Edited version of private advice

Authorisation Number: 1052222536352

Date of advice: 15 February 2024

Ruling

Subject: Deductions - therapy dog

Question 1

Are you entitled to claim a deduction for the decline in value of the dog purchased to use as a wellbeing therapy dog?

Answer 1

Yes, to the extent that the dog is used for the purpose of producing your assessable income

Question 2

Are you entitled to claim a deduction for the ongoing expenses related to food, maintenance, and care of a certified therapy dog pursuant to section 8-1 of the ITAA 1997?

Answer 2

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a registered psychologist.

You are employed on an ongoing basis with a school (the School).

The School provides a Wellbeing Program, which includes the Wellbeing Dog Program (the Program)

You reached an agreement with the School to deliver the Program.

It was agreed that you would become the Dog's primary carer

It was agreed that you would purchase the Dog.

On XX XX 20XX, you purchased the Dog for the amount of $X,XXX.XX.

You required a specific breed, being a poodle mix, to minimise allergic reactions.

The dog is completing a certified therapy dog course with a recognised provider (the Dog Accreditation Provider).

The School will pay all costs associated with the accreditation process for the Dog.

The Dog works 4 days per week.

The Dog works directly with you to assist students to:

•         Regulate their emotions.

•         Provide a sense of connection to the school to increase attendance.

•         Work on polyvagal theory.

You fund all medical costs associated with the Dog.

The medical appointments you attend are documented, and supplied annually to the Dog Accreditation Provider, in order for the Dog to maintain its certified therapy dog accreditation.

You purchase food for the Dog as it is recommended by the Dog Accreditation Provider that the Dog is not fed at work to minimise risk for the Dog and persons interacting with the Dog in their place of work.

You pay for all grooming expenses for the Dog.

You have not received any reimbursement for costs incurred.

You have indemnity insurance in your role.

You have pet insurance, but this does not cover if the Dog causes injury to a person.

The School has public liability insurance that accommodates the use of a dog in the school environment.

There are contingency plans in place by the School, and in the event the Dog is unwell, the School will source another suitable, certified dog to allow you to continue delivering the Program.

There is a contingency plan in place in the event you are unwell, to ensure the School can continue to provide the Program.

The School has completed a risk assessment and has control measures in place, devolving all responsibility for the Dog and the Program, to you.

The School has a formal 'Dogs in Education Agreed Practice' policy (the Policy) in place.

The School requires other staff/employees of the School to comply with the Policy to support the delivery of the Program managed by you.

Other staff/employees of the School will interact with and utilise the dog in accordance with your advice and direction.

You provide, education, support and training to other staff within the School when the Dog is used in other classrooms.

The School keeps a register of the dog's attendance at school.

The School has made the community aware of the dog via social media and newsletters; along with signs on school gates informing 'wellbeing dog onsite'.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 40-25

Income Tax Assessment Act 1997 section 51

Reasons for Decision

Question 1

Are you entitled to claim a deduction for the decline in value of the dog purchased to use as a wellbeing therapy dog?

Answer 1

Yes, to the extent that the dog is used for the purpose of producing your assessable income

Detailed Reasoning

Section 40-25 of ITAA 1997 allows a deduction for the decline in value of depreciating assets. A dog is a depreciating asset. The decline in value of a depreciating asset is worked out by reference to the cost of the asset and its effective life. A reduction in the deduction applies to the extent that the depreciating asset is not used for a taxable purpose. Where a dog performs an integral part of the income producing activity and contributes to the production of that income this will constitute use for a taxable purpose. Examples include a trained therapy dog used by a clinical psychologist, a dog that is trained as a cattle dog, guard dog, sniffer dog or police dog and it is used in such a capacity, and they perform an identifiable function in the business or employment of their owner.

You can deduct the cost of the dog as a decline in value deduction to the extent the dog is used to assist with your employment activities. The deductible proportion can be calculated by taking into account the number of hours for which the dog is actively engaged as a mechanism for providing therapy at your place of employment by you, versus the balance of time during the week when it is not being used by you to assist with your employment activities. Time spent at home in a private setting (not working) and times not being used by you for your work activities would not count towards a taxable use component.

Taxation Ruling TR 2022/1 - Income tax: effective life of depreciating assets (applicable from 1 July 2022), stipulates that working dogs include certified therapy dogs used by qualified therapists, detection dogs, guard dogs, performing dogs, police dogs and security dogs; but excluding assistance dogs (such as guide dogs, hearing dogs and service dogs), pet dogs, racing dogs, support dogs, and working dogs used in primary production.

TR 2022/1 details that the effective life of a working dog, including certified therapy dogs is 8 years.

Question 2

Are you entitled to claim a deduction for the ongoing expenses related to food, maintenance, and care of a certified therapy dog pursuant to section 8-1 of the ITAA 1997?

Answer 2

Yes.

Detailed Reasoning

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

In your case, the dog is undergoing specialised training from a qualified trainer and the dog will perform an integral part of the sessions you will conduct. The dog will be integral in providing therapy, using practices that have been established in evidence-based framework. Therefore, you are able to deduct the expenses used to maintain and care for your dog to the extent that the dog is used in that income producing activity.

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

You can only claim a deduction for an expense in the same income year as the expense was incurred. If the asset is not being used for an income producing purpose in an income year, you are not able to claim a deduction for expenses incurred.