Edited version of private advice

Authorisation Number: 1052289734345

Date of advice: 12 August 2024

Ruling

Subject: Deductions - dog and ongoing expenses

Question 1

Is the original purchase cost of a dog deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are the ongoing costs of a dog deductible under section 8-1 of the ITAA 1997?

Answer

No.

Question 3

If the costs are deductible, can you apportion the costs according to their business/personal use?

Answer

Not applicable.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You run a business as a Business Activity Statement (BAS) agent and a consultant from your home office.

Clients visit your home office frequently throughout the day.

Some clients are new and unknown to you; you may have not met them previously.

You have concerns about your personal security.

You purchased of a dog to enhance your sense of security.

You stated the dog provides a significant sense of security, without which you would not feel safe meeting clients in your home office. Although not formally trained as a guard dog, it is protective and will bark in response to a threat.

You have incurred ongoing expenses for the dog: vet bills, food and other supplies (bedding, toys & grooming).

You intend to apportion the dog related expenses at a rate representing the business purpose or use. This rate is based on the hours clients visit your home to the total hours in a week.

You have some general plans for future therapy dog training.

Relevant legislative provisions

Income Tax Assessment Act 1977 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 outgoing to the extent to which they are incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, you cannot deduct a loss or outgoing to the extent that:

a)    it is a loss or outgoing of capital or of a capital nature; or

b)    it is a loss or outgoing of a private or domestic nature; or

c)    it is incurred in relation to gaining or producing exempt income or non-assessable non-exempt income; or

d)    a provision of ITAA 1997 prevents you from deducting the loss or outgoing.

To be deductible under section 8-1 of the ITAA 1997, the 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.

Generally, costs associated with purchasing and maintaining a dog are private in nature and not deductible. However, in limited circumstances a deduction for these expenses can be claimed where the dog performs an integral part of the income producing activity and contributes to the production of that income, for example, a working dog on a sheep farm.

Taxation ruling TR 95/13 Income tax: employee police officers - allowance, reimbursements and work-related deductions (TR 95/13) outlines the Commissioner's view of tax related matters for police officers. Paragraphs 115 to 117 specifically precluded the deduction for guard dogs for the protection of police officers and their families as the expense is private in nature. It references Taxation Case T20 (1986) 86 ATC 211; (1986) 29 CTBR (NS) 159 (Case T20)and NT86/11777 and Commissioner of Taxation [1988] AATA 274 (NT86/11777). These cases involve taxpayers who were Family Court judges who were advised by a Commonwealth government agency to improve the security of their private residences for safety reasons. In both instances, it was held that the expenses incurred in installing a security system and maintaining a guard dog were capital items but also private in nature and no deduction was allowable.

In your case, you have made a decision to carry on your business activity from your residence. Various risks could be attributed to this decision. Safety and security are one such risk. Due to security concerns, you have decided to acquire a dog to provide you with a sense of security. Acquiring the dog is a decision you have made for your own personal safety reasons. The dog does not have an integral role in your income producing activities. No connection can be identified that the loss or outgoing of the expenditure for the dog was necessarily incurred to gain or produce assessable income from your Business Activity Statement agent and consultant activities.

Therefore, you are not entitled to a deduction for the cost of acquiring the dog and the ongoing cost of maintaining your dog under section 8-1 of the ITAA 1997 because they are personal or private in nature.