What is the case?
A recent judgment of the North Holland District Court ruled on the question of whether the net proceeds of the sale of a horse were rightly taxed by the tax authorities as income from other activities. This issue may be very relevant to you as a seller of a horse.
What does the law say?
A benefit can only be taxable income within the meaning of the Income Tax Act 2001 if it is based on a certain source. There are three general conditions for such a source: participation in economic activity, the intention to obtain a benefit and the expectation that the benefit can be obtained.
What was the case?
Parents purchased a horse for €12,500 for their daughter with the intention that it be used for her enjoyment as a hobby. In time, the daughter competing with the horse in show jumping competitions and was successful. The horse was eventually sold for € 1,300,000. The Tax Court argued that this was a source of income and that the money obtained from the sale constituted taxable income from other activities.
Until the time the offer for purchase was made, the parents had no intention to sell the horse. It was never expected that the horse would amount to a successful show jumper. Further, the parents never reasonably expected to accrue a benefit through the sale of the horse because the horse was not from a well renowned “good” bloodline.
Despite what was argued by the Tax Court, the District Court concluded that there was no source of income from the sale of the horse, primarily because the benefit obtained through the sale was not intended. As there was no source of income, the benefit could not be taxed as income from other activities.
Source: ECLI:NL:RBNNE:2021:396
