Private ruling: Business expenses
Date of advice: 14 October 2016
Published: January 2017
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015.

Ruling: Q1: As a business carrying on primary production can that business claim a portion of the cost associated with the maintenance of a working animal? | A1: Yes. | Q2: As a business carrying on primary production can that business claim a decline in value of a working animal and equipment used for carrying on primary production related purposes? | A2: Yes.

Relevant facts and circumstances: You are a business. You purchased a working animal to be used solely for the mustering and moving of stock. The animal is used weekly for this as well as checking fence lines and other activities of the business where a vehicle cannot be used due to terrain and weather/ground conditions. The animal is not used for any recreational uses. The business incurs wear and tear on equipment, as well as incurs expenses for feed and other related items.

Relevant legislative provisions: Income Tax Assessment ACT 1997 Section 8-1 | Income Tax Assessment ACT 1997 Division 40 | Income Tax Assessment ACT 1997 Subsection 40-30(1) | Income Tax Assessment ACT 1997 Subsection 40-25 | Income Tax Assessment ACT 1997 Subsection 40-25(7) | Income Tax Assessment ACT 1997 Subsection 40-80(2)

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature. The deductibility of expenses incurred in connection with working dogs are discussed in Taxation Ruling TR 95/13 and Taxation Ruling TR 95/18. The principles discussed in these rulings also apply to other animals such as horses. TR 95/18 discusses the expenses incurred for a working dog which may be deductible. TR 95/18 explains that a deduction is allowable for depreciating the cost of a working dog which is used by a truck driver in the course of this or her income earning activities (for example, a driver who is transporting cattle). TR 95/18 also explains that a deduction is allowable for veterinary fees and pet food expenses for working dogs. This is because the day-to-day expenses are incurred to keep a dog which is used for income producing purposes. Such expenses are deductible under section 8-1 of the ITAA 1997. Similarly, TR 95/13 discusses expenses incurred in relation to police dogs. TR 95/13 states that a deduction for expenses incurred by police officers in maintaining, feeding, grooming, exercising and training police dogs. Using the principles outlined in TR 95/13 and TR 95/18, you are entitled to a deduction for the maintenance costs associated with your working animals under section 8-1 of the ITAA 1997. However, the expenses incurred with the maintenance of the animals must be apportioned to account for the recreational use of the animals. The actual apportionment of the expenses must be based on the facts of the case and there must be some fair and reasonable assessment of the extent to which the outlay relates to the assessable income. | Detailed Reasoning - Decline in value: Division 40 of the ITAA 1997 deals with deductions for the cost of depreciating assets. Subsection 40-30(1) of the ITAA 1997 defines a depreciating asset as an asset which has a limited effective life and can be expected to decline in value over the time it is used. Section 40-25 of the ITAA 1997 allows a taxpayer to deduct an amount equal to the decline in value of a depreciating asset which is held for any time during an income year and used for a taxable purpose. A taxable purpose includes the purpose of producing assessable income (subsection 40-25(7) of the ITAA 1997. A working animal and the equipment associated with it can be described as a depreciating asset for taxation purposes. The decline in value of a depreciating asset starts when you first use it, or install it ready for use, for any purposes including private use. This is known as a depreciating asset's start time. If you initially use a depreciating asset for a private purpose, and in later years use it for a taxable purpose, you need to work out the asset's decline in value from its start time through the years it was used for a private purpose. Subsection 40-80(2) of the ITAA 1997 provides that all of the costs relating to purchasing an asset will be deductible in the income year the costs are incurred if: ● the costs do not exceed $300 ● the asset is used predominately for the production of assessable income. If an asset or item is used for both work-related purposes and other purposes, the cost must be apportioned and a deduction claimed for only that proportion which is work related.