Case N97

Judges: MB Hogan Ch

P Gerber M
GW Beck M

Court:
No. 3 Board of Review

Judgment date: 13 November 1981.

---

Dr. P. Gerber (Member)

In this reference, the taxpayer, a registered nurse, was employed in the relevant tax year by the C. Hospital, which, it is conceded, is part of the... Hospitals Group. The claim in issue is an amount of $52 expended on hosiery. Although the Commissioner asserted that no receipts for the outlay of this amount were tendered, I have no hesitation in accepting the sworn testimony of the taxpayer that the amount was expended for the stated purpose.

2. The evidence for the taxpayer comes to this: it was a term of her employment that she wear stockings on duty, and that without such requirement she would not wear them, a matter extremely plausible given the climatic conditions of the area in which she works.

3. The Commissioner tendered an ``information sheet'' (Exhibit 1), which is headed ``Registered Nurses,... Hospitals Group''. This sheet commences by stating: ``This information sheet is not a condition of employment agreement but rather a guide to employment conditions''. There is a column headed ``Uniform Allowances'', which states inter alia:

``Uniform allowance, $100 per annum is paid, as uniforms are not provided. The standard of dress is - females, white short-sleeved uniform, flesh coloured hosiery, brown lace-up shoes with leather soles and rubber covered heels.''

4. Although it has not been proved in evidence that the wearing of stockings is an express condition of the employment, the taxpayer stated that any nursing sister reporting for duty without stockings would be reprimanded and would be informed that she would be expected in future to come on duty properly attired. Against this background I am prepared to hold that it is an implied term of the employment for nurses in the Territory to wear flesh coloured hosiery. Indeed, this was not seriously challenged by the Commissioner.

5. Is this sufficient to take the outgoing from the category of ``private expenditure'' and thus from the exclusionary words of sec. 51? Not without some misgivings I have concluded that it is not. The substantive issue was exhaustively analysed by the late Chairman of this Board in Case H32,
76 ATC 280 .

6. The facts in that case also involved pantyhose, although that was merely incidental to the outcome, the larger issue being whether pantyhose, against the background of that reference, retained the characteristic of ``conventional clothing'' in the light of the requirement of the employer that they must be worn during office-hours.

7. The claim in that case involved the cost of replacing hose allegedly torn in the course of the taxpayer's work. However, in my view

---

ATC 523

nothing turns on that distinction. In finding for the Commissioner, Mr. Dubout said at p. 281:

``When the taxpayer concerned is an employee, as is the case in the present reference, then it seems to me that what has been said about deductibility in the leading cases amounts to this: if the expenditure is to qualify for deduction under sec. 51, it must have been incurred in performing those very acts and operations which by its nature the taxpayer's employment requires of him, and it must be incidental and relevant to the performance of those acts and operations.''

After pointing out that, in his opinion, it was irrelevant that the need for the expenditure occured during working hours, the Chairman went on to point out:

``Nor does it necessarily profit a taxpayer to show that a particular expenditure had to be made as a matter of compulsion e.g. the point taken for the taxpayer in the present case that the employer directed that stockings be worn.''

8. After analysing the various pronouncements of the High Court in
Lunney v. F.C. of T. (1958) 100 C.L.R. 478 and
Lodge v. F.C. of T. 72 ATC 4174 , Mr. Dubout quoted with approval a statement made by Vaisey J. in
Lomax v. Newton (1953) 34 T.C. 558 where his Honour stated at p. 562:

``An expenditure may be necessary for the holder of an office without being necessary to him in the performance of the duties of that office.''

It will be recalled that the English provision is somewhat different from ours in that it gives an entitlement to a deduction if the employee was obliged - and this is a quote from the English Tax Act - ``to expend moneys wholly, exclusively and necessarily in the performance'' of the duties of his employment.

9. It is this difference in substantive law which enabled an English lady barrister successfully to claim some £ 464, being the amount expended on dark, unobtrusive and conservative garments suitable for court appearances, as well as £ 100 for cleaning and laundering such clothes. The evidence was that the taxpayer's preferred wardrobe was ``adventurous and coloured'' (
Mallalieu v. Drummond (Inspector of Taxes) (1981) STC 391 ). It is clear that the U.K. provision (sec. 130(a)) applies a subjective criterion, whereas our own sec. 51 applies an objective one and turns on the nature of the expenditure; that is whether it was incidental and relevant to the derivation of the assessable income. It is clear from the authorities that not every expenditure incurred in the course of deriving income is an allowable deduction. This was made clear by Mr. Dubout in the aforementioned Case H32 where he stated:

