Edited version of private ruling

Authorisation Number: 1011644238089

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: deduction for guard dog expenses

1. Are you entitled to a deduction for the decline in value of training and acquisition costs of a guard dog to the extent that it is used for business purposes?

Yes.

2. Are you entitled to a deduction for the maintenance costs of a guard dog to the extent that it is used for business purposes?

Yes.

This ruling applies for the following period

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2010

Relevant facts

You run a home based business with your partner.

You are both also engaged in full time employment away from home.

All your business plant and equipment is stored at your home.

As you are away from home during the weekdays you are looking at purchasing a guard dog to protect your business assets.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 40

Reasons for decision

Summary

The purchase of a guard dog is a capital expense. Therefore, you are entitled to a deduction for the decline in value of the purchase and training costs. You are also entitled to a deduction for the maintenance costs of owning a guard dog. In all instances, your expenditure must be apportioned to account for dual protection provided, that is, the protection provided to both business and private property.

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, or relate to the earning of exempt income.

In order to be deductible under section 8-1 of the ITAA 1997, expenditure must have the essential character of an outgoing incurred in gaining assessable income. There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income and the expenditure must not be capital, private or domestic in nature.

Expenses related to a guard dog where that dog is used to protect an individual, their family or personal assets would be considered a private and domestic expense, without sufficient nexus to income earning activities. However, in your case, expenditure on the guard dog to the extent it is used to protect business plant and equipment, arises as a direct result of your business activity and is not a private or domestic expense.

A guard dog used to provide security for business plant and equipment would be considered to be a working dog or plant, as they are serving a productive function of the business. Consequently, the purchase cost of the guard dog relates to a purchase of plant, which is a capital expense, and is not an allowable deduction under section 8-1 of the ITAA 1997 but a decline in value of a depreciating asset deduction is allowable under Division 40 of the ITAA 1997. The capital cost of the purchase of the dog would include associated costs of purchase such as the initial veterinary fee and training.

The business related portion of upkeep expenses and annual veterinary fees will be an allowable deduction under section 8-1 of the ITAA 1997.

In your situation your business assets are located at your home. This means that while the dog is guarding an area which relates to the conduct of your business, it is also guarding your personal assets. The case of Ronpibon Tin N.L.Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236 found that an apportionment of expenses may be necessary where an activity has two purposes.

You are required to apportion all the expenses relating to the guard dog, between the business function provided by the dog and the private and domestic function. Even though it may not have been your intention to provide security to your personal assets, the location of your business has resulted in this situation. The guarding of your personal assets is a private and domestic arrangement, and expenses related to this activity will not be deductible. The decline in value and maintenance expenses of the guard dog will need to be apportioned between these two uses.