Madam, – Ciaran Mooney’s point (June 1st) that the Finance Act 2007 “enables stallion owners to claim tax relief on money they never spent” is misleading and does not reflect a full understanding of the bloodstock business.
The search for a successful stallion is a very expensive business.
Substantial sums are spent each year in breeding and acquiring foals and yearlings, putting them into training and eventually entering them into races. As race prize winnings are not significant in comparison to this cost, substantial losses are incurred each year by racehorse owners. Few racehorses prove to be successful and even fewer merit retirement to stud as a stallion at the end of their racing career.
For this reason, the State treats horse racing as a tax-exempt hobby rather than as a business for tax purposes. If it were treated as a business, horse owners (who Mr Mooney describes as “wealthy”) would be writing off big losses on horse racing against their legitimate tax bills. Far more is lost than is made in horse racing so the exchequer would be put at a substantial loss.
In contrast, horse breeding is a fully taxable business. The tax deduction in respect of a stallion that is retired from tax-exempt racing to taxable stud activities is indeed based on the current market value (rather than the original cost) of the horse at the date of retirement.
Obviously in the case of the few stallions that were very successful as racehorses, this value can be higher than the actual cost of the horse.
This excess over cost is designed partly to compensate for the non-deductible losses incurred through racing. The alternative approach considered in 2007 was to allow a tax deduction for the substantial racing losses incurred, a system that would have cost the exchequer dearly. Put simply, the current system was designed because it is the most beneficial to the exchequer and the logic that underpins it is even more relevant in the economic circumstances of today. – Yours, etc,