Edited version of private ruling

Authorisation Number: 1011495970141

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Ruling

Subject: Deductibility of protective clothing - Heavy duty cotton drill clothing

Relevant facts

Your business operates in a factory environment.

Your work operations may create dangerous or hazardous situations for employees.

You wish to minimise the likelihood of such situations by implementing all possible precautions.

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 heavy duty shirts and trousers to be worn by employees.

You have established that heavy duty trousers are of a special fire resistant fabric.

You stated these items are kept in their lockers by employees and worn only when working outdoors or on the factory floor.

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

You wish to find out whether these heavy duty shirts and trousers 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 expenses incurred in providing 'protective clothing' to its personnel.

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

The employer wishes to provide heavy duty clothing as protective clothing to be worn by personnel when within the factory premises. It is widely recognised that the heavy duty clothing protects employees in the production area when they are involved in high risk operations.

As the provision of these heavy duty clothing is part of a safety measure implemented to improve work conditions, which is an essential 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 determined 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 for the production of your assessable income may pose particular risks or dangers to personnel if the necessary precautions are not adopted. As the provision of heavy duty 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.

In Case A45, 69ATC 270; Case 24 15 CTBR (NS) 161, a blast furnace worker was allowed a deduction for expenditure on protective woollen clothing, largely because of additional features present in relation to its use. The clothing was found to be:

· a 'practical necessity intended for the protection of the taxpayer's body' in the presence of extreme heat and flying sparks;

· put on at the place of work and taken off after duty, and not used for private purposes;

· entirely unsuitable for private use; and

· in summary, of a distinct occupational character.

The level of danger required to satisfy these conditions was described in this case 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…..'

You stated these clothes are stored overnight in the employee's lockers.

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

Therefore in your circumstances the provision of heavy duty cotton drill shirts and trousers is considered to be protective clothing as they contribute to a safe work environment by acting as a deterrent.

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

b) damage to the employee's 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.

The risk of danger from the processes in your factory is real and imminent. The requirement to wear heavy duty protective clothing is an essential precautionary measure in your workplace.

The expenditure on protective clothing as described in your application, 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. Fire resistant protective clothing of the type described by you is 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.

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.