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QB 11/02: Deductibility of expenditure incurred by bloodstock breeders in respect of horses that they race

Section DW 2 of the Income Tax Act 2007


We have been asked to clarify the deductibility of expenditure incurred by bloodstock breeders in respect of horses that they race, or prepare for racing, as part of their breeding business.


A person who is in the business of breeding bloodstock and races 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.


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.

Viewed in isolation, the effect of this subsection would mean that any costs incurred in racing a horse would not be 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; 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 dependant 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.

This item corrects Public Information Bulletin No.162, Part III - Bloodstock, April 1987 ("the PIB"). To the extent that the PIB could imply that feeding, maintenance and agistment costs are deductible even when the horse is not being raced as part of the breeder's breeding business, but as part of the breeder's racing activities (as a hobby for instance), it is incorrect.