Conducting activities as an enterprise
If you are an owner, trainer, jockey, driver or breeder in the racing industry, you may be conducting an enterprise for GST purposes.
The definition of an enterprise for GST purposes is broader than the definition of a business for income tax purposes. Therefore, it is possible for you to be carrying on an enterprise for GST purposes, yet not considered to be a business for income tax purposes.
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Determining whether an activity is an enterprise or not depends on the individual circumstances of each entity. The activities of one entity may be similar to another entity; however the intentions of the activity and the way the activity is conducted may be different in each case.
Example: Activities conducted as an enterprise
Peter has been a horse breeder for several years. Peter owns two broodmares that he keeps on a property he owns when they are not in foal. Peter uses the knowledge he has gained over a long period to select and purchase additional mares to replace those that are no longer suitable for breeding.
Peter sends his mares to a stud property to be covered by a well known stallion and pays a substantial amount for the stallion service fees. When in foal the mares remain at the stud property and are cared for by the stud master. The resulting foals are sold each year at a major yearling sale and a reserve of at least $80,000 is placed on each foal. By placing a reserve on each foal, Peter ensures he covers all his costs in breeding the foal and allows a significant profit to be made from the sale.
Peter keeps detailed records to account for his breeding activities. Peter opened a separate bank account to pay expenses and deposit income as a result of his breeding activities.
As Peter pays substantial stud fees and makes a significant profit from his breeding activities, his activities can be considered an enterprise.
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Working out if your activities are an enterprise
The following flow chart will help you work out if you are conducting your racing industry activities as an enterprise.
Flow chart: Working out if your activities are an enterprise
1. Are you an owner, lessee, trainer, jockey, driver or breeder?
Yes – go to question 2
No – you are not carrying on an enterprise for the purposes of the activities referred to in this guide.
2. Do you conduct your activities as:
If you answer Yes to any of these questions, you are not carrying on an enterprise for the purposes of GST.
No – go to question 3
3. Do you conduct your activities:
- in the form of a business
- in the form of an adventure or concern in the nature of trade, or
- on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property?
If you answer Yes to any of these questions, it is likely that you are carrying on an enterprise for GST purposes.
No – it is not likely that you are carrying on an enterprise for the purposes of the activities referred to in this guide.
The enterprise status of an entity can change over time. For example, an individual may start off as a hobbyist, but over time put more time, effort and expertise into their ownership interests or training activities. The entity will need to assess their activities regularly and, at some point, may change from a hobbyist to an enterprise. (See also Conducting activities as a hobby)
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End of find out more
- Find out more
- MT 2006/1External Link The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian business number (ABN)
Conducting multiple activities
If you conduct more than one activity in the racing industry (for example, you are a trainer, breeder and owner of racing animals), you must consider each activity separately when determining if the activity is an enterprise.
Similarly, if you conduct a business outside the racing industry and you conduct racing activities, you are conducting two separate activities. Therefore, your racing activities may not necessarily be an enterprise. You must look at each activity separately and work out if you are conducting either activity as an enterprise.
Example: Conducting multiple activities
John is a sole trader and operates a grocery store. He enjoys going to the races and placing a few bets. John decides it would be fun to race his own animal, so he purchases an animal and races it. John must look at his animal racing activity separately from his grocery enterprise in determining if his racing activity is conducted as an enterprise.
Given the unprofitable nature of racing animals, John would not have a reasonable expectation of profit or gain. Also, John's interest in racing is more an enjoyable pastime and may be a private recreational pursuit or hobby. Therefore, while John is entitled to GST registration for his grocery enterprise, he is not entitled to GST registration for owning and racing animals.
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