Taxation Laws Amendment Act (No. 6) 1992


Medicare Levy Amendment Act (No. 2) 1992

Explanatory Memorandum

(Circulated by the authority of the Treasurer,the Hon. John Dawkins, M.P.)

Expenditure on non-compulsory uniforms or wardrobes

Summary of proposed amendments

Purpose of amendment: This Bill will amend the Income Tax Assessment Act 1936 to give effect to the 1992 Budget announcement to deny deductions for expenses incurred by employees in relation to non-compulsory uniforms or wardrobes.

Date of Effect: The amendment will apply from 1 January 1993.

Background to the legislation

Expenditure on clothing and its maintenance incurred by an employee is generally not allowable as a deduction under subsection 51(1) of the Income Tax Assessment Act 1936 (the Act) for two reasons. First, it is not incurred in gaining assessable income and, second, it is private expenditure. However, deductions under subsection 51(1) of the Act have been allowed for certain types of clothing in particular circumstances, as evidenced by various Court and Tribunal decisions. These have formed the basis of various rulings by the Commissioner of Taxation.

The cost of employees' clothing has been deductible where it was considered to be 'necessary and peculiar' to the taxpayer's occupation, or where the taxpayer was required to incur 'abnormal expenditure' in relation to otherwise conventional attire because of his or her occupation. Both the 'necessary and peculiar' test and the 'abnormal expenditure' test were developed by the Boards of Review and the AAT, but have not received universal acceptance, even by those Tribunals.

In 1991 the Commissioner of Taxation issued Taxation Ruling IT2641 concerning the deductibility of the costs of purchase and maintenance of 'corporate' wardrobes and 'corporate' uniforms. The Ruling stated that a taxpayer would be able to claim a deduction for the cost of the initial purchase, repair, replacement and cleaning of items accepted as forming part of a 'corporate' wardrobe or uniform, even where wearing it was not a compulsory condition of employment.

The Ruling also noted that where an employer provides the items of a 'corporate' uniform or wardrobe, or financial support to purchase such items, this may constitute a fringe benefit under the Fringe Benefits Tax Assessment Act 1986 (FBTAA). However, the "otherwise deductible" provisions (either section 24 or 44 of the FBTAA) would operate to reduce the taxable value of any such fringe benefit, by the amount of any tax deduction that would otherwise have been available to the employee.

Budget Announcement

The Government announced in the 1992 Budget its decision to restrict the circumstances in which expenditure incurred by an employee in relation to a non-compulsory uniform or wardrobe would be deductible. It decided to deny any deduction for relevant expenditure unless the wearing of the uniform is a compulsory condition of employment.

This restriction, however, is not to operate to deny a deduction for clothing worn to protect employees from injury or their normal clothing from damage.

The measure is intended to ensure that the tax laws do not confer an unfair advantage on some employees by permitting tax deductions for clothing which may not be essentially different from that worn to work by other employees for which no deductions are allowed.

Explanation of proposed amendments

What is the effect of the amendments?

While the general requirements set down in subsection 51(1) would still need to be satisfied before a taxpayer can obtain a deduction, new subsection 51AL(1) will have the effect of denying employees a deduction for expenditure incurred in relation to a non-compulsory uniform or wardrobe. The requirement or compulsion to wear the uniform or wardrobe must be an express policy of the employer - although it is not necessary that it be set out in any written document. In addition the employer must consistently enforce this policy [Clause 4, new subsection 51AL(3)].

What is a non-compulsory uniform/wardrobe expense?

Ordinarily, a non-compulsory uniform or wardrobe expense will include expenditure incurred in acquiring, repairing, cleaning, maintaining, upgrading or improving an item of clothing that is included in a non-compulsory uniform or wardrobe [Clause 4, new subsection 51AL(2)].

What is a non-compulsory uniform/wardrobe?

A non-compulsory uniform or wardrobe is a set of one or more items of clothing where the following conditions or circumstances apply:

the clothing is not protective clothing [Clause 4, new subsection 51AL(3)] ;
the set of clothing distinctively identifies the employee as a person associated with the employer or group comprising the employer and employer associates and [Clause 4, new paragraph 51AL(3)(a)] ;

the employer does not have an express policy that prohibits employees from substituting items of ordinary clothing for an item of clothing included in the set while performing their duties [Clause 4, new subsubparagraph 51AL(3)(b)(i)(A)] ;
this policy applies to all other employees in the employ of the employer that are in the same class of employee as the particular employee [Clause 4, new subsubparagraph 51AL(3)(b)(i)(B)];
the employer has put such a policy in place but does not enforce it [Clause 4, new subparagraph 51AL(3)(b)(ii)].

Why include associates of the employer?

