Edited version of your written advice

Authorisation Number: 1051490257250

Date of advice: 07 March 2019

Ruling

Subject: Taxable value of the benefit

Question 1

In relation to the prescribed uniform provided to the employees under the uniform policy, would the ‘otherwise deductible rule’ apply to reduce the taxable value of the benefit?

Answer

Yes.

Question 2

In relation to the reimbursement of certain specific non-uniform item on medical grounds, is it an exempt item under section 58M of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

This ruling applies for the following periods:

01 April 20XX to 31 March 20XX

The scheme commences on:

01 April 20XX

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 taxpayer has implemented a uniform policy.

The uniform policy requires certain classes of its employees to wear the prescribed uniform.

The prescribed uniform is compulsory and must be worn at all times when a staff member is on duty, except under the exceptional circumstances as stated in the uniform policy.

A staff member who arrives for duty without the compulsory uniform, or with a uniform which is damaged or unclean will be stood down from duty, or may be subject to further action.

No part of the uniform is to be worn when staff members are off duty.

Items of compulsory uniform will be issued to relevant staff on commencement and replaced on the basis of fair wear and tear. All uniform must be returned when replaced or when an employee ceases employment.

Uniforms will be routinely replaced subject to approval. Replacement uniforms will be supplied at no cost to staff, subject to fair wear and tear conditions. Previously issued uniforms must be returned at the time a replacement is issued.

Uniforms are not to be disposed of by the individual staff member.

If medical advice is provided, certain specific non-uniform item can be purchased and worn by the individual staff member and reimbursed on provision of a tax invoice receipt, subject to prior approval on the particular item to ensure consistency with uniform style.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Unless otherwise stated, all legislative references under Questions 1 and 2 are to the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Question 1

On the facts, provision of the uniform constitutes a residual benefit: section 45.

Where an employee receives a benefit, and would have been entitled to an income tax deduction for expenditure on the benefit if the employee had provided the benefit, the ‘otherwise deductible rule’ applies to reduce the taxable value of the benefit by the amount of that notional deduction. Under section 52, the reduction is available in respect of residual fringe benefit.

The threshold question in order to determine whether taxable value of the uniform items would be reduced under the ‘otherwise deductible rule’ is, whether cost of acquiring the uniform would be an allowable deduction to an employee of the taxpayer.

A deduction is allowable for the cost of a compulsory and distinctive uniform under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997): paragraph 30 of the Taxation Ruling TR 97/12 Income tax and fringe benefits tax: work related expenses: deductibility of expenses on clothing, uniform and footwear (TR 97/12).

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: paragraph 31 of the TR 97/12.

Paragraph 2 of the Taxation Determination 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? (TD 1999/62) requires that, a compulsory uniform/wardrobe must be prescribed by the employer in an expressed policy that 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/wardrobe 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/wardrobe. Also, the wearing generally of the uniform/wardrobe should be strictly and consistently enforced. To be a compulsory corporate uniform/wardrobe, the clothing must be unique, distinctive and peculiar to the particular organisation, with a timeless quality unaffected by short term changes in fashion.

In determining whether clothing constitutes a compulsory corporate uniform, paragraph 3 of the TD 1999/62 points out that, it is a question of fact and impression that can only be determined on a case by case basis in the light of all the circumstances, and provides some criteria to be considered (failure to satisfy one or more of which does not necessarily mean the clothing is not a compulsory corporate uniform/wardrobe).

In the current case, the uniform is prescribed by the taxpayer, in its uniform policy, that makes it a requirement for the specified classes of staff members to wear while they are at work, except under the stated exceptional circumstances.

Wearing of the prescribed uniform at work is strictly enforced in the uniform policy; any breach will be stood down from duty, or may be subject to further action.

When staff members are off duty, they are strictly prohibited from wearing any part of the uniform.

The uniform policy shows that, colours or shades in the uniform are limited, so are the styles of each individual items and the uniform wardrobe as a whole. The only exception is one clothing item, which is required due to nature of the work under certain circumstance.

Some clothing items are embroidered with clearly visible logo and/or name(s), which could easily identify the taxpayer as the relevant employer.

