Horse as a Tax-Deductible Expense in Poland

Expenses related to the acquisition and maintenance of a horse may be classified as tax-deductible costs in a business activity, but this is subject to a specific rule. The taxpayer must be able to demonstrate a real, rational, and economically justified connection between these expenses and the generation of income or the preservation or securing of the source of income. The starting point is the general definition of tax-deductible costs set out in the Polish Personal Income Tax Act (Article 22(1)) and, respectively, in the Corporate Income Tax Act (Article 15(1)), as well as the catalogues of excluded expenses (Article 23 of the PIT Act and Article 16 of the CIT Act). It is mandatory to prove that the horse does not constitute an element of the entrepreneur’s private consumption or hobby, but instead performs an economic function within the business, and that the expenses incurred are rational from the perspective of the given business model and are properly documented. In the case of non-standard expenses related to a horse, the burden of argumentation and evidence is often higher than for typical business expenses, which is why documents confirming how the horse is used in the business, contracts, invoices, and internal regulations are of particular importance.

Another important issue is the tax classification of the horse. In the interpretative practice of tax authorities, it is emphasized that a horse is treated as livestock, which usually excludes tax depreciation as in the case of a typical fixed asset. As a consequence of this approach, expenses must be settled in a different manner: the purchase price of the horse may be treated as a cost directly related to income if the horse is acquired with the intention of preparing it for resale at a profit, whereas maintenance costs may constitute indirect costs, provided that they serve the business activity and their connection with income can be demonstrated. In a model in which an entrepreneur expands the business to include a sports-breeding or trading segment, the economic rationale of the expenditure lies in building the horse’s market value through training, participation in competitions, veterinary care, or proper maintenance, in order ultimately to obtain income from the sale of the animal or from prizes, sponsorship, or ancillary services. Under this approach, expenses for a trainer, rider, stable, feed, transport, or veterinary care may be recognized as incurred for the purpose of generating income, even if specific sports events do not result in prizes, provided that the overall undertaking has a rational and market-oriented character.

Another acceptable scheme may involve the paid provision of a horse for specific services, such as photo shoots, events, or audiovisual productions. In such cases, the income connection is usually easier to demonstrate, as the revenue is directly linked to the rental service, and the costs of keeping the horse in a stable, feeding, grooming, and necessary care may be recognized as a prerequisite for providing that service. A different, more tax-sensitive structure involves arguing that the horse serves employee benefit policies or supports employee well-being. Such an approach is sometimes considered in practice with respect to smaller animals, but in each case it requires a cautious evidentiary and organizational approach. Tax authorities may accept the expense only to the extent that it is genuinely related to employees and the company’s objectives, and not to the private needs of the owner. In this variant, clearly defined rules of use, limiting access to employees, internal regulations, schedules, or other evidence demonstrating that the expense does not have a predominantly personal character are of key importance.

The risk of a dispute with tax authorities increases as the justification for the expense becomes more “image-based” or prestige-oriented, especially where it is not supported by a specific product, service, or revenue stream. Therefore, the safest models are those in which the horse is unequivocally an element of income-generating activity: it is sold, rented out, used for paid events, or forms part of a professionally planned business segment. It is also good practice to organize the formal side of the project: updating the scope of business activity, preparing a business plan or at least an internal project description, entering into contracts with trainers and stables, collecting documentation from competitions or assignments, and consistently separating any private use from business use. As a result, it can be concluded that including a horse in business costs is possible, but it requires a well-thought-out business model, correct tax classification of expenses, and solid documentation that allows these costs to be defended as rational and incurred in the interest of the enterprise.

Author: Konstancja Modzelewska