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Re: Valuing Livestock

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Enthusiast

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Hi 

 

Just wondering if someone can explain tax implications regarding the artificial insemination birth of horses.

E.g.,

  • 2 natural increases (ATO rate to apply - $20 per head)
  • 1 artificial insemination birth(?) 

My question is how the business should treat the inseimation birth in the business tax return for the below scenario. 

 

For a particular horse,

Insemination cost in 2018 Tax Year : $1,000 (how this cost should have been recorded in 2018 FY? Asset? At that time, the business is unsure whether it will be successful or not) 

Insemination cost in 2019 Tax Year : $1,800 (1 artificial insemination birth during 2019 Tax Year)

Total insemination cost for AI horse : $ 2,800 (how this should have been recorded in 2019 FY? Purchase? In the tax return, closing livestock is valued at average cost)

 

I have read this link but cannot fully understand. (https://www.ato.gov.au/Business/Primary-producers/Livestock-and-other-assets/Valuing-livestock/)

 

Thanks. 

 

Regards, 

 

PinkyT

 

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Accepted Solutions

Most helpful response

ATO Certified Response

Community Support

Replies 2

Hi @PinkyT,

 

Thanks for your question!


In addition to the information provided by @macfanboy and the link you've located above, there's some further details located in the ITAA 1997  (Volume 3 > Chapter 2 > Part 2-25 - Trading stock > Division 70 - Trading Stock > Special valuation rules)

 

Under Section 70-55(1) (and as outlined on the website), the cost of an animal you hold as livestock that you acquired by natural increase is whichever of these you elect:

  • the actual cost of the animal;
  • the cost prescribed by the regulations ($20 for a horse)

However, if you incur a service fee for insemination and, as a result, acquire a horse by natural increase its cost is the greater of:

  • the amount worked out under subsection 1 (above); and
  • the part of the (insemination) service fee that is attributable to your acquiring the horse.

An election under this section must be made by the time you lodge your income tax return for the income year in which you acquired the animal.

 

So you can choose the method you use to work out the value of the two horses born without artificial insemination, but the third horse's value would need to be calculated giving consideration to that insemination fee. If you'd like to have a look at calculations on working out the horse opening value and the horse reduction amount, you can see this in ITAA 1997 - Sect 70.65.

 

It's quite likely that the costs associated with the artificial insemination will not be deductible. This is because the cost relates to producing the livestock, rather than acquiring them. If you'd like some additional information, you may wish to have a look at TR 93/9, which relates to expenditure incurred under certain livestock breeding arrangements. There are some examples within this ruling that may be of assistance, particularly Example Two.

 

I hope this helps, but please let me know if you have any other questions.

 

Thanks,

 

Rachael B.

5 REPLIES 5
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Taxicorn

Replies 0

Insemination costs are business expenses and are claimed as a deduction in the year they occurred.

 

Most helpful response

ATO Certified Response

Community Support

Replies 2

Hi @PinkyT,

 

Thanks for your question!


In addition to the information provided by @macfanboy and the link you've located above, there's some further details located in the ITAA 1997  (Volume 3 > Chapter 2 > Part 2-25 - Trading stock > Division 70 - Trading Stock > Special valuation rules)

 

Under Section 70-55(1) (and as outlined on the website), the cost of an animal you hold as livestock that you acquired by natural increase is whichever of these you elect:

  • the actual cost of the animal;
  • the cost prescribed by the regulations ($20 for a horse)

However, if you incur a service fee for insemination and, as a result, acquire a horse by natural increase its cost is the greater of:

  • the amount worked out under subsection 1 (above); and
  • the part of the (insemination) service fee that is attributable to your acquiring the horse.

An election under this section must be made by the time you lodge your income tax return for the income year in which you acquired the animal.

 

So you can choose the method you use to work out the value of the two horses born without artificial insemination, but the third horse's value would need to be calculated giving consideration to that insemination fee. If you'd like to have a look at calculations on working out the horse opening value and the horse reduction amount, you can see this in ITAA 1997 - Sect 70.65.

 

It's quite likely that the costs associated with the artificial insemination will not be deductible. This is because the cost relates to producing the livestock, rather than acquiring them. If you'd like some additional information, you may wish to have a look at TR 93/9, which relates to expenditure incurred under certain livestock breeding arrangements. There are some examples within this ruling that may be of assistance, particularly Example Two.

 

I hope this helps, but please let me know if you have any other questions.

 

Thanks,

 

Rachael B.

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Enthusiast

Replies 1

Hi Rachel,

 

Thanks for your reply. 

 

Just want to clarify my understanding that all the artificial insemination (AI) costs (such as service fees, embryos costs and veterinary services) are not immediately deductible in the year they were incurred as per example 2 of TR 93/9 and subsection 70-15(1). 

 

These costs will form part of the Insemination-in-Progress (Asset account) and will only be deductible in the tax year when AI horses are born. (In other words, when they were acquired)

Valuation of AI horses = Attributable cumulative insemination costs

 

Can you please let me know how and where the election needs to be made? Is it within the tax return or separate form needs to be lodged? 

 

Thanks. 

 

Regards,

 

PinkyT

 

 

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ATO Certified Response

Community Support

Replies 0

Hi @PinkyT,

 

Thanks for your patience while we researched this further!

 

Though we use the term "acquired" when we talk about natural increase of livestock, in the context of deductible expenses, it would be more appropriate to use the term "produced" by natural increase instead.

 

Essentially, because the livestock are being produced through this process, any expenses relating to producing those livestock are not deductible, even after the livestock have been born. They will instead be used in calculating the opening value of the horse when it is born.

 

Once you have adopted a particular value in the preparation of the income tax return for the relevant year, this would constitute the making of an election. You are not required to notify us of this election in paper form or any other method, but as a general rule of thumb you should keep records of your calculations as evidence of your election.

 

I hope this helps,

 

Rachael B.

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Community Manager

Replies 0

Hi @PinkyT,

 

We are just going to send this off to a specialist team to get an answer for you and we'll get back to you soon.

 

Thanks, NateH