Hobby Or Business?

[Schnauzernut]

Hi all,

At what point does dog breeding morph from being a non-taxable hobby to being a taxable business?

I checked this out some years ago. Though I'm a registered breeder I found that as long as you had less than 5 dogs, the ATO considered your dog breeding just a hobby. However, recently I heard that the rules have changed...

I called the ATO to find out more, and the guy there just read out stuff from the ATO website about how you "qualify" for an ABN... While the gist was if there is an expectation of a consistent profit, you have a business, it was very general. There was no info specifically about dog breeding at all. I pointed this out and was advised to write in to the ATO and request a ruling. Well naturally I'm not real keen to do that until I know what the rules are.... It's a catch-22!

Is there anyone out there who really knows what the current rules are?

I have only ever had 4 or less dogs in my little team, but now am getting a bit worried that maybe I should start keeping receipts for everything.

Thanks!

[Gigit]

If you are deriving a profitable income from the breeding/selling of your dogs then you can be taxed.

I don’t know any breeder (except back yard breeders) who ever make a profit.

If you have 10 breeding canines then you are considered a business breeder. The ATO should be told about these breeders.

[sandgrubber]

I've heard of the ATO pulling litter registrations for pensioners . . . though I don't know if this resulted in anyone being prosecuted for unreported income.

[WreckitWhippet]

I'd love for them to consider my breeding hobby as a business, the losses are horendous and I'd quite happily claim all of the GST each month on food, the vets.

I'm not sure if they'd be interested in me after the first year, I could predict a big deferred loss

[Jed]

If you are deriving a profitable income from the breeding/selling of your dogs then you can be taxed.

I don’t know any breeder (except back yard breeders) who ever make a profit.

If you have 10 breeding canines then you are considered a business breeder. The ATO should be told about these breeders.

So, are you going to dob in your fellow breeders?

I operated a horse stud for years - it was quite difficult to take it from hobby to business statis, and ATO wanted to see plenty of movement and that it was being run as a business. There are a lot of things you can claim with a business, and the ATO is not keen for you to claim them unless you have reasonable taxable income.

I think they may have cracked down because people have been reporting big puppy farms which are pulling a few hundred grand a year. If you have a few bitches, and it is a hobby, and you aren't making $20,000 out of it after expenses, forget it. I presume everyone has breeding records, as you should if you are an ANKC member, and that is your proof if ATO turns up.

It's interesting that the ATO and Centrelink seem to have instigated new laws on dog breeders at about the same time. My paranoid and cynical side suspects the RSPCA lobbied them - in line with their discussion paper about breeders having ABNs.

If I applied for an ABN, the tax office would laugh their heads off. I have about as much chance of registering as a business as flying to the moon, and I suggest most breeders would be in the same situation.

People who have hobbies - horse breeding, cattle breeding, olive trees. alpacas etc are breaking their necks to be registered as businesses, because of the deductions,. If you earn $150,000 a year, you can write your expenses for breeding whatever against your income, and pay no tax.

ATO is NOT keen about that.

If in doubt, figure out how much you earn, and ask your accountant, or a decent accountant who deals with this type of business. He will tell you.

[whippets]

I wouldn't dob in any fellow breeder.

I remember the "dob in a neighbour" campaign to dob in neighbours watering their gardens. I gave the t.v. a good one fingered salute when that ad was on.

I remember when you could claim dog breeding as a hobby and get the tax deduction but the government scraped that (early 90's I think). Probably because most breeders run at a loss .

[alpha bet]

There is nothing stopping you from applying for an ABN for a business.

However if you wish to claim GST payable on expenses then you have to charge GST when you sell pups. You cannot claim the GST component of any expenses as a tax deduction, this comes of any GST you have collected.

All breeders should keep expenses/income relating to any litters - as this will help should you be queried at any time.

The idea of running a business is that you have an expectation of making a profit. With all business that would mean that you have a business plan showing a five year likelyhood where it can show a growth in business. Having one or perhaps two litters a year is not likely to be considered a business, unless the pups are considered to have an above market value.

