Case U37

Members:
P Gerber SM
KL Beddoe SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 4 February 1987.

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Dr P. Gerber and K.L. Beddoe (Senior Members)

The applicant in this case was at all relevant times a furnace engineer who commenced work with a large metal refinery company in 1978. His main responsibility in the first year of his employment was to oversee the conversion from oil to natural gas. This would involve him in numerous calls out of

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hours. On these occasions, the applicant would seek to identify the problem over the telephone and give instructions to rectify it. If this failed, he would get into his car and drive to the factory to supervise the solution of the problem himself. In these circumstances, the applicant claimed an amount of $85, being the amount paid for phone rental. He made no allowances for any private user.

2. A further claim of $40 was made being the cost of replacing a pair of trousers due to excessive wear attributable to his work conditions.

3. Finally, a claim was made for $100 being the amount he paid to a spray painter for re-ducoing his motor vehicle, being the difference between the amount paid by his insurer and the actual cost, and known in the trade as "excess".

4. Dealing with the telephone claim, the Tribunal is satisfied that the phone was used to a substantial extent for the purpose of the applicant's employment and to that extent a proportion of the rent is allowable. The applicant was closely questioned as to the extent other members of the family used the telephone and as to his own private user. Doing the best we can, the Tribunal is satisfied that justice is done to both parties if we were to allow half the claimed amount, i.e. $43.

5. The claim for clothing is more complicated. The evidence disclosed that the garment involved - a pair of trousers - was just that, a pair of trousers as distinct from what has become known as "protective clothing". The applicant gave clear evidence as to the conditions in the workshop and we are satisfied that the nature of the employment was the cause of the replacement of the trousers. He has thus satisfied what has become known as the "abnormal expenditure on conventional clothing" test. The only question is whether that test is still good law. In Case S85,
85 ATC 619, Taxation Board of Review No. 3 analysed the development of this area of the law in the light of recent case law. The claim itself involved a secretary of the State Governor who was involved in many social engagements requiring high quality attire and in greater quantities than would otherwise be acquired by the taxpayer. She claimed deductions for the cost of this clothing. The claim was disallowed. At pp. 620-622 Dr Gerber noted:

• "I cannot get away from the fact that the cost of these clothes still falls classically into the category of an outgoing of a private or domestic nature, and thus excluded from deduction pursuant to sec. 51. The taxpayer sought to derive some comfort from the Ruling IT 297, released on 1 September 1983, which states, inter alia:
  • `Where it is established that, because of peculiar and unavoidable conditions directly attributable to a taxpayer's duties (e.g., a necessity to provide an abnormal number or variety of garments or to suffer excessive wear and tear of garments) a taxpayer incurs extra expense beyond that which is incurred on conventional clothing by persons in occupations not subject to such conditions, a deduction may be allowed of such extra expense.'
• 3. The history of that Ruling is of interest. It came about as a result of a decision of this Board, as then constituted, reported as Case
  82, 11 C.T.B.R. (N.S.) 483. I merely propose briefly to read the headnote:
  • `Taxpayer, a plain clothes policeman, claimed a deduction of £104 in respect of clothing replacements, shoe repairs and dry cleaning, contending that the execution of his duties resulted in excessive wear and tear on his clothing. These duties included searches of premises in very dirty conditions and bushland where there was no practical way of avoiding excessive soiling and deterioration of his clothing. A clothing allowance of £76 received from his employer was included in taxpayer's assessable income of the relevant year.
  • Held: the expenditure was deductible to the extent to which it represented extra expenditure incurred by taxpayer because of peculiar and unavoidable conditions directly attributable to his duties and, in the circumstances, a deduction of £76, the equivalent of the allowance granted to taxpayer by his employer, should be allowed.'

  In the light of subsequent developments in the law, I very much doubt whether that case still represents the present position, and the Ruling, albeit only released in September of 1983 (pursuant to the

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  Freedom of Information Act), has for all practical purposes been overtaken by events. The mere fact that it is dated 1 September 1983 does not therefore necessarily mean that it is good law at this point in time. Indeed, it may well be that Case 82 was wrongly decided at the time.

