Ontario Racing (OR) released a column on Tuesday, Oct. 21 discussing the negative impact of Canadian tax laws on the provincial horse racing industry.
Ontario Racing's article, titled "Canada’s restrictive and unfair tax laws hurting Ontario’s horse racing sector," appears below.
Canada’s Restrictive And Unfair Tax Laws Hurting Ontario’s Horse Racing Sector
Ontario participants say being limited to a deduction of $17,500 annually is proving to be a disincentive to horse ownership, especially in contrast to United States tax laws that have led to record results at major U.S. yearling sales.
Ontario’s horse racing industry is already struggling with high inflation and stagnant purses, but participants from both the Thoroughbred and Standardbred industries say outdated and restrictive tax laws threaten the future of an industry that supports 23,000 full-time equivalent jobs in the province.
They say current Canadian tax laws are a disincentive for people to buy racehorses in Canada, especially when compared to recent U.S. tax law changes that have already proven to encourage the purchase of racehorses. Fewer Canadian buyers further hurts the Ontario horse breeders that are the lifeblood of one of the province’s largest agricultural sectors.
In Canada, Section 31 of the Income Tax Act states that a person that owns horses as a hobby business may only write off a maximum of $17,500 of losses annually in the horse racing business against their main business.
In the U.S., President Donald Trump’s “Big Beautiful Bill,” which was signed into law this summer, allows horse owners to write off 100 per cent of bonus appreciation for horse losses. If you want to read more about them, you can do so at Fairness for Farmers, the National Thoroughbred Racing Association and Harness Racing Update.
Many media stories, including one by The Paulick Report, show 100 per cent bonus depreciation has already had a huge positive impact on Thoroughbred yearling sales in Saratoga and Lexington – both of which shattered sales records.
“It seems like that whatever tax change they have made in the United States have been very successful as far as parting people from their from their wallets,” said Glenn Sikura, owner of Hill ‘n’ Dale’s Thoroughbred breeding operation in King City, Ont. “Those horses in Saratoga were really nice horses, but, wow, the average was through the roof.”
The bottom line is this: Horse owners in the United States have a massive tax incentive to invest in racehorses. In Canada, the tax laws are driving investment away from Ontario’s horse racing industry.
Tax Differences Could Have Double Whammy On Ontario
Sherry McLean operates Northern Dawn, a small Thoroughbred breeding farm in Hillsburgh, Ont. She said current Canadian tax laws hurt the Ontario industry.
“If we could write off the horses against business, or at least write off a much larger percentage than that small little bit, it encourages people to invest in horses,” said McLean.
She added that not only do Canadian tax laws decrease investment in the horse racing sector in Canada, there is also a high likelihood that those owners that have businesses on both sides of the border will be attracted to buy American horses.
“In the States, they can write everything off… Canadian [owners] that have the option [to buy horses] in the U.S., they're going to be down there.”
Manes: Ownership Not Attractive Given Canadian Tax Structure
Bill Manes has owned Standardbred racehorses for more than 50 years. He said if Canadian tax rules, “had no cap on what you could write off, my own personal feeling is you would have a lot more people in the game.
“There’s no attraction [to horse ownership] the way the tax structure is now.”
Manes said only being able to write off $17,500 is not useful.
“You can't even buy a yearling nowadays for $17,500,” said Manes. “There's no incentive for people to reinvest in an industry. Meanwhile, the government hands out millions of dollars to, say, Air Canada, and other big corporations.”
Better tax incentives could help the horse racing industry support itself, said Manes.
“I still believe [the horse racing industry] could be self-sustainable if it was more attractive,” he said. “There’s still a lot of money around, but right now I would say it’s not a great investment, it’s more a passionate sport than something people are trying to make money at it.”
Bullock: Majority Of Horse Owners Are Not Wealthy
Jim Bullock, the owner of Glengate Farms, a Standardbred breeding operation in Erin, Ont., said it’s a misconception that horse owners are all ultra wealthy people.
“That's always the argument you get thrown at you by the government that horse racing people are all a bunch of wealthy guys,” said Bullock. “That’s not the case when it comes to Standardbreds. These people are largely from the rural community around Ontario, and they support a lot of jobs, and create multiplier effect on the income that is generated.”
The typical horse owner owns a small business and loves the sport. Given the extreme expense of owning, caring for and racing horses, those owners would like to make some money in it, if possible, to fuel the purchase of more horses which supports the entire exercise. Sadly, too many sour on the money side of the game.
“People get into it and then realize after a while that making money in horse racing is a tough go,” said Bullock. “And then they look at it and say, ‘Well, I can’t even deduct losses,’ so they wander off or reduce their involvement. If you look at any list of the active owners five, 10 years ago, there aren’t a lot of them still around. But they didn't all die off. Some of them just walked away from the business.”
Bullock said it’s also a misnomer that buying horses, especially as yearlings, is a ticket to making money. Only a small percentage make a profit, he said.
Manes said that friends that express interest in horse ownership, “don't really bring up the tax, it's more, ‘How can you make money at this with the cost of everything?’ Our purse structure and our expenses don't balance.”
For him, having $17,500 to work with severely limits what he can spend on horses.
“Basically, what I do is look at, how much revenue did I bring in last year? Say, for the fall sales, how much money have we made to date? What are my expenses? Okay, I've lost, let's say for easy figuring, $10,000. Now, I can still put another $10,000 in to get to my maximum tax credit, but then it's going to cost me X amount of dollars to get to next year at this point,” said Manes. “But, if [the tax deduction] was open, then I've got excess money [to spend on horses].”
Section 31 Discriminates Against Rural Communities, Horse Owners
Fairness for Farmers, a group lobbying to have Section 31 repealed, points out that the section, “discriminates against rural Canada… There is no such limitation faced by other economic sectors.”
The outdated policy, which was adopted in the 1950s to stop wealthy city dwellers from writing off “hobby farms,” also unfairly targets those in the horse racing sector and people in rural communities.
“Those hurt most of all by the policy [are] small farms [and] the many rural workers in the horse economy,” the group wrote. “These are individuals earning modest incomes, caring for horses, maintaining farms, training animals, and providing the myriad of goods and services to that rural horse economy.
“The rural horse economy is unusual in agriculture as one of only two major areas that employ many workers. But it is different from the other labour-intensive sector – fruit, vegetable and horticulture – in that most workers in the horse economy are local residents rather that temporary foreign workers.”
The fear of people adopting hobby farms long ago evaporate. As well, Canadian Revenue Agency (CRA) data shows that of the roughly 250,000 part time farmers in Canada, more than half report a loss each year. Also, since Section 31 fences off nearly half of every dollar lost, most write offs expire unused – raising taxes on rural households without raising lasting revenue.
A detailed analysis by the CD Howe Institute found that repealing Section 31 would cost approximately $134 million annually – about 0.02 per cent of projected federal revenue.
Meanwhile, proponents of abolishing Section 31 say it would unlock real growth in Ontario’s horse racing industry – growth that could lead to driving tax revenue.
(With files from Ontario Racing)