Income tax : corporate wardrobes and corporate uniforms
FOI status: May be released
- explains that the cost of a corporate wardrobe or corporate uniform can be deducted by an employee under subsection 51(1) of the Income Tax Assessment Act 1936 (the "Act") ; and
- sets out factors to be considered in deciding whether clothing items constitute (wholly or in part) a corporate wardrobe or corporate uniform.
2. An employee's outgoings are allowable deductions under subsection 51(1) to the extent to which they are incurred in gaining or producing the employee's assessable income except to the extent to which they are outgoings of capital, or of a capital, private or domestic nature. In the vast majority of cases, clothing worn by an employee while at work is of a conventional nature and expenditure on the clothing is rarely an allowable deduction. One exception to this general rule concerns corporate wardrobes or corporate uniforms.
3. Broadly speaking, a corporate wardrobe or corporate uniform is a collection of inter-related items of clothing and accessories which distinctively identifies a particular employing organisation and which employees are encouraged by the employer to buy. Corporate wardrobes are usually not provided by the employer, though the employer will usually provide a subsidy or discount on the cost.
4. The word "corporate", in the phrases "corporate wardrobe" and "corporate uniform", is used to refer to both incorporated and unincorporated bodies and applies to trusts, partnerships and sole traders who introduce a wardrobe for their staff. There is no specific limit on the number of employees for whom a corporate wardrobe is introduced. For example, a corner store which employs three or four people could, if it wishes, introduce a corporate wardrobe. A corporate wardrobe may be used as a means of differentiating between various staffing levels within an organisation e.g., a different collection for executive staff or service staff. In these cases, the factors listed in this Ruling should be considered in the context of the collection which applies to each separate staffing group within the organisation. For example, the collection to be worn by the executive should be considered separately to see whether it is distinctive and unique.
5. However, uniforms which are commonly worn by workers in particular industries, e.g., red, blue or grey uniforms worn by employees in restaurants, are not covered by this Ruling. This clothing is not considered to be distinctive and unique to a particular organisation. It is freely available for use by the general public.
Deductibility of Corporate Wardrobes and Corporate
6. For expenditure to be deductible under the first
limb of subsection 51(1) of the Act (the only limb available to
employees), 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. F.C.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. F.C.of T. (1949) 78 CLR 47).
7. This Office accepts that the essential character of
an employee's expenditure on clothing items in a corporate wardrobe or
corporate uniform is expenditure directly related to the need to provide
clothing of an occupational character that is clearly appropriate for,
or adapted to, or truly incidental to the employee's income producing
activities. It is not necessary that the clothing be peculiar in the
sense that it is, by its nature or physical condition, inherently
unsuitable for private use. However, the wardrobe must be more than
simply ordinary civilian clothing.
8. The initial purchase cost of corporate wardrobe
items is not considered to be a capital expense. The benefit of the
expenditure on the corporate wardrobe, taken as a whole, will generally
endure for between three and five years. It is recognised, however, that
the individual items will be worn almost daily and will need to be
replaced more frequently. This differs from judges' robes or mess
officers' uniforms. In the case of a judge's robe, the initial purchase
cost of the robe itself is significant and the average life of the robe
has been estimated at between five and ten years. A mess officer's
uniform is only worn on special occasions and the individual items are
not replaced frequently.
What Constitutes a Corporate Wardrobe or Corporate
9. To be a corporate wardrobe or corporate uniform, the
clothing must be unique, distinctive and peculiar to the particular
organisation, with a timeless quality unaffected by short term changes
10. Whether clothing constitutes a corporate wardrobe
or corporate uniform 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. The following factors (failure to satisfy one or more of
which will not necessarily mean that the clothing is not a corporate
wardrobe or corporate uniform) should be considered:
(b) Understanding on How the Wardrobe is to be Worn
- A corporate wardrobe or corporate uniform should be designed to
enhance the public image of an employing organisation and to act as a
form of indirect advertising. The wardrobe or uniform should also be
intended to secure a commitment from employees to the corporate culture
of the organisation and to be a means of easily identifying employees
and of avoiding their fashion excesses.
