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EC 40: Later income years in breeding business
or “Calculating bloodstock value in subsequent breeding business years”
You could also call this:

“Reducing tax value for certain horses not previously bred in New Zealand”

This section is about reducing the value of bloodstock for tax purposes. It applies to horses that weren’t used for breeding in New Zealand before 16 December 1991 or before you got them. It also applies in some special cases, like when you got the horse from your spouse or from a company you own.

For stallions, you can reduce their value by 50% of what you paid for them. Or, if you choose, you can use a method that reduces the value by 75% in the first year and 75% of the remaining value each year after that. You need to tell the tax office if you choose this second method.

For broodmares, there’s a special formula to work out how much you can reduce their value. It takes into account how old the horse is and what you paid for it.

If the horse is a stallion that was owned by someone from another country and only came to New Zealand for breeding each year, special rules apply.

There’s another rule that might change how this section works for some horses from before 1 August 2006. You can find that rule in section EZ 5.

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Next up: EC 42: Reduction: bloodstock previously used for breeding in New Zealand

or “How to reduce the tax value of bloodstock used for breeding in New Zealand”
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Part E Timing and quantifying rules
Valuation of livestock: Definitions

EC 41Reduction: bloodstock not previously used for breeding in New Zealand other than as shuttle stallions

  1. This section applies to bloodstock that—

  2. was not used for breeding in New Zealand before 16 December 1991; and
    1. before a person (person A) acquired it, was not used for breeding in New Zealand by any other person.

      1. This section also applies to bloodstock that, before person A acquired it, was used by another person for breeding in New Zealand if—

      2. the other person transferred the bloodstock to person A under a relationship agreement to which section FB 18 (Bloodstock) applies:
        1. the other person was a company in the same wholly-owned group as person A at the time person A acquired the bloodstock from the other person:
          1. the bloodstock is a stallion that, for each year in which the stallion was used for breeding in New Zealand before being acquired by person A, was—
            1. owned by a non-resident; and
              1. removed from New Zealand after the breeding season; and
                1. not subject to a reduction under this section.

                2. For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a stallion is 50% of the cost price of the stallion unless person A chooses to value the stallion by the reducing value method.

                3. When person A chooses to value the stallion by the reducing value method, the reduction applying to the value of the stallion is 75% of its cost price in the first income year and 75% of its opening value in each later income year. Person A must give notice to the Commissioner of their election in their return of income for the first income year.

                4. For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies is calculated using the formula—

                  1.25 × cost price of broodmare ÷ (9 − age of broodmare).

                  Where:

                  • In the formula, age of broodmare is—

                  • 8 years of age; or
                    1. the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.

                      1. This section is overridden by section EZ 5 (Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006).

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                      Notes
                      • Section EC 41 heading: amended, on , by section 354(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EC 41(1)(b): substituted, on , by section 354(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EC 41(1B) heading: inserted, on , by section 354(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EC 41(1B): inserted, on , by section 354(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EC 41(1B)(a): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 115(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                      • Section EC 41 list of defined terms matrimonial agreement: repealed (with effect on 1 April 2008), on , by section 115(2)(a) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                      • Section EC 41 list of defined terms relationship agreement: inserted (with effect on 1 April 2008), on , by section 115(2)(b) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).