Key Insights:
1.Dog-breeding case sets a valuable GST precedent for horse breeders
The ART’s 2026 Smith decision confirms that even small-scale animal-breeding operations can qualify as a GST “enterprise” when they display recognised business characteristics — a principle directly relevant to horse breeders seeking to justify enterprise or business status.
2.“Business factors” mattered more than scale, profit or formality
The Tribunal emphasised objective indicators such as contracts, registrations, supplier arrangements, marketing, and repeated sales. These outweighed the taxpayer’s lack of income tax declaration, limited record-keeping, or the modest scale of operations — reinforcing that genuine, structured activity can still be an enterprise.
3.GST entitlement success didn’t extend to all claims or penalties
While the taxpayer proved his breeding activity was an enterprise, he failed in claiming entertainment-related input tax credits and could not overturn penalties for reckless record-keeping, highlighting the importance of robust substantiation for all GST claims.
The article title may well have you asking why the writer believes the activities of a dog breeder has any relevance to the operations of a horse breeder?
In a tax context, the answer is simple – the dog breeder was able to demonstrate that his activities were an “enterprise” for GST purposes, successfully arguing that his activities had met the same type of ‘business’ factors that horse breeders must also rely upon in proving that their activities are an income tax ‘business’ or GST ‘enterprise’. I guess we are also dealing with animal breeds most of us are very fond of!
It was in January 2026 that the Administrative Review Tribunal (ART) concluded that dog breeding activities carried on by a taxpayer was an enterprise for GST purposes, case reference being Smith and Commissioner of Taxation (Taxation) [2026] ARTA 25. However, the taxpayer was unsuccessful in relation to input tax credit claims for entertainment expenses and property investment activities, and in demonstrating penalties for recklessness were inappropriate.
Take special note of the “business” factors noted below in the decision, they apply as much to a horse breeder as they do to a primary production activity such as dog breeding.
1.Facts
The taxpayer was an individual who carried on dog breeding and property investment activities and was registered for GST on a cash basis. The taxpayer and the ATO were in dispute over the taxpayer’s liability for GST and penalties for the GST quarterly period ending 30 September 2018 to the period ending 31 December 2021 (relevant periods).
The taxpayer’s objections to the assessments for the relevant periods were disallowed and the taxpayer applied for a review of the objection decisions by the Tribunal.
The main issues in dispute, that were of relevance to horse breeders, between the parties were:
1. whether the taxpayer’s dog breeding activities were an “enterprise” pursuant to the GST Act
2.whether the taxpayer was entitled to claim input tax credits under the GST Act in relation to his dog breeding activities
3.whether the taxpayer was entitled to claim input tax credits for food and consumable expenses that the Commissioner said were entertainment expenses
4.whether the taxpayer took reasonable steps to reconstruct records claimed to have been lost due to a major flood in NSW and, if so, whether the Commissioner was obliged to accept that reconstructed material to substantiate his input credit claims
During the hearing the taxpayer acknowledged that he had not returned income from the sale of dogs in either his GST returns or his income tax returns. This is significant as it is rare for a GST enterprise to not be obliged to also attend to income tax return lodgings.
The Taxpayer was noted as “entrepreneurial”. He was a consultant contracted to a company based in NSW and had an interest in property investment and speculation, French bulldog breeding, and photography. The Taxpayer’s dog breeding and property investment activities are at issue in this case.
In summary, the most relevant points the Taxpayer said:
(a) He bred French bulldogs between 2018-2021. His operation was known as “Delish Frenchies”.
(b) The puppies were sold under formal contracts. There were about 7 litters in total, and between 18-22 puppies.
(c) The breeding operation was set up at his home. He established kennels. The dogs had wet weather areas and dry areas, and access to grass. Males and females needed to be separated, and a clean space was available for customers looking to breed their dogs with his dogs (what he called “partner potential purchasers”).
(d) The Taxpayer was licensed with the Australian National Kennel Club (“ANKC”) and was also licenced by the Master Dogs Breeders and Associates (“MDBA”).
(e) Licensing at ANKC was rigorous and involved the Taxpayer’s dogs being both visually and medically examined. There were also regular checks of the Taxpayer’s dogs. Once the ANKC licensing was satisfied, the Taxpayer said he transferred to MDBA and got licensed at MDBA.
(f) In terms of additional costs, he had to purchase breeding animals and rotate those animals. He also incurred costs in caring for the animals – such as food and veterinary costs. French bulldogs are not active breeders naturally, and artificial insemination is typical. Caesarean births are also typical. That meant he incurred specialist vet costs.
(g) He had supplier accounts for vet services and from food providers and was approached for business from pet food suppliers. He acquired related items for the dogs which are evidenced on the Tribunal Book (such as a large amount of pet training pads).
(h) The Taxpayer provided the Commissioner with spreadsheets setting out costs alongside the invoices noted above, as well as hundreds of pages of bank statements.
(i) The Taxpayer provided the Commissioner with spreadsheets setting out costs alongside the invoices noted above, as well as hundreds of pages of bank statements.
(j) The Taxpayer also provided screenshots of a website page he maintained for Delish Frenchies which also recorded an email address delishfrenchies@gmail.com.
(k) The Taxpayer also said he made a ‘profit’ of just over $96,000 from the dog breeding operation, although he said it might be slightly less than that for the Relevant Periods. He said he intended to make a profit. The ART drew the conclusion that this was gross revenue, not profit, but the revenue was a strong indicator in itself
2.Decision
The Tribunal found that the taxpayer’s dog breeding activity was an enterprise in accordance with the GST Act. There was sufficient evidence to demonstrate that the taxpayer was operating in the form of a business. The taxpayer provided 16 signed contracts demonstrating sales of dogs and sale prices. There were also bank payment summaries demonstrating that deposits were received for puppies. The taxpayer’s dog breeding activity was also an enterprise in the form of an adventure or concern in trade under the GST Act – he very much had a solid footing to claim his GST credits.
