The Taxpayer and Commissioner of Taxation

[2006] AATA 100

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 100

ADMINISTRATIVE APPEALS TRIBUNAL      )

)           No WT2005/8

TAXATION APPEALS DIVISION		)
Re		THE TAXPAYER

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Mr A Sweidan, Senior Member

Date7 February 2006

PlacePerth

Decision The Tribunal affirms the respondent’s decision under review

...........(sgd A Sweidan)...........

Senior Member

CATCHWORDS

REASONS FOR DECISION

7 February 2006 Senior Member A Sweidan            

Background

1.       The applicant seeks a review of the respondent’s decision disallowing a deduction for the expenses incurred by the applicant during the year ended 30 June 2003 in respect of certain items of clothing and footwear.

2.       The amount for which a deduction was claimed was $38,797.30. This was stated to be for abnormal work-related clothing expenses.

3.       Annexed to the applicant’s objection was a schedule showing that the applicant spent a total of $81,836 on clothing, accessories and footwear in the relevant year of income. In this schedule the applicant divided the clothing costs into private ($22,106.61), normal work-related ($20,932.85), and abnormal related clothing expenses ($38,790.00).

4.       By a notice of decision on objection dated 11 November 2004, the respondent disallowed the applicant's objection to the disallowance of a deduction for the amount of $38,798, and it is this decision which the applicant seeks a review of.

Evidence

5. The applicant was represented by Mr G Jolley and the respondent was represented by Ms G Archer of counsel. The Tribunal had before it the T-documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth).

6.       It was agreed between the representatives of the parties at the outset of the hearing that there was no issue between them as to quantum, and that accordingly and in relation to the objection decision, it would be either affirmed or set aside, and in either case in full.

7.       The applicant gave evidence on her own behalf, and the main parts of her evidence can be summarised in the following terms;

(a)the applicant is the Chief Executive Officer and a director of a company which she owns in partnership together with her former husband;

(b)the applicant has no written employment agreement with the company and there is nothing in her conditions of employment which requires her to wear any specific type of clothing;

(c)the applicant’s evidence was that she is “the image of the company, so basically the face of the company” and further that it is “very very important the image you create for the people who work with you.”;

(d)the applicant further said that she is “the motivator to actually, you know, and the trainer and train them to go out there telling them how to promote the product, self-confidence, from self-image”;

(e)because of the need to present the necessary image of the company she spent more on clothing than would otherwise have been the case.

8.       The applicant said that during the relevant year of income she had kept a record of her expenditure on clothing and this record appears in the T-documents at page 22 and is marked T5.

9.       T5 shows that the applicant spent the amounts referred to above on various categories of clothing including the “abnormal” expenditure, as shown therein, being the expenditure required to perform the requirements, as she saw it, of her position.

10.     The applicant explained that she was required to make presentations at conferences and seminars and other functions which were attended by the company’s consultants and distributors, both in Australia and overseas. She further said that at such seminars and conferences she, in her view, was required to change her clothing several times a day in order to present the necessary image to the consultants and distributors.

11.     The gist of the applicant’s evidence was that she would not have incurred the “abnormal” expenditure on clothing if it were not for what she perceived as the need to present the required image.

12.     Under cross-examination the applicant acknowledged that if she made use of dry-cleaning services at the hotels in which she stayed when attending seminars and conferences then she could have managed with one set of clothing in certain instances, and in other instances two sets of clothing, and conceded that she could have worn the same outfit at conferences held at different cities around Australia.

13.     The applicant said in cross-examination “I have to create a certain image which I chose to create.”

14.     Further under cross-examination the applicant acknowledged that there were some items in the “abnormal” list that she might wear in her normal working life, particularly items such as jeans and boots.

15.     In re-examination the applicant was asked “if you didn’t have this particular position what do you think you would do clothing-wise?” Her answer was “Well basically what else I haven’t claimed on abnormal I probably would spend that”.  She was then asked “you possibly wouldn’t have the same income level?” Her answer was “probably well I might have the same income level. It is a choice I am making now to go and speak to my consultants. I still could earn as much as I do now but since my job is to go out there and be the face of the company that is where the expenditure comes in.”

Law

16.     Section 8-1 of the Income Tax Assessment Act 1997 (Cth) is in identical terms to the former s 51(1) of the Income Tax Assessment Act 1936 (Cth). The section provides that;

“(1)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.

(2)However, 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

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

17.     The application and interpretation of the tests for deductibility set out in s 8-1 and its predecessor s 51(1) have presented difficulties to courts and tribunals in Australia from time to time. There are a number of cases which deal with deductions claimed for clothing.