The associates referred to in subparagraph 51AL(3)(a)(ii) are those which fall within the meaning of section 26AAB of the Act. Examples of associates covered by section 26AAB include partners of a taxpayer, and a company that is effectively controlled (either individually or collectively) by the taxpayer. The reason for including associates of employers is to ensure that the amendment applies to those employees whose employers require them to wear a uniform or wardrobe which does not immediately associate them with their employer but rather as belonging, for example, to a multi company group.

For example, it may be that a uniform or wardrobe immediately identifies an employee as belonging to a financial organisation rather than a particular subsidiary of the holding company. For example, a bank may have a number of subsidiary companies such as those dealing with financial and investment services as well as the main company which provides banking services; however, all employees irrespective of which company they belong to may wear the same uniform.

Uniforms/Wardrobes and Distinctive Identification

A uniform or wardrobe is a collection of inter-related items of clothing and accessories which distinctively identify a particular employer organisation. The clothing must be unique, distinctive and peculiar to the organisation (or a group consisting of the particular employer and their associates - see new paragraph 51AL(3)(a)).

The uniform/wardrobe must distinctively identify the wearer as a person associated directly or indirectly with his or her employer. Associations of an indirect nature may occur where a wardrobe or uniform identifies a product sold by an organisation rather than the actual employer. For example, cosmetic salespersons in a department store maybe required to wear "product identification" uniforms rather than one identifying the particular employer organisation. Another example may involve fastfood salespeople who are required to wear a "product identification" uniform rather than one pertaining to the actual individual employer organisation.

Impact on temporary or relief staff

The amendment recognises that there may be occasions where it is necessary for an employer to engage temporary or relief staff for a short time to cover unplanned staff absences or other urgent needs [Clause 4, new subsubparagraph 51AL(3)(b)(i)(B)] .

In these situations it would be unfair to require the emergency staff to acquire a corporate uniform or wardrobe. On the other hand, unless an exception was made for these staff, other employees in the relevant class of employees would not be entitled to a deduction for expenses relating to the corporate wardrobe. This is because the wearing of a uniform or wardrobe would not be a requirement which is applicable to all employees in the relevant class. For this reason an exception has been made for relief or temporary staff.

Uniform/Wardrobe must be worn in its entirety

Employees, in order to obtain a deduction, are required to wear a uniform/wardrobe in its entirety [Clause 4, new subsubparagraph 51AL(3)(b)(i)(A)] . That is , employees will not be able to interchange wardrobe items with items from their private collection, or only wear a select few items from the uniform/wardrobe (such as a 'corporate' tie and not the 'corporate' suit; or a 'corporate' blouse or scarf and not the rest of the ensemble).

The amendment does however recognise that there maybe 'special circumstances' where an employee would not be required to wear his or her uniform/wardrobe in its entirety for a period of time [Clause 4, new subparagraph 51AL(3)(b)(i)] . This would be the case, for example, where a bank teller, as part of his or her work, has to appear as a witness in court and wears a suit instead of his or her corporate wardrobe.


Employee The amendment will apply to employees who wish to claim a deduction for expenditure incurred in relation to a uniform or wardrobe. The term employee has the same meaning as that used in section 221A of the Act except that it also includes those persons who are in receipt of a prescribed payment [Clause 4, new subsections 51AL(4) and 51AL(5)] .
Class of employee In addition to satisfying the requirements of subsection 51(1) to qualify for a deduction the employee, and all other employees of his or her class, must be compelled to wear the uniform/wardrobe.
The phrase class of employee relates to the level or category of work conducted by a distinct or discrete body of employees of the employer. It does not relate to the security of tenure (i.e. whether an employee is permanent or casual). For example, there may be a different 'corporate' collection for executive staff and service staff. Alternatively, for example, service staff may have a compulsory uniform or wardrobe but executive staff do not. Each of these bodies of staff constitute a class of employee [Clause 4, new subsection 51AL(5)] .
Protective Clothing Protective clothing is specifically excluded from the operation of this amendment [see new subsection 51AL(3)] . Whether a deduction is allowable for the purchase or maintenance of protective clothing will depend upon the operation of subsection 51(1) to the particular facts of each case.
Protective clothing is clothing which is worn to protect employees from death, injury or disease; or to protect their normal clothing (or artificial limbs, etc) from damage [Clause 4, new subsection 51AL(5)] . Clothing such as overalls, aprons, goggles, shields and safety boots are examples of protective clothing provided they are worn or used to protect the employee and not as a fashion garment.
Clothing which is worn to protect persons other than the wearer of the clothing, for example, certain apparel which persons employed in the food and catering industries are required to wear to prevent contamination of foodstuffs, would also be regarded as being 'protective'.

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