Edited version of private advice

Authorisation Number: 1052342418135

Date of advice: 17 January 2025

Ruling

Subject: Deductions - therapy dog

Question 1

Are you entitled to a deduction for the decline in value of the dog you purchased to use as a 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 a deduction for puppy school training?

Answer 2

No.

Question 3

Are you entitled to a deduction for the five-day intensive therapy dog training?

Answer 3

Yes.

Question 4

Are you entitled to a deduction for food, treats and toys for the dog?

Answer 4

No.

Question 5

Are you entitled to a deduction for vet bills, worming and grooming for your dog?

Answer 5

No.

This ruling applies for the following periods:

Year ended XX XXXX 20XX

Year ending XX XXXX 20XX

The scheme commenced on:

XX XXXXX 20XX

Relevant facts and circumstances

XX XXXXX 20XX, you commenced working with Company 1 as a fulltime XXXXX XXXXX.

Your employment is located across both Company 1 locations, Office 1 and Office 2. You may also have to travel to other locations to carry out your duties.

You are a NDIS accredited provider.

XX XXXXX 20XX, you purchased a dog (puppy) from Business 1 at the cost of $XXXX.

You purchased and trained the dog, named XXXXX, specifically to serve as a therapy dog in your role.

Therapy Dogs Australia recommends that a dog that undergoes training as a therapy dog should be known to the trainer for at least XXX months prior to commencing work and ideally reside in the trainer's home. This is imperative in developing the human animal bond that is replicated within the therapy room.

In your practice AAT can play a vital role in engaging clients.

Your therapy dog enhances the therapeutic experience for your client and facilitates communication and social interaction.

Your clients can specifically request sessions that include your therapy dog, and they have already attracted numerous new clients to the service.

You will be advertising your therapy dog on the Company 1 Website, to increase interest and client engagement.

Your earning capacity can be increased by offering AAT to your clients.

Your therapy dog is included in the sessions in a number of ways:

•                     Attachment - the therapy dog provides the opportunity to create a positive attachment figure in a client's life, using this attachment as a bridge to form healthy connections with other humans.

•                     Emotional support - the therapy dog can support people who are grieving, providing the comfort and warmth of the presence of physical contact that a psychologist cannot provide.

•                     Engagement - the therapy dog increases the motivation and engagement of children; clients are enthusiastic to meet the therapy dog and to engage in therapeutic work.

•                     Normalising - the therapy dog is integrated into therapeutic intervention through stories, clients drawing pictures or engaging in pet mindfulness with the therapy dog in session.

•                     Reward - the therapy dog and client are able to interact at the end of every session, playing with the dog strengthens the human animal bond between the dog and the client, providing motivation for engagement.

•                     Exposure Therapy - the therapy dog has been used to complete some graded exposure for clients with specific phobias to dogs, helping them to feel more comfortable with dogs in the community.

You do not currently charge extra for the therapy dog sessions; you are exploring the NDIS guidelines for accessing additional funds for participants of AAT.

You have advertised your therapy dog on social media gaining a lot of interest for potential new clients.

Costings to date for the therapy dog:

•                     purchase $XXXX

•                     vet bills $XXXX

•                     training $XXXX

•                     food treats and toys $XXXX

You have paid all of these expenses.

•                     Private indemnity insurance $XXX- (Company 1 have paid this expense).

Your therapy dog resides with you, and you take care of the therapy dog, guidelines recommend that a therapy dog is familiar with you and reside at home with you.

You have completed multiple training courses with your therapy dog:

•                     Puppy training - a first introduction to obedience training and socialisation, this is important for therapy dogs to understand basic commands. In the first few months of development, it is critical that therapy dogs are socialised with a variety of people to build confidence when meeting new people.

•                     XXXXX to current, obedience training, continuing work on basic training and socialising.

•                     XXXX 20XX therapy dogs Australia to learn specific techniques.

•                     XXXXX 20XX, Clinical course.

•                     Advanced behavioural training:

•                     XXXXX 20XX, paws unleashed - to increase confidence with off lead work.

•                     XXXXX 20XX, adventure class, getting confident with new environments.

XX XXXXX 20XX, you and your therapy dog have attained at certificate from Therapy Dogs Australia stating that you have both met the standards of the five-module short course for AAT Human-Canine Clinical Team Training, graduating as a level 1 Human-Canine team.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Issue

Work related expenses - Therapy dog deduction.

Question 1

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

Answer

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 X years.

To determine the income use of the dog in calculating the decline in value deduction is the number of hours during the income year the dog participated in therapy sessions/the number of hours in the income year.

Question 2

Are you entitled to a deduction for puppy school training?

Answer

No.

Detailed reasoning

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.

Your dog is undergoing basic obedience and socialisation training which will allow you to determine whether the dog is suitable as a therapy dog. Given this is just general training, the training expense is not incurred in gaining or producing your assessable income. Also, as this training assesses whether the dog is suitable as a therapy dog then this will be considered to have been incurred at a point too soon or be considered a private expense.

Question 3

Are you entitled to a deduction for the five-day intensive therapy dog training?

Answer

Yes.

Detailed reasoning

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.

After the basic obedience and socialisation training, your dog will undergo specialised training from a qualified 'therapy dog' trainer. This five-day intensive program will certify your dog as a 'therapy dog'. These expenses are related to production of income and are not of a private nature Therefore, under Section 8-1 of the ITAA 1997, you are able to deduct the specialised 'therapy dog' training.

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.

Question 4

Are you entitled to a deduction for food, treats and toys for the dog?

Answer

No.

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.

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.

In these circumstances, it is considered that the expense of food, treats and toys is not a work-related expense and therefore is not deductible under Section 8-1 of the ITAA 1997. It is considered a private or domestic expense.

Detailed reasoning

Question 5

Are you entitled to a deduction for vet bills, worming and grooming for your dog?

Answer

No.

Detailed reasoning

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.

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.

In your case, the dog lives at your residence and comes to work with you as a therapy dog performing a part of the sessions you conduct. This 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.

Whilst it is acknowledged that your dog may assist with the sessions you conduct, it also accompanies you at your home and acts as a pet. In these circumstances, it is considered that the general costs of maintaining the therapy dog retain their inherently private nature and therefore are not deductible. The vet bills, worming and grooming is not a work-related expense and therefore is not deductible under section 8-1 of the ITAA 1997. It is considered a private or domestic expense.

Application to your circumstances

In applying this to your situation, the dog underwent 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 the dog such as a decline in value deduction while the dog assists in producing your assessable income, and the intensive therapy dog training required for the dog to become and be certified as a therapy dog.

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.