Edited version of your written advice

Authorisation Number: 1012712336691

Ruling

Subject: FBT: Residual Fringe Benefits

Question 1

Will the cost of providing compulsory uniforms to employees be eligible for reduction under section 52 of the Fringe Benefits Tax Assessment ACT 1986, based on the 'otherwise deductible rule'?

Answer

Yes

This ruling applies for the following periods:

1 April 2013 to 31 March 2105

The scheme commenced on December 2013

Relevant facts and circumstances

The employer has provided their employees with corporate uniforms. These uniforms identify the employer with logos, lapel and name pins, distinctive colours and designs which will promote their brand.

The employer has issued a uniform policy which outlines the types of uniforms to be worn as there are different duties being performed by different employees. The policy states that it is compulsory for employees to wear uniforms at employer events.

Employees will not be permitted to work at the employer's events if they not wearing their uniform.

The uniforms will be worn and returned to the employer.

Some employees will purchase the uniform at the end of their employment for a fee.

Relevant legislative provisions

Fringe Benefits Assessment Act 1986 Section 40

Fringe Benefits Assessment Act 1986 Section 44

Fringe Benefits Tax Assessment Act 1986 - section 45

Fringe Benefits Tax Assessment Act 1986 - section 52

Fringe Benefits Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act Section 8-1

Taxation Administration Act 1953 Section 12-35 of Schedule 1

Reasons for decision

An employee is a person who receives salary or wages or is entitled to receive salary or wages for using their skills at the work place, from which Pay-As-You-Go withholding is deducted.

Employees are provided with compulsory corporate uniforms, in respect of their employment, hence a fringe benefit arises.

The employees will be using the uniform whilst employed by this employer; hence the most relevant type of fringe benefit in this case, is the residual fringe benefit as outlined in section45 of the Fringe benefits Tax Assessment Act 1986 (FBTAA).

The taxable value of an external non-period residual fringe benefit can be reduced by the 'otherwise deductible rule' (ODR) as outlined in section 52 of the FBTAA.

This is a hypothetical question in relation to the acquisition and wearing of the uniform, if the employee had acquired the uniform with their own funds.

The issue of deductibility of uniform expenses is discussed in Taxation Ruling TR 97/12 Income Tax and fringe benefits tax: work related expense; deductibility of expenses on clothing, uniform and footwear.

Paragraphs 30 to 33 of TR 97/12 state:

30. A deduction is allowable for the cost of a compulsory and distinctive uniform under section 8-1 of the ITAA 1997.

31. The essential character of an employee's expenditure on clothing items including shoes, socks, stockings and accessories which form an integral part of a compulsory and distinctive uniform is expenditure directly related to the income producing activities of the employee. It is the compulsory and distinctive characteristics which provide the nexus between the expenditure on the uniform and the work activity.

32. A compulsory uniform must be prescribed by the employer in an expressed policy which makes it a requirement for a particular class of employees to wear that uniform while at work, and which identifies the relevant employer. The employer's compulsory uniform policy guidelines should stipulate the characteristics of the colour, style and type of the clothing and accessories that qualify them as being a distinctive part of the compulsory uniform. Also, the wearing of the uniform generally should be strictly and consistently enforced.

33. In our view, it is only in these strict regimes for compulsory and distinctive uniforms that expenditure on these items is likely to be regarded as work related rather than private in nature.

From the above ruling, a set of criteria has been provided on what constitutes a compulsory and distinctive uniform in Tax Determination TD 1999/62 Income tax: what are the criteria to be considered in deciding whether clothing items constitute a compulsory corporate uniform/wardrobe for the purposes of paragraph 30 of Taxation Ruling TR 97/12.

There is a clear objective for wearing the uniform. The distinctive design and colours provide the link between wearing of the uniform and work performed, hence making the acquisition of the uniform a work-related expense.

The employees are told to wear the uniform in totality. These uniforms are to be worn only at work events. They are not allowed to wear the uniforms outside the employer's events.

The fabrics used are wool, cotton and silk which are designed in a few styles which have distinctive colours that identify the employer.

The range of uniforms is restricted. A woman can wear a skirt, pants or a dress whereas men wear pants with a jacket and a tie or a polo-shirt with a logo.

These uniforms are not available to the public as they are recognisable with the employer. The employer has included the use of accessories in the uniform worn as a whole. Some of the accessories are neckerchiefs, ties, belts, stockings, shoes, name and lapel pins.

Therefore the compulsory uniform criteria have been satisfied.

In conclusion, the requirements of TR 97/12 are satisfied and the connection between the expenditure (compulsory and distinctive uniform) and duties performed by employees at the employer's events is such that the expense is work related and therefore income tax deductible. Hence, an employee would be entitled to a deduction under section 8-1 of ITAA 1997 should they have been required to purchase the uniform themselves.

This conclusion activates the 'otherwise deductible rule' found in section 52 of the FBTAA which reduces the taxable value of the residual benefit to nil.

Furthermore, at the completion of an employee's employment with this employer, the uniform can be acquired by an employee for a fee, which gives rise to a separate property fringe benefit.

Two different results can occur:

• If the taxable value of the external property fringe benefit is less than $300, the property fringe benefit will be turned into an exempt minor benefit, if all the criteria in section 58P of the FBTA are met, (the tax office position is outlined in Taxation Ruling TR 2007/12 Fringe Benefits Tax: Minor benefits), or

• If the property fringe benefit's taxable value (the amount the employer paid for the uniform at arm's length reduced by the amount paid by the employee as employee contributions), is more than $300, the resulting amount is subject to gross-up before the FBT is calculated and tax paid by the employer.

Property fringe benefits are outlined in section 40 of the FBTAA. Section 43 (external property fringe benefit) outlines the taxable value of a property that consists of goods or services that are not similar or identical to those sold to the public by the employer in the normal course of business, is the cost price paid for the property (uniform).

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