Edited version of private ruling

Authorisation Number: 1011872183148

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Ruling

Subject: Deductibility of various expenses

Question

Are you able to claim a deduction for incurring the following expenses:

· Clothing

· Make up and grooming tools (model kit, hair styling tools, waxing etc)

· Stationery and computer expenses

· Parking and public transport costs

· Registration, insurance and repair expenses for your relative's car

· Petrol expenses for your relative's car

· Bank fees,

· Medical tablets for acne,

· Telephone

Answer

No, with respect to:

· Clothing

· Make up and grooming tools (model kit, hair styling tools, waxing etc)

· Bank fees,

· Medical tablets for acne,

· Registration, insurance and repair expenses for your relative's car

· Petrol expenses for your relative's car for trips between home and work.

· Parking, tolls and public transport costs for trips between home and work.

Yes, with respect to:

· Petrol expenses for your relative's car for trips your employer directed you to undertake after you arrived at work

· Parking, tolls and public transport costs for trips your employer directed you to undertake after you arrived at work

Partially, with respect to:

· Stationery and computer expenses

· Telephone

You can only claim for these expenses to the extent that they relate directly to your income earning activities.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2009

Relevant facts and circumstances

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· the application for private ruling;

· the further information sent to us.

You work as a contractor under an ABN.

You do modelling and promotional work for several different companies.

Your clients specify certain 'looks' for your different assignments. In order to achieve these looks, you purchased a range of conventional clothing that you do not wear privately.

Generally the type of clothing in your work wardrobe is different to your private wardrobe. However, some items are the same. In those cases you will have two of the same item, one for work and one for home. For example, you have two pairs of: black jeans, dark blue jeans, black short shorts etc.

You are sometimes required to travel to different locations for photo shoots or to pick up supplies/equipment.

You do not own your own motor vehicle so borrowed your relative's vehicle. Before you first used the car, you paid for new tyres. You later also paid for a new radiator and cooling system.

You paid for petrol when using your relative's motor vehicle.

Your clients specify that you purchase specific brands of make up which you do not use for private use. These brands are not marketed as stage makeup.

You are required to have a work phone which is used to contact clients, agents and other employees.

You use your personal bank account for business.

You are paid hourly by the companies you contract to.

You use your computer for business and educational usage.

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, or relate to the earning of exempt income.

Clothing

Taxation Ruling TR 95/20 states that conventional clothing is not normally allowed as a deduction as this expense is private in nature. This is the case even if the clothing is only worn at work and there is a requirement to wear that type of clothing at work.

It is considered that it would only be in the minority of cases that the connection with work would be so significant that the character of the expense would be converted from being private to income earning in nature. Whether a sufficient connection exists depends on the facts of each case.

The following extracts from TR 95/20 are relevant:

In Case U80 87 ATC 470, a shop assistant was denied a deduction for the cost of black clothes. Senior Member McMahon stated (ATC at 472):

'The fact that the employer requires garments of a particular colour to be worn and would even terminate the employment if another colour was substituted, does not in any way detract from the character of the garments as conventional attire, the cost of which must be regarded as a private expense'.

In Cooper's case, Hill J said (ATC at 4414; ATR at 1636):

'...the fact that the employee is required, as a term of his employment, to incur particular expenditure does not convert expenditure that is not incurred in the course of the income producing operations into a deductible outgoing'.

Example: Sandra is a violinist with a State symphony orchestra and is required to wear a black evening gown for performances. A deduction is not allowable for the cost of buying, cleaning, repairing or replacing the dress.

You purchased a range of clothing items for modelling assignments. You do not wear these items outside of work.

Even though you only wear these items of clothing at work and it is a requirement that you wear that type of clothing at work, the clothing is conventional in nature. The connection with your work is not sufficient to alter the character of the expense from being private to income earning in nature. Therefore, you are not entitled to a deduction for clothing expenses.

Cosmetics and personal grooming

The Commissioner's view on cosmetics and personal grooming expenses incurred as a requirement of one's employment is contained in Taxation Ruling TR 96/18.