18.     The facts in this case are similar in many respects to the facts in Case 49/97 97 ACT 516. That case also contains a helpful summary of other similar cases, as well as a statement of the general principles which have been applied by courts and tribunals in similar matters.

19.     I accordingly set out below a number of relevant extracts from the decision of Senior Member Block in Case 49/97 commencing with paragraph 6 at page 517 of the report which also include reference to a number of other cases;

“… 6 …

(d)     The applicant said that her image was important; her evidence was to the effect that her position required her to dress smartly and that for her to dress informally or incorrectly might well achieve exactly the wrong result, and, as she put it, might make her uncompetitive. The applicant emphasised that her position was of a competitive nature.

…

(f)     The applicant said that her work required her to attend additional events, such as cocktail parties for the launch of magazines or for some similar purpose, and that she was obliged to acquire attire (such as ball gowns and tuxedos) for what she referred to as "black tie" events. That "black tie" attire required her also to purchase suitable accessories. "Black tie" events occurred, according to the applicant, at intervals of approximately six weeks; she said moreover that "black tie" attire would not generally be used by her in her non-business life although she might wear the pants part of a suit acquired for "black tie" event purposes, for other purposes.

(g)     The applicant made it clear that she had to have a well groomed look and that for work purposes she was obliged to purchase clothes in "up market" stores. It was for this reason also that she was obliged to incur quite substantial dry-cleaning expenses. In her position she was, as she put it, an important point of contact for the magazine in relation to client. She said that compliments from her Managing Director on her appearance were an important indicator of her compliance with the requirements of her position.

(h)     In cross-examination, the applicant accepted that her position required people skills, but as she put, one also needs the "magic" of a personable and attractive appearance.

(i)     The applicant also admitted that in all circumstances she made her own decisions as to what to wear and including, in this context, as to accessories. She said also that she would not change her attire during the day, but might (although on infrequent occasions) change for an evening function. Mention was made in this context of changes for this purpose no more than half a dozen times per year. Presumably, although this was not made clear, these changes are separate and apart from what were referred to as "black tie" occasions.

(j)     The applicant accepted also that she was under no directions of any kind and whether contractually or otherwise from her employers as to the nature of her attire but felt that, at least implicitly, she was obliged to dress both correctly and well.

[7] The applicant seeks a deduction under the first limb of s 51(1) of the Income Tax Assessment Act 1936 on the basis that the expenditure was "incurred in gaining or producing assessable income". As the taxpayer did not carry on business it is only the first limb which can apply to confer a deduction. The primary question is, therefore, as to whether the expenditure was incurred in gaining or producing the taxpayer's assessable income. There is a related question as to whether the expenditure is nevertheless of a private or domestic nature, and in consequence excluded from deductibility by the concluding words of the subsection.

[8] The tribunal refers in the first instance to the decision of the Full Federal Court in FCT v Cooper (1991) 29 FCR 177; 21 ATR 1616; 91 ATC 4396 which concerned a footballer, who purchased additional food and drink in order to cure or alleviate a tendency towards weight loss and which threatened his position as a first-grade player. The following passages from the judgment of Lockhart J are relevant or important for the purposes of this decision:

(a)     At pages 4399 and 4400 Lockhart J summed up the then important case law as follows (at FCR 181-2; ATR 1620; ATC 4399-400):

The phrase "incurred in gaining or producing assessable income" in the first limb of s 51(1) has been construed to mean incurred in the course of gaining or producing assessable income: Amalgamated Zinc (De Bavay's) Ltd v FCT (1935) 54 CLR 295 per Latham CJ at CLR 303 and Dixon J at CLR 309; W Neville and Co Ltd v FCT (1937) 56 CLR 290 per Dixon J at CLR 305; Ronpibon Tin NL v FCT (1949) 78 CLR 47 per Latham CJ, Rich, Dixon, McTiernan and Webb JJ (at CLR 56-7).

For expenditure to be an allowable deduction as an outgoing incurred in gaining or producing the assessable income, it must be incidental and relevant to that end; Ronpibon at CLR 56. This test of deductibility has been explained in subsequent judgments of the High Court, so that to be deductible the expenditure must be incidental and relevant in the sense of having the essential character of expenditure incurred in the course of gaining or producing assessable income. This formulation of the test has its origins in the joint judgment of Dixon CJ, Williams, Webb, Fullagar and Kitto JJ in Charles Moore and Co (WA) Pty Ltd v FCT (1956) 95 CLR 344 at 351. It has been applied subsequently in cases which include Lunney v FCT (1958) 100 CLR 478 at 497; Handley v FCT (1981) 148 CLR 182 at 194; 11 ATR 644 at 651; 81 ATC 4165 at 4171; Forsyth v FCT (1981) 148 CLR 203 at 210; 11 ATR 657 at 662; 81 ATC 4157 at 4163; John v FCT (1989) 166 CLR 417; 20 ATR 1; 89 ATC 4101. The essential character test is also applied to determine if the expenditure is of a capital, private or domestic nature as these cases illustrate.

