How to determine the cost price of bloodstock

Section added 23rd September 2021

Some three months ago the IRD consulted the equine bloodstock taxation group on a draft proposal around determining the cost price of bloodstock. At NZ Standardbred Breeders Association we circulated it among our members. The result is a formal IRD response to their ‘Questions We’ve Been Asked’.

There appears to be nothing controversial in the response: it is consistent with good bloodstock taxation practice of the last couple of decades.

View the IRD response here.  Any questions, please feel free to email John Mooney at NZSBA.

Income Tax on Bloodstock


The taxation of bloodstock for breeding has become extremely complex. The law and practice now depends upon a number of circumstances. There are on-going policy discussions on these matters.

The NZ Standardbred Breeding Association (NZSBA) is deeply engaged in working with the Inland Revenue Department (IRD), Racing Industry Transitional Agency (RITA, previously the NZ Racing Board), the thoroughbred code, thoroughbred breeders, HRNZ and select bloodstock taxation experts in trying to bring greater certainty to both the law and practice.

The IRD has issued Question We’ve Been Asked documents on taxation and GST for new investors. For some time industry has been in discussion with the IRD on these policy documents. Several proposal are unsatisfactory as they stand.

Prior to the 2020 General Election, NZSBA worked with the NZ Thoroughbred Breeders to produce a policy platform addressed to all political parties on the needs to reform bloodstock taxation. This has now been converted into a submission to the Ministers for Racing and Revenue, asking that this agenda be included on the government’s taxation reform program for 2021.  The election policy submission can be read here.

General overview

Under section DW 2(1) of the Income Tax Act 2007 (“the Act”) a person is denied a deduction for expenditure or loss they incur –

  • on the racing of bloodstock; or
  • in relation to the racing of bloodstock.

Historically, a person who is in the business of breeding bloodstock for profit was treated the same as any other business. The intent to make a profit was critical. Special provisions within the Income Tax Act 2007 (the Act) apply to breeding especially for accelerated depreciation for mares and stallions.

Breeders racing horses as part of that business (for example, to enhance the value of those horses, or the stud), can claim a deduction for non-race related (“holding”) costs, but none of the costs more directly associated with racing these horses.

Viewed in isolation, the effect of the general denial of deductions for racing is that any costs incurred in racing a horse are not deductible. This would include not only those costs directly attributable to racing the horse, but also those costs that would be incurred irrespective of whether the horse was being raced.

A limited exception to this general rule is provided by section DW 2(2) of the Act. This applies when a horse is being prepared for both racing and sale by a breeder; for instance, the horse is being prepared for a “ready to race” sale. In this circumstance, if a breeder incurs expenditure that is preparatory to the racing and sale of the horse, that expenditure will be deductible so long as the breeder does not actually go on to race the horse for stake money.

Further, where a person is in the business of breeding bloodstock, any expenditure incurred in carrying on that business will be deductible in terms of the general deductibility provisions of subpart DA of the Act. Where horses are raced by a breeder as part of the breeding business a deduction will be permitted in respect of those costs that would ordinarily be incurred by the breeder, irrespective of the fact that the horses are being raced. Examples of these “holding costs” are insurance, non-race feed and veterinary costs, and agistment.

However, any costs more directly related to the racing of these horses will not be deductible by virtue of section DW 2(1) of the Act. Examples of these “direct” racing costs are the racing proportion of the trainer’s account, track fees, nomination and acceptance fees, riding/driving fees, race day transportation, race feed and veterinary costs.

Invoices received from trainers may contain both “holding” and “direct racing costs”. The proportion of the trainer’s account that will be deductible in these circumstances will be dependent on the particular circumstances of the case and in particular, whether there is a factual basis for the apportionment of the expenses. Unless there is a factual basis for apportionment, no deduction will be able to be claimed by the breeder.

Conversely, upon the sale of breeding stock will be assessible income.

2018 high-priced yearlings – new investor incentives

In 2018 a special taxation arrangement was enacted for high-priced yearlings to encourage new investors – read about it here. This scheme is under review (March 2020) and will not be discussed here. IRD is preparing advice to ministers on the future of the scheme.

Advice available

NZSBA provides advice for breeders and their tax advisers. Please feel free to get into contact with the Executive Manager. We repeat our opening, bloodstock taxation is complex. Changes are likely in the foreseeable future. Expert advice should be sought.