``In the opinion of Mason J. in Lodge's case (supra) the significance of the word `in' in sec. 51(1) is appropriately illustrated by
Halstead (H.M. Inspector of Taxes) v. Condon (1970) 46 T.C. 289 , a decision on a question arising under Schedule E to the Income Tax Act 1952. His Honour, at p. 4176, 72 ATC, noted that the relevant English provision was more narrowly expressed than sec. 51(1), in that it gave an employee an entitlement to a deduction if he was necessarily obliged `to expend moneys wholly exclusively and necessarily in the performance' of the duties of his employment ( Income Tax Act 1952, Schedule 9, para. 7). Notwithstanding the difference between the English and Australian statutes, however, his Honour thought it appropriate to quote from the decision of Megarry J., and I repeat hereunder the quoted passage, which appears at pp. 292-293 of 46 T.C.:

• `The Commissioners considered and distinguished
  Bowers v. Harding (1891) 1 Q.B. 560 ; 3 T.C. 22 on the ground that an alternative course of action was there open to the taxpayer, whereas here the taxpayer had none. That case, however, deals only with the word `necessarily'. There is still the word `in', governed as it is by `wholly' and `exclusively'. Even if one accepts the highest degree of inevitability in what the taxpayer did, in no conceivable sense can the expenditure be said to have been incurred by him `in' the performance of his duties: it had nothing to do with the way in which he performed his functions as a clerk to the Borough Council'.''

(pp. 282-283).

---

ATC 524

Mr. Dubout concluded his decision by observing in para. 9:

``It would be no exaggeration, I think, to say that in the turmoil of day-to-day living, expenditure on the acquisition of stockings is an example par excellence of private expenditure. In quite a number of instances, Boards of Review have seen, in the peculiar circumstances of the case, certain factors which would justify the removal of expenditure, on various items of clothing, from the category of private expenditure, and thus from the exclusory words of sec. 51(1). I am unable in the present case to see that the taxpayer's expenditure on stockings is anything other than private expenditure, and whether that conclusion be consequential upon my earlier conclusion that the expenditure was not one incurred in gaining or producing the assessable income, or whether it be arrived at independently, the end result is in each case equally fatal to the taxpayer's claim.''

Mr. Dempsey (Member) agreed with the decision of the Chairman. I took a broader view, stating that:

``... a taxpayer's only chance of success on such a claim as the present, as the law now stands, is if it can be shown that the loss, claimed as a deduction, is one peculiarly, directly and exclusively attributable to the employment.''

(p. 285)

I went on to say that were it not for compelling authority to the contrary, I would myself have concluded that a taxpayer, compelled by the terms of her employment to wear stockings, would satisfy all the requirements of sec. 51 in establishing a loss or outgoing incurred in the production of assessable income whenever she replaces such stockings.

10. I then went on to point out, however, that the weight of authority precluded me from adopting that view. Be that as it may, I am now satisfied that the acquisition of stockings, in the words of Mr. Dubout, is an example par excellence of private expenditure, and it remains such notwithstanding the condition of the employment that they must be worn on duty. Stockings, by their very nature, are part of conventional attire - whether worn under protest or otherwise - unlike, say, the lead apron of a radiographer, the white coat of a medical attendant, or the exotic attire of the naval officer in the tropics.

11. The distinction may be subtle and insubstantial and cold comfort to this taxpayer and others similarly encumbered by pantyhose. This is to some extent borne out by the evidence of this taxpayer, who readily conceded that even in this area there is nothing unique about stockings which would single out a person wearing them as being a nurse employed by the... Hospitals Group.

12. Therefore the question is ultimately one of the characterisation of the expenditure, a test which was clearly enunciated in Lunney's case and has since been re-affirmed in the decision of
Handley v. F.C. of T. 81 ATC 4165 both by Mr. Justice Mason, who was part of the majority, and Mr. Justice Stephens, who constituted part of the minority. To the extent that it has been doubted by Mr. Justice Smith in
Burton's case 79 ATC 4318 , particularly at p. 4322, I have some difficulty reconciling this aspect with Lunney's case and to the extent that there is an inconsistency, I must resolve it in favour of two High Court decisions - Lunney, which preceded Burton, and Handley, which post-dated it.

13. Sitting as a tribunal of first instance I feel compelled by the authorities to uphold the Commissioner's decision on the objection.