The article that I read said that if used properly, it's non-toxic to dogs, BUT it can easily be toxic to cats...Because it affects their liver...Also, I won't use it on a liver compromised dog because their livers are already susceptible.
Q. I used tea tree oil to remove tics on my s**tzu (dog), but I didn't dilute it. Could that cause an adverse reaction? Is it toxic?
A. Tea tree oil should be diluted before applying it topically. Just a few drops of tea tree oil added to jojoba oil or another carrier oil should be a sufficient insect repellant. Tea tree oil is very strong. However, it is not toxic to dogs when used properly. It is, however, toxic to cats, even diluted.
That Q&A was taken from
http://www.healthyhealing.com/faq.html#