Edited version of private advice

Authorisation Number: 1052227745162

Date of advice: 4 March 2024

Ruling

Subject: Deductions for a therapy dog

Question 1

Are you entitled to claim a deduction for the purchase of the therapy dog under section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

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

Answer

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 (a company) run a practice providing Paediatric Occupational Therapy and Speech Pathology and you trade under the name of AA.

You provided a copy of the tax invoice dated on a specified date for the purchase of a therapy puppy (later named as BB). The tax invoice was issued to your director CC with the inclusion of your trading name AA.

You paid for the purchase of BB.

BB was registered to CC.

It has always been your intention for BB to be owned by you.

At the time of your private ruling application, you were unaware that BB could not be registered under a company name.

There is no lease agreement in place between you and CC nor did you pay CC a fee for the use of BB in your business.

You provided us with details on BB's trainer.

You advertise that you have a therapy dog available for sessions with the children.

You entered into an agreement with CC on a specified date which advised what expenses you would be paying for. You provided us with a copy of the agreement.

You have paid all training invoices which were issued to you.

All other expenses were paid for by CC.

BB attends your clinic a specified number of days per week and is there all day. They may attend more when requested.

You use a scheduling system for when BB is required for a therapy session.

The role of BB in the clinic is passive. In some of the sessions with BB just being present is enough to calm children down and relieve their anxiety. Other times BB is used to transition children out of the clinic as some children have trouble leaving the session therefore BB will walk them to the car.

When BB is not working, he lives at the home of CC.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 40-25

Reasons for decision

Decline in Value

A deduction for the decline in value of depreciating assets is available under Division 40 of the ITAA 1997. Specifically, a deduction is available for the decline in value of a depreciating asset that is held by you to produce your assessable income under section 40-25 of the ITAA 1997.

In your case, you are not the holder of the therapy dog, your director CC is.

General Deduction

Under section 8-1 of the ITAA 1997 you are entitled to a deduction to the extent an expense is incurred in producing your 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 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, 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, BB has undergone specialised training from a qualified trainer. You advertise that a therapy dog is available for sessions with the children and BB is an integral part of your therapy sessions. Therefore, you are able to deduct your share of the expenses incurred to maintain and train BB to the extent that they are used in your income producing activity.