WESTCOTT v FC of TMembers:
CP Webster SM
Administrative Appeals Tribunal (sitting as the Small Taxation Claims Tribunal)
CP Webster (Senior Member)
1. Mark Anthony Westcott (``Mr. Westcott'') has sought a review of a decision of the Australian Taxation Office (``ATO'') dated 8 July 1996 in relation to an amended assessment for the years ended 30 June 1994 and 1995, in which the ATO disallowed the costs of purchasing and maintaining clothing used by Mr. Westcott in his employment as a head waiter in a restaurant.
2. The issues to be determined by the review by the Small Taxation Claims Tribunal (``STCT'') are: (a) whether the costs of purchasing black trousers used by Mr. Westcott as a head waiter; and (b) whether the costs of maintaining white shirts and black trousers used by Mr. Westcott as a head waiter; are deductible under sub-section 51(1) of the Income Tax Assessment Act 1936 (``the ITAA'').
Section 51 of the ITAA states:-
``[Deductions for losses and outgoings] All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of the exempt income.''
3. The only witness to give evidence at the review was Mr. Westcott.
His evidence which was unchallenged was as follows:-
- (a) Mr. Westcott is the manager and head waiter of a restaurant and had been so employed by that restaurant for 28 years;
- (b) He is required by his employer to wear black trousers; a white shirt; a bow tie; and black shoes;
- (c) He does not wear the black trousers at any other occasions apart from work;
- (d) He does wear his white shirts on other occasions. (It is noted that the cost of purchasing white shirts is conceded by Mr. Westcott not to be a deductible cost);
- (e) As a result of his work as a manager and head waiter of a restaurant he often has to handle food and wine and as a result there are frequent spills of food and wine onto his clothing. The food spills are not normally removed from the clothing except by dry cleaning. On some occasions Mr. Westcott has to have his clothing dry cleaned every second day.
Findings of fact
4. The STCT accepts the unchallenged evidence of Mr. Westcott particularised under the heading of ``The Evidence''.
The STCT makes the finding, based on its own knowledge and observations, that black trousers are worn by persons in many occupations and are suitable and appropriate for social and domestic wear. The STCT also finds (again based on its own observations) that male waiters normally wear trousers although not necessarily of a black colour.
5. The Law and Application of the Law
The first matter to be determined is whether the expense of the purchase of the black trousers is deductible.
To be deductible Mr. Westcott's expenditure on clothing must satisfy sub-section 51(1) and not be excluded from deductibility by any other section.
It is not suggested by the ATO that any other section excludes deductibility of expenditure on Mr. Westcott's clothing.
Both parties agreed that the ATO Taxation Ruling TR 97/12 summarised the existing law.
The cost of the purchase of the trousers will be deductible if the expense is:-
- (a) incurred;
- (b) meets the deductibility tests;
- (c) satisfies the substantiation rules which apply to employees; and
- (d) is not excluded from deductibility under Section 51AH or Section 51AL.
In the present case (a), (c) and (d) are not in dispute.
The only dispute is whether the expense of purchasing the trousers meets the deductibility expense tests.
Both parties agree that to meet the deductibility tests there must be a sufficient connection between the expense of purchasing the trousers and the income earning activities such that the essential character of the purchase is work related and not private or domestic in nature.
The STCT does not consider that black trousers are occupation specific clothing. Black trousers are worn in a large number of occupations and are often worn for private or domestic purposes. It has been submitted that black trousers are distinctive to the dress of a waiter in a certain type of restaurant. The STCT does not consider that black trousers alone are distinctive to the dress of a waiter. It is a combination of clothing that is black trousers; white shirt; bow tie; and black shoes that often identifies a waiter.
These items of clothing can, of course, be worn with other items of clothing. They need not always be worn as a combination. The black trousers can be worn with other clothing without the suggestion that the trousers are part of an occupation specific clothing.
The STCT considers that black trousers are conventional clothing.
The cost of purchasing conventional clothing can still be deductible provided that there exists the sufficient connection between expenditure on the clothing and the income earning activity.
Whether such a connection exists in a particular case must be determined by all the circumstances of the case.
