Explanatory note
This Supplementary Order Paper inserts new clauses amending the Tax Administration Act 1994 and the Income Tax Act 2007.
Under current law, a person who acquires bloodstock for breeding must have an existing bloodstock breeding business to qualify for tax deductions in relation to the bloodstock.
The proposed amendments will enable new investors in certain bloodstock yearlings to claim tax deductions in relation to that bloodstock, as if they had an existing bloodstock breeding business, where they notify the Commissioner of Inland Revenue of their intention to use the bloodstock for breeding bloodstock for profit in the future and provide the information required by the Commissioner. Only bloodstock sold at a premier yearling sale for an amount above a price threshold set for the calendar year in which the sale occurred are proposed to qualify.
The objective is to encourage new investment in the New Zealand racing industry and ensure that New Zealand horses can compete with the best in the world.
New clause 98B inserts new section 225AB into the Tax Administration Act 1994 to enable new schedule 18B of the Income Tax Act 2007, which lists the names of premier yearling sales, to be amended by Order in Council.
New clause 119B inserts new sections CG 8B and CG 8C into the Income Tax Act 2007 as integrity measures, which treat a prospective bloodstock breeder as deriving income equal to the greater of all previous deductions and the market value or sale price, as applicable, if their high-priced bloodstock is removed from New Zealand or sold to a non-resident without first racing or breeding in New Zealand.
New clause 133B amends section EC 39 of the Income Tax Act 2007 to ensure that prospective bloodstock breeders are able to write down the cost of their stud-founding bloodstock over time for income tax purposes.
New clause 133C inserts new section EC 39B into the Income Tax Act 2007 to define stud-founding bloodstock, high-priced bloodstock, prospective bloodstock breeder, premier yearling sale and national minimum price threshold.
New clause 133D replaces new section EC 39B(5) of the Income Tax Act 2007 after a year to update the definition of national minimum price threshold to refer to the threshold set for a calendar year by the Commissioner under new section EC 39C.
New clause 133E inserts new section EC 39C into the Income Tax Act 2007 to require the Commissioner to set and publish a national minimum price threshold for a calendar year for each of 4 classes of bloodstock before the first premier yearling sale in that year is held and to prescribe the calculation method the Commissioner must follow.
New clause 133F inserts new sections EC 47B to EC 47E into the Income Tax Act 2007. New section EC 47B provides that a prospective bloodstock breeder is treated as having disposed of their high-priced bloodstock if it is removed from New Zealand without first racing or breeding in New Zealand. New section EC 47C treats prospective bloodstock breeders as carrying on a bloodstock breeding business, ensuring they can claim tax deductions for expenditure relating to their stud-founding bloodstock. New section EC 47D provides that a prospective bloodstock breeder is treated as having disposed of their high-priced bloodstock at market value if they no longer intend to, or expect to be able to, use it for breeding. New section EC 47E establishes a mechanism that enables a prospective bloodstock breeder who establishes an actual breeding business to subsume their stud-founding bloodstock into that business and have the proposed integrity measures no longer apply.
New clause 151BA inserts new section EZ 6B into the Income Tax Act 2007 to set the national minimum price threshold for the 2019 calendar year for each class of bloodstock.
New clause 214B inserts new schedules 18B and 18C into the Income Tax Act 2007, set out in new schedule 1B, which list the names of premier yearling sales and the breeds and classes of bloodstock for the purposes of the proposed rules.
Amendments to clause 2 provide for an application date of 1 January 2019 for most of the proposed amendments, and an application date of 1 January 2020 for the proposed amendments that relate to the Commissioner being required to set and publish the national minimum price threshold each calendar year. Amendments to clause 213 insert 5 new definitions into section YA 1 of the Income Tax Act 2007.
Departmental disclosure statement
The Inland Revenue Department is required to prepare a disclosure statement to assist with the scrutiny of this Supplementary Order Paper. The disclosure statement provides access to information about any material policy changes to the Bill and identifies any new significant or unusual legislative features of the Bill as amended.
Regulatory impact assessment
The Inland Revenue Department produced a regulatory impact assessment on 11 September 2018 to help inform the new policy decisions taken by the Government relating to the contents of this SOP.
A copy of this regulatory impact assessment can be found at—