• 4. A not dissimilar problem arose in the case of
  Mallalieu v. Drummond (1983) 2 All E.R. 1095. The facts sufficiently appear in the speech of Lord Brightman, who made up the majority. His Lordship had this to say [at pp. 1098-1099]:
  • `My Lords, the immediate issue in this appeal concerns the right of a female barrister, in computing the profits of her profession, to deduct the cost of upkeep of a wardrobe of clothes of a design and colour suitable to be worn under her gown during court appearances... The taxpayer is a member of the junior Bar with a busy court practice. When appearing in open court she is obliged, with a few exceptions, to wear a gown over her ordinary clothing, and a wig. When not in open court but in the chambers of a judge, master or registrar, she would (or could) appear in her ordinary clothes without wig or gown. What sort of clothes a barrister should wear in court (I include chambers) is a matter of good taste and common sense, the criterion being that they should be appropriate to the dignity of the occasion. However in recent years some brief rules have been laid down or authoritative guidance given as to what is the appropriate clothing to be worn by barristers appearing in court. So far as I am aware no official guidance was ever thought necessary until about 60 years ago. A barrister conformed as a matter of course to the sartorial standards of his colleagues. By 1922 the ranks of the Bar began to be enriched by the entry of women barristers, who had no precedents or comparisons to draw on. Rules were accordingly issued by the Lord Chief Justice, and amended in 1968. The 1968 rules have now been replaced by brief notes for guidance on dress in court, which apply to barristers of both sexes. These notes were formally approved by the Bar Council and received the assent of the Lord Chief Justice. The notes for the most part reflect the requirements of common sense. They are short, and so far as relevant for present purposes provide as follows:

• "1. The dress of barristers appearing in court should be unobtrusive and compatible with the wearing of robes. 2. Suits and dresses should be of dark colour. Dresses or blouses should be long-sleeved and high to the neck... Shirts and blouses should be predominantly white or of other unemphatic appearance. Collars should be white and shoes black."

• There are no other rules relating to the clothes to be worn by a female barrister under her court gown.
• The taxpayer bought clothes in conformity with those requirements. The initial cost of purchase was a capital expense, and therefore not material for present purposes (my emphasis). However, she needed to clean and renew them from time to time and in the accounting period for the 1977-78 year of assessment she spent some £500 on replacements, laundering and cleaning. This sum is claimed as a deduction in computing the profits of her practice chargeable under Sch D...'

In finding against the appellant/taxpayer, Lord Brightman concluded [at p. 1104]:

• `The case before your Lordships is indistinguishable in principle from
  Hillyer v. Leeke (Inspector of Taxes) [1976] STC 490. That case arose under Sch E, but the ratio of the first ground of decision is equally applicable to Sch D. The taxpayer was a computer engineer. His work involved travelling to the establishments of his firm's customers. His employers required him to wear a suit. When present on a customer's premises he might be called on to assist the customer's engineer at short notice without an opportunity to change into overalls or a boiler suit. The taxpayer therefore maintained two working suits which he wore only for the purposes of his work. He claimed a deduction of £50 for their upkeep. This was disallowed by

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  the inspector. The Commissioners confirmed the assessment. I read the following passages from the judgment of Goulding J. which seems to me to be correct and in point:

• "The truth is that the employee has to wear something, and the nature of his job dictates what that something will be. It cannot be said that the expense of his clothing is wholly or exclusively incurred in the performance of the duties of the employment... In the case of clothing, the individual is wearing clothing for his own purposes of cover and comfort concurrently with wearing it in order to have the appearance which the job requires... Does it make any difference if the taxpayer chooses, as apparently the taxpayer did, to keep a suit or suits exclusively for wear when he is at work? Is it possible to say, as Templeman J. said about protective clothing in the case of
  Caillebotte (Inspector of Taxes) v. Quinn [1975] 2 All E.R. 412 that the cost of the clothing is deductible because warmth and decency are merely incidental to what is necessary for the carrying on of the occupation? That, of course, was a Sch D and not a Sch E case, but the problem arises in a similar way. The answer that the Crown makes is that where the clothing worn is not of a special character dictated by the occupation as a matter of physical necessity but is ordinary civilian clothing of a standard required for the occupation, you cannot say that the one purpose is merely incidental to the other. Reference is made to what Lord Greene M.R. said in
  Norman v. Golder (Inspector of Taxes) [1945] 1 All E.R. 352 at 354. That was another case under Sch D, but again, in my judgment, applicable to Sch E cases, where Lord Greene M.R. said, referring to the food you eat and the clothes you wear: `But expenses of that kind are not wholly and exclusively laid out for the purposes of the trade, profession or vocation. They are laid out in part for the advantage and benefit of the taxpayer as a living human being.' In my judgment, that argument is conclusive of the present case, and the expenditure in question, although on suits that were only worn while at work, had two purposes inextricably intermingled and not severable by any apportionment that the court could undertake."'

