Once rated the ninth best racehorse in the world, the Irish stallion that Peter Rowsthorn bought for $US4 million and then put to stud has turned out to be a costly tax dud for the former chairman of transport giant Toll Holdings.
Proving that the racing game can be even more perilous off the track than it is on the course, Mr Rowsthorn is now suing his accountants after the prominent businessman was hit with a hefty tax bill over the horse, Grey Swallow.
The Australian Tax Office did not agree with claims Mr Rowsthorn had made for deductions against the racehorse as a depreciating asset during four years the horse spent at stud in Victoria.
At issue are a series of “additional income tax” assessments served on Mr Rowsthorn, amounting to $857,087 in respect of the Irish stallion.
Also detailed in his Supreme Court of Victoria damages claim is the $98,624.60 Mr Rowsthorn spent fighting unsuccessfully to overturn the assessments in a case before the Administrative Appeals Tribunal last year.
It’s a complex case involving the ambitions of one of the country’s most successful corporate figures, the intricacies of tax law and trust structures, the uncertain outcomes of horse-breeding and the need to keep good records.
Not so swift Swallow
The story began with the arrival of Grey Swallow in Australia in mid 2006. The thoroughbred arrived with plenty of pedigree, sired by Daylami, out of Style of Life. The young stallion had early success: winning the Irish Derby in 2004 and the Tattersalls Gold Cup in 2005.
But Grey Swallow raced in only one race in this country, the Cox Plate at Moonee Valley, placing last after an injury. He retired to stud the next year.
Then began the next phase of his career as an integral part of Mr Rowsthorn’s grand plan to create a racing industry empire under the name Wadham Park, including the Woodside Park Stud, near Woodend in central Victoria.
“Peter Rowsthorn believes he can achieve the same success with Wadham Park as he did with Toll Holdings, which not only created personal wealth for him and a number of shareholders and team members but also created many work opportunities for the wider community and helped stimulate the economy,” said his strategic plan, quoted in the AAT finding.
In the 2007 breeding season, Grey Swallow’s stud fee was $16,500. But demand for his services dropped and his fee was lowered in an attempt to woo more custom. By early 2009 the fee had fallen to $9,000.
Meanwhile, between 2008 and 2011, Mr Rowsthorn was claiming hefty deductions against the declining value of the Irish Derby winner, ranging from $512,146 to $314,522.
Where Mr Rowsthorn came a cropper, however, was the failure to show any income or expenses relating to Grey Swallow, a crucial element to making a depreciation claim.
According to the AAT, it didn’t matter whether or not the stallion produced any assessable income but it did matter that Mr Rowsthorn or his accountant had no records for it.
“Well, unfortunately people of my sort of demeanour are a bit broad-brush and rely on others to divide, if you like, the income streams. But in general terms I expected the thing to be profitable for Peter Rowsthorn,” the former Toll chair told the tribunal last year.
And that is the nub of the issue, according to the writ Mr Rowsthorn’s lawyers have now filed in the Supreme Court of Victoria against Nexus Accountants, which is vigorously defending the claim.
Mr Rowsthorn’s writ alleges he offered the stallion to Woodside Park without any fee, but his accountants should have known and told him he needed to derive income from the horse to show that he was using Grey Swallow for a taxable purpose.
The case is still to be heard. Grey Swallow is long gone, sold and now at stud in Kentucky. After the cost of transporting him, Mr Rowsthorn pocketed $31,325.