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Edited version of your written advice
Authorisation Number: 1012906682835
Date of advice: 11 November 2015
Ruling
Subject: Business expenses - payment for guard dog
Question
Can the Trust claim a deduction for the costs incurred in relation to a guard dog?
Answer
No
This ruling applies for the following period
Year ended 30 June 2015
The scheme commenced on
1 July 2014
Relevant facts
The Trust carries on a business. The trustee of the Trust is a company.
The Trust stores equipment used in the business at the residence of the director of the trustee company when it is not in use. The bookkeeping for the business is also carried out at the residence.
There is a guard dog at the residence.
The owner of the residence is the registered owner of the dog and has incurred the expenses of owning and maintaining the animal.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
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.
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 (Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236), and the expenditure must not be capital, private or domestic in nature.
A dog is ordinarily considered a pet and therefore expenses incurred in relation to a dog are generally not deductible as they are private or domestic in nature and not sufficiently connected to the earning of assessable income. However, in some instances a dog is considered a working beast or item of plant for a business, for example, a guard dog used to provide security for business premises that remains on site at all times and a working dog used to muster stock. An animal does not qualify as plant unless it is used in a business (Case M59, 80 ATC 409 and Case M72, 80 ATC 497).
In this case, the dog lives at the residence of the director of the trustee company at all times and its presence is used to act as a guard dog. It protects equipment that is not in use and stored in the garage. It is socialised as a family pet.
On balance, we consider that the costs incurred in relation to the dog are essentially private in nature.
Additionally, as the expenses have been paid by the registered owner the Trust has not incurred any expenses.
Accordingly, the Trust cannot claim a deduction for the food, medical and other expenses incurred in relation to the dog.