Explanatory Memorandum(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)
Chapter 23 - Non-compulsory uniforms or wardrobes
23.1 Section 51AL will be amended so that it does not apply to occupation specific clothing. Also, the transitional arrangements operating in respect of section 51AL of the Income Tax Assessment Act 1936 (the Act), which contains new rules applying to expenditure on non-compulsory uniform/wardrobe, will be revised and extended.
23.2 By removing occupation specific clothing from the operation of the new rules expenditure on such clothing can be considered for deduction under subsection 51(1) of the Act.
23.3 The amendments will extend, by one year, the operation of the phasing-in arrangements for the new rules applying to expenditure on non-compulsory uniforms/wardrobes and will modify their application [Clause 123].
23.4 1 September 1993 [Subclause 2(7)].
23.5 Section 51AL operates to restrict the circumstances in which a deduction is allowed for expenditure incurred by an employee in relation to the wearing of a corporate uniform or wardrobe. Broadly, the provision denies a deduction unless:
- the wearing of the uniform or wardrobe is a compulsory condition of employment, and the clothing is not conventional in nature; or
- the wearing of the uniform or wardrobe is not a compulsory condition of employment, and the design of the occupational clothing is registered with the Textile, Clothing and Footwear Development Authority (TCFDA) and entered on the Register of Approved Occupational Clothing.
These new rules apply from 1 September 1993.
23.6 A series of transitional arrangements was also enacted to phase in the new requirements. As part of those arrangements deductions are allowed until 1 July 1994 for expenditure incurred in relation to any non-compulsory uniform or wardrobe that has been approved, in writing, by the Commissioner of Taxation in accordance with the guidelines set down in Taxation Ruling IT2641. The transitional provisions are contained in section 5 of Taxation Laws Amendment Act (No. 6) 1992.
23.7 Section 51AL is intended to operate only in respect of uniforms or wardrobes which have a link with an employer and not to clothing which distinctively identifies a specific occupation (provided that the clothing is not conventional in nature). The latter type of clothing is referred to as occupation specific clothing.
23.8 Expenditure on occupation specific clothing is generally deductible under subsection 51(1), and should have continued to be deductible regardless of whether or not the clothing also identified the wearer's employer. Examples of occupation specific clothing are nurses' traditional uniforms, chef's checked pants and a religious cleric's ceremonial robes.
23.9 However, some items of occupational clothing can identify both the wearer's employer and also their occupation. It is this type of clothing which has been unintentionally caught by the new rules. This is because section 51AL operates to deny deductions for occupation specific clothing where:
- it identifies the wearer's employer; and
- the identifiers (e.g. logos), or the clothing itself fails to comply with the Occupational Clothing Guidelines (for example, the clothing has too many colours).
23.10 In other words, expenditure on non-compulsory occupation specific clothing, without any employer identification, will be deductible under subsection 51(1) but, once an employer identification is added, expenditure on the clothing will not be deductible unless the clothing conforms with the Occupational Clothing Guidelines. Non-compulsory occupation specific clothing that does not conform with the Guidelines can be made deductible simply by removing the employer identifier. Compulsory occupation specific clothing is deductible irrespective of whether it has employer identification attached. It was not intended that non-compulsory, occupation-specific clothing be covered by the new rules.
23.11 The existing transitional arrangements allow tax deductions to be claimed until 1 July 1994 for expenditure on non-compulsory uniforms or wardrobes that have been approved in writing by the Commissioner of Taxation. However, no deduction is allowable unless the Commissioner has given to an employer a written statement, at or before the time when the expense was incurred by the employee, that the clothing satisfies the guidelines set down in Taxation Ruling IT2641.
23.12 As they currently stand, the transitional arrangements operate to deny a deduction for expenditure incurred in respect of non-compulsory uniforms or wardrobes where:
- the employer was not aware of the law's requirements and so had not lodged an application for approval of their employees' uniform or wardrobe before 1 September 1993;
- the uniform's or wardrobe's design was submitted for approval before 1 September 1993 but the Commissioner had not issued his approval by that date (assuming the clothing satisfies the criteria in Taxation Ruling IT 2641). A deduction would be able to be claimed in respect of expenditure incurred after the date of issue of the approval letter.
