Willingness to invest in bloodstock remains high as tax incentives emerge from budget
‘There’s still new businesses being started in this industry which tends to absorb a lot’
An Australian bloodstock industry tax expert says his clients, ranging from small to high-level thoroughbred investors, are not significantly reigning in their spending and are continuing to buy stock despite an uncertain outlook for the 2021 sales and beyond.
Paul Carrazzo of Melbourne-based firm Carrazzo Consulting has experienced an increased number of inquiries from people wanting to become involved in racing and breeding which flies against the prevailing general economic view as the nation braces for a recession for the first time since the 1990s.
Speaking In the wake of Tuesday night’s federal budget, which was heavily influenced by the government’s plans to kickstart the economy and minimise the repercussions of the coronavirus pandemic, Carrazzo believes the Australian racing industry is again demonstrating its remarkable robustness.
“I have got to be blunt, we have actually grown a hell of a lot in the past six months and not just through contacts and networking. We’re always growing but we’ve grown at a bigger rate than normal,” Carrazzo told ANZ Bloodstock News yesterday.
“We gave a lot of advice on JobKeeper and, put it this way, I am not finding many of my bigger clients exiting the industry because of this pandemic and nor am I finding the smaller ones doing so either.
“There hasn’t been much movement in my client base. They are still investing; they are still bringing in stock from overseas, buying up at yearling sales, going to the right stallions. I haven’t seen much change, at my level, in activity.”
The strong prize-money available in Australia, particularly in NSW and Victoria, continues to underpin the willingness of people to become involved in the sport, according to Carrazzo.
“There’s still new businesses being started in this industry. It’s a very robust industry which tends to absorb a lot and history indicates that,” he said.
“The gambling dollar still seems to be strong enough, and that’s what generates industry revenue for prize-money…you can maintain your asset levels.
“What governs the price of an I Am Invincible in the sales ring is what prize-money they can earn (and could be worth as a breeding prospect),…so that’s why there’s not a mass exodus of clients. I am still finding a lot of client growth because Australia is a hot place to breed and race horses. It’s still got that position in the Asian region and globally as well.”
Prominent Sydney owner and breeder Frank Cook, whose current star is the Group 1-winning, Cox Plate (Gr 1, 2040m) bound entire Fierce Impact (Deep Impact), was more circumspect about the industry outlook in 2021,
“While the prize-money in Australia is very good – it’s the best in the world – and I think that message has got out there,” Cook said.
“But for the syndicators, it’s a big risk for them to be buying horses and trying to syndicate them and they are the ones who buy all that middle market.
“That top market has continued to be strong as you still have the big studs and the major buyers involved, but that middle market from a breeding perspective has been quite weak, and at the very low end people try to pick up bargains.”
Cook currently has 32 mares – 16 in Australia and 16 in New Zealand to support Group 1-winning stallion Preferment (Zabeel) – and he said his focus would be on maintaining the high-calibre mares among his band in case the demand for yearlings does contract.
“Service fees are still too high across the board, certainly for that middle market, and I think what you will find is that the breeders will just cut back on the numbers of mares and (focus on) the stakes-quality mares,” he said.
“The ones that they have who are producing for the middle-level sales, I think you will find that their numbers will drop off, certainly for next year and for the year after that.”
Among Cook and wife Christine’s mares are VRC Oaks (Gr 1, 2500m) winner Lasqueti Spirit (), dual Group 3 winner Meryl (Epaulette) and the Matthew Smith-trained Aqua D’ivina (Pierro) who is a multiple Sydney winner.
On his breeding plans for this year, Cook said: “I have continued to press ahead according to the research that I do with commercial stallions but there are a number of mares that will be put through the sales next year that will no longer be commercial.
“The ones coming off the track and the ones who have won at at least Saturday level and preferably stakes level such as the Meryls, the Lasqueti Spirits and the Aqua D’ivinas, those mares will continue on and we will breed them up to what their pedigrees say should work with them.”
Trainers, service providers can make most of budget
In analysing treasurer Josh Frydenberg’s budget, Carrazzo suggested that it was trainers and industry service providers to the racing and breeding industries who could make the most of the business and company incentives announced by the government.
The first was that companies will be able to write off the full value of new assets in a single year.
“It’s amazing as there’s no upper limit on the write-off because under the instant asset write-off you could only fully write-off the plant for $150,000 or less, but with this one, there’s no limit,” Carrazzo said.
“For primary producers, this is no big thing because in the 2016 budget there was a primary producer initiative where they could write-off 100 per cent for fences, water facilities and fodder sheds.
“It’s more for trainers who are not primary producers. They can write off their plant straight away such as their trucks, their new training yards, computers and things like that.”
The other initiative that could prove valuable, particularly as breeders attempt to navigate a potentially tricky sales season, is the temporary loss “carry-back” for companies.
Carrazzo explained: “In short, tax paid by companies from financial year 19 can be refunded through the carrying back of losses incurred in the financial years 20 to 22.
“This initiative is very helpful to the racing/breeding industry where many companies have fluctuating profitability levels.
“This rule was in place for only a limited time a few years ago and I am thrilled to see it restored.”