Edited version of private advice

Authorisation Number: 1051893096999

Date of advice: 24 September 2021

Ruling

Subject: Deductions - dog related expenses

Question

Are you entitled to claim a deduction for the expenses relating to the purchase cost, maintenance and care of your helper dogs that assist with your dog training business?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

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

You run a dog training business specialising in behaviour modification in dogs for the public.

You have X helper dogs. XX of your dogs were not purchased for the purpose of helping you with your business, however they were formed into helper dogs. Your XX dog was purchased for the business as a helper dog, as it belongs to a breed that has high drive loves to work, in addition to it having a soft and polite nature. Currently, your XX dog is too young to be of much assistance.

These dogs are also your pets and live in your house. They are not yard dogs and are an integral part of the business due to the specific jobs they have each week whilst at work with you.

A large amount of work that you do centres around fixing behaviours in pet dogs (reactivity on leash, aggression, etc), so your helper dogs assist in training these dogs by acting as safe, trained distractions and as balanced social helpers for the dogs you rehabilitate. Your helper dogs do this by socialising with and teaching your client dogs the appropriate way to behave.

Your dogs attend work on an average of 4 days a week. On Saturdays your helper dogs accompany you to work for a full 10-hour day all day with back to back jobs. On other days they attend work for four hours each day. This amounts to approximately 22 hours per week.

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.

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.

There are limited circumstances in which a deduction for the purchase cost, maintenance and careof the dog can be claimed. These involve a finding that the dog performs an integral part of the income producing activity and contributes to the production of that income and are therefore considered as a working beast or item of plant for a business. Where the dog 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 dogs live at your residence and also come to work with you four days a week to act as a helper dog by socialising with your client dogs and by demonstrating the appropriate way to behave. The fact that your dogs accompany you to work and assist with running your business does not change the fact that your dog's are kept at your residence and are regarded as pets, with expenses associated with their purchase, maintenance and care being private in nature. Whilst it is acknowledged that your dogs may assist with your business by socialising with other dogs, they also accompany you at your home and act as pets. What is determinative is that your dogs are privately owned and there is only a remote connection between the expenses incurred to maintain them and the gaining of your assessable income through performing activities that assist with the running of your business.

While it is appreciated that the dogs may perform some functions for your business, such functions are considered distinguished from the 'identifiable function' that a cattle dog or a police dog would perform. It therefore does not alter the private nature of the relevant costs. Accordingly, you are not entitled to a deduction for the purchase price and the cost of maintaining your dogs.