Edited version of private advice

Authorisation Number: 1052006250040

Date of advice: 13 July 2022

Ruling

Subject: Deductions for a therapy dog

Question

Are you entitled to claim a deduction for the expenses relating to the purchase, training and maintenance of a therapy dog?

Answer

Yes.

This ruling applies for the following periods:

Period End 30 June 20XX

Period End 30 June 20XX

The scheme commences on:

1 September 20XX

Relevant facts and circumstances

You are a therapist who specialises in providing therapy for parents and children.

You provided us with the qualifications that you hold.

You purchased a dog to be used in your practice as a therapy dog around a specified date.

Prior to the purchase of the therapy dog, you consulted with an expert in the field of using therapy dogs in psychology clinics. Through the consult you were able to determine the type of dog that would be the most appropriate dog for your customer base.

You conducted extensive research prior to purchasing your therapy dog which included contacting several specific dog breeders. You found that a lot of dog breeders would not provide vet clearance nor let you view the dogs parents.

You purchased your therapy dog from a registered dog breeder who has a history of breeding therapy dogs. You were provided with vet clearance for the therapy dog.

At a specified date you began training the dog to fulfil their role as a therapy dog. It is expected that the training will be completed by the end of the ruling period.

You provided us with the dog therapy courses that you have completed to date.

You provided us with details on a course that you plan to complete.

You will advertise that your sessions include animal assisted therapy on your website.

Your therapy dog will be involved in all sessions unless the patients do not want assisted dog therapy included.

You provided us with details around how your therapy dog will be used in your business.

When you are not working your therapy dog will be kept at your home and your will have full responsibility for its maintenance and upkeep.

You keep case notes on all of your sessions which details if your therapy dog was used for animal assisted therapy in the session.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income tax Assessment Act 1997 section 40-25

Reasons for decision

Under section 8-1 of the ITAA 1997 you are entitled to a deduction to the extent an expense is incurred producing assessable income. However, you are not entitled to a deduction if the loss or outgoing is capital, private or domestic in 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.

In limited circumstances a deduction for the purchase, training and care of the 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 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, your dog is undergoing specialised training from a qualified trainer and the dog will perform an integral part of the sessions you will conduct. The sessions will be advertised as animal assisted therapy in which the dog will be integral in providing this therapy, using practices that have been established by evidence-based framework. Therefore, you are able to deduct the expenses used to maintain and train your dog to the extent the dog was used in that income producing activity.

The deduction will need to be apportioned which is determined by the number of your patients for which the dog is actively engaged as a mechanism for providing therapy out of the total number of your patients. You will need to maintain records, including a diary, to enable you to calculate the appropriate apportionment for the deduction.

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 2021/3 Income tax: effective life of depreciating assets (applicable from 1 July 2021), stipulates that the effective life of a working dog, including certified therapy dogs used by qualified therapists, is 8 years. Therefore, you are able to claim the depreciation of the dog as a deduction for up to 8 years based on the percentage of actual usage in your sessions.

You can only claim a deduction for an expense in the same income year as the expense was incurred. However, if the asset was not being used for an income producing purpose in that income year, you are not able to claim a deduction for that expense. In the income year in which the dog begins to generate income, you can claim depreciation for the dog which is calculated from that tax period over its effective life.