For Example: You may own a Thoroughbred mare and you breed it to a racing stallion each year, you run the foals on and sell them off for a basic fee (perhaps $5-10,000). This is not really considered a business, however should one of the foals grow up and win lots of races then the future offspring of your mare may fetch high price at the yearling sales $200,000 (not uncommon for a proven winning bloodline) Now the ATO would be likely to consider you are running the breeding as a business and therefore subject to tax.

[Bisart Dobes]

"All breeders should keep expenses/income relating to any litters"

I've got this as a part of our records. As I consider all the titles my dogs acrue a part of the expenses of producing good dogs it was a lengthy process and good lord it makes you value those titles when the dogs achieve them . The tax office would laugh at us as well

Our breeding girls are below - both have 11 titles to their names and I guess we were lucky in that accruing those titles didn't entail too many non qualifying competitions - still there is alot of money invested into these girls and that includes only entry fees - not conditioning, feeding, veterinary, travel costs - you could go on forever :

DUAL CH (T) Coppertop Catch A Look CGC CD BH ET WAC ROM BS (7 yrs old & dam to "D" litter)

DUAL CH (T) Bisart Diamond Spirit CGC CD ET WAC ROM (4 yrs old & daughter to above) (her brother is a small amount of points off joining them both as well :D.

Still this is my hobby and I love the dogs and all the joy they bring.

[oakeydoak1]

We already have an ABN for our farming enterprise. When I asked our accountant at what point does my dog breeding hobby change into a business he said "If you start clearing $20,000pa, let me know". As we are only small and only have 2 bitches this will never happen so I dont have to worry. Also because we breed Border Collies and we live on a farm - they are all considered working dogs and so we can claim most of their expenses.

It is very easy to get an ABN, a friend of mine who is just going into the dog breeding side applied recently and got it easily enough.

Jed - I have a friend like you who had her horse stud registered but the paper work and the amount of money she had to make to keep it liable was ridiculous so she just got down on her breeding each year so that she didnt have the worry.

[anatolian]

I own and breed Alpacas and my dog breeding side is also classified as part of my 'business'. I claim any applicable GST that is spent on the dogs (vet bills, feeding, transporting etc...) but I also PAY GST on any of my dog sales.

Part of the ATO requirement is not to earn $20000 per annum in PROFIT but that your business must turn over $20k to be able to offset any losses incurred in the running of your business against any other income that you might have.

I obviously lodge my BAS statement quarterly and have an accountant to do my business accounts yearly.

[Steve]

I own and breed Alpacas and my dog breeding side is also classified as part of my 'business'. I claim any applicable GST that is spent on the dogs (vet bills, feeding, transporting etc...) but I also PAY GST on any of my dog sales.

Part of the ATO requirement is not to earn $20000 per annum in PROFIT but that your business must turn over $20k to be able to offset any losses incurred in the running of your business against any other income that you might have.

I obviously lodge my BAS statement quarterly and have an accountant to do my business accounts yearly.

Same but I breed stud sheep.

[trahern]

If you have 10 breeding canines then you are considered a business breeder. The ATO should be told about these breeders.

Having 10 breeding canines does not constitute the need to report someone to the ATO. It does not mean they will all fall pregnant. I think that's just horrible that anyone would think of doing that to someone on the basis of the number of dogs they own.

[trahern]

At what point does dog breeding morph from being a non-taxable hobby to being a taxable business?

When you can make a living off them basically. The best thing to do is keep records of your expenses and income and yes include dog showing hotel accommodation flights etc and this is part and parcel of promotion. Anything related to dogs basically goes into your expenses column. Each year its tallied and your either a profit or loss. If your a loss that loss is carried over to the next year and so forth. My former husband ran it as a business and after a couple of years the accountant advised us that we cannot keep putting in such big losses. In other words the ATO was going to reject it as a business as it was NOT profiting and there were 10 dogs permit on the property but there was no sign it could profit cause you cant control mother nature.

Remember your losses roll over year after year and your profits take your losses into account. You can only have 7 odd years of losses before you have to explain to them why you should keep your ABN.

So what I suggest is keep all records, receipts etc so if the ATO ever asks you can provide them with the details of your losses.

Now Centrelink on the other hand folks have laws that come from a different planet and which will see all hobbyist in jail for committing fraud. Thats another topic folks.