However, the Tribunal affirmed the Commissioner’s decision to deny input tax credits for food and other consumables on the basis they were entertainment expenses.
As to penalties, the taxpayer was partially successful. The Tribunal found that he failed to demonstrate that the penalty for recklessness was inappropriate. However, it decided that the 20% base penalty uplift should not have been applied.
3. Was the dog breeding operation an enterprise?
The ART outlined the “business” factors that should be contemplated in determining if the taxpayer was running an activity as an “enterprise” and below are their related comments, together with my take on some of these.
Was the activity “In the form of a business”
The GST Act provides that any activity or series of activities “in the form of a business” can be an enterprise.
Starting with the Taxpayer’s case as he presented it, when considering whether there is a business, there are a huge number of cases which can be referred to. For instance, numerous cases can be found for:
(a) Determining whether there is a business is a question of fact
(b) Repetition and regularity of activity is important, but even isolated activities or limited activities can amount to carrying on a business.
(c) An intention to profit and a pattern of trading can be relevant factors when determining whether a business arises.
(d) A new type of activity added to an existing operation, and the first step of a business can constitute a business.
Carrazzo comment
This was raised as the ATO was doubtful as to whether his one individual ABN could partake in multiple business activities. An entity (including an individual) can carry out several different enterprises under the same ABN if they all operate under the same business structure. The GST Act does contemplate a “series of activities”.
(e) The state of mind of the taxpayer does not of itself determine whether there is a business, but it may be relevant evidence when characterising the activities objectively.
(f) A person can carry on more than one business: The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business.
In holding that there was an enterprise, ART Justice White pointed to a series of acts carried on by the taxpayer, including engaging consultants and marketing
The taxpayer had provided evidence on the Tribunal that he was engaged in the following “business type” activities, including:
-he had distinct email addresses
– he entered contractual arrangements with customers (and there is evidence of approximately 16 sales contracts
-the sales were to unrelated persons, thus on a commercial basis
-he entered contracts with suppliers of dogs to acquire dogs, and contracts to stud service his dogs
-he acquired stock
-he established kennels
-he registered as a breeder and maintained that registration
-he entered arrangements with food and veterinary suppliers
-he sought pedigree certificates and other evidence to ensure his stock was as valuable as possible
-he maintained his stock with vet visits and his evidence is that he sold puppies and made a profit.
-while this activity was small scale, the ATO’s own guidance identifies that small scale activities can be operated in the form of a business even where they are one-off
-in this case, there is repetition and regularity of activity, e.g. dogs were bred when required
The ART response to the ATO’s “badges of trade”
The ATO’s submission considered other factors which are said to be ‘badges of trade’ which the ART provided comment as to how compliant the taxpayer was in meeting these:
(a) The significance of the commercial activity / whether the activities are of a reasonable size and scale – as can be discovered by simply googling dog breeders, dog breeding is not always significant in scale. The ATO acknowledges that a small-scale operation can comprise an adventure of concern in the nature of trade. These factors are in favour of the Taxpayer.
(b) A purpose and intention of the taxpayer to engage in commercial activity / intention to profit – the Tribunal finds there is sufficient evidence of this. For instance, the website page, email addresses, acquisition of stock, sale contracts, marketing, supplier arrangements, registration as a breeder, and the use of that registration number. These factors are in favour of the Taxpayer.
(c) The activity is or will be profitable – this is not a requirement at law, and the Taxpayer’s evidence was that he did profit from the dog breeding operation. It was found above that he intended to profit. This factor is in favour of the Taxpayer.
(d) The recurrent or regular nature of the activity / commercial sales of products – this case has evidence of 16 sales contracts, and evidence of regular sales in the relevant periods. Dog-breeding is not always of a large scale.
(e) The activity is carried on in a similar manner to other businesses in the same or similar trade – a google search reveals this to be the case. This factor is in favour of the Taxpayer.
(f) The activity is systematic, organised and carried on in a businesslike manner with records kept / a business plan exists – these are features which suggest that the Taxpayer was not operating the dog breeding operation as an adventure or concern in the nature of trade. There is case law which supports the view that failing to meet basic business organisational matters can be determinative of whether there is an adventure or concern in the nature of trade. Other cases take the view that if there are no books of account and no business plan that does not necessarily mean there is no business or adventure in the nature of trade and it depends on the type of business operation. For example, a very small-scale operation is unlikely to have a detailed business plan.
(g) The Taxpayer has relevant knowledge or skill – there is material on the Tribunal Book to suggest this arises. That material relates to the registration of the Taxpayer with ANKC and MDBA. In particular, the material from MDBA required the Taxpayer to educate himself on several aspects including hygiene, the health of his dogs, health management plans, breeding, and regulatory requirements. I assess this factor as neutral, however.
Pease do not hesitate to contact the writer if you wish for me to clarify or expand on any of the matters raised in this article.
DISCLAIMER
Any reader intending to apply the information in this article to practical circumstances should independently verify their interpretation and the information’s applicability to their circumstances with an accountant or adviser specialising in this area.
End of release.
Prepared by:
PAUL CARRAZZO CA, CPA
Partner – Baumgartners
1/35 Cotham Rd, Kew, VIC, 3101
TEL: +61 3 9851 9000
MOB: 0417 549 347
E-mail: p.carrazzo@baumgartners.com.au
