Edited version of your written advice

Authorisation Number: 1051200359881

Date of advice: 8 March 2017

Ruling

Subject: Fringe benefits tax - compulsory uniforms

Question 1

Is the clothing provided to employees a residual fringe benefit under section 45 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Is the provision of compulsory clothing to employees eligible for reduction under section 52 of the FBTAA based on the 'otherwise deductible rule'?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March XXXX

Year ended 31 March XXXX

Year ended 31 March XXXX

Year ended 31 March XXXX

The scheme commences on:

1 April XXXX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The employer manufactures and sells clothing and has stores in Australia.

The employer maintains a company policy that requires all employees to wear a compulsory clothing.

The compulsory clothing items are specifically designed for employees, are made from high quality fabrics and are provided at no cost. The employer maintains a company policy with respect to the clothing which provides guidance to the employees as to how the clothing may or may not be worn.

Also contained within the policy are specific grooming guidelines that ensure the condition of the clothing is maintained and the staff member is groomed to a sufficient standard. Specific diagrams and descriptions are utilised in order to allow employees to understand what is required of them with regard to clothing and grooming.

Details of the components of the clothing have been provided.

The clothing is of high quality and all items have been specifically designed for the employees. This enables them to be easily identifiable as staff members to customers entering stores and serves as advertising.

Clothing is replaced on a regular basis to ensure that they do not look worn or outdated.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 52

Income Tax Assessment Act 1997 section 8-1.

Reasons for decision

Question 1

As outlined in the reasons for decision for the employer's previous private ruling the provision of clothing to employees is considered to be a residual fringe benefit under section 45 of the FBTAA.

Question 2

Summary

The taxable value of residual fringe benefits arising from the provision of compulsory uniforms to employees can be reduced in accordance with section 52 of the FBTAA.

Detailed reasoning

Section 52 of the FBTAA 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 he or she were required to purchase the clothing.

The issue of deductibility of clothing 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.

Further, paragraph 84 of TR 97/12 states that:

A uniform only includes shoes, socks, stockings and accessories where the employer's express uniform guidelines stipulate the characteristics which qualify each item as an integral part of the compulsory uniform, e.g., colour, style, type. As an integral part of a compulsory uniform such items can be differentiated from ordinary clothing.

A set of criteria has been provided on what constitutes compulsory clothing 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.

We have applied these criteria to circumstances of the employer. It is apparent that there is a clear policy from the employer that its employees must wear the compulsory clothing. It is accepted that the clothing is limited in its range, and contains a limited amount of fabrics, colours and styles.

It is also accepted that the clothing has 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.

We consider that the criteria as set out in TD 1999/62 are sufficiently satisfied in respect of the clothes and accessories that comprise the employer's items and that an employees would be entitled to a deduction under section 8-1 of the ITAA 1997 should they have been required to purchase the items.

The otherwise deductible rule contained in section 52 of the FBTAA will apply to reduce the taxable value of the residual benefits that arise from the provision of the compulsory clothingy provided to employees.