23.13 While the general requirements set down in subsection 51(1) would still need to be satisfied before a taxpayer can obtain a deduction, the insertion of the new term "occupation specific clothing" in subsection 51AL(4) will have the effect that this type of clothing, together with protective clothing, is removed from the rules outlined in section 51AL.
23.14 Occupation specific clothing is clothing that distinctively identifies an employee as a member of a particular profession, trade, vocation, occupation or calling [Clause 127, subsection 51AL(26)].
23.15 The clothing's design would have to be distinctive, or peculiar and unique, in the sense that by its nature or physical condition it is readily identified as belonging to a particular profession, trade, vocation, occupation or calling. The clothing would also have to be unconventional in nature if expenditure on it is to be deductible under subsection 51(1). Examples are nurses' traditional uniforms, chef's checked pants and a religious cleric's ceremonial robes.
23.16 Clothing which could belong to a number of occupations would not fall within the definition. An example of this is a white jacket or coat worn with white trousers. While a white jacket or coat worn with white trousers may indicate that the wearer belongs to the health profession, it is not sufficiently distinctive in design or appearance to readily identify the specific or particular occupation of the wearer. That is, the wearer could be a pharmacist, dentist, laboratory technician, or a number of other occupations.
23.17 The effect of removing occupation specific clothing from section 51AL is best demonstrated by an example.
23.18 Expenditure on a nurse's traditional uniform (for example a set of clothing consisting of a cap, cape, white uniform, cardigan and special non-slip shoes) is generally deductible under subsection 51(1). This is because the clothing is considered to be peculiar to, and incidental and relevant to, the gaining of assessable income from the specific occupation of nursing. Deductions were available irrespective of whether the set of clothing was compulsory or non-compulsory.
23.19 After the introduction of the new rules for non-compulsory uniforms/wardrobes embodied in section 51AL, from 1 September 1993 if a set of clothing, in this example a nurse's uniform, had some form of employer identification attached (for example a hospital logo) and the wearing of the clothing was not compulsory, the clothing would need to be registered with the TCFDA for expenditure to remain deductible.
23.20 The requirement to register with the TCFDA could be circumvented by simply removing the employer identification. Expenditure on the clothing would then be deductible again.
23.21 It was not intended that this type of clothing be caught by section 51AL. The proposed amendments will ensure that non-compulsory clothing which:
- is occupation specific,
- is non-conventional in nature, and
- if not for the operation of section 51AL, would have been deductible under subsection 51(1),
is no longer caught by the new clothing registration rules laid down in section 51AL.
23.22 The transitional arrangements are set out in section 5 of Taxation Laws Amendment Act (No.6) 1992 and currently apply to expenditure incurred before 1 July 1994.
23.23 The proposed amendments will extend the period for which expenditure in relation to previously approved non-compulsory uniforms/wardrobes will be eligible for deduction to 1 July 1995 [Clause 125, new section 5 - Taxation Laws Amendment Act (No. 6) 1992 ].
23.24 Subsection 5(b) of Taxation Laws Amendment Act (No.6) 1992 sets out the circumstances that must be satisfied if a deduction is to be available for non-compulsory uniform/wardrobe expenses incurred when the design of the clothing is not registered with the TCFDA.
23.25 The requirement that the Commissioner's approval of the design must be issued before the expenditure is incurred by the employee will be removed. The amended transitional provision will allow deductions for expenditure on clothing incurred before 1 July 1995 where, in relation to clothing:
- an application for approval of new clothing designs, or changes to existing designs was lodged before 1 September 1993 and the design satisfies the requirements of Taxation Ruling IT 2641 (this covers applications for approval of designs before their adoption); or
- an application for approval was lodged after 31 August 1993, but the clothing the subject of the design has been available for purchase by employees before 1 September 1993, and the design satisfies the requirements of Taxation Ruling IT 2641 (this covers applications for approval of designs already adopted).
[Clause 125, subsections 5(b) and 5(c) Taxation Laws Amendment Act (No. 6) 1992 ].