Edited version of private advice

Authorisation number: 1052354548953

Date of advice: 24 January 2025

Ruling

Subject: General expenses - work related

Question

Are you able to claim a deduction for the decline of value for a XXXX under section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Year ended XX XXXX 20YY

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

On XX XXXX 20YY, you acquired a dog.

The dog was trained from a young age to fulfill the role of a XXXX dog.

You do not treat the dog as a pet.

Your employer does not reimburse you for any of the expenses of the dog.

On XX XXXX 20YY, you signed a contract of employment for a position with Company 1 as a Canine Handler providing XXXXX services.

You have provided a duty statement for your role as a Canine Handler. This statement provided a list of duties requiring substantial involvement of a XXXX dog in your day-to-day activities.

Your employer required you to obtain a canine vest for your XXXX dog to prevent potential harm that could be caused by using a standard collar.

The canine vest is not utilised outside of the workplace as it was solely acquired for work purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 40-25

Reasons for decision

Section 8-1 of the ITAA 1997 allows a deduction for losses and outgoings to the extent that they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature.

In order to show an outgoing is incidental and relevant to the gaining of assessable income, there must be a sufficient connection between the outgoing and the assessable income.

There are limited circumstances where a deduction for the purchase, training and care of a 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 guard dog, sniffer dog, or police dog and is used in such a capacity that the dog performs an identifiable function in the income earning activity conducted by their owner.

Generally, the costs to maintain and train animals are a private expense and not tax deductible. The preliminary purchase costs of a dog and any associated fees with training are considered in ATO Interpretive Decision ATO ID 2011/18 Income tax: Deductions: guard dog expenses. Where a dog's owner is an employee rather than a business, any deduction can only be determined by reference to whether the ongoing maintenance costs have the necessary connection with the employee's salary and wages.

Taxation Ruling TR 95/13 Income tax: employee police officers - allowance, reimbursements and work-related deductions at paragraph 160 provides:

[160] Some police officers buy their own dogs and train them to become police dogs. However, there is no guarantee that the police officers will be allowed to join the relevant squad with their own dogs. These expenses are incurred prior to joining the relevant squad and prior to the derivation of the related assessable income. Under these circumstances, the related expenses are not allowable deductions under subsection 51(1) of the Act.

Although under TR 95/13 paragraph 1 this ruling does not apply to you, the principles applied are similar considerations that may apply to your circumstances.

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 in value is the amount the asset depreciates each year and can only be claimed up to the life of the asset as determined by the ATO.

Taxation Ruling TR 2022/1 Income tax: effective life of depreciating assets (applicable from 1 July 2022) provides the methodology utilised by the Commissioner to make a determination of the effective life of depreciating assets. If a particular asset is not listed in either Table A or B of TR 2022/1 then the Commissioner has not made a determination of its effective life and you will instead need to make your own estimate of its effective life (see section 40-105 of the ITAA 1997 and working out your own effective life - paragraphs 47 to 50 of TR 2022/1).

Application to your circumstances

You have advised that your employer required you to obtain a canine vest for your guard dog to prevent potential harm that could be caused by using a standard collar. There is a clear connection between your employment as a canine handler and your guard dog, establishing the dog's role in contributing to the generation of your income. You have also acquired the canine vest after commencing your employment, thereby establishing a connection to the time at which the related assessable income was derived.

The canine vest is classified as a depreciating asset, used specifically for the purpose of generating assessable income in your role as a canine handler. A canine vest is not an asset for which the Commissioner has made a determination of the effective life, therefore you will need to make your own estimate of its effective life with section 40-105 of the ITAA 1997 and paragraphs 47-50 of TR 2022/1 to assist you. You may then claim a deduction for the decline in value of the canine vest, based on your own estimate of its effective life.

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