Edited version of your private ruling

Authorisation Number: 1012444938498

Ruling

Subject: Fringe Benefits Tax

Question 1

Will the cost of providing compulsory uniforms to employees of the entity be eligible for reduction under section 52 of the FBTAA based on the 'otherwise deductible rule'?

Answer

Yes.

This ruling applies for the following periods:

1 April 2012 - 31 March 2013

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015

1 April 2015 - 31 March 2016

The scheme commences on:

1 April 2012

Relevant facts and circumstances

In order to maintain its reputation and branding, the entity maintains a company policy that requires all employees to wear a compulsory uniform. This means that all employees that have passed probation are required to wear a compulsory uniform when performing their work duties.

The uniforms are to be returned on termination of employment.

The compulsory uniform items have been specifically designed for its employees. The range is restricted and contains a limited amount of fabrics, colours and styles. It is provided to the employees at no cost.

The entity maintains a uniform policy that provides guidance as to how the uniform may or may not be worn. It provides a different uniform for males and females, and has limited options.

Any accessories do not form part of the ruling.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 - section 45

Fringe Benefits Tax Assessment Act 1986 - section 52

Fringe Benefits Tax Assessment Act 1986 - section 136

Income Tax Assessment Act 1997 - section 8-1

Reasons for decision

Question 1

Detailed reasoning

1. Is the provision of compulsory work uniforms to employees a Fringe Benefit?

The definition of a 'fringe benefit' can be found in section 136(1) of the Fringe Benefits Tax Assessment Act 1986 ("FBTAA") and is taken to mean:

A benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

The term 'benefit' is also defined within the same subsection, being 136(1) of the FBTAA and includes:

Any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i). the performance of work (including work of a professional nature), whether with or without the provision of property.

(ii). the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii). the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction.

The tests provided in these definitions allow us to conclude that the provision of a compulsory uniform by the entity would come within the scope of a benefit. The benefit has arisen in respect of employment and thus would be deemed a 'fringe benefit'. As such, it is necessary to confirm which category of fringe benefit this would come within the bounds of.

2. Should the provision of compulsory uniforms to employees by the entity be considered a Fringe Benefit, what category would it come within?

Given the fact that it has been determined that the provision of compulsory uniforms is a fringe benefit within the bounds of the legislation, the next appropriate step is to categorize the benefit. In order for section 52 of the FBTAA to apply, the benefit must be classified a residual benefit within the meaning of section 45. Section 45 states that:

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

Therefore it is important to consider whether a property benefit under section 40 in Division 11 of the FBTAA will arise. In this case, the uniforms are not given to employees to keep. Rather, they are only given to employees to use and must be returned to the entity upon termination of employment. Therefore, a property fringe benefit will not arise as ownership of the uniforms does not pass to its employees.

As a result, there are no provisions within Divisions 2 to 11 (inclusive) that either directly or indirectly relate to an employee providing compulsory uniforms to their employees. Therefore, the provision of the uniforms for use is a residual fringe benefit under section 45.

3. Does the 'otherwise deductible' rule found in section 52 of the FBTAA apply in these circumstances?

Section 52 provides for the 'otherwise deductible rule' to reduce the taxable value of the residual fringe benefit. In order for the otherwise deductible rule to apply, section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) needs to apply to allow the employee a deduction if they were required to acquire the uniform themselves. The issue of deductibility of uniform expenses is discussed in Taxation Ruling TR 97/12 Income tax and fringe benefits tax: work related expenses: deductibility of expenses on clothing, uniform and footwear.

Paragraphs 30 to 33 of TR 97/12 state:

30. A deduction is allowable for the cost of a compulsory and distinctive uniform under section 8-1 of the ITAA 1997.

31. The essential character of an employee's expenditure on clothing items including shoes, socks, stockings and accessories which form an integral part of a compulsory and distinctive uniform is expenditure directly related to the income producing activities of the employee. It is the compulsory and distinctive characteristics which provide the nexus between the expenditure on the uniform and the work activity.

32. A compulsory uniform must be prescribed by the employer in an expressed policy which makes it a requirement for a particular class of employees to wear that uniform while at work, and which identifies the relevant employer. The employer's compulsory uniform policy guidelines should stipulate the characteristics of the colour, style and type of the clothing and accessories that qualify them as being a distinctive part of the compulsory uniform. Also, the wearing of the uniform generally should be strictly and consistently enforced.

33. In our view, it is only in these strict regimes for compulsory and distinctive uniforms that expenditure on these items is likely to be regarded as work related rather than private in nature.

A set of criteria has been provided on what constitutes a compulsory uniform in Tax Determination TD 1999/62 Income tax: what are the criteria to be considered in deciding whether clothing items constitute a compulsory corporate uniform/wardrobe for the purposes of paragraph 30 of Taxation Ruling TR 97/12. The following criteria are applied to the circumstances of the entity:

· Objective

· Understanding on how the wardrobe is to be worn

· Fabric

· Colours

· Style

· Corporate Identifiers

· Durability

· Range

· Accessories

In consideration of the above, it is apparent that there is a clear policy that the entity's employees must wear the compulsory uniform. It is accepted that the uniform is limited in its range, and contains a limited amount of fabrics, colours and styles. It is also accepted that the uniforms have been specifically designed for work related use, and that the items are not a mere appropriation of products available for the general public to purchase.

On balance it appears that the criteria that is contained in TD 1999/62 has been fulfilled and supports a conclusion that an employee would be entitled to a deduction under section 8-1 of ITAA 1997 should they have been required to purchase the uniform themselves. This activates the 'otherwise deductible rule' found in section 52 of the FBTAA which reduces the taxable value of the residual benefit.

Conclusion

The otherwise deductible rule contained in section 52 of the FBTAA will apply to reduce the taxable value of the residual benefit that is being provided to the entity's employees.