Edited version of private ruling

Authorisation Number: 1011655532194

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Ruling

Subject: Conventional clothing

Question

Are you entitled to a deduction for abnormal expenditure on clothing and accessories?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2008

Year ended 30 June 2009

The scheme commenced on

1 July 2007

Relevant facts

You are a managing and creative director of a company.

You are required to attend many functions and events.

You are invited to be a judge at various events from time to time.

You have incurred expenses on clothing and accessories while fulfilling these duties.

It is not unusual to be required to change clothing several times a day as you fulfil these various roles.

You are also required to travel both internationally and domestically to promote the companies product.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a 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 clothing is generally considered to be essentially an item of private expenditure unless the clothing is incidental and relevant to the taxpayer's occupation. Expenditure on clothing which is in the nature of a uniform prescribed by the employer or is protective in nature is deductible. However, expenditure on conventional clothing (that is, clothing of a type which is usually worn by men or women regardless of their occupation) is considered to be private in nature and is not deductible.

You have argued that there is sufficient nexus between your employment and your designer clothing and accessories. This argument was based on the case FC of T v Edwards 94 ATC 4255; 28 ATR 87 (Edwards case) and Taxation Ruling TR 94/22.

TR 94/22 is quite clear that in most cases expenditure on conventional clothing is not deductible and that Edwards case does not establish a principle that clothing acquired for and worn at work will be deductible. Rather Edwards case was an example of a case where there exists a sufficient nexus between the conventional clothing and the income earning activities to allow the deduction.

Paragraph 6 of TR 94/22 states that it is not sufficient that the expenditure on clothing is a prerequisite to the derivation of assessable income. It must contribute to the derivation of that income.

Paragraph 8 of TR 94/22 states that for expenditure by an employee to be deductible it must have the essential character of an outgoing incurred in gaining assessable income, or in other words, of an income producing expense. There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income. Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case. In most cases a sufficient connection will not exist between expenditure on conventional clothing and the derivation of assessable income by an employee taxpayer.

In Case 48/94 94 ATC 422; AAT Case 9679 (1994) 29 ATR 1077, the taxpayer, a self-employed professional presenter and speaker, submitted that her circumstances were comparable to those of the taxpayer in Edwards case. The taxpayer maintained a separate wardrobe to meet her work requirements and used this wardrobe exclusively in relation to her work. Sometimes, a client would request that she dress in a specific manner when performing a presentation. Her image was of vital importance in both securing and performing her duties and her clothes were an aspect of her image.

Senior member Barbour, in disallowing the deduction for the cost of the clothing said (ATC at 427; ATR 1083) that:

While the A list clothes [those used exclusively for work] assisted in creating an image compatible with the applicant's perceptions of her clients' and audiences' expectations, her activities productive of income did not turn upon her wearing A list clothes, however important the applicant may have perceived these clothes to be in her presentation activities. There is not the requisite nexus between her income earning activities and the A list clothing.

He went on to say (ATC at 427-428; ATR at 1083-1084) that:

the expense is not a business expense is also indicated by the conventionality of the clothing. The applicant did not buy specific clothes for specific presentations (as an entertainer might) or have clothes that were specific and suited only for her employment or business (as a nurse might). The applicant chose to wear her A list clothes for business only, but this does not then enable the expense in purchasing those clothes to be treated as a business expense. Nor did she wear several changes of clothes while performing her duties, such that this expense for additional clothing was purely for the purpose of gaining or producing income, and hence properly regarded as a business expense, despite its conventionality (as in Edwards).

In Case 72/96 96 ATC 640; AAT Case 11,455 (1996) 34 ATR 1098 a television newsreader was denied a deduction for the cost of clothing purchased for use on camera. The items of clothing in question comprising suits, shirts, shoes, dresses, jackets and jewellery, were selected by the newsreader because they came up well on television, looked appropriate and created the desired image.

The AAT found that the items of clothing were 'ordinary articles of apparel' that any professional or business woman might purchase to wear to work and the fact the clothing would look good on television was not sufficient to make the cost a deductible outgoing. The clothing was not worn as part of a uniform and was 'not of a special nature and to be worn in unusual circumstances', the clothing expense was of a private nature.

In your circumstances it is acknowledged that you are expected to dress in a manner compatible with your employment as you fulfil your various roles attending work activities. However, the fact that this type of clothing is a prerequisite to earning your income from your work activities is not sufficient to establish a connection between the expenditure and the actual derivation of your income.

Your clothing and accessories are conventional clothing which is not specific to your occupation. The clothing you wear to various functions and events does not contribute to the derivation of your income. The expenses are private in nature and therefore not deductible under section 8-1 of the ITAA 1997.