Certain items in the prescribed uniform do not bear any identifying logo or name on them; however they are stipulated in the uniform policy to form part of the prescribed uniform; their characteristics are expressively specified in the uniform policy, which amongst other things quality them as an integral part of the complete compulsory uniform/wardrobe to be worn at work as an entirety rather than as individual pieces, as well as make them be differentiated from ordinary clothing or accessory.

Prohibition of wearing any part of the uniform while off duty is strictly imposed, which further adds essential character of the expenditure as work-related rather than private.

On that basis, it is considered that necessary connection exists between the expenditure on the prescribed uniform and duties of each of the employee classifications, so that the essential character of the expense is work related. Accordingly, they form part of the compulsory and distinctive corporate uniform/wardrobe as an entirety.

As a result, cost of acquiring the prescribed uniform under the uniform policy would have been an allowable deduction to an employee of the specified classifications if the employee had provided the benefit, otherwise deductible rule operates to reduce the taxable value of the residual benefit in provision of the uniform to nil.

Question 2

Detailed reasoning

Section 58M exempts from FBT the provision of certain benefits provided in respect of the employment of an employee. The exemptions include, at subparagraph 58M(1)(a)(iii), the provision of expense payment benefits where the recipient's expenditure is in respect of work-related preventative health care of the employee.

Work-related preventative health care is defined in subsection 136(1).

ATO ID 2003/689 Fringe Benefits Tax Exempt benefits: work related preventative health care - meaning of 'on behalf of a legally qualified medical practitioner' (ATO ID 2003/689) makes it clear that, for health care to be 'work-related preventative health care' as defined in subsection 136(1) the care must be provided by, or on behalf of, a legally qualified medical practitioner, nurse, dentist or optometrist in order to prevent the employees from suffering injuries or illnesses relating to their employment. The form of care must be made available to all employees with similar work-related risks.

When health care is not provided directly by a legally qualified medical practitioner, nurse, dentist or optometrist, ATO ID 2003/689 requires that, the care must be provided 'on behalf of' such a qualified person.

The phrase 'on behalf of' is not defined for the purposes of the FBTAA. ATO ID 2003/689 refers to the following definition of the term 'behalf' or 'on behalf of' in The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne:

behalf n. on behalf of (or on a person's behalf ) 1 in the interests of (a person, principle, etc.). 2 as representative of (acting on behalf of my client).

ATO ID 2003/689 also refers to Cuthbertson & Richards Sawmills v. Thomas (1999) 93 FCR 141 (Cuthbertson case), where it was stated that the phrase ‘on behalf of’ does not have a strict legal meaning. In Cuthbertson case, the court referred to R v. Toohey; Ex parte Attorney General (N.T.) (1980) 145 CLR 374 at 386 where Stephen, Mason, Murphy and Aickin JJ referred to the phrase ‘on behalf of’ in the following terms:

...it bears no single and constant significance. Instead it may be used in conjunction with a wide-range of relationships, all however, in some way concerned with the standing of one person as auxiliary to or representative of another person or thing.

...Context will always determine to which of the many possible relationships the phrase "on behalf of" is in a particular case being applied; "the context and subject matter" (per Dixon J in R v. Portus; Ex parte Federated Clerks Union (1949) 79 CLR 428) will be determinative.

On the facts, in the circumstance where an employee suffers from medical condition, medical advice may indicate that wearing certain prescribed uniform item under the uniform policy would cause further injury, contraction, aggravation, acceleration, recurrence of an existing disease or medical condition, would be harmful or disadvantageous to the employee, or would result in harm or disadvantage to the employee, the employee may be allowed to acquire certain alternative non-uniform item to wear at work and get reimbursed subject to provision of the medical advice and prior approval from the employer.

Where it has been established that, health care in the form of certain alternative non-uniform item is provided by, prescribed by, or provided on behalf of a legally qualified medical practitioner, or a nurse, and such form of care is made available generally to all employees of the taxpayer who have similar risks, it would be considered that the definition of work-related preventative health care under subsection 136(1) is satisfied.

On that basis, the recipient expenditure is in respect of work-related preventative health care under subparagraph 58M(1)(a)(iii); therefore the expense payment benefit is an exempt benefit under section 58M.