Leasing is a viable option for stallion investment, particularly if you yourself fall into the highest marginal tax bracket.
A typical scenario is the following:
If you lease a stallion interest that costs $30,000, there are typically four re-payments.
Payment 1 is due immediately i.e. you pay upfront. Consider this as a deposit. The amount is 1/3 the purchase price, so in this example it is $10,000.
Payment 2 is due 12 months later, and is for another 1/3 = $10,000
Payment 3 is due another 12 months later, and is for another 1/3 = $10,000
Payment 4 is the residual or balloon payment. It is paid at the end of the lease, and is 25% the original purchase price, so in this example it is $7,500.
Payments 1, 2 and 3 are tax deductible. Payment 4 (residual payment) is not, as it is capital.
So effectively, you pay interest of $7,500 for a $20,000 loan over three years. (It is $20,000 because you have to pay $10,000 upfront so only $20,000 is financed). This may seem expensive, but if you are in the highest tax bracket, it can be a useful way to reduce your taxable income.
This scenario does not take into account any expenses or profits arising from keeping your broodmares or selling your nominations or any bonus nominations you may be entitled to.
You should always consult your accountant or tax professional before undertaking finance.
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