In short, this ruling sorted out what type of capital asset a hobby racehorse is for the purposes of applying the capital gains tax (CGT) provisions, i.e. is it an "ordinary" capital asset or a "personal use asset" (PUA). This designation is crucial as PUA's attract a special capital gains exemption on disposal if the horse interest (i.e. the whole horse or share of the horse) is acquired for $10,000 or less
To the relief of the horse industry, the ATO confirmed that a hobby racehorse is a PUA and thus the exemption for CGT for hobby horses acquired for $10,000 or less applied. Note – this exemption applies regardless of the amount of sales proceeds received.
Ruling withdrawn – what does this mean?
As background, IT 2585 is known in tax talk as a "Public Ruling" and such rulings provide advice that is binding on the ATO. They express the ATO's interpretation of the laws they administer.
In a review of this ruling recently, it came as a great surprise that the ATO had officially withdrawn it on 5 April 2017. Needless to say, this move was not given great publicity by the ATO!
In strict technical terms, the withdrawal of the ruling means that it only remains applicable to disposals of hobby horses carried out before the withdrawal date i.e. 5 April 2017.
So…does this mean that hobby horse disposals on or after 5 April 2017 no longer attract any CGT exemption that IT 2585 offered?
This short answer is NO.
The answer to this question is found in the official "Notice of Withdrawal" the ATO issued in relation to this ruling. The ATO noted in this document that this issue:
"…is a straightforward application of the law. IT 2585 is being withdrawn as the CGT provisions in Part IIIA of the ITAA 1936 have been rewritten in theIncome Tax Assessment Act 1997."
Cutting to the chase, from an ATO perspective, the CGT law has been rewritten in 1997, after this ruling was released in 1990, and the new provisions will apparently provide us all with enough guidance on this issue. End of story.
What this all really means to hobby owners seeking this exemption, for horses sold on or after 5 April 2017, is that the ATO have, by inference, indicated that it's "self-explanatory" that the new rewrite designates hobby racehorses as PUA's, given that they are "primarily used for your own use or enjoyment".
Don't let the ATO strongarm you!
So, let hobby owners be on notice – don't let the ATO strongarm you into not claiming this special CGT concession that is still available in your circumstances. If you're unsure as to whether you can claim this concession, don't take the ATO's word for it, contact a specialist firm like us and we'll ensure you get the concessions that you're rightfully entitled to!
Prepared by:
PAUL CARRAZZO CPA
CARRAZZO CONSULTING CPAs
801 Glenferrie Road, Hawthorn, VIC, 3122
TEL: (03) 9982 1000
FAX: (03) 9329 8355
MOB: 0417 549 347
E-mail: bill@carrazzo.com.au or paul.carrazzo@carrazzo.com.au
Web Site: www.carrazzo.com.au
PAUL CARRAZZO CPA
CARRAZZO CONSULTING CPAs
801 Glenferrie Road, Hawthorn, VIC, 3122
TEL: (03) 9982 1000
FAX: (03) 9329 8355
MOB: 0417 549 347
E-mail: bill@carrazzo.com.au or paul.carrazzo@carrazzo.com.au
Web Site: www.carrazzo.com.au