Cosmetics and personal grooming expenses include, amongst others, the cost of skin care products, lipstick, foundation and other make-up (paragraph 3 of TR 96/18).

TR 96/18 was issued as a result of the decision in Mansfield v. FC of T 96 ATC 4001; (1996) 31 ATR 367 (Mansfield's Case). The Commissioner explains in paragraph 5 of TR 96/18, that the decision in Mansfield's Case confirms the long-standing view that generally expenditure on cosmetics and personal grooming is personal in nature and therefore not tax deductible.

However, as highlighted in Taxation Ruling TR 95/20, a deduction may be allowable for some make-up and hair dressing expenses incurred by performing artists when performing a specific role. The following examples in paragraphs 110 and 111 of TR 95/20 help clarify the deductibility of such expenses.

Sophie is an actress in a television series. She has regular hair styling and beauty treatments to present a well groomed image to the public. These costs relate to Sophie's personal care and are private and not allowable.

Alex obtains a role as a policeman in a stage play. He is required to have his normally shoulder length hair cut short and maintained that way, as part of his costume, for the duration of the play. He also supplies his own make-up to wear on the stage. Alex can claim a deduction for the cost of both the haircuts and the make-up because a direct nexus exists between the expenditure and his income-earning activities as an actor.

In your case, you incur costs for make-up that you use on your modelling assignments. The makeup range you use is available to the general public and is not marketed as stage makeup. It is considered that your situation is more in line with that of Sophie rather than Alex. The make-up and personal grooming tools you use are private in nature and not deductible.

Bank fees

Generally fees charged on an individual's every day transaction account would be considered private in nature and therefore not deductible. However, if a fee is charged on a transaction where money was withdrawn to pay a tax deductible expense then a deduction would be allowed for that particular fee.

You wish to claim for your bank fees of $xx. However, you have not shown that this amount was charged for transactions where the money withdrawn was used to pay for tax deductible expenses. Therefore, we cannot conclude that you are entitled to a deduction for this amount.

Medical tablets for acne

Paragraph 3 of TR 96/18 states that cosmetics and personal grooming expenses include the cost of:

…perfume, after shave, deodorant, nail polish, nail or hair care products, skin care products, lipstick, foundation and other make-up, hair spray, hair styling, haircuts, hair colouring, hair perm, and other personal care or related products or treatments.

In your case you have asked if medication for acne treatment is deductible. Skin care treatments are cosmetic or grooming expenses which are covered in TR 96/18.

Cosmetic or grooming expenses, as stated above, are private in nature and not deductible.

Travel

A deduction is generally not allowable for the cost of transport by an employee between home and his or her work place as it is generally considered to be a private expense. The cost of travelling between home and work is generally incurred to put the employee in a position to perform duties of employment, rather than in the performance of those duties.

TR 95/20 states that a deduction is not allowable for the cost of travel by an employee performing artist between home and his or her work place as it is generally considered to be a private expense.

An exception to the deductibility of home to work travel is where a taxpayer's work is itinerant. The Commissioner's view as regards to when a taxpayer's work would be considered itinerant is contained in Taxation Ruling TR 95/34.

The question of whether an employee's work is itinerant is one of fact, to be determined according to individual circumstances. It is the nature of each individual's duties and not their occupation or industry that determines if they are engaged in itinerant work. Further, itinerant work may be a permanent or temporary feature of an employee's duties.

Paragraph 17 of TR 95/34 explains in FC of T v. Genys (1987) 17 FCR 495; 87 ATC 4875; (1987) 19 ATR, the Federal Court held that the taxpayer's employment was not itinerant. The taxpayer was a registered nurse who used an employment agency to seek relief work with various hospitals. She was not continuously employed by any one hospital. She did not travel after the commencement of her duties. She merely travelled to work and home again. This is similar to your case and you are not considered to be itinerant.