- At the time of purchasing a corporate wardrobe there should exist
a general understanding among employees that such items will only be
worn while on official duty, including travel to and from work. They
must also understand that the wardrobe should generally be worn as an
entirety rather than as individual pieces. The constant wearing of
corporate uniform items in conjunction with ordinary clothing may lead
to the conclusion that the items are simply a collection of ordinary
clothing items. However, the collection of clothing items will not lose
its essential character as a corporate wardrobe or corporate uniform
simply because individual items within the wardrobe or uniform are
occasionally worn with non-uniform garments while not on official
- The word "fabric" is used in the sense of material type, i.e.,
what the material is made of e.g., cotton, silk, a mixture of cotton and
polyester, etc. There should only be a limited range of fabrics used in
the wardrobe because the greater the range of fabrics used the more
likely it is the wardrobe will lose its distinctive and unique look. A
range of 5 or 6 fabrics will generally not be considered excessive.
These fabrics should be readily identifiable as belonging to the
corporate wardrobe of the particular organisation. This may be
satisfied by ensuring that the fabric is unique or at the very least
only in limited use by the general public. Simply having a distinctive
and unique lining to a jacket, etc., is not sufficient because the
lining is not generally visible and does not serve to identify the item
as part of a corporate uniform.
- Plain fabrics are generally not in themselves considered to be
sufficiently unique and distinctive so as to render them easily
identifiable. It will therefore be necessary for plain fabrics to have
some distinguishing feature either woven, printed or embroidered into
them. However, individual items should be considered in the context of
the overall look of the wardrobe.
- The total number of colours or shades used in the wardrobe should
be limited. The use of a large number of colours may make it difficult
to say that the wardrobe is distinctive or unique, particularly when
taken into account with the number of fabrics and styles used. Colours
should be in distinctive shades or combinations. For example, if an
organisation has corporate colours, then it may be appropriate to limit
the number of colours to those corporate colours plus one or two
(f) Corporate Identifiers
- There should be a limited number of styles available both in
respect of individual items of apparel, (e.g., women's blouses), and in
respect of the wardrobe as a whole. The greater the number of styles
possible the more likely it is that the wardrobe will be viewed simply
as a collection of conventional clothing.
- These are features which readily identify a particular
organisation and include such things as logos, initials or insignias on
buttons, pockets etc. Identifiers are not compulsory but they add to
the distinctive and unique nature of the wardrobe, particularly when
incorporated into items which in and of themselves are not distinctive
or unique, e.g., a plain white shirt. The identifier should be in a
contrasting colour or shade and be of sufficient size to be plainly
visible to the casual observer.
- In order to be distinctive and unique, a corporate wardrobe
should be durable in the sense that the overall concept or look of the
wardrobe should be intended to last for a number of years. Rapid
changes in style, colour or fabric can detract from the wardrobe's
ability to be easily recognised as a corporate uniform and therefore
also detract from its distinctive and unique character. Where these
rapid changes do occur, the wardrobe might in reality be nothing more
than a collection of items of ordinary clothing. For example,
substantial changes to the wardrobe on a yearly basis to take into
account changing fashions may result in employees wearing a vast array
of different clothing composed of items from both the current and
previous years' collections. In this situation, it would be difficult
to say that there is a distinctive and unique corporate uniform.
Consequently, fabrics, styles and colours should not be adversely
affected by altering fashion trends. As a general rule, the overall
look or concept of a corporate wardrobe should be designed to last
between three to five years, although it is accepted that individual
items of clothing within that wardrobe may wear out in a shorter period.
However, regard should always be had to the type of industry involved.
For example, a period of less than three years may be acceptable in some
parts of the retail fashion industry.
- It is also accepted that, in the initial stages of establishing a
corporate wardrobe, changes may be necessary as items prove unsuitable.
For example, experience may show that particular fabrics are not long
lasting or popular with staff. If these changes do not result in
substantial changes in the wardrobe as originally designed, they will
not alter the tax deductible status of the wardrobe. Summer and winter
variations in a corporate wardrobe need not be introduced at the same
time if they clearly form part of the overall wardrobe
- It is necessary to take into account the total number of possible
variations in fabrics, colours and styles in order to determine whether
the wardrobe, as a whole, has a cohesive identity or whether the
wardrobe should simply be considered a collection of conventional
clothing items. For example, suit combinations (e.g. men's and women's
suits) which are designed and intended to be worn as a whole must be
considered in their entirety rather than as individual items. If the
suit combination is distinctive and unique, it is irrelevant that one or
more of the individual items can be characterised as ordinary clothing
or that the items may be worn with non-uniform items. However, if the
suit combination is essentially conventional, it will not be sufficient
simply for one or two items within the combination to have a corporate
identifier or colour.
