before 1 August 2006. These rules have not changed. Tax Information Bulletin, Vol. 14, No. 11 (November 2002) contains an explanation of these rules.

Application date

The new rules apply to bloodstock brought into breeding on or after 1 August 2006.