Outgoings incurred in gaining or producing assessable income and outgoings of a capital or domestic nature are not mutually exclusive; Ronpibon Tin at CLR 56; Forsyth, John at CLR 427; ATR 6; ATC 4105-6. It was decided in John that there is no "necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income and a loss or outgoing of a private nature": John at CLR 431; ATR 9; ATC 4108.

(b)     At pages 4400 and 4401 Lockhart J dealt with the High Court decision in Lunney in the following terms (at FCR 183; ATR 1621; ATC 4400-1):

Closer to the present case however is Lunney which held that fares paid by a taxpayer travelling day by day from his home to his place of employment and back again was not a deductible expense under s 51(1). In Lunney, Dixon CJ said (at CLR 486):

"I confess for myself, however, that if the matter were to be worked out all over again on bare reason, I should have misgivings about the conclusion. But this is just what I think the court ought not to do. It is a question of how an undisputed principle applies.

Its application was settled by old authority long accepted and always acted upon. If the whole subject is to be ripped up now it is for the Legislature and not the court to do it".

In their joint judgment Williams, Kitto and Taylor JJ said (at CLR 501), after referring to a number of English decisions:

"No doubt the legislative provisions which required consideration in these cases were not identical with s 51, but the process of reasoning by which they were decided consistently rejects the notion that expenditure incurred by a taxpayer in order to travel from his home to his place of business is, in any sense, a business expenditure or an expenditure incurred in, or, in the course of, earning assessable income. Indeed they go further and refuse assent to the proposition that such expenditure is, in any relevant sense, incurred for the purpose of earning assessable income and unanimously accept the view that it is properly characterised as a personal or living expense. This view agrees with that which we, ourselves, entertain. Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing a taxpayer's assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another. And even if it were possible - and we think it is not - to say that its essential purpose is to enable a taxpayer to derive his assessable income there would still be no warrant for saying, in the language of s 51, that it was `incurred in gaining or producing assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'."

(c)     Lockhart J then went on to say at pages 4001 and 4402:

These are the relevant principles to apply in determining the deductibility of the taxpayer's expenditure in this case. The application of s 51(1) gives rise to difficulty in some cases because there is a large variety of factual situations to which it may apply. The deductibility of expenditure on food, clothing and housing poses difficult questions. In one sense expenditure on food is always relevant to the derivation of income because a person must eat to enable him to live and therefore to work. Obviously that alone is not a sufficient connection with the earning of assessable income to permit a deduction. On the other hand a person whose business is the publication of a food guide may buy and taste food in the course of his business, so there is a clear nexus between the expenditure and the derivation of income. The cases that lie in between the two extremities give rise to the difficulty and this case is one of them.

The question whether the additional expenditure of the taxpayer is deductible under s 51(1) cannot be answered simply by a process of reasoning that, because expenditure of this kind is a prerequisite to the earning of the taxpayer's assessable income (in the sense that it is necessary if assessable income is to be derived), it must be incidental and relevant to the derivation of income. It does not follow that such expenditure is incurred in or in the course of gaining or producing the income. The deductibility of the expenditure depends upon determining the essential character of the expenditure itself and not upon the fact that, unless it is incurred, the taxpayer will not be able to engage in the activity from which his income is derived.

(d)      At pages 4403 Lockhart J said:

The taxpayer incurred the expenditure on additional food and drink for the purpose of increasing his weight and thus to play professional football and earn assessable income. But its character as the cost of additional food and drink is neither relevant nor incidental to the training for and playing of football matches, which is the activity by which he gained assessable income. The expenditure was not incurred in or in the course of that activity. The taxpayer was paid money to train for and play football, not to consume food and drink. His income producing activities did not include the consumption of food and drink.

In my opinion the taxpayer’s expenditure on additional food and drink was not incurred in gaining or producing his assessable income and is therefore not deductible from his assessable income during the relevant years of income.

Furthermore, for the reasons already given I would regard the expenditure as being of a private nature and therefore within the exclusionary limb of s 51(1).

