Edited version of private advice

Authorisation Number: 1052054729816

Date of advice: 7 November 2022

Ruling

Subject: Expenses - therapy dog

Question

Are you entitled to claim a deduction for all, or a portion, of the expenses related to maintaining your therapy dog?

Answer

No.

This ruling applies for the following period

The income year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are employed as a Head of Department of Student Services.

You purchased a dog for the purpose of becoming a therapy dog.

The dog attends school with you approximately 4 days a week. During the school holidays the dog attends off-site training programs specific to the accreditation requirements. Outside of school hours, the dog resides with the you.

Your employer does not contribute financially to any of the expenses relating to your dog.

It is not a requirement of your employment that you have a dog.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

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 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.

There are limited circumstances in which a deduction for the purchase, training and care of a dog can be claimed as ordinarily those expenses are inherently private in nature. These involve a finding that the dog performs an integral part of the income producing activity and contributes to the production of that income. Where the dog is trained as a mustering 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.

While it can be accepted that there is evidence to support the psychological benefits of dogs, in your case, you take your dog to work where it interacts in a passive way with students and the role of the dog will not be assisting you in directly performing your duties. Although the dog is used in your day-to-day role, it does not have an integral role in the income producing activities.

Division 40 of the ITAA 1997 contains rules about the deductibility of capital expenditure, including the deductibility of depreciation on capital assets. For a depreciation deduction to be allowable the capital asset must be used for the purpose of producing assessable income. As with section 8-1 of the ITAA 1997, there must be a sufficient nexus with the income earning activity.

Taxation Ruling TR 2021/3 Income tax: effective life of depreciating assets (applicable from 1 July 2021) provides that working dogs are depreciating assets. However, the definition of working dogs under TR 2021/3 excludes assistance dogs, such as guide dogs, hearing dogs, service dogs and support dogs. As stated previously, it is not considered that your therapy dog forms an integral part of your income earning activity. Therefore, you are also not entitled to claim a deduction for the depreciation of your dog.