Edited version of private advice

Authorisation Number: 1052290305425

Date of advice: 4 September 2024

Ruling

Subject: Deductions - conventional clothing

Question

Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the cost of conventional clothing you wear while working as a professional styling coach?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2025

The scheme commenced on:

1 July 2024

Relevant facts and circumstances

You are a professional styling coach.

You carry out work by:

•         shopping with clients to curate clothing and accessories that meet their lifestyle, personal and work needs

•         educating clients on clothing for their body type, styles, cuts and colours through personal analysis and matching brands to the individual

•         curating clothing and accessory options for clients attending special events.

•         consulting businesses and their employees on uniforms and/or personal presentation standards

•         working on photoshoots styling models to promote clothing labels, designers and fashion professionals

•         organising, designing or curating wardrobe contents, and

•         testing a range of clothing products from different brands, including but not limited to intimates, to recommend to clients.

You do not have any employees. You gain business by word-of-mouth referrals and your website.

You purchase new seasonal styles, upcoming trends, and a range of clothing products (including but not limited to women's lingerie and hosiery) from a wide selection of brands to test their performance and recommend them to clients. You acquire these items with little to no discount or subsidy from the retailer.

You uphold your personal image through personal grooming and the purchase of clothing to enhance your business brand, attract new clients, and retain existing ones.

Contentions

You contend that the professional style coaching industry depends on personal branding to generate income.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

It is acknowledged that you consider your personal image to be important to your success; however, the clothing you wear while working is not distinctive or unique to your profession, or only suitable for work. There is not a sufficient connection between your clothing expenditure and your income producing activities for the expenditure to be considered to have been necessarily incurred for the purpose of gain or producing your assessable income. In addition, the expenses are considered to be private in nature. Therefore, you are not entitled to a deduction for the clothing you wear while working as a professional styling coach.

Detailed reasoning

Subsection 8-1(1) of the ITAA 1997 provides that you can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

If one of the positive limbs above are satisfied, then it is necessary to see if the loss or outgoing is excluded by a negative limb in subsection 8-1(2). Subsection 8-1(2) states you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income; or

(d) a provision of this Act prevents you from deducting it.

Therefore, if a negative limb in subsection 8-1(2) of the ITAA 1997 excludes a deduction or loss, the deduction will be denied, regardless of satisfying the positive limb in subsection 8-1(1).

Taxation Ruling 97/12 Income tax and fringe benefits tax: work related expenses: deductibility of expenses on clothing, uniform and footwear (TR 97/12) discusses the Commissioner's view on clothing, uniforms, footwear and associated costs as deductions under section 8-1 of the ITAA 1997. Paragraphs 19 and 22 state:

19. Expenditure on conventional clothing is often not an allowable deduction under section 8-1 of the ITAA 1997. This is because there is not usually a sufficient connection between expenditure on clothing and the income earning activities of the taxpayer.

22. The fact that a taxpayer may perceive that it is important to his/her success in his/her occupation or profession to wear a particular type or style of conventional clothing does not make the cost of that clothing deductible: see, for example, Case 16/93 93 ATC 208 at 214; AAT Case 8658 (1993) 25 ATR 1115 at 1121-1122 (Case 16/93).

The courts have considered the deductibility of conventional clothing on numerous occasions. In Case 16/93 the taxpayer was a senior fashion editor of a top fashion magazine. She said that she must dress to demonstrate her knowledge of the latest fashion and her own sense of style. She agreed in cross-examination that her dressing was individually determined by herself in accordance with that sense of style. It was she who determined what she would wear, what accessories were suitable and where she would wear any particular clothes. Although she said she would not have the need for this clothing if she did not work for the magazine, it is clear that there is no compulsion by her employers or by any of her immediate superiors to wear any particular type of clothing. The clothing deductions were denied. The evidence was clear that there were no express clothing requirements. The fashion and style of the taxpayer's clothes were a matter for the taxpayer's own judgment. The clothing was not "distinctive or unique" or such that it could only be used for work. Her income-producing activities did not include the wearing of clothes, however important the wearing of suitable clothes may be in the course of her employment. Furthermore, the expenses were of a private nature.

In FC of T v. Edwards (1994) 49 FCR 318; 94 ATC 4255; (1994) 28 ATR 87 (Edwards' case), while favourable, there were other factors present, such as the need for additional clothing and for frequent changes of clothing while the taxpayer was performing her duties. The Full Federal Court decision contains the following cautionary statement (FCR at 323; ATC at 4259; ATR at 91):

'It should be noted that the decision does not establish that the cost of all clothing acquired and worn at work will, because of that circumstance alone, become deductible as an outgoing incurred in deriving assessable income.'