[9] The decision in Cooper's case was given by majority (Lockhart and Hill JJ). There are passages from the judgment of Hill J which deserve inclusion in these reasons:

(a)     At page 4411 and 4412 Hill J said:

To be deductible under s 51(1), a loss or outgoing must satisfy the tests contained in what are often referred to as the "positive limbs" of the subsection, and be not excluded from deductibility by the exclusory limbs. It was early suggested that private and domestic expenses were, by their very nature, excluded from deductibility as not being outgoings incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for that purpose: JP Hannan, Principles of Income Taxation, 1946 LBC, at p 306. This view of the law, so far as it is related to the exclusion of outgoings of a domestic nature, was found to be misconceived in Handley v FCT (1981) 148 CLR 182 at 191-2 per Stephen J, at 194 per Mason J, and in FCT v Forsyth (1981) 148 CLR 203 at 216 per Wilson J Notwithstanding the reservation expressed by Wilson J in Forsyth (at 216), with whose judgment Mason J agreed, as to whether the same could be said about outgoings of a private nature, the High Court in John v FCT (1989) 166 CLR 417 at 431, made it clear that there was no necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income, and a loss or outgoing of a private nature. Thus, it is necessary to first consider, in respect of any loss or outgoing, whether it falls within one or other of the inclusory limbs, and if it does, to then proceed to consider whether the loss or outgoing is of a private nature.

In the present case, Mr Cooper was an employee of the Club: Buckley v Tutty (1971) 125 CLR 353; FCT v Maddalena (1971) 2 ATR 885; 79 ATC 4279; 45 ALJR 426; Adamson v West Perth Football Club Inc (1979) 39 FLR 199 at 228. Accordingly, it is necessary to consider only the first limb of s 51(1) as the taxpayer does not carry on any business.

Was the expenditure incurred in gaining or producing the assessable income?

Given that s 51(1) is intended to apply over an extensive range of factual situations, it is expressed in language which is both simple and general. The concepts enshrined in the subsection have been elaborated upon over many years by the High Court. They are conveniently summarised in the judgment of Lockhart J in FCT v Total Holdings (Aust) Pty Ltd (1979) 9 ATR 885; 79 ATC 4279 and more recently again by the Full Court in FCT v Riverside Road Pty Ltd (1990) 23 FCR 305 at 311-314. It is unnecessary to repeat what is said there. What is important is that the concept enshrined in the first limb of the sub-section, is one of the deductibility of working expenses.

Hill J said (at FCR 199-200; ATR 1636; ATC 4414):

The income-producing activities to be considered in the present case are training for and playing football. It is for these activities that a professional footballer is paid. The income-producing activities do not include the taking of food, albeit that unless food is eaten, the player would be unable to play. Expenditure on food, even as here "additional food" does not form part of expenditure related to the income-producing activities of playing football or training.

[10] Both Lockhart and Hill JJ referred to Lunney and it is unnecessary for me to refer further to that decision, except perhaps to one sentence from the joint decision of Williams, Kitto and Taylor JJ as follows (at CLR 499):

Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.

[11] (a) I refer next to the decision of the Full Federal Court (Foster, Drummond and Cooper JJ) in FCT v Edwards (1994) 94 ATC 4255 as follows:

(1) to the passage from the judgment at pages 4256 and 4257 reading:

Prior to receiving this appointment, the taxpayer had held the position of Executive Secretary in a company operating a large international hotel chain. In that employment she had required a wardrobe of high quality clothing for her daily use. In her new position she had need of clothing of the same quality but her wardrobe was necessarily more extensive. For instance, she now had need of hats, gloves and full evening dresses suitable for wearing on formal occasions. She was also required to change her clothing, on occasions, two or three times during the day in order to properly attend on Lady Campbell at official functions and engagements. In order to meet these needs of her new employment, she made clothing purchases mainly in the months from August to November 1990. Fifty-one particular items were purchased and were used for these purposes. Some of the additional clothing was necessitated by the fact that her duties took her to Vice-Regal engagements outside Brisbane and to Canberra in circumstances where laundry facilities were not promptly available. Consequently, a supply of immediately wearable fresh clothing was required.

In his judgment, Gummow J elaborated upon the clothing requirements of her position as follows at page 5614.

"The taxpayer was expected to dress on each engagement in a manner compatible with that of Lady Campbell, upon whom she attended. Thus if Lady Campbell wore hat and gloves, then the taxpayer was expected to do likewise. Particularly before travelling away from Brisbane, the taxpayer would discuss with Lady Campbell what attire might be required in order again to ensure that they dressed compatibly. There was no express condition of the taxpayer's employment that she had to wear or purchase a particular outfit. However, she well understood that she was expected to dress in accordance with an appropriate standard for each occasion. The taxpayer appreciated that when attending Lady Campbell she was exposed to the public eye and scrutiny in a way quite different from that in her past life in private industry.

