Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 4

Taxation of stallion profits and gains

Overview

This Chapter contains the framework of the taxation arrangements for stallion stud fee income earned after the tax exemption ends on 31 July 2008. The Chapter was commenced by Order of the Minister for Finance on 27 May 2008.

In broad outline the framework of the legislation is as follows:

  • Stallions are to be treated as stock in trade. This means income from stud fees and profits or gains from the sale of stallions are fully taxable. Corporate owners of stallions will be taxable at 12.5%. Individual owners will be taxed at their marginal income tax rate, whether that is 20% or 41%.
  • A full write-off over 4 years of the initial market value of the stallion is allowed for tax purposes. This includes stallions purchased for stud purposes as well as those transferred from racing. Even without this provision the cost of a stallion would be allowed as a deduction upon its disposal or death. Upon the disposal or death of a stallion the balance of any amounts not yet written-off will be immediately given with the full amount of any payments received on disposal being taxable.
  • This write-off arrangement will be available to both stallion owners actively involved in bloodstock breeding as well as syndicate members, although in the latter case, losses from this business will be ring-fenced so that they may only be carried forward against future stallion stud fee income.
  • Transitional arrangements provide for the valuation on 1 August 2008 of the existing stock of stallions at stud. The 4 year write-off is based on this valuation going forward for these stallions.
  • The high earners restriction, introduced in the 2006 Finance Act, will apply to stallion stud fee income for 2007 and the period up to 31 July 2008. Any additional income tax paid in respect of stallion stud fee income will be available as a credit against future years’ income tax. The corresponding deduction which would otherwise be available under the high earners restriction will be denied in these circumstances. After 31 July 2008 stallion stud fee income will be fully taxable.

The Chapter sets out the basis of charging profits and gains arising from the ownership of stallions, detailing the Cases involved, as well as specific deductions which are provided for in arriving at the amount chargeable to tax.

The mechanism for giving credit against future income tax as well as other miscellaneous matters are also addressed.

669G Interpretation (Chapter 4)

This section defines certain terms used in the Chapter:

“Excess relief” refers to the same term as defined in section 485C and means the amount which can be carried forward as a deduction against future income under the provisions of Chapter 2A of Part 15.

“Initial value” means the market value of a stallion on the later of 1 August or when it is purchased for /appropriated to stud activities.

“Market value” means the price the stallion would fetch on the open market. Where the purchase and vendor are not connected (within the meaning of section 10) and the transaction is at arm’s length, the purchase price is taken to be the market value.

“Relevant amount” is used elsewhere in the Chapter (section 669J). It means an amount calculated using the formula:

A – B,

Where:

A

is the amount of income tax paid by an individual for the year, and

B

is the amount of income tax payable by the same person if exempt income from stallion fees, either received directly or indirectly through dividends, were not included in the restriction for high earners. The references to these 2 forms of payment are in Schedule 25B and these are cross-referenced in the definition of B.

“Relevant excess relief” is also used in section 669J. Under the provisions of Chapter 2A of Part 15 a certain amount is calculated, relating to tax paid under that Chapter, which may be carried forward and used as a deduction against future years income for the purposes of income tax. This is known as excess relief. For the purposes of determining relevant excess relief the following formula is used:

C – D,

Where:

C

is the amount so carried forward, and

D

is the amount which would be carried forward if exempt income from stallions, both received directly and indirectly through dividends were not included in Schedule 25B. The difference between the two is the amount of relevant excess relief. The specific items in Schedule 25B are cross-referenced in the definition of D.

“Residual value” means at any time that proportion of the initial value of a stallion which is as yet unallowed as a deduction. In other words in the 3rd year after purchase, the residual value of the stallion is 50% of the initial value since 50% has, by that time, already been allowed. In the 5th year the residual value is zero since the full amount of the initial value has already been allowed.

Relevant Date: Finance Act 2021