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Tuesday, 23 August 1994
Page: 122

(Question No. 1367)

Senator Watson asked the Minister representing the Treasurer, upon notice, on 3 May 1994:

  With reference to the recent full Federal Court decision upholding the tax deductibility of certain clothing bought by Ms Frances Edwards, secretary to Lady Campbell, the wife of the former Governor of Queensland, what is the Australian Taxation Office's position regarding the deductibility of clothing for other persons in the public eye such as television presenters and female parliamentarians in the light of this decision.

Senator Cook —The Assistant Treasurer has provided the following answer to the honourable senator's question:

  The Australian Taxation Office has advised that the decision of the Full Federal Court in the Edwards case is not authority for the deductibility of all expenditure on conventional clothing acquired and worn at work.

  The proper construction of subsection 51(1) does not result in a universal proposition that conventional clothing can never attract deductibility under the Act. Each case must be approached by the application of the subsection properly construed to its particular facts.

  For expenditure by any employee to be deductible under the first limb of subsection 51(1) of the Act, the High Court of Australia has indicated that the expenditure must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income producing expense (Lunney v. FC of T (1958) 100 CLR 478 at 497-498). There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income (Ronpibon Tin N.L. v. FC of T (1949) 78 CLR 47). Consequently it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344 at 353; FC of T v. Cooper 91 ATC 4396 at 4403; (1991) 21 ATR 1616 at 1624; Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508 at 4520; (1993) 26 ATR 76 at 91). Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.

  Nothing in the Full Federal Court's decision in the Edwards case changes these principles. The decision in the Edwards case is simply an example of a situation where, on the particular facts of the case, such a sufficient connection did exist. The analysis on the facts starts with ascertaining what are the income earning activities and then determining whether a sufficient nexus exists between those activities and the expenditure. Outgoings will be deductible in whole or in part where there is a clear connection between the expenditure and the actual derivation of income. It is not sufficient that the expenditure on clothing is a prerequisite to the derivation of assessable income. It must contribute to the derivation of that income.

  It is the view of the Australian Taxation Office, that in most cases expenditure on conventional clothing will not be deductible.

  In the absence of detail/facts about television presenters and female parliamentarians, it is impossible to say whether such people could show a sufficient connection between their income earning activities and expenditure on clothing.

  The Australian Taxation Office has recently issued a Ruling (TR 94/22) on its view of the application of the Edwards decision in regard to deductions for conventional clothing.