Recently, a few psychologists have asked me about whether costs related to a therapy animal can be tax deductions. The answer is it depends on the situation.
What I recommend you do is to collect the relevant information about your therapy animal and apply to the ATO for a private ruling. This means that the ATO will study your particular situation and decide how to tax your therapy animal whether it's a therapy dog, a therapy cat or a therapy horse.
Private rulings are binding advice from the ATO that explains their view on how tax law applies to your specific situation.
These rulings are a free service, and the ATO usually responds within 28 days from receiving your request.
In preparation for your private ruling I recommend that you have the following information at your fingertips.
1. You’ll need to show that the animal performs an integral part of the income producing activity and contributes to the production of that income.
2. You’ll need to work out how much time the therapy animal spends working, as a percentage of its time, as opposed to private use (i.e. being a pet).
3. Have information about the initial cost of the animal.
4. Calculate the costs associated with maintaining and training the animal.
Usually this is not deductible, but if the animal is an integral part of earning your assessable income, it may be allowed.
5. If you are an employee, you’ll need to show that any deduction relating to the cost of maintaining the animal has the necessary connection with the your salary or wages as an employee.
Organising a private ruling is not difficult, but it is time consuming. That’s why I’ve recommended to the psychologists asking me about therapy animals to undertake it themselves, so they avoid the unnecessary expense.
The benefit is that then you will know exactly where you stand from a taxation perspective, since the private ruling will be tailored exactly to your situation.
