Uniforms - Tax Fact Sheet

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*This fact sheet was prepared by Kidmans Accountants and is to be used as a guide only. Professional advice should be sought from a tax professional in relation to individual company requirements.  This fact sheet is current as at July 2007.

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General

To be deductible, expenditure on clothing and its maintenance must have the “essential character” of an outgoing incurred in gaining or producing assessable income, i.e. an income-producing expense. Clothing expenditure is generally private expenditure and is not deductible.  However, expenditure on certain types of occupational clothing gives rise to a deduction.  The deduction would cover the cost of buying, renting, laundering, dry-cleaning, repairing and replacing the clothing.

Conventional Clothing

There is no universal rule that conventional clothing can never be deductible, in most cases expenditure on conventional clothing will not be deductible (Taxation Rulings TR 94/22, TR 97/12).

The fact that an employer requires a taxpayer to dress in a particular way for work will not in itself be sufficient to allow a deduction.

Compulsory Uniforms

Compulsory uniforms (i.e. non-conventional clothing that an employee is compelled to wear) will generally be deductible (Taxation Ruling TR 96/16; Taxation Determination TD 1999/62).

A “uniform” is a collection of inter-related items of clothing and accessories (including stockings and footwear) that is distinctive to a particular organisation (Taxation Ruling TR 97/12).

Non-compulsory Uniforms

Deductions are specifically denied for non-compulsory uniforms unless the design of the uniform is entered on the Register of Approved Occupational Clothing at the time the expense is incurred (ITAA97 Div 34).  The Register is kept by the Secretary to the Department of Industry, Science and Tourism, who can register a design only if it meets certain criteria set out in guidelines formulated by the Treasurer.  It is the employer’s responsibility to apply for registration of the design.  This restriction on deductions in respect of non-compulsory uniforms does not apply to occupation-specific clothing or protective clothing.

Non-compulsory uniform/wardrobe is defined in subsection 51AL(4).

A “uniform” is a set of one or more items of clothing that distinctively identify the wearer as a person associated with the employee's employer or a group consisting of that employer and one or more of its associates. A uniform is “non-compulsory” where the employer does not have an express policy that prohibits employees substituting items of ordinary clothing for an item of clothing included in the set or, if the employer has such a policy, it is not consistently enforced.

Collections of conventional clothing are not automatically excluded from registration because they lack a particular or peculiar design, provided the uniform has a sufficiently distinctive look and a cohesive and obvious identity.

Occupation-specific Clothing

A deduction will generally be allowed for occupation-specific clothing.  This is clothing that distinctively identifies a person as a member of a specific profession, trade, vocation, occupation or calling.

Glasses, Sunhats and Sunscreen

Expenditure on sunglasses, sunscreen and sunhats has been held to be deductible for a range of taxpayers who were required, as part of their duties, to work outside in the open air exposed to sunlight.

Other Protective Clothing and Safety Footwear

The cost of protective clothing or safety footwear is deductible.  “Protective clothing” is clothing that is specifically designed to protect:-

• the taxpayer from personal work injury, disease or death (e.g. steel cap boots, safety helmets, fire-resistant clothing, rubber boots of a concreter, non-slip nurse's shoes, special gym shoes of an aerobic instructor conducting “high impact” classes); or
• the taxpayer's conventional clothing or artificial limb or other aid from the hazards of the work environment (e.g. overalls or aprons).

However, expenditure on heavy duty conventional clothing such as jeans, drill trousers and drill shirts, even where such clothing is worn to prevent injury at work, is not deductible because the clothing is conventional and does not have a distinct occupational character (Taxation Ruling TR 2003/16).

Wet weather gear is deductible where it has a distinct occupational character (Taxation Ruling TR 2003/16).

Expenditure on a protective item will have a sufficient connection with the earning of assessable income where:

•    the taxpayer is exposed to the risk of illness or injury in the course of carrying out his/her income-earning activities;

•    the risk is not remote or negligible, i.e. it would be a real risk to anyone who worked where the taxpayer is required to work;

•    the protective item is of a kind that provides protection from that risk and would reasonably be expected to be used in the circumstances;

•    the taxpayer uses the item in the course of carrying out his/her income-earning activities (Taxation Ruling TR 2003/16).

Laundry and Dry-cleaning Expenses

A deduction is available for the cost of cleaning and maintaining clothing and footwear if the items are used for income-producing purposes and the expense is occasioned by the performance of income-producing duties (Taxation Ruling TR 97/12).  In effect, the deduction is only allowed in relation to the laundering of protective clothing, occupation-specific clothing, compulsory and non-compulsory uniforms or wardrobes specified above, as well as conventional clothing in limited circumstances (Taxation Ruling TR 98/5).

Fringe Benefits Tax (FBT)

Under current FBT laws, a maximum of $300 (including GST) in non compulsory uniform/wardrobe clothing items can be provided per employee during the FBT year (1 April – 31 March), without incurring FBT.

Non compulsory uniform/wardrobe clothing expenditure in excess of $300 (including GST) per employee during the FBT year will incur FBT on the total clothing spend.

IMPORTANT NOTE:  All clothing items are collectively grouped together for the purpose of assessing FBT.  Therefore, the supply of additional clothing items to employees in excess $300 inc. GST would also be subject to FBT and could impact the annual FBT exemption threshold.  Whether FBT is applicable or not is dependant upon determined regularity or infrequency of the supply (each instance would need to be evaluated by Tax expert/ ATO).
In addition to the FBT exemption threshold, an exemption from FBT liability may also be obtained through the registration of the non compulsory uniform/wardrobe with the Textiles, Clothing and Footwear Authority.  But in order to register, the corporate wardrobe clothing would need to be provided and worn in its entirety (i.e. both tops and bottoms worn together).

Important: This is not advice.  Readers should not act solely on the basis of the material contained in this Fact Sheet.  Items herein are general comments only and do not constitute or convey advice per se.  Also changes in legislation may occur quickly.  We therefore recommend that formal advice be sought before acting in any of the areas.  The Fact Sheet is issued as a helpful guide to readers and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our prior approval.