Edited version of private advice

Authorisation Number: 1051900913692

Date of advice: 15 October 2021

Ruling

Subject: Deductions for a therapy dog

Question

Are you entitled to claim a deduction for the expenses relating to the maintenance, training, and care of a therapy dog?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You advised that:

You are a qualified professional who provides XXXX therapy in a private practice.

You are a sole trader who derives your customer base from the practice.

On XX XX 20XX you purchased a dog to be used in your practice as a therapy dog.

On XX XX 20XX you began training the dog to fulfill this role. It is expected that the training will be completed in XX 20XX.

This training is a specialised training and designed to train the dog to be able to perform specific interventions functions. The training is conducted by a qualified professional.

You are also undergoing specialised training to work with the dog.

You expect to begin using the dog in therapy sessions in XX 20XX when the dog has had sufficient training.

You will advertise your business in such a way as to convey that your therapy sessions are animal assisted therapy sessions as well.

The dog will be actively engaged in the specific clinical animal assisted sessions unless the patients do not wish to use it.

The dog will be a contributor to your sessions and forms part of the mechanism of change and behavioural improvement of the patients.

You further advised that as part of your animal assisted therapy, the dog will be used for some of the following activities:

•                    assisting a child with a phobia of dogs by providing exposure therapy,

•                    assisting a person who struggles with eye contact or may be intimidated by a person who might be more willing to express themselves to the dog allowing you to engage with them, or

•                    engaging with a child who may struggle to read in front of a person but may be more willing to in front of a dog.

When not working, the dog will be kept at your home and you will have full responsibility for its maintenance and upkeep. Expenses for the dog include the purchase, food, veterinary bills, medications, training expenses, enrichment resources, registration fees, and safety items.

You will be keeping a record of sessions where the dog has been used for animal assisted therapy. This is to derive the percentage of the expenses that are attributable to the use of the dog.

You will be using this percentage of the expenses to determine and then claim the allowable deduction.

Relevant legislative provisions

Income tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 section 40-25.

Reasons for decision

Under Section 8-1 of the ITAA 1997 you are entitled to a deduction to the extent an expense is incurred producing assessable income. However, you are not entitled to a deduction if the loss or outgoing is capital, private, or domestic in nature.

Various decisions of the courts have determined that in order to show that the outgoing is incidental and relevant to the gaining of assessable income and the expenditure is not capital, private or domestic in nature, there must be a nexus or connection between the outgoing and the assessable income.

In limited circumstances a deduction for the purchase, training and care of the dog can be claimed. This is the case where a dog performs an integral part of the income producing activity and contributes to the production of that income. Examples include a dog that is trained as a cattle dog, guard dog, sniffer dog or police dog and it is used in such a capacity, they perform an identifiable function in the business operated by their owner and a deduction for their upkeep would normally be allowable.

In your case, the dog is undergoing specialised training from a qualified trainer and the dog will perform an integral part of the XXXX sessions you will conduct. The sessions will be advertised as animal assisted therapy in which the dog will be a mechanism through which therapy is provided using practices that have been established by evidence-based XXXX work. As a qualified professional the therapy sessions are a source of your assessable income. Therefore, you are able to deduct the expenses used to maintain and train the dog to the extent the dog was used in that income producing activity.

This deduction will need to be apportioned which is determined by the number of your patients for which the dog is actively engaged as a mechanism for providing therapy out of the total of your patients. You will need to maintain records, including a diary, to enable you to calculate the appropriate apportionment for the deduction.

You are unable to deduct any expense that is capital in nature under Section 8-1 of the ITAA 1997. However, under section 40-25 of the ITAA 1997, you can deduct the decline in value of a capital asset if the asset is acquired to be used in the producing of assessable income. The decline is value is the amount the asset depreciates each year and can only be claimed up to life of the asset as determined by the ATO.

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 used by qualified therapists, is 8 years. Therefore, you are able to claim the depreciation of the dog as a deduction for up to 8 years based on the percentage of actual usage in your clinical sessions.

You can only claim a deduction for an expense in the same income year as the expense was incurred. However, if the asset was not being used for an income producing purpose in that income year, you are not able to claim a deduction for that expense. As the dog will begin to generate income in the 20XX-XX income year, depreciation for the dog must be calculated accordingly from that tax period over its effective life.

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