• 5. Whilst it is true that in Mallalieu, the Court was dealing with a self-employed professional, and furthermore the English Tax Act postulates that no sum shall be deducted in respect of expenses which are not wholly and exclusively expended for the purposes of a trade, profession or vocation, none the less, I am satisfied that the statutory differences between the two taxing Acts do not materially affect the underlying jurisprudence which has emerged in both countries. In parenthesis, it is worth noting that the case of Hillyer v. Leeke, relied on by Lord Brightman involved an employed computer engineer. Let me repeat for the sake of emphasis, the Australian Tax Act - unlike its English counterpart - excludes expenditure of a private or domestic nature, and nothing is more private than wearing apparel; the only exception being where such apparel is out of the ordinary in the sense that it can be said to constitute a uniform. Examples which readily spring to mind are the uniforms of naval officers, miners' overalls, academic gowns, surgeons' masks, etc. I am unable to see that the conventional attire worn at Government House and on official occasions falls into this exceptional category."

6. Applied to this case, the Tribunal is satisfied that a taxpayer cannot claim the cost of replacing conventional clothing worn out during the course of his employment. This may well be seen as a deficiency in the legislation. If so, the remedy lies with Parliament, not an administrative tribunal.

7. This leaves the car expenses. The applicant gave evidence that the fall-out from chimneys situated near the place where he parked his car when called to his employer's premises out of hours and emanating from the factory were highly corrosive and caused the

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paintwork on his car to corrode very rapidly. The car required repainting as a result and the applicant's insurer accepted the claim as a "repair". On the facts in this case, we are satisfied that the car was used for the purposes of the employment for much the same reasons as travelling expenses were allowed in
F.C. of T. v. Collings 76 ATC 4254. The taxpayer in that case was a highly trained computer consultant whose employment required her to be on call 24 hours a day. During part of the year under review, the taxpayer was involved in supervising a major conversion in the computer facilities which her employer provided for its customers. It was usual for her to receive telephone calls and to give telephone advice to workers at the office at any time of the day or night when trouble arose with the operation of the computer. If she could not resolve the problem over the telephone, she would return to the office from wherever she happened to be to get the computer working. She estimated that she made at least several phone calls and generally one extra trip a day during the conversion period to the office to "revive" the computer.

8. In her return for the relevant year, the taxpayer claimed a deduction of 66% for her telephone costs and 50% of various car expenses including repairs. The travel expenses between home and work outside the normal daily journey were accepted as allowable deductions under sec. 51 in reliance on
Taylor v. Provan (1975) A.C. 194. On the facts as given in evidence in this case, we are unable to find any relevant distinction in the sense that - like Collings' case - the circumstances were special in that he had a double work location as a necessary obligation arising from the nature of his special duties.

9. In Collings' case the taxpayer merely sought to apportion her car expenses which included depreciation, insurance, registration, repairs and maintenance. No attempt was made in that case to claim the full amount of the repairs since it was generally believed at that time that repairs had to be apportioned pursuant to sec. 53. But as Taxation Board of Review No. 3 pointed out in Case Q8,
83 ATC 29, sec. 53 calls for no apportionment and once it can be shown that the item was "used for the purpose of producing assessable income", the full amount expended on repairs could be claimed as an allowable deduction. In the circumstances this applicant is entitled to claim the full $100 for repairs incurred in the year now under review.

10. The Tribunal therefore varies the decision under review by allowing deductions amounting to $143.