The taxpayer lived in at Government house in Brisbane. That is significant in understanding her evidence; the AAT described her employment as a `seven days a week occupation on a live-in basis of tenure'. The taxpayer said that her standard of clothing for personal use when `off-duty' was casual in nature, being T-shirt, jeans, shorts or tracksuit. She said it was very seldom that she had an opportunity to wear for private use any of her official wardrobe, and she did not have a lot of `private time'. The taxpayer's claim for deduction made allowance of one third for a `private use component' of her expenditures on her wardrobe."

Gummow J made particular reference to the following factual findings of the AAT:

"There is nothing about the additional changes of clothes in a work day for this taxpayer which serve a private purpose. Her personal requirements of modesty, decency and warmth are met by her first set of clothing for the day.

Her additional changes of clothing throughout the day solely serve work-related purposes which enable the taxpayer to attend the wife of her employer in the performance of her duties at many different types of functions as Personal Secretary. The expenditure on the additional clothing is incurred in the course of gaining the income. Although not determinative of the issue, it is a relevant consideration that she makes the additional changes of clothes because the employer requires her to wear them "

(2) The passage at page 4259 as follows:

In our opinion these arguments fail to establish the proposition necessary to the success of this appeal, namely that the taxpayer's expenditure on additional clothing of a conventional kind to be worn in a conventional way could, ipso facto, never attract deductibility under the We are satisfied that the proper construction of s 51(1) does not result in any such universal proposition. Each case must be approached by the application of the section, properly construed, to its particular facts.

(b)     The Tribunal considers that the decision in Edwards case is clearly distinguishable on its facts.  The decision makes it clear that Mrs 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 to dress compatibly with Lady Campbell.

[12] Equally, in the view of the Tribunal, the decision of Hill J in Mansfield v FCT 96 ATC 4001 is distinguishable on its facts. Hill J in that case allowed the taxpayer (a flight attendant) certain deductions precisely because of the harsh conditions (and damaging effects of those conditions) in which the taxpayer worked. By way of example, the cost of shoes was allowed because in part they formed part of the required uniform and in part because the swelling effect involved required that taxpayer to purchase work shoes of a larger size than she would otherwise have bought.

[13] The Tribunal refers next to AAT Case 16/93 93 ATC 208, a decision of Deputy President BJ McMahon noting that there are numerous aspects of that case which are similar to or analogous with the facts in this case. In this context:

(a) The factual situation dealt with by Deputy President McMahon in Case 16/93 is admirably set out in paras 3 to 10 inclusive of his decision as follows (at 209-210):

3. The applicant is senior fashion editor of a top fashion magazine. She has been with the publisher and its overseas associates for over 13 years and has held her present position for almost 3 years.

4. She works with another person, the fashion director, to cover the fashion market, and to deal with all new collections of the designers and manufacturers on site. Sometimes there are 3 or 4 collections per year which they are asked to look at. After seeing all the collections, they formulate ideas from a local point of view and from an international point of view as to how they are going to focus on the presentation of clothing for a particular season in their magazine. They then organise various "shoots" and choreograph certain photographic situations using these formulated ideas. Evidence was tendered, through one issue of the magazine, which had one of these shoots illustrating a chosen theme.

5. The applicant also attends regular fashion events, including parades, launches of new products or clothing and social events. At each of these events she considers that she is representing the magazine. Indeed it was not contested that she may not have been invited to these functions had she not had a connection with the magazine. Many of the functions have some element which relates either to clothes or to accessories. They include such events as the opening of shops, the presentation of new designs, the opening of plays or exhibitions at art galleries or cosmetic launches.

6. The applicant gave evidence that each of her day to day activities required her to present herself in different ways. Evening functions required formal attire. At shoots it was necessary that she appeared casually dressed, but still with style. At fashion designers' premises, she was also required to be appropriately dressed. She agreed in cross-examination that the clothes she put on when she first dressed in the morning were worn by her all day at work, unless she had to change to attend a shoot, or to attend an evening function.

7. In all situations 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.

8. She said that an important consideration in her mind is that wherever she goes she is an ambassador for the magazine.  She must present an image which is synonymous with that magazine being a leader in high fashion. For that purpose, she tries to wear clothing of a style which is slightly ahead of the season. She attempts to present ‘a leading edge image’. The selection of her clothing is also determined by the fact that she has to make a link between stock in the shops at present and that which will be there in 6 months time. 