Therefore expenses for travel to and from your workplace are not deductible. When you have to travel to different locations whilst at work, for example to pick up stock as you stated in your application, the costs associated with this travel will be deductible.

Expenses for your relative's car

Where a car owned or leased by somebody else is used for work-related purposes you can only claim the actual direct costs you incurred when using it for work trips, for example, petrol.

Before you first used your relative's car, you paid for new tyres. You later also paid for a new radiator and cooling system. It is not considered that there is a sufficient connection between these expenses and your income earning activities. You paid for these expenses because of the private arrangement between yourself and your relative whereby they allowed you to borrow their car. You used the car for travel between home and work which is private in nature and also work related trips after you arrived at work.

It is considered that you are only entitled to a deduction for the direct costs (that is, petrol) you incurred when using it for the trips you were directed to undertake once you arrived at work. It is not considered that your payments for registration, insurance, new tyres and a new radiator and cooling system are sufficiently related to your income earning activities. These expenses are more accurately described as private in nature and incurred due to your arrangement with your relative to borrow their car.

Also, you are not entitled to a deduction for your petrol costs for your trips between home and work.

In order to claim for your petrol costs for the trips you are directed to take once you have arrived at work, you should keep records of these trips and receipts for any fuel or oil costs that you have incurred for these trips.

Parking, tolls and public transport costs

TR 95/20 states that a deduction is not allowable for parking fees and tolls incurred when performing artists are travelling between home and work. It states at paragraph 134 that the cost of that travel is a private expense and the parking fees and tolls therefore have the same private character. Also paragraph 133 states that a deduction may be allowable for parking fees or road tolls paid by an employee while travelling in the course of employment, for example, between work places. 

In your case, when you are simply travelling between home and work, a deduction is not allowable for parking fees, road tolls or public transport costs. When you are travelling after your work duties have commenced, these costs would be deductible.

Stationery and computer expenses

To the extent that they are incurred in earning your assessable income, stationery costs and non-capital computer expenses (ink, paper, repairs etc) are allowable deductions under section 8-1 of the ITAA 1997.

These expenses include:

· Costs of stationery used for invoicing, editing and correspondence with agents and clients.

· Costs of printer ink and paper used to print work materials.

· A portion of the costs of repairs to your computer.

Please note: You have advised that your computer is solely used for work and education. You will need to apportion between the two and apply the work use percentage to any computer repairs you are claiming.

The Commissioner will accept an estimate of the extent of work use where it is based on a diary record of the work use and non-work use of the computer covering a representative four-week period. Such a diary record would need to show the nature of each use of the equipment, whether that use was for a work or non-work purpose and the period of time for which it was used.

Telephone expenses

The costs of ongoing telephone expenses are deductible under section 8-1 of the ITAA 1997 to the extent that they used in gaining or producing assessable income.

Where the telephone is also used for private purposes, it is necessary to apportion the telephone expenses to insure that the private component is not included in the claim.

In your case, the telephone is used to be contacted by and contact the companies you contract to. You also state that you call clients, agents etc.

The telephone expenses related to the production of income are deductible as there is a clear connection between your assessable income and your expenses. However, you will need to apportion your claim for the private use of the telephone.

Although you are not charged separately for each of your mobile calls to your family, you become entitled to these 'free' calls because you pay for the monthly cost of your mobile plan. Therefore, you cannot claim a deduction for the full $xx per month for your mobile plan. You will need to apportion your claim to take into account your use of the mobile to call and receive calls from your family.

You will need to be able to substantiate the work use percentage that you claim for your telephone. You can do this with itemised telephone accounts that show calls made and a diary recording calls received over a representative period.

Other information

You advised that on some campaigns you worked on, you were paid allowances to cover expenses you were expected to incur for the campaign.

These allowances form part of your assessable income. However, you are entitled to deductions for the campaign expenses incurred in relation to the allowances.

For example, for the allowance you were paid of 15c per kilometre for petrol for the travel required for door to door sampling, the allowance is assessable income but you are entitled to a deduction for your actual petrol expenses incurred for the travel.