Private ruling: Deductions - work related expenses
Date of advice: 27 October 2023
Published: 4 December 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim the costs of purchase, training, ongoing medical and food expenses as a deduction under section 8-1 of the Income Tax Assessment Act (ITAA 1997)? | A1: No.

Relevant facts and circumstances: You are a qualified counsellor and registered with the Australian Counselling Association. You are currently employed on a part-time basis, with the option to also work privately. Your employer has requested that you purchase a dog, for the purpose of it being trained and later assessed to determine if it is suitable to perform as a therapy dog. No expenses are being reimbursed by your employer; nor any allowance paid. You have purchased a Border Collie puppy (the Dog), to later train as a therapy dog, once it is of the required age. The cost of the Dog was $X,XXX. When the dog is 12-months old it will be going through a full training program to be qualified as a therapy dog. If the dog completes the training program, and is assessed to be suitable, the Dog will be used to support clients with mental health issues. You have detailed that having a therapy dog present during counselling sessions assists in providing a different environment with clients that enables better outcomes. Your employer has stated that the dog is currently involved in face-to-face interactions providing regulation support. Your employer has stated that once the dog is fully training and immunised, the Dog will expand its services to locations such as schools or client residences. The Dog will live with you. There will be medical and food costs for the therapy dog.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: Section 8-1 of the 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, or relate to the earning of exempt income. 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. Generally, the costs to maintain and train animals are a private expense and not tax deductible. The preliminary purchase costs of a dog and any associated fees with training are considered in ATO Interpretive Decision (ATO ID) 2011/18 Income tax: Deductions: guard dog expenses . Where a dog's owner is an employee rather than a business, any deduction can only be determined by reference to whether the ongoing maintenance costs have the necessary connection with the employee's salary and wages. There are limited circumstances in which a deduction for the purchase, training and care of a 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. For example, where the dog is trained as a mustering dog, guard dog, sniffer dog or police dog and it is used in such a capacity, they perform an identifiable function in a business operated by their owner and a deduction for the upkeep would normally be allowable. Taxation Ruling (TR) 2022/1 Income tax: effective life of depreciating assets (applicable from 1 July 2022) considers all assets that an individual can depreciate in the course of earning assessable income where the nexus between the outgoing and the income can be connected. Working dogs (including certified therapy dogs used by a qualified therapist) are listed as a depreciating asset. However, the definition of a working dog in the TR 2022/1 also outlines that assistance dogs (including support dogs) are excluded and are not considered to be working. Given the dog is still a puppy, the therapy dog training will not commence until the dog has reached 12 months of age and it is yet to be assessed to determine whether the dog is suitable to perform as a therapy dog, it is considered that your expenses have been incurred at a point too soon and are therefore considered to be private in nature. Currently, the dog is interacting in a passive way with clients, where it provides regulation support. The role of the dog is not assisting you in directly performing your duties and does not have an integral role in your income producing activities. The expenses for the purchase, training and maintenance of the dog have not been incurred in earning your assessable income and are therefore not deductible under section 8-1 of the ITAA 1997.