Edited version of your private ruling

Authorisation Number: 1012496738995

Ruling

Subject: Clothing expenses

Question

Are you entitled to a deduction for the purchase of the latest fashions from your employer to be worn at work as part of your employment conditions?

Answer

No

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You are required as part of your employment contract that you wear the current season stock of clothing, manufactured by your employer.

Your employer encourages you to wear the clothing by offering a discount for the purchase of clothing.

You have signed an agreement acknowledging termination of employment will result for not purchasing and wearing the new current season stock, at all times during work hours.

You normally dress in a more casual nature and do not wear the required clothing outside of work hours.

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 any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income. However, you cannot deduct a loss or outgoing to the extent that it is capital, private or domestic in nature.

For expenditure incurred by an employee to be deductible under section 8-1 of the ITAA 1997, a number of court decisions have determined that:

(a) it must have the essential character of an outgoing incurred in gaining assessable income (Lunney v. FC of T (1958) 100 CLR 478);

(b) there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin N.L. v. FC of T (1949) 78 CLR 47);

(c) it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore & CO (WA) Pty Ltd v. FC of T (1965) 95 CLR 344);

(d) its essential character must not be of a capital, private or domestic nature (per Lockhart J in Cooper's case FCR at 181-182; ATC at 4400; ATR at 1620; and Mansfield's case).

Whether such connections exist is a question of fact to be determined by reference to all the facts of the particular case.

Taxation Ruling TR 97/12 considers the deductibility of clothing expenses. Generally expenditure on conventional clothing is not an allowable deduction as there is not a sufficient connection between expenditure on clothing and the income earning activities of the taxpayer.

In Case 72/96 96 ATC 640, a television newsreader was denied a deduction for ordinary clothes, jewellery and grooming expenses. The expenditure was denied on the basis that the clothing is not part of a uniform and is not of a special nature worn in unusual circumstances.

Also in Case 48/94 94 ATC 422, a self employed professional presenter and speaker sought to claim expenditure on a separate clothing wardrobe used exclusively in relation to her work. While the clothes worn assisted in creating an image compatible with the perceptions of her clients' and audiences' expectations, her income producing activities did not turn upon her wearing those clothes. There was not the requisite nexus between her income earning activities and her clothing expenses.

Paragraph 48 of TR 97/12 states 'The fact that the expense is incurred at the employer's direction does not convert the essential character of that expense from a private to a work related expense'.

You have argued that there is sufficient nexus between your employment and your extra clothing expenses. This argument was based on the case FC of T v Edwards 94 ATC 4255; 28 ATR 87 (Edwards case).

In FC of T v. Edwards 94 ATC 4255, the personal secretary to the wife of a former Queensland Governor was required to expand her wardrobe and purchase high quality clothing for daily use in her employment. She attended the Governor's wife on all her engagements and was often required to change her clothing two or three times a day. Additional clothing was necessitated by her employment activities which took her to country areas where laundry facilities were not readily available. A proportion of the clothing expenditure was held to be deductible.

Taxation Ruling TR 94/22 considers the implications of the Edwards case for the deductibility of expenditure on conventional clothing by employees. The Commissioner takes the view that, while there is no universal proposition that conventional clothing can never attract deductibility under section 8-1 of the ITAA 1997, in most cases expenditure on conventional clothing will not be deductible. 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.

In your case, there is not a direct nexus between the clothing expenditure and the income producing activities of selling clothes. The clothes purchased are not for specific presentations and are not specific to the employment (unlike the clothes of an actor or undercover police officer which are specific to their 'role'). The fact that additional clothing expenditure was incurred is not considered sufficient where the clothes are not specific and suited only for the income earning activity. This opinion is reflected in Case 48/94. Also the facts are not similar to the Edwards case where there were other factors, such as the need for daily additional clothing and for frequent changes of clothing while the taxpayer was performing employment duties.

You are required to wear the company clothing as the condition of employment. However, the clothing is not protective in nature, or occupation specific, or a compulsory uniform, nor is it non-compulsory that is registered or approved. It does not have a specific company logo and as such is suitable for 'street' wear which means it can be worn by the general public, not specifically those employed at the store.

Even though the expenditure is a prerequisite to the derivation of your income, this does not alter the private nature of the expenditure. Accordingly, the expenses are not deductible under section 8-1 of the ITAA 1997.