ATO ID 2011/18: Deductions: guard dog expenses
Date of decision: 10 August 2001
Year of income: Year ended 30 June 2001 Year ended 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Are the costs incurred in training a guard dog to protect business premises deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. The training costs are not deductible under section 8-1 of the ITAA 1997.

Facts
The taxpayer purchased a dog for use solely as a guard dog to protect equipment and supplies at the taxpayer's business premises. The taxpayer incurred expenses in having the dog complete guard dog training.

Reasons for decision
Summary: A guard dog used to provide security for business premises is considered to be a working beast or plant, as it serves a productive function of the business. Consequently, the guard dog is a capital asset of the business. Under section 8-1 of the ITAA 1997, expenditure incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of producing assessable income, is deductible if it is not capital or of a capital, private or domestic nature. The leading authority on the distinction between revenue and capital outgoings is the judgment of Dixon J in Sun Newspapers Ltd v. Federal Commissioner of Taxation (1938) 61 CLR 337; (1938) 5 ATD 23; 1 AITR 403. Dixon J set out three matters to be considered (at CLR 363): In applying these factors to the guard dog training expenses, clearly the training is a once-off expense calculated to produce a benefit for the business for the working life of the dog, that is, an enduring benefit. The outgoing is not incurred over the life of the benefit but as a preliminary expense in obtaining the benefit of a guard dog. Accordingly, the expense is of a capital nature and is not deductible under section 8-1 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 8-1
Case references: Lunney & Anor v Federal Commissioner of Taxation (1958) 100 CLR 478 (1958) 11 ATD 404 7 ATR 166
Subject references: Deductions & expenses Working animals