How the ATO can upset your day at the races

The Australian Tax Office (ATO) takes an aggressive and strict approach in respect of the GST consequences of engaging in activities in the Horse Industry, particularly racing, but also breeding, training and agistment.

Frequently the ATO will refuse applications to register for GST from individuals and corporations involved in the Horse Industry, or cancel existing registrations, on the basis that they are not carrying on an ‘enterprise’ or a business. Consequently, these individuals and companies are not entitled to claim GST incurred on the costs associated with their activities.

The ATO may be correct in refusing some registrations as the activities carried out are not in the form of a business, but the activities are engaged in as a hobby or for enjoyment. However, in many cases we have been able to demonstrate that the ATO has incorrectly asserted that the activities being undertaken were not in the form of an enterprise (thereby unfairly denying an enterprise the right to claim input tax credits). There has also been several Court and Tribunal decisions found in favour of the taxpayer.

The issue of whether an entity (which includes individuals, partnerships and corporations) is carrying on an enterprise is not black and white; it depends on the nature and form of the activities carried out, and related factors. Some of these are subjective, whilst others are dependent on the availability of evidence, business records and business plans. Further, the ATO will look at the way the activities are organised from a financial point of view, including the basis for acquiring certain assets, the amount of capital required, and the intention and likelihood of making a profit.

Of course, where it can be shown that an entity is carrying on an enterprise, and is subsequently registered for GST, that entity must account for and pay GST on the taxable income that is received by submitting regular Business Activity Statements to the ATO. Consequently, not everyone involved in the Horse Industry would want to argue that it is carrying on an enterprise.

However, for those entities that believe that they are carrying on a business/enterprise and are perhaps experiencing difficulties with the ATO, Grant Thornton can help.

Grant Thornton has a number of experienced Indirect Tax specialists across Australia who regularly advise on such matters, and negotiate with the ATO. Further, Grant Thornton has an excellent track record in dealing with the ATO on behalf of clients in the Horse Industry.

If any of the above has struck a chord with you, we would be delighted to hear from you so that we can determine how best to work with you to achieve your commercial objectives.

Author: John Davison, October 2008

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