10 September 2012 External T.I. 2012-0457171E5 - Guard Dog Expenses

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether guard dog expenses are deductible?

Position: Question of fact.

Reasons: General comments provided.

XXXXXXXXXX
2012-045717
Charles Rafuse
613-247-9237

September 10, 2012

Dear XXXXXXXXXX:

Re: Business Expenses

This is in response to your correspondence that we received on July 30, 2012, wherein you asked for our views on whether the cost of XXXXXXXXXX maintaining a couple of dogs could be deducted in computing your bookkeeping business income.

Briefly, in your correspondence, you indicate that you operate a bookkeeping business XXXXXXXXXX you are unable to install a security system XXXXXXXXXX.

Our Comments

Written confirmations of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, “Advance Income Tax Ruling”, dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. Since the situation you describe pertains to a completed transaction involving a specific taxpayer we are only able to provide general comments which may or may not be applicable to your particular situation.

Subject to the particular rules in Part I of the Income Tax Act (the “Act”), pursuant to subsection 9(1) of the Act, a taxpayer’s income from a source that is business or property is the “profit” therefrom for the year. Moreover, pursuant to subsection 4(1) of the Act, a taxpayer’s income from each source must be “computed in accordance with this Act on the assumption that the taxpayer had.....no income or loss except from that source...and was allowed no deductions in computing the taxpayer’s income...except such deductions as may reasonably be regarded as wholly applicable to that source”.

Paragraph 18(1)(a) of the Act provides that no outlay or expense is deductible in computing the income of a taxpayer from a business or property, unless it was made or incurred for the purpose of gaining or producing income. Paragraph 18(1)(b) of the Act also provides that capital outlays are not deductible unless they are expressly permitted under Part I of the Act. Paragraph 18(1)(h) of the Act denies the deduction of personal or living expenses incurred by a taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business. The deductibility of any outlay or expense is also subject to the general rule in section 67 of the Act that such amounts be reasonable in the circumstances.

While the deduction of the particular expenses your describe remain a question for your TSO to determine, as noted above, based on the limited information provided, it is not entirely clear to what extent, if any, these expenditures would have to your bookkeeping business and whether any of these expenditures contain a personal element (i.e., keeping coyotes out of your yard and the protection of personal property that is not used in the business). However, where there is a combination of both a personal and business element for making the particular expenditure, a proration would have to be made to determine the reasonable portion, if any, which relates to the particular business source of income.

We trust that these comments will be of assistance.

Yours truly

Michael Cooke
Manager
Business and Capital Transactions Section
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch