Racing: IRD blamed for sales downturn

Photo / Thinkstock

The biggest spender at Karaka this year says New Zealand's taxation department must take some blame for falling bloodstock sales.

Te Akau Racing boss David Ellis believes new investment in the bloodstock industry is being stifled by the tax department with its interpretation of depreciation rules.

The value of yearling sales at Karaka in South Auckland have fallen in each of the past six years, reaching $69.7 million last month, down from $111.2 in 2008.

The number of catalogued horses has fallen 12 per cent in that time and actual lots bought are down 18 per cent.

Ellis, principal of Waikato-based Te Akau Racing stables, spent $6.8 million on 43 horses at Karaka last month, almost $3 million more than the second-largest buyer.

He was behind an investor syndicate that last year lost a High Court case against the Inland Revenue Department (IRD) over depreciation on a colt that disappointed as a potential breeder and ended up being gelded.

Ellis told BusinessDesk that IRD needs to take some of the blame for the decline in sales because of a lack of clarity over tax on horses bought for breeding.

"It is so uncertain on what you can and can't do, and this is a big statement from Karaka's biggest buyer.

"We are desperate as an industry for government to clarify tax issues, for example Michael Cullen [Finance Minister in the last Labour Government] increased depreciation on bloodstock to encourage investment.

"But the legislation is so unclear no one knows what to do."

Investment syndicates typically buy a horse with the intention of breeding but to establish pedigree and reputation they first put it on the racing circuit. Last year's High Court ruling held that because the syndicate had no previous breeding record, IRD could disallow any deductions until foals had been sired.

"Whether that's fair or not, no one is able to write off the costs unless they have a pre-existing breeding business," Andrew Babbage, a tax partner at Deloitte, told BusinessDesk.

Those deductions weren't available to one-off syndicates, which would potentially bring in new investors. AAP