In the present case:-
- (a) Mr. Westcott is required to wear black trousers as a head waiter;
- (b) he does not wear black trousers other than for work;
- (c) black trousers are suitable and appropriate for wearing on social or domestic occasions, and in fact are worn by a large number of persons on domestic or social occasions. There is nothing to prevent Mr. Westcott wearing black trousers on a domestic or social occasion except for his personal preference;
- (d) if Mr. Westcott was not wearing black trousers to work he would still wear trousers although of a different colour.
The Tribunal considers that the facts fail to establish a sufficient connection between the purchase of the black trousers and the income earning activity to allow the purchase of the black trousers to be tax deductible.
Mr. Westcott would wear trousers, of some colour, at work even if not required to wear black trousers. Black trousers are suitable for use in a domestic and social occasion. There is no difference in principle between the deductibility of the purchase of the black trousers and the purchase of the white shirts, the purchase of which Mr. Westcott concedes does not satisfy the deductibility test.
The second matter to be determined is whether the additional cost of cleaning the trousers and shirts necessitated by spillage of food and wine at work is deductible.
It was submitted by the ATO that the cleaning expense of the trousers and shirts necessitated by the spillage of food and wine at work is not deductible.
It was submitted by the ATO that for the cleaning expenses to be deductible the actual acquisition cost of the clothing itself must be deductible. The ATO submitted that its position was set out in Taxation Determination TD 93/232.
The Tribunal does not consider TD 93/232 is authority for the proposition advanced by the ATO.
In fact the determination states [at p 40,607]:-
``Any claim for home laundry expenses of work clothes will only be allowable as a deduction under subsection 51(1) if the clothing in question qualifies as a corporate uniform..., is specifically protective in nature or relates to expenditure on laundry associated with a proven claim for excessive expenditure on clothing.''
It therefore appears to the Tribunal that instead of supporting the ATO's position the ruling indicates that the claim of maintenance is allowable if it relates to excessive expenditure on clothing. No other authority was advanced by the ATO to support its submission.
In the Administrative Appeals Tribunal decision Case U80,
87 ATC 470 page 473 the AAT notwithstanding its decision that the cost
ATC 2132of the purchase of the taxpayer's clothing was not deductible considered that the cost of dry cleaning the clothing would be deductible if it met the ``abnormal expenditure on conventional clothing'' test.
The Senior Member cited the Board of Review decision of Case M28,
80 ATC 187.
In that decision the Board of Review stated the test as follows [ATC p 190]:-
``The dry cleaning costs due to a work environment of chalk dust come close to deductibility, but the circumstances are not quite `abnormal' enough. I agree with the two criteria for determining whether clothing costs are deductible that have emerged from a long list of Board cases. In the first place expenditure on clothing that is `necessary and peculiar' to an occupation ceases to be private and, secondly, expenditure resulting from excess wear and tear due to the nature of the occupation is deductible. This latter criterion is described by a former Chairman of this Board as `the abnormal expenditure on conventional clothing test' (Case A45,
69 ATC 271). In this review I reject the claim because it seems to be chalk dust is readily brushed out of suits and is not an element that causes dry cleaning more frequently than would otherwise be the case. It is not, for example, of the same order as the soiling of work clothes with greasy substances or damage by acid splashes and the like.''
This Tribunal considers that the dry cleaning costs of Mr. Westcott are deductible, if such costs are ``abnormal''.
In Mr. Westcott's case the unchallenged evidence of Mr. Westcott is that he frequently splashes food and wine on his trousers and shirts; that such spills are only removed from the clothing by dry cleaning; and often Mr. Westcott is required to dry clean his clothing every second day.
It is the view of this Tribunal that Mr. Westcott's employment as a head waiter has resulted in ``abnormal expenditure'' by way of dry cleaning and that such expenditure is therefore deductible.
Mr. Westcott is entitled to a deduction for the cost of dry cleaning his clothing above the cost that would normally be incurred. The Tribunal notes that it has been agreed between the parties that in the event of a favourable decision on this aspect of Mr. Westcott's claim then the matter should be remitted back to the ATO for determination of the quantum of the abnormal expenditure.
6. The decision under review is set aside and remitted back to the ATO with the directions that:
- (a) the expenditure associated with the purchase of the black trousers is not deductible under s. 51(1); and
- (b) the expenditure associated with the abnormal additional cost of maintaining and cleaning the black trousers and white shirts is deductible under sub-section 51(1).
Liberty is granted to both parties to apply for any further consequential orders.