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26 May 2017

Commissioner’s operational position on horse racing syndicates incorrectly registered for GST

2017 statement informs taxpayers of the CIR's operational position in relation to horse racing syndicates incorrectly registered for GST.

The purpose of this item is to inform taxpayers of the operational position being adopted by the Commissioner in relation to this matter.

The Commissioner has released QB 17/04: Goods and Services Tax – Whether a racing syndicate can be a registered person. This Question We’ve Been Asked (QWBA) confirms the Commissioner’s view on when a horse racing syndicate can register for GST.

The Commissioner is aware that some horse racing syndicates have incorrectly taken the view that they are carrying on a taxable activity and have registered for GST. The Commissioner does not require these taxpayers to retrospectively deregister. However, taxpayers that are not carrying on a taxable activity must deregister with effect from 30 June 2017.

On deregistration a taxpayer must return GST on the market value of any goods and services that they retain that formed part of their taxable activity (s 5(3) of the Goods and Services Tax Act 1985). The main (or, in most cases, sole) asset held by racing syndicates is likely to be the racehorse.

The legislation requires a taxpayer to determine the market value of their horse. The Commissioner has given consideration as to how taxpayers’ compliance costs occasioned by this can be minimised, and is consequently willing to allow a number of options for determining market value. These include:

  1. obtaining a professional valuation;

  2. making a reasonable estimate of the market value. The estimate should be based on objective factors (such as the horse’s race results and sales data of similarly bred horses (with similar race results)). The taxpayer should keep documentation supporting the estimate so that it can be made available at the Commissioner’s request; or

  3. amortising the cost of the horse equally over a three-year period. As race horses generally decline in value over their racing life, the Commissioner will accept this method as a reasonable approximation of market value. The Commissioner is allowing taxpayers to use this method to reduce the compliance costs that may otherwise be involved in establishing the market value of a horse that in many situations is likely to be relatively small. As such, the Commissioner will only accept the use of this method where the original cost of the horse was less than $50,000. In addition, taxpayers cannot use this method when they have reasonable grounds to believe that the market value of the horse is materially greater than the amount calculated under this method. When using this method, market value can be calculated as follows:
Years horse owned MV as % of cost
0 - 1 100%
1 - 2 66.6%
2 - 3 33.3%
3+ 0%

The taxpayer can choose which of the three methods they prefer for valuing a horse. If a taxpayer has any other assets that formed part of their racing activity they should use a reasonable estimate of market value. If you have any queries about deregistration, please contact Diane Trillo on (07) 959 0272.