In Case 49/97, 97 ATC 516 (Case 49/97) a magazine account manager was required by her work to attend events such as magazine launches and 'black tie' events. She said her employment required a well-groomed look and she was obliged to purchase expensive 'up-market' clothes. While 'up market', the clothes were nevertheless of a type normally or conventionally worn. The taxpayer was not contractually bound to wear clothing of a particular type and was free to choose to wear whatever she pleased. Nor was she obliged, as was Mrs Edwards, to change frequently. The taxpayer's income producing activities did not include the acquisition of clothes, albeit that unless clothes were acquired the taxpayer would have been unable to perform her work. Expenditure on clothes, even if additional, did not form part of her income producing activities. The Administrative Appeals Tribunal (AAT) held that she was not entitled to a deduction because no special circumstances existed.

In Case T47 (1968) 18 TBRD 242; 14 CTBR (NS) Case 56, J F McCaffrey (Member) stated the rationale why conventional clothing is usually private in nature (TBRD at 243; CTBR at 307):

'In order to live normally in our society, it is requisite that individual members thereof be clothed, whether or not they go out to work. In general, expenditure thereon is properly characterised as a personal or living expense...'

The Tribunal in Case U95 87 ATC 575 at 580 said:

'There is no one test which will satisfy all facts, but clearly on the decided cases, relevant considerations include:

1)    Express or implied requirements of the employer or business concerning clothing;

2)    The extent to which the clothing is distinctive or unique to the nature of the employment or business having regard to particular, special or accepted work clothing requirements, including its availability to be worn by members of the general public;

3)    The extent to which the clothing is used solely for work;

4)    The extent to which the clothing is unsuitable for any activity other than work;

and no doubt other factors may become relevant depending on particular facts or circumstances of a given case.'

The decision in Edwards' case turns on its own special facts. These facts included the following circumstances:

a)    the taxpayer gained her income by attending the Governor's wife as her personal secretary;

b)    the extensive wardrobe of high quality clothes was necessary to perform properly her activities;

c)    she was expected to dress in a manner compatible with the Governor's wife and in an appropriate way for each occasion;

d)    she changed her clothing, sometimes two or three times a day, in the course of performing her income-producing activities;

e)    the quantity and quality of clothing was in excess of her normal every day requirements; and

f)     she only infrequently used the wardrobe for private purposes.

Edwards' case is important in emphasising that the proper construction of section 8-1 of the ITAA 1997 does not result in a universal proposition that expenditure on additional clothing of a conventional kind worn in a conventional way can, by itself, never attract deductibility under the ITAA.

There are likely to be few cases similar to Edwards' case. For example, in Case 48/94 94 ATC 422; AAT Case 9679 (1994) 29 ATR 1077 (Case 48/94), the taxpayer, a self-employed professional presenter and speaker, submitted that her circumstances were comparable to those of Ms Edwards. The taxpayer gave evidence that she maintained a separate wardrobe to meet her work requirements and that she used this wardrobe exclusively in relation to her work. Sometimes, a client would request that she should dress in a specific manner when performing a presentation. Her image was of vital importance in both securing and performing her duties, and her clothes were an aspect of her image.

Senior Member Barbour, in disallowing the deduction for the cost of the clothing, said (ATC at 427; ATR 1083) that:

'While the A list clothes [those used exclusively for work] assisted in creating an image compatible with the applicant's perceptions of her clients' and audiences' expectations, her activities productive of income did not turn upon her wearing A list clothes, however important the applicant may have perceived these clothes to be in her presentation activities. There is not the requisite nexus between her income earning activities and the A list clothing expenses.'

He went on to say (ATC at 427-428; ATR at 1083-1084) that:

'... the expense is not a business expense is also indicated by the very conventionality of the clothing. The applicant did not buy specific clothes for specific presentations (as an entertainer might) or have clothes that were specific and suited only for her employment or business (as a nurse might). The applicant chose to wear her A list clothes for business only, but this does not then enable the expense in purchasing those clothes to be treated as a business expense. Nor did she wear several changes of clothes while performing her duties, such that this expense for additional clothing was purely for the purpose of gaining or producing income, and hence properly regarded as a business expense, despite its conventionality (as in Edwards' Case).'

