Edited version of private advice

Authorisation Number: 1051948550599

Date of advice: 16 February 2022

Ruling

Subject: Work-related expenses

Question 1

Are you entitled to a deduction for the decline in value of the dog you purchased to use as a therapy dog?

Answer

Yes, to the extent that the dog is used for the purpose of producing your assessable income.

Detailed reasoning

Section 40-25 of the ITAA 1997 allows a deduction for the decline in value of depreciating assets. A dog is a depreciating asset. The decline in value of a depreciating asset is worked out by reference to the cost of the asset and its effective life. A reduction in deduction applies to the extent that the depreciating asset is not used for a taxable purpose. Where a dog performs an integral part of the income producing activity and contributes to the production of that income this will constitute use for a taxable purpose. Examples include a trained therapy dog used by a clinical psychologist, a dog that is trained as a cattle dog, guard dog, sniffer dog or police dog and it is used in such a capacity, and they perform an identifiable function in the business or employment of their owner.

You can deduct the cost of the dog as a decline in value deduction to the extent the dog is used to assist with your employment activities. The deductible proportion can be calculated by taking into account the number of hours for which the dog is actively engaged as a mechanism for providing therapy at your place employment by you, versus the balance of the time during the week when it is not being used by you to assist with your employment activities. Time spent at home in a private setting (not working) and times not being used by you for your work activities would not count towards a taxable use component. You will need to maintain records, including a diary or logbook, to enable you to calculate the appropriate apportionment for the deduction.

Taxation Ruling TR 2021/3 Income tax: effective life of depreciating assets (applicable from 1 July 2021), stipulates that the effective life of a working dog, including certified therapy dogs is 8 years. You may also choose to self-assess the effective life of your dog.

As the dog will begin to decline in value from the time you start to own it, the decline in value for the dog must be calculated accordingly from that time over its effective life.

Question 2

Are you entitled to a deduction for puppy school training?

Answer

No.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997(ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature.

Your dog is undergoing basic obedience and socialisation training which will allow you to determine whether the dog is suitable as a therapy dog. Given this is just general training, the training expense is not incurred in gaining or producing your assessable income. Also, as this training assesses whether the dog is suitable as a therapy dog then this will be considered to have been incurred at a point too soon or be considered a private expense.

Question 3

Are you entitled to a deduction for the five-day intensive therapy dog training?

Answer

Yes.

Detailed reasoning

After the basic obedience and socialisation training, your dog will undergo specialised training from a qualified 'therapy dog' trainer. This five-day intensive program will certify your dog as a 'therapy dog'. These expenses are related to production of income and are not of a private nature. Therefore, under Section 8-1 of the ITAA 1997, you are able to deduct the specialised 'therapy dog' training.

Question 4

Are you entitled to a deduction for liability insurance for the dog?

Answer

Yes.

Detailed reasoning

Liability insurance is the necessary insurance for your dog to be a working therapy dog and is deductible under Section 8-1 of the ITAA 1997.

Question 5

Are you entitled to a deduction for pet insurance for the dog?

Answer

No.

Detailed reasoning

General pet insurance is a private cost. It is the same insurance any pet owner would incur to insure their pet. In these circumstances, it is considered that the pet insurance cost is not a work-related expense and therefore is not deductible under Section 8-1 of the ITAA 1997. It is considered a private or domestic expense.

Question 6

Are you entitled to a deduction for the decline in value of two crates for the dog?

Answer

You are entitled to a deduction for one of the crates.

Detailed reasoning

You can claim an immediate deduction for a depreciating asset that you buy and use for work purposes, if:

• the asset cost $300 or less
• you mainly use it to produce non-business assessable income
• the asset is not part of a set costing more than $300
• the asset isn't one of a number of identical or substantially identical assets that together cost more than $300.

You have purchased two crates for the dog (one at home, one at your place of employment). They are depreciating assets. They need to be considered under section 40-300 of the ITAA 1997. The decline in value of the items will be deductible where you use the crate predominantly for the purpose of producing assessable income. This will be the case for the crate used at work. For the crate that you use at work, you will be able to claim a tax deduction for its cost. For the one used at home no deduction is allowable.

This ruling applies for the following periods:

Financial year ending 30 June 20XX

Financial year ending 30 June 20XX

The scheme commences on:

8 August 20XX

Relevant facts and circumstances

You have been employed full-time since 20XX.

You purchased a dog with the sole intention for it to be used as a therapy dog for your income producing activities in your field of employment.

A list of expenses incurred and expected to be incurred include:

•         Purchase of puppy - $X,XXX

•         Liability insurance - $XXX

•         Puppy school 6 lessons (once a week) at a cost of $XXX. This course will teach general obedience training and socialisation.

•         Therapy dog training costs. The cost will be $XXXX. This is a 5-day intensive program that will give the dog the 'therapy dog' title.

•         Pet insurance has been quoted at $XXX per month.

•         Two crates have been purchased for a total of $XXX (one for the place of work and one for home)

The costs will not be reimbursed by your employer and no allowance for additional costs will be provided.

You do not wish to claim the cost of feeding the dog.

You have obtained a letter of support from your employer which outlines the positive influences and benefits of having a therapy dog in the employment setting:

•         Increased performance

•         Gains in self-confidence

•         Decrease in learner anxiety behaviours resulting in improved learning outcomes.

•         Positive changes towards learning and motivation.

•         Enhanced relationships due to experiencing trust and unconditional love from a therapy dog. This in turn helps those involved learn how to express their feelings and create more trusting relationships.

Living arrangements and work tasks of your dog include the following:

•         The dog will live at your house and travel to work with you every day (5 days per week).

•         The dog will be in your place of employment as a base (where the dogs crate will be) but the dog will eventually spend time in many different parts of your place of employment as needs dictate. This is a training process.

•         The dog will be available to spend time in your place of employment where there may be a person who will benefit. The dog will spend specific time with certain people who cannot, for a variety of reasons, do normal activities.

You will not earn any additional assessable income as a licensed dog handler.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 40