Conducting activities as a hobby
It is likely that you are conducting your activities as a hobby if any of the following apply:
- it is evident that you do not intend to make a profit from your activities
- you incur financial losses because your activity is motivated by personal pleasure (not profit) and there is no plan in place to show how a profit can be made
- you have no system to allow a profit to be produced when conducting your activity
- you have an intention to carry on a hobby, a recreation or a sport rather than a business or an activity in the form of a business
- you do not make commercial sales as part of your activity
- you do not make repeat or regular commercial sales
- you do not conduct your activity in the same manner as a normal, ordinary commercial activity of a similar type.
Unless you can show otherwise, your animal racing activity will generally be a hobby unless you also conduct training or breeding activities.
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Example: Activities classified as a hobby, not an enterprise
Sue enjoys racing animals as a hobby. Sue's animal wins a big race and she receives prize money of $80,000. Sue can't register for GST as she is not carrying on an enterprise, irrespective of her turnover.
End of example
Expectation of profit or gain from activities
If you conduct your racing activities as an individual or a partnership, you will not be carrying on an enterprise for GST purposes unless you have a reasonable expectation of profit or gain from your activities.
Your expectation must be more than a possibility, risk or chance that your racing activities will be profitable.
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Example 1: Activities conducted without a reasonable expectation of profit, not an enterprise
John is an individual and owns 12 horses. Of these, he uses three broodmares for breeding and he uses nine geldings for racing.
John purchased his racing stock, therefore his racing and breeding activities are not connected.
John's racing horses have won four races in the last year and he has received total prize money of $50,000. However, John's racing expenses exceed his income. John's broodmares are by sires with very limited success at stud and in racing (one sire won a country maiden race) and none of the mares have any black type in the first four generations of their pedigree.
Including stud and agistment fees, each foal costs John $27,000 before the foal is sold at a yearling sale. As the quality of John's mares will not secure a listing in a premier yearling sale, the sale price of each foal does not cover his costs.
As John has no reasonable expectation of profit from his breeding or racing activities, neither activity is conducted as an enterprise.
Example 2: Activities conducted without a reasonable expectation of profit, not an enterprise
Bob owns several greyhounds and engages a trainer to train and care for them while they are racing. The trainer does not charge Bob a weekly training fee, but rather Bob has entered into an arrangement whereby the trainer is entitled to 50% of any prize money won for training the greyhounds.
Bob doesn't keep a record of all his expenses, however, he has recorded how much each greyhound cost to purchase and how much prize money he has won. To date, Bob has not won sufficient prize money to cover the cost of purchasing his greyhounds. If a greyhound is not good enough to win races, he provides the animal for adoption by a caring family at no charge.
Bob is not considered to be carrying on an enterprise because, as an individual, he does not have a reasonable expectation of profit. This is because racing greyhounds is generally considered to be an unprofitable activity.
End of example