Edited version of private ruling

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Ruling

Subject: Work related expenses - work horses

Question 1

Are you entitled to claim a deduction for a portion of the costs associated with the maintenance of your horses?

Answer

Yes

Question 2

Are you entitled to claim a decline in value of your horses and equipment used for work related purposes?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You are employed by a primary producer (employer).

One of your duties with your employer is to move their livestock.

Your employer approached you regarding the use of your horses for mustering and moving livestock.

You agreed to muster your employer's livestock using your horses.

You believe that the work use of your horses would be no more than 20% as their use varies from twice a week to only once a fortnight.

For the rest of the time, your horses are predominately used for recreational purposes.

You incur wear and tear on saddles and bridles, as well as incur expenses for feed and other related items.

You have not been reimbursed for the costs that relate to your horses undertaking this work.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 40-25
Income Tax Assessment Act 1997 Subsection 40-25(7)

Income Tax Assessment Act 1997 Section 40-30
Income Tax Assessment Act 1997 Subsection 40-80(2)
Income Tax Assessment Act 1997 Division 40

Reasons for decision

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

The deductibility of expenses incurred in connection with working dogs are discussed in Taxation Ruling TR 95/13 and Taxation Ruling TR 95/18. The principles discussed in these rulings also apply to other animals such as horses.

TR 95/18 discusses the expenses incurred for a working dog which may be deductible. TR 95/18 explains that a deduction is allowable for depreciating the cost of a working dog which is used by a truck driver in the course of his or her income earning activities (for example, a driver who is transporting cattle).

TR 95/18 also explains that a deduction is allowable for veterinary fees and pet food expenses for working dogs. This is because the day-to-day expenses are incurred to keep a dog which is used for income producing purposes. Such expenses are deductible under section 8-1 of the ITAA 1997.

Similarly, TR 95/13 discusses expenses incurred in relation to police dogs. TR 95/13 states that a deduction for expenses incurred by police officers in maintaining, feeding, grooming, exercising and training police dogs.

Using the principles outlined in TR 95/13 and TR 95/18, you are entitled to a deduction for the maintenance costs associated with your working horses under section 8-1 of the ITAA 1997.

However, the expenses incurred with the maintenance of the horses must be apportioned to account for the recreational use of the horses. The actual apportionment of the expenses must be based on the facts of the case and there must be some fair and reasonable assessment of the extent to which the outlay relates to the assessable income.

Decline in value

Division 40 of the ITAA 1997 deals with deductions for the cost of depreciating assets. Subsection 40-30(1) of the ITAA 1997 defines a depreciating asset as an asset which has a limited effective life and can be expected to decline in value over the time it is used.

Section 40-25 of the ITAA 1997 allows a taxpayer to deduct an amount equal to the decline in value of a depreciating asset which is held for any time during an income year and used for a taxable purpose. A taxable purpose includes the purpose of producing assessable income (subsection 40-25(7) of the ITAA 1997).

A working horse and the equipment associated with it can be described as a depreciating asset for taxation purposes.

The decline in value of a depreciating asset starts when you first use it, or install it ready for use, for any purposes including private use. This is known as a depreciating asset's start time. If you initially use a depreciating asset for a private purpose, and in later years use it for a taxable purpose, you need to work out the asset's decline in value from its start time through the years it was used for a private purpose.

Subsection 40-80(2) of the ITAA 1997 provides that all of the costs relating to purchasing an asset will be deductible in the income year the costs are incurred if:

· the costs do not exceed $300

· the asset is used predominately for the production of assessable income.

If an asset or item is used for both work-related purposes and other purposes, the cost must be apportioned and a deduction claimed for only that proportion which is work related.

In your case, you have working horses and equipment associated with them. The working horses and their equipment such as saddles and bridles are depreciating assets for taxation purposes.

Therefore, you are entitled to claim a deduction under section 40-25 of the ITAA 1997 for their decline in value, subject to apportionment to reflect that the horses are used for income producing purposes for up to 20% of the time.