Edited version of private ruling

Authorisation Number: 1011485819997

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Ruling

Subject: Income tax deductibility of hi-visibility jackets as protective clothing

Question:

Can the cost of providing hi-visibility jackets as 'protective clothing' to personnel be treated as a business expense for income tax purposes?

Answer :

Yes.

Relevant facts

Your business operates in a factory environment.

Your work environment creates potentially dangerous situations for employees.

Your work environment has potential dangers due to use of heavy machinery.

You wish to minimise the likelihood of such situations by implementing every available precaution.

As the employer it is important for you to adopt satisfactory safety measures in order to ensure the safety of the employees.

To ensure a safe work environment you have decided to provide hi-visibility jackets to be worn by employees.

The hi-visibility jackets with bright colours which are widely accepted as 'protective clothing' in many occupations will assist in protecting your employees.

You stated that due to the work involved, these items of protective clothing often get worn out and will need regular replacement as required.

You have submitted a copy of an invoice as a sample from your company.

You wish to find out if these hi-visibility jackets can be classed as 'protective clothing' and thus have their cost claimed as a business deduction.

Summary

The entity has requested a private ruling to determine the income tax deductibility of the expense incurred in providing 'protective clothing' to its personnel.

The applicant operates in a factory environment consisting of heavy machinery. The employer endeavours to maintain industry standards by adopting the required safety measures.

The employer wishes to provide brightly coloured hi-visibility jackets as protective clothing to be worn by personnel when in the factory premises. It is widely recognised that the brightly coloured jackets will make the employees in the production area easily identifiable.

As the provision of these hi-visibility jackets is part of a safety measure taken to improve workplace conditions, which contributes to the production of assessable income, the cost of providing them would be an allowable deduction as a business expense.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997 ) allows a general deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.

Expenditure on protective items falls for consideration under paragraph 8-1 (1) (a)- the 'first positive limb' of section 8-1. This limb applies to all taxpayers, including employees and those carrying on a business.

The courts have also established that for a loss or outgoing to be deductible under paragraph 8-1(1)(a);

· it must have the essential character of a loss or outgoing incurred in gaining your assessable income or, in other words, of an income producing expense: Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478; (1958) 11 ATD 404;

· there must be a sufficient connection between the loss or outgoing and the activities by which you gain your assessable income - so that the outgoing is incidental and relevant to the gaining of your assessable income: Ronpibon Tin NL v. FC of T (1949) 78 CLR 47; (1949) 8 ATD 431; Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344; (1956) 11 ATD 147; 6 AITR 379; FC of T v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557; and

· it must not be expenditure that is private or domestic in nature or that produces exempt income: FC of T v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616 (the Cooper Case); Mansfield v. FC of T (1996) 31 ATR 367; 96 ATC 4001 (the Mansfield Case)

You as the employer state your factory environment used in the production of your assessable income could pose particular risks or dangers to personnel if the necessary precautions are not adopted. As the provision of protective clothing of the type described, is essential to ensure the safety of the employees, it becomes a necessary outgoing in gaining your assessable income. As this expense is not of a capital, private or domestic nature it will be deductible in the income year in which it is incurred.

Taxation Ruling TR 2003/16 sets out the Commissioner's views on the deductibility of expenses in providing protection from the risk of illness or injury in the course of carrying out income earning activities. This ruling explains that you can deduct expenditure on a protective item you use to protect you from risk of illness or injury if you incurred the expense, there is a sufficient connection between the expenditure and the earning of your assessable income and the expenditure has the essential character of an outgoing in gaining your assessable income.

This ruling also outlines that expenditure on a protective item will have a sufficient connection with the earning of assessable income where:

· you are exposed to the risk of illness or injury in the course of carrying out your income earning activities,

· the risk is not remote or negligible,

· the protective item is of a kind that provides protection from that risk and would reasonably be expected to be used in the circumstances, and

· you use the item in the course of carrying out your income earning activities.

It is evident from the operations conducted in your work environment, the above requirements are satisfied.

The level of danger required to satisfy these conditions was described in Case A45 69 ATC 270 at 271: 15 CTBR (NS) Case24 at 162 (Case A45)as:

'…..a continuing, high level of danger, such as arises in the particular process in which this taxpayer was involved, and not the mere statistical risk of injury that may be run by employees in general…..'

The taxpayer in that case was a blast furnace worker.

Therefore in your circumstances the provision of hi-visibility jackets are considered to be protective clothing as they contribute to a safe work environment by acting as a deterrent from allowing potentially dangerous situations to arise and injure personnel.

The above protective clothing criteria however, do not extend to conventional protection from the natural environment, such as sunglasses, hats, raincoats or jeans.

Protective clothing

Subsection 34-20(2) of the ITAA 1997 defines 'Protective clothing' as clothing that is specifically designed to protect someone from the risk of:

· a personal injury, disease or the acceleration or recurrence of either or death; or

· damage to the employees conventional clothing or artificial limb or other aid from the hazards of the work environment.

The section also provides examples of eligible protective clothing to include overalls and aprons, when worn to protect the wearer from the risk of imminent danger.

In your work environment you require personnel to wear brightly coloured jackets for purposes of hi-visibility. The risk of danger from the processes in your factory is real and imminent. The requirement to wear the brightly coloured high visibility jackets is an essential precautionary measure in your workplace.

The expenditure on protective clothing as described, will be deductible as there is a material risk of injury at your workplace, and the protective clothing you supply to your staff provides a certain degree of protection against that risk.

Paragraph 40 of TR 2003/16 provides examples of clothing worn to protect you from the risk of injury in the course of carrying out your income earning activities. Safety coloured vests of the type described by you are included in this list. A deduction is allowable in this situation because there is sufficient connection between the expenditure and income earning activities in the context of your particular situation.

Conclusion

As the 'protective items' described in your application satisfy the requirements of section 8-1 of the ITAA 1997 and Taxation Ruling 2003/16, the expenditure will be an allowable deduction as a business expense to your company.

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