9. The magazine draws most of its revenue from advertising. In order to entice advertisers, it is necessary to gain readers to provide a circulation and to create a readership profile which is attractive to prospective advertisers. These advertisers are aware that it is important, when advertising, to back up their display advertisements with editorial commentary. They are also eager to have their advertisements placed in conjunction with any editorial comment, for which the applicant would be responsible. For this reason, the applicant said that her presentation to the advertisers is important, even though she is on the editorial rather than on the advertising side of the magazine. Her presentation and appearance are important in inducing prospective advertisers to avail themselves of the services of the magazine. It is important to cultivate advertisers, she said. Although the magazine is pre-eminent in its field, it does have competition.

10. The applicant said that it was understood by her that a condition of employment was that she dress in a manner befitting the magazine's image at all times. She said that it is generally the case that people would not seek or be granted employment at the magazine if they were not willing to accept this condition. On the other hand, it is clear that the applicant was not engaged simply because she dressed well. She has skills that distinguish her and which are valuable to the magazine, apart from her ability to project a leading edge image in the fashion of her attire.

(b) In paragraphs 33 to 36 inclusive of his decision, Deputy President McMahon dealt with the law in the following terms (at 213-214).

33. In the end, however, one must always return to the words of s 51. The authorities indicating how those words are to be understood were comprehensively collected in FCT v Cooper 91 ATC 4396. The court again affirmed that it is necessary to characterise the expenditure in relation to the gaining of assessable income to determine whether that expenditure is a working expense in the gaining of that income. In the present case, much of the evidence was directed towards the way in which the magazine earns its income. The correct approach is to consider the way in which the applicant gains her assessable income and to look at the expenditure in relation to that activity. In Cooper at 4403, Lockhart J noted that the appellant's expenditure on food and drink was not directly related to his income earning activity of playing football.

34. These views were shared by Hill J at page 4414:

`The income-producing activities to be considered in the present case are training for and playing football. It is for these activities that a professional footballer is paid. The income-producing activities do not include the taking of food, albeit that unless food is eaten, the player would be unable to play. Expenditure on food, even as here "additional food" does not form part of expenditure related to the income-producing activities of playing football or training.’'

35. The expenditure by the present applicant can not be essentially characterised as an outlay incurred in gaining her assessable income. Her income producing activities do not include the wearing of clothes, however important it may be that the wearing of suitable clothes is observed in the course of her employment.

36. Furthermore the expenditure must be characterised as private. As Hill J pointed out in Cooper, there is a considerable overlap between the positive aspects of the first limb of subs 51(1) and the exclusionary phrases. Nevertheless, as has been observed, expenditure on clothing (as on food and drink) is ordinarily a private matter and the essential character of expenditure on clothes would ordinarily be private rather than having the character of a working or business expense. There are no circumstances in the present application which would have the effect of altering that generally held perception of the expenses under consideration.

(c) The Tribunal respectfully agrees with the decision of Deputy President McMahon in AAT Case 16/93.

[14] … In AAT Case 48/94, Senior Member Barbour dealt with a fact situation similar in some respects to the fact situation in Case 16/93; extracts from that decision are set out in this decision partly for the sake of completeness.  In this regard:

(a) clauses 6 to 15 inclusive sets out the relevant fact situation which is reminiscent in certain respects of the facts in AAT Case 8658; Case 16/93 as follows (at 423-424).

6. The applicant stated that her employment involves her in presenting to groups and audiences, and public speaking and conducting facilitations, both of these being forms of presentation. These presentations (ie presentations, public speaking and facilitations) are typically presented to 20 to 25 persons, with numbers ranging from approximately 10 to 200 in the presentation audiences. The presentations could last from one hour (eg for a keynote address) to a period of days in a residential or continuing engagement.

7. With presentations (in the narrow sense) and public speaking, the applicant's evidence was that her role was principally to impart information. A facilitation involved the applicant in a two way exchange, and she agreed that it was a presentation with participation on the part of the audience, with workshop-style activities. The applicant's performance of facilitations and presentations constituted her income earning activities from 1 September 1990 to 30 June 1991.

8. The applicant explained that the function of a professional presenter was to influence beliefs, behaviours and attitudes, and that this has many aspects. Image is one of these, as it enables the applicant to build a rapport, and develop not only a relationship with the audience but also to elicit a response. The applicant stated that the right to work with an audience had to be earned, and image and rapport were part of earning this. The applicant also stated (in her written statement) that her work was that of an entertainer.

