84 ATC 408
KP Brady Ch
JE Stewart M
DJ Trowse M
No. 2 Board of Review
Judgment date: 15 June 1984.
K.P. Brady (Chairman), J.E. Stewart and D.J. Trowse (Members)
The references arising for our consideration concern two consecutive years of income and were, by consent, heard together. The taxpayer, a public relations officer and radio personality, was employed during the relevant years by a broadcasting station. The question for determination is whether expenditure incurred during the 1978 and 1979 years on clothing, dry cleaning and hairsets is deductible in terms of the first limb of sec. 51(1) of the Income Tax Assessment Act.
2. The thrust of the taxpayer's submission was that the duties stemming from her employment necessitated a high degree of exposure to the general public and that, accordingly, her appearance was of prime importance. It was her contention that the expenditure incurred in maintaining an appropriate selection of clothing, the cleaning thereof, and the costs of grooming were incidental and relevant to the earning of her salary, and that, therefore, those outgoings were correctly deductible pursuant to the provisions contained in sec. 51(1).
3. In her role with the radio station, the taxpayer was required to conduct on-air interviews of leading figures in the community and also visiting dignitaries and entertainers. Some of those discussions were recorded as on-the-spot interviews, whilst the remainder took place at the station's studio. There also existed an expectation that the taxpayer would attend a variety of social functions to ensure a continual updating of information on current events, the possession of which appears to have been of considerable persuasion in attracting the support of the listening public to her programme. It was also submitted that the taxpayer's presence at those events assisted in the promotion of the employer's community image. It seems that during the years under review, the taxpayer attended a diversity of events ranging from official receptions and luncheons to appearances at shows and fetes, where, on several occasions, she formed part of a panel of judges for various beauty quests and competitions. Further, it appears that the taxpayer, being of the view that a preliminary discussion would produce a more coherent discourse, met with the selected personalities prior to the actual interviews, and that such exchanges occurred either at restaurants or places of public entertainment. Having regard to those venues and the status of the personalities involved, the taxpayer submitted that there existed a prerequisite that she be suitably attired and groomed for those meetings.
4. The following items were claimed as deductions in the taxpayer's returns for the years under review:
84 ATC 409
Special clothing 250 250
Dry cleaning 50 51
Hairsets 145 148
The Commissioner disallowed those claims in toto on the grounds that the outgoings were of a private nature. Upon the disallowance of the resultant objections, the taxpayer requested that the matters be referred to a Board for review. At the hearing, the taxpayer represented herself and gave evidence under oath. The Commissioner was represented by one of his officers.
5. Despite the use of the word ``special'', it appears from the evidence that the clothing possessed no characteristics to distinguish it from conventional dress. The items purchased consisted of woollen suits, knitted frocks and evening gowns, all of which were described by the taxpayer as being of a better than average quality.
6. The taxpayer further testified that she was required to don earphones in the course of conducting in-house interviews and that the wearing of that equipment had a dishevelling effect on her hair-style, which, in turn, resulted in more frequent visits to the hairdresser.
7. Although the taxpayer was not able to produce documentary evidence to support her claims, she contended that the actual expenditure on those items far exceeded the amounts included in the returns. It seems that the taxpayer's accountant had recommended a conservative approach in the hope that a claim for a lesser figure would enhance the prospect of acceptability by the Commissioner. Whilst the Commissioner's representative asserted that the taxpayer had failed to discharge the onus of proof on the question of quantum, we accept the sworn testimony of the taxpayer that the amounts claimed were expended for the stated purposes.
8. Section 51(1), as it relates to these references, provides:
``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income... shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature,...''
It was noted that the Commissioner had extended his argument, previously stated at the assessment stage to be that the outgoings were of a private nature, to include the additional proposition that the expenditure had not been incurred in the production of assessable income.
9. The words of sec. 51(1) which are most material to the taxpayer's claim are ``incurred in gaining or producing the assessable income''. The High Court made the following comments on that provision in
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 8 A.T.D. 431 at p. 435; (1949) 78 C.L.R. 47 at pp. 56-57:
``For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words `incurred in gaining or producing the assessable income' mean in the course of gaining or producing such income...''
The High Court, in
Lunney and Hayley v. F.C. of T. (1958) 11 A.T.D. 404; (1958) 100 C.L.R. 478, had cause to consider the expression ``incidental and relevant to that end'', and referred to cases in which those words had been applied. The following pronouncements of Williams, Kitto and Taylor JJ. are to the point:
At A.T.D. p. 412; C.L.R. p. 497 -
``Examination of these cases, however, readily shows that the expression `incidental and relevant' was not used in an attempt to formulate an exclusive and exhaustive test for ascertaining the extent of the operation of the section; the words were merely used in stating an attribute without which an item of expenditure cannot be regarded as deductible under the section.''
And further at A.T.D. pp. 412-413; C.L.R. p. 498 -
``The question whether the fares which were paid by the appellants are deductible under sec. 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that because expenditure on fares from a taxpayer's residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as `incidental and relevant' to the derivation of such income. No doubt both of the propositions involved in this contention
84 ATC 410
may, in a limited sense, be conceded but it by no means follows that, in the words of the section, such expenditure is `incurred in gaining or producing the assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'.''
And finally at A.T.D. p. 414; C.L.R. p. 501, after referring to a number of cases relating to expenditure incurred on travel from home to place of employment -
``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 sec. 51, that it was `incurred in gaining or producing the assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'.''
In the present references we are of the opinion that, notwithstanding the taxpayer's argument, which was presented in a most capable manner, that the outgoings for clothing, cleaning and hairsets were incidental and relevant to the derivation of her salaried income, they do not possess any attributes capable of giving them the colour of business expenses. Accordingly, we conclude that such outgoings were not incurred in producing the taxpayer's