Edited version of private advice

Authorisation Number: 1052248911777

Date of advice: 9 May 2024

Ruling

Subject: Deductions - working dog

Question

Are you entitled to claim a deduction for the expenses relating to the maintenance and care of your helper dog that assists you with your training business?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You undertake work as a dog trainer and behaviourist.

Your day-to-day work involves training dogs that have behavioural issues, preventing and modifying undesirable behaviours such as aggression, anxiety, excessive barking and destructive chewing.

Combining this with providing guidance to owners, you produce well-mannered and adjusted dogs.

In undertaking this work, you employ the use of two techniques - desensitisation and flooding.

The desensitisation process reduces a response by presenting the trigger in its least intense form and gradually building up intensity over time.

You then expose your own dog to other dogs, starting with far distances and gradually decreasing the distances until the dogs can interact without over-excitement.

Flooding involves presenting a stimulus in full force until the dog stops reacting to it. You use your own dog as the stimulus to flood the client's dog.

The training techniques you employ are impossible to use without the use of a training dog and are highly effective in addressing behavioural issues.

You also use your dog as a promotional tool for your business, attracting clients through demonstrations, social media posts and marketing materials.

When not at work, the dog enjoys a regimented and disciplined, but still domesticated home life with you and your other dog.

The working dog does not enjoy a free and unrestricted lifestyle due to it being disciplined and well trained:

•         It rests in a crate,

•         Is not permitted to use furniture.

•         It is not permitted to socialise with other animals.

•         It is subject to verbal correction and has to complete obedience tasks to be fed.

•         It is trained daily.

This is in contrast to the other dog that:

•         Rests on the bed

•         Is permitted to use furniture.

•         Can socialise with other animals.

•         It is untrained comparatively and does not need to undertake obedience tasks to be fed.

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 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 care of 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. A working beast typically will remain on the business premises and will not socialise with owners. These dogs are relevant to the operation of the business and maintenance expenses would generally be deductible under section 8-1 of ITAA 1997.

In your case, the dog lives at your residence and comes to work with you as a training aide by socialising with your client's dogs in the desensitisation and flooding manners. The fact that your dog accompanies you to work and assists with running your business does not change the fact that your dog is kept at your residence and is still treated as a pet, albeit a well-disciplined and trained one, with expenses associated with its maintenance and care being private in nature. It is immaterial that your other dog lives an unencumbered life in comparison to the trained dog when they are both treated as pets domestically.

Whilst it is acknowledged that your dog may assist with your business by training other dogs and marketing your business, it also accompanies you at your home and acts as a pet. What is determinative is that your dog is 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.

It is appreciated that the working dog 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 cost of maintaining your dog.