9. The applicant stated that her image was of vital importance in both the securing and performance of her duties, and that clothes were an aspect of image. The applicant stated (in her written statement) that she was required to have sophisticated skills in mirroring and matching her audience; " ... This means that in order to get their message across, gain the attention and respect of their audience the speaker must reflect back to the audience an image which is familiar and acceptable to them and in doing so is matching their model of the world ...". The applicant gave evidence that different presentations required different images. For example, the applicant, in a motivational presentation, has to project an image of strong self worth, and when being interviewed for potential engagements, project as someone who was successful and self-motivated. And if she was addressing nurses or younger people (eg 15 year olds) she would dress in a different manner to the style employed when addressing senior executives, who tended to be older and male. The applicant also stated that if her image did not match her audience's expectations, then they were less likely to listen.

10. During the relevant period, the applicant performed for, or worked with, clients in health or allied industries, approximately 75% of her working time. Her audiences consisted of senior and middle management, and nursing and allied health staff. The applicant also performed services for schools and other educational institutions, and the Australian Red Cross. The applicant gave evidence that her engagements would at times run consecutively so that she would go straight on from one presentation to another the next day, and would often not have an opportunity to have her clothing laundered because she was too busy.

11. The applicant stated that she maintained a separate wardrobe to meet her work requirements, and that this wardrobe was used exclusively in relation to her work. The applicant’s evidence was that she would wear A list clothes to presentation and facilitation engagements, and if she were obliged to attend a function after an engagement, she would change out of her A list clothes and into other clothes that were not exclusively devoted to business use. The applicant also stated that she would take off her A list clothes as soon as she arrived home from presentation, and would not wear them at any other time.

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13. The applicant also gave evidence that the A list clothes were of a higher quality and more expensive than the other items that she purchased, and the applicant disagreed that there was nothing distinctive and unique about these clothes such that they would be suitable only for work. The applicant wore A list clothes to the hearing, comprising on both days of a blazer or jacket, blouse (in a camisole style), skirt (one of which was part of a suit the jacket of which the applicant had worn the previous day), heeled shoes and stockings. I would find that these clothes had a conventional appearance. The A list was comprised of suits, shirts and blouses, jackets and skirts, dresses and shoes. I would note that other than the applicant's evidence that the clothes were of a premium quality, there was no material indicating their particular suitability to the presentations performed by the applicant, as opposed to other clothes. Nor was there evidence of the applicant having bought a particular outfit for a particular presentation.

14. The applicant stated that on occasions when she was required to attend engagements over a period of days, there was an expectation that she would dress in a variety of clothes, reflecting the image she perceived she needed to project. The applicant stated (in her statement) that her A list clothes required regular dry-cleaning, leading them to become shiny and therefore requiring frequent replacement. The applicant's working commitments also prevented her from always being able to access cleaners for many days at a time. The applicant also stated (orally and in writing) that the expectations of her as a woman were different to those of a man. For example, whereas a man may be able to fulfil his professional engagements as a presenter by purchasing three or four suits, and having a collection of shirts and ties, " ... because of the different dress roles of the sexes, diverse standards within, and expectations of female business attire designates a greater necessity to dress with variety and style, inclusive of all accessories and grooming to basic apparel ...". These matters, it was stated, required the applicant to purchase additional clothes.

15. In other evidence, the applicant stated that at times she had been requested by a client to dress in a specific manner when performing a presentation. She agreed with counsel for the respondent that it was not clothing alone that was responsible for her obtaining work, but stated that image played a part in causing repeat business, and her clothing was part of her image.

(b) Clause 29 of Senior Member Barbour's decision sets out the manner in which the applicant in that matter submitted that her case could be "paralleled to Edwards" in the following terms (at 427-428):

29. The applicant submitted that her matter could be paralleled to Edwards, in that an objective finding that the applicant perceived an expectation that she dress in a way that she did in fact dress, for the purpose of conducting a presentation, and hence fulfilling her contractual obligations, provided the nexus between the expenditure and the income producing activity of presentation. The applicant also argued that the evidence of the other presenters show that these were expectations of the wider community, and submitted that the applicant worked in an environment where perceptions of other's expectations were important.

(c) In paragraphs 35 to 39 (both inclusive) Senior Member Barbour dealt with the law in the following terms (at 427-428):

35. In determining if an expense falls within subsection 51(1) ITAA, it is first necessary to consider the way in which the applicant gains her income. The applicant’s evidence is that she is a professional public speaker and presenter. In that role her evidence is, and I so find, that it is necessary for her to create a rapport with her audience, and that clothes may contribute to that rapport. I also find that the applicant believes that the A list clothes for which she seeks a deduction create an image that contributes to the establishment of rapport with her audience.