Paragraph 63 of TR 97/12 provides an example where deductions for conventional clothing would not be allowed:

Beata is a marriage celebrant who claims expenditure on dress suits, accessories, shoes and stockings. She contends that the wardrobe of hats and garments, including shoes and stockings, ranging from the highly formal to the informal, is far more extensive than she would ordinarily acquire. Even if the additional clothing is worn solely for the purpose of performing her duties as a marriage celebrant, the facts would be analogous to Case 48/94, where the expenditure was held to be private in nature. In particular, her activities productive of income do not turn upon her wearing the additional clothes, nor are the clothes specific and suited only to her income earning activities. Despite having an extensive wardrobe, Beata's duties do not involve multiple daily changes of clothing and the expenditure remains purely private in nature: see Case V68 88 ATC 508, but compare Case V143 88 ATC 899; AAT Case 4608 (1988) 19 ATR 3872. Similarly, the expenditure incurred on shoes and stockings is private in nature and is not deductible.

In Case 72/96 96 ATC 640; AAT Case 11,455 (1996) 34 ATR 1098 a television newsreader claimed a deduction for the cost of clothing purchased for use on camera. The items of clothing in question comprising suits, shirts, shoes, dresses, jackets and jewellery, were selected by the newsreader because they came up well on television, looked appropriate and created the desired image. The AAT found that the items of clothing claimed were 'ordinary articles of apparel' that any professional or business woman might purchase to wear to work and the fact the clothing would look good on television was not sufficient to make the cost a deductible outgoing. Accordingly, the newsreader was denied a deduction for the clothing expense on the grounds that, as the clothing was not worn as part of a uniform and was 'not of a special nature and to be worn in unusual circumstances', the clothing expense was of a private nature.

Application to your circumstances

It is considered that the decision in Edwards' Case is clearly distinguishable from your circumstances on its facts. The decision in that case makes it clear that Ms Edwards was obliged to change her clothing two or three times during the day and that she had need of clothes which she would not ordinarily have needed; moreover, she was obliged by the duties of her employment to dress a particular way. Your circumstances can also be distinguished from the decision in Mansfield v FC of T 96 ATC 4001; (1995) 31 ATR 367. In that case The Federal Court considered the deductibility of expenses incurred by a flight attendant on shoes and stockings worn as part of a compulsory and distinctive uniform. Evidence in this case indicated that image was of critical importance to the employer and flight attendants were checked for adherence to the rules for uniform and grooming when they signed on for a shift. There was a range of other features besides the requirement that the shoes and stockings match the remaining parts of the uniform. These included the fact that the taxpayer's work conditions caused her stockings to be snagged and her shoes to be scuffed. It is not clear how much weight was given to these additional features. However, it is unlikely that they would have been sufficient to make the expenditure deductible but for the finding that the stockings and shoes formed an integral part of a strictly enforced compulsory uniform and the fact that her cabin shoes could only be worn at work (because the cabin pressure caused the taxpayer's feet to swell, requiring her to purchase her cabin shoes half a size too big).

Your circumstances are comparable to the taxpayers in Case 16/93 and Case 49/97, in that there is no specific requirement for you to wear any particular fashion or style of clothing, and the clothes you wear are of a type normally and conventionally worn by the general public. What you wear is a matter for your own judgment, and you are free to choose whatever clothing you please. The clothing you acquire and wear is not distinctive or unique to your profession, or only suitable for work, such that your expenditure on it could be characterised as expenditure necessarily incurred in gaining your assessable income.

Similarly, your circumstances are also comparable to that of Case 48/94, where even though the taxpayer considered her image to be of vital importance in securing and performing her duties and that the clothes were an aspect of her image, the clothing did not have the relevant nexus between the income earning activities and the clothing expense.

It is acknowledged that you consider your personal image to be important to your success as a professional styling coach. However, the fact that you may perceive that it is important to success in your profession to wear a particular type or style of conventional clothing does not make the cost of that clothing deductible. You do not get paid for your personal image or style, or for testing different clothing products; nor do you derive your income from wearing or purchasing new styles or trends; rather, you earn your income from activities such as assisting others to acquire clothing and accessories, and from educating clients about clothing that is suitable for them. There is not a sufficient connection between your clothing expenditure and your income producing activities for the expenditure to be considered to have been necessarily incurred for the purpose of gain or producing your assessable income. In addition, the expenses are considered to be private in nature. As such, you are not entitled to a deduction for the clothing you wear while working as a professional styling coach under section 8-1 of the ITAA 1997.