ATO Interpretative Decision

ATO ID 2011/18

Income Tax

Deductions: guard dog expenses
FOI status: may be released
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Are the costs incurred in training a guard dog to protect business premises deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The training costs are not deductible under section 8-1 of the ITAA 1997.

Facts

The taxpayer purchased a dog for use solely as a guard dog to protect equipment and supplies at the taxpayer's business premises.

The taxpayer incurred expenses in having the dog complete guard dog training.

Reasons for Decision

A guard dog used to provide security for business premises is considered to be a working beast or plant, as it serves a productive function of the business. Consequently, the guard dog is a capital asset of the business.

Under section 8-1 of the ITAA 1997, expenditure incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of producing assessable income, is deductible if it is not capital or of a capital, private or domestic nature.

The leading authority on the distinction between revenue and capital outgoings is the judgment of Dixon J in Sun Newspapers Ltd v. Federal Commissioner of Taxation (1938) 61 CLR 337; (1938) 5 ATD 23; 1 AITR 403. Dixon J set out three matters to be considered (at CLR 363):

(a)
the character of the advantage sought, and in this its lasting qualities may play a part,
(b)
the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and
(c)
the means adopted to obtain it, that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment.

In applying these factors to the guard dog training expenses, clearly the training is a once-off expense calculated to produce a benefit for the business for the working life of the dog, that is, an enduring benefit. The outgoing is not incurred over the life of the benefit but as a preliminary expense in obtaining the benefit of a guard dog.

Accordingly, the expense is of a capital nature and is not deductible under section 8-1 of the ITAA 1997.

Date of decision:  10 August 2001

Year of income:  Year ended 30 June 2001 Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 8-1

Case References:
Lunney & Anor v Federal Commissioner of Taxation
   (1958) 100 CLR 478
   (1958) 11 ATD 404
   7 ATR 166

Ronpibon Tin NL & Tongkah Compound NL v Federal Commissioner of Taxation
   (1949) 78 CLR 47
   (1949) 8 ATD 431
   4 AITR 236

Sun Newspapers Ltd v Federal Commissioner of Taxation
   (1938) 61 CLR 337
   (1938) 5 ATD 23
   1 AITR 403

Keywords
Deductions & expenses
Working animals

Siebel/TDMS Reference Number:  1-25K93IT; 1-5SUC4IB; 1-BD46U7J

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  25 February 2011
Date reviewed:  3 May 2017

ISSN: 1445-2782