Common issues for breeders of animals include:
Animal breeding activities as an enterprise
If you breed racing animals, you will need to assess whether your breeding activities are an enterprise. It is unlikely that you are conducting activities as an enterprise if you:
- do not sell the progeny for a price that will more than cover the cost of your breeding activity, or
- retain the bred progeny rather than sell them commercially.
It is likely that you are conducting your breeding activities as an enterprise if you:
- sell racing animals you have bred for prices that exceed your breeding costs on a commercial basis
- have broodmares or bitches with black type quality in their recent bloodlines and you breed with similar quality sires
- conduct your activities in a business-like manner and you keep records using an appropriate system
- conduct your breeding activities in a similar manner to those of other commercial breeders
- combine your breeding activities with other enterprise activities associated with the racing industry (for example, training), or
- combine your breeding activities with assets owned or controlled in relation to breeding.
If you also race animals, you will need to consider whether your racing activities are an enterprise.
Working out GST turnover
If you own broodmares or bitches and carry on an enterprise of breeding race animals, you are making taxable supplies when you sell the progeny. Your GST turnover from your breeding activities includes all payments you receive when you sell the progeny and any payments you receive through breeder incentive schemes that result from the progeny winning specified races.
If you own stallions or stud dogs and carry on an enterprise of providing stallion/stud dog services, you will make taxable supplies when you provide those services to owners of broodmares/bitches. Therefore, your GST turnover from your breeding activities includes all payments you receive by way of stallion/stud dog service fees and any payments you receive through breeder incentive schemes that result from the progeny of your sire winning specified races.
In the horse racing industry, breeders may enter into foal sharing agreements. Whilst there are several varieties of foal sharing agreements, in general, they are contracts for the sale of stallion services. For example, an owner of a stallion may supply a stallion service to the owner/lessee of a broodmare in exchange for part or full ownership of the foal, or a right to a percentage of the sale proceeds of the foal.
A foal sharing agreement may stipulate other obligations such as:
- where the foal is agisted after weaning
- who pays for the maintenance costs of the foal and broodmare
- who prepares the foal for sale, and
- where and when the foal is sold.
If you enter into a foal sharing agreement, it is important that you consider:
- what type of entity/entities own the foal
- whether the owners are carrying on an enterprise for GST purposes
- whether the owners are conducting transactions for GST purposes, and
- what happens if a foal is owned jointly by a GST-registered and a non-GST registered entity.
Entity or entities that own the foal
If you enter into a foal sharing agreement with another entity, you will need to consider whether:
- you have formed a new entity (such as a partnership) under the terms of the agreement
- you are simply one of two entities with an ownership interest in the same foal, or
- the agreement is a joint venture. If so, you may apply to be treated as a GST joint venture, provided certain conditions are met.
- See also Identifying your entity type .
Foal sharing as an enterprise
After determining the type of entity you are operating as, you then need to work out whether you are carrying on an enterprise for GST purposes.
It is important to remember that transactions for GST purposes do not always take the form of an exchange of money for goods or services. With this in mind, entities (such as owners of broodmares or stallions) carrying on an enterprise commonly exchange goods and services for other goods and services.
If you enter into a foal sharing agreement and you conduct transactions such as these, it is important that you account for the GST on these non-monetary transactions.
Example: Foal sharing agreement
Tim is a GST-registered breeder who owns a stallion that he uses for breeding purposes. For each stallion service supplied, Tim charges a stud fee of $11,000 including GST.
Janine (a GST-registered broodmare owner) enters into an agreement with Tim for him to provide a stallion service in exchange for 50% ownership of the resulting foal, rather than charging the usual stud fee.
For GST purposes, Tim has made a non-monetary transaction. That is, he has made a taxable supply of the stallion service that he reasonably values at $11,000 in exchange for 50% ownership of the foal. Tim must now pay GST of $1,000 (one-eleventh of $11,000) to the ATO.
Janine has purchased a stallion service for her brood mare at a cost of $11,000 and would be entitled to a GST credit if she held a tax invoice from Tim.
Janine has also made a non-monetary transaction. That is, she has made a taxable supply of 50% ownership of the foal ($11,000) in exchange for the stallion service. Janine will also need to pay GST of $1,000 (one-eleventh of $11,000) to the ATO.
Tim has made an acquisition of 50% ownership of the foal for $11,000, and would be entitled to a GST credit if he held a tax invoice from Janine.
End of example
GST-registered and non-GST registered entity
If you have entered into a foal sharing agreement, you need to consider the amount of GST you should account for based on your GST registration status.
For example, if two separate entities each own 50% of a foal and only one of the entities is registered or required to be registered for GST, when the foal is sold, only the GST-registered entity will need to account for GST on the sale (50% of the total sale price).
GST joint ventures
On occasion, parties to a foal sharing agreement may apply to be treated as a GST joint venture provided certain conditions are met. Members of a GST joint venture must:
- nominate a joint venture operator (JVO)
- participate in, or intend to participate in, the joint venture
- be a party to a joint venture agreement with the other participants
- be registered for GST, and
- account on the same basis as all the other participants.
Where the JVO is not a party to the joint venture agreement, the JVO must:
- be registered for GST purposes, and
- account for all GST credits and liabilities arising in the course of the activities of the joint venture.
If one or more parties of the foal sharing agreement is not registered for GST or accounts on a different basis, you are not eligible to apply to be treated as a GST joint venture.
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