36. However, the nature of the expenditure on A list clothes cannot be characterised as an outgoing or expense incurred by the applicant in gaining assessable income under either positive limbs of subs 51(1) ITAA. While the A list clothes 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.

37. 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).

38. Alternatively, I would find that the essential character of the expenditure is private, and hence excluded as a deduction by subs 51(1) ITAA. For it was essential that the applicant wear something to her income producing activities, and her A list clothing was essentially a question of choice, however important she perceived it to be to her success or otherwise. Like clothing worn on any occasion, and for any employment, the applicant's clothing needed to be suitable for the purpose of wearing to that presentation, but this does not change its character to a business expense, and I would find that the nature of the expense is essentially private.

39. I would distinguish Edwards case by having regard to the emphasis on the additional changes of clothes of the applicant throughout a work day (an aspect of employment not shared by the applicant in this matter), at each stage of Tribunal and court review, and that it was only this additional expenditure of clothing that was allowed as a deduction under subs 51(1) ITAA. Further, I find substantial similarities between this application and AAT Case 16/93, where clothing expenditure of a magazine fashion editor was disallowed in circumstances analogous to the present. Given that Edwards represents no great departure from principle, but rather an application of settled law to peculiar facts, I find the reasoning of Deputy President McMahon persuasive in its application to the facts before me.

(d) The decision in AAT Case 48/94 (with which this Tribunal respectfully agrees) accords with and approves the reasoning in AAT Case 16/93.

[16] …The Tribunal considers, as set out previously, that the decision in the Edwards’ case is clearly distinguishable on its facts.

[17] The applicant's claim relates in the main to clothing which, while "up market" was nevertheless of a type normally or conventionally worn. The applicant 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 evidence before the Tribunal did indicate some expenditure on "black-tie" wear, a part only (not specified) of which would be used outside her work arena, but there was no attempt to dissect out any separate and specific amount for this purpose. As set out previously the facts in Edwards' case are distinguishable; so too are the facts in Mansfield; the applicant's employment did not involve any conditions of hardship nor were work conditions such that she was obliged to purchase clothing of a different size because of a particular and unusual work environment. The Tribunal considers that deductions for clothing and accessories (not constituting a contractually-required uniform, are not, excepting only in special circumstances, such as those applicable in the Edwards' case and the Mansfield case, deductible. Having regard to the case authorities cited, the applicant is not able to claim the existence of any such special circumstances. (The same reasoning applies in respect of the deduction for "nails and make-up".)

[18] In any event, and paraphrasing the decision in Cooper's case, 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.

[19] Accordingly the objection decision under review is affirmed.”

Applicant’s Arguments

20. The Applicant relied substantially on the case of Federal Commissioner of Taxation v Edwards 94 ATC 4255; 28 ATR 87 (“Edwards”) (and on the decision at first instance, Case 31/93 93 ATC 359). However, this decision does not establish a general principle that clothing acquired for and worn at work will be deductible, and rather turned on its own facts. This was made clear by the Full Court in Edwards at 4259.

21.     Edwards merely emphasises that for expenses on conventional clothing to be deductible, there must be a clear connection between the expenses and the income earning activities. 

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22.     In my view Edward’s case, on which the applicant placed substantial reliance, is distinguishable from the facts in this case for the same reasons as set out by Senior Member Block in Case 49/97 and the other cases referred to in that decision where the Edwards case was distinguished and no deduction should be allowed under s 8-1.

23.      In determining whether the applicant has proved that the expenses were not private, again what must be examined is the essential character of the expenditure (see Cooper, per Lockhart J at 4400 and per Hill J at 4414).

24.      Merely because a taxpayer aims to present a certain image and her clothing had to be suitable to be worn in her employment is not sufficient to change the character of the expense from a private to a business expense (Case 72/96 96 ATC 640 at 648).

Nor will the fact that the taxpayer prefers more casual clothing (Case 72/96 96 ATC 640 at 649-50).

25.      In this case, all items purchased by the Applicant are conventional in nature.  The clothing is not distinctive or unique and can be worn on any occasion including private and social occasions and is easily available to the public.  Indeed her claim for “abnormal work” clothes includes boots and jeans.

26.      Accordingly, the Applicant also fails under this hurdle, as she failed to prove the expenses were not private.

27.      Accordingly, the objection decision under review is affirmed.

I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member A Sweidan

Signed:          (sgd S da Motta)            .....................................................................................

Associate

Date of Hearing  5 December 2005
Date of Decision  7 February 2006
Applicant’s Representative      Mr G Jolley           
Counsel for the Respondent     Ms G Archer 
Solicitor for the Respondent     Australian Government Solicitor