- It is accepted that where an organisation operates over a wide
geographic and climatic area, it may be necessary to vary the wardrobe
so as to take into account variations in climate. For example, fabrics
suitable for the climate in northern Queensland may not be suitable for
- Expenditure on accessory items, such as handbags, shoes, and
trenchcoats which do not bear any distinguishable features such as a
corporate identifier, is considered to be of a private nature.
Accessories such as ties, handkerchiefs and hair ribbons which are made
of the same unique fabrics as the other items in the corporate wardrobe,
or have clearly visible distinguishing features such as a corporate
logo, will form a deductible part of the wardrobe. The cost of belts
which have a clearly visible logo embossed or engraved on to them will
also be deductible.
11. The explanation of the factors in paragraph 10 is
based, in part, on Case R55 84 ATC 411 at 416-419; 27 CTBR (NS) 867 at
12. The provision of financial support by an employer
to enable employees to purchase items in a corporate wardrobe may give
rise to a fringe benefit under the Fringe Benefits Tax Assessment Act
1986 (FBTAA). However, the otherwise deductible rule in the FBTAA may
operate to reduce the taxable value of any such fringe benefit. For
example, depending on its method of operation, the financial assistance
may constitute either an expense payment fringe benefit under section 20
of the FBTAA or a property fringe benefit under section 40 of the FBTAA.
The otherwise deductible rule in either section 24 of the FBTAA or
section 44 of the FBTAA respectively would then operate to reduce the
taxable value of the fringe benefit by the amount of any tax deduction
that would be available to the employee in respect of the particular
item purchased. Consequently, the taxable value of the fringe benefit
will be limited to the value of any support provided by the employer for
non-deductible items of the corporate wardrobe e.g., handbags and shoes.
Financial support provided by the employer for deductible wardrobe items
will not attract fringe benefit tax. The taxable value of the benefit
in this case, by applying the otherwise deductible rule, will be
Effect on Taxation Ruling IT 2096
13. It is no longer necessary for the wearing of the
corporate wardrobe to be a condition of employment. To that extent,
paragraph 8 of Taxation Ruling IT 2096 is withdrawn. It will be
sufficient if the employer encourages staff to wear the corporate
wardrobe and employees have the understanding in subparagraph 10(b) of
this Ruling on how the wardrobe is to be worn.
14. Costs for dry cleaning or laundering items of a
corporate wardrobe are an allowable deduction (see Taxation Ruling IT
2452 for the requirements to be satisfied).
DATE OF EFFECT
15. This Ruling applies to all corporate wardrobes or
corporate uniforms except those which have been approved by this Office
previously. The cost of items of previously approved corporate
wardrobes or corporate uniforms will continue to be deductible even if
the wardrobes or uniforms do not strictly comply with the principles set
out in this Ruling, provided that there has been no substantial change
made to the approved wardrobe.
Substantial Change to a Wardrobe
16. This Office would regard a complete change in the
style, colours or fabrics of a corporate wardrobe as a substantial
change. However, replacement of one or two items of clothing of an older
or no longer desired style within a corporate wardrobe, or the addition
of one or two new accessories, would not ordinarily be regarded as a
17. Taxpayers requiring further advice about the tax
deductibility of a new corporate wardrobe, or about a substantial change
in an existing wardrobe should contact the Deputy Commissioner's office
at which the employer's taxation returns are lodged. Any request for
advice should include photographs or sketches of the wardrobe items
along with samples of the material to be used.
COMMISSIONER OF TAXATION
27 June 1991
EDR Ref: 10
Date of effect:
CLOTHING - DEDUCTIONS
Lunney v. F.C.of T
(1958) 100 CLR 478
Ronpibon Tin N.L. v. F.C.of T
(1949) 78 CLR 47
84 ATC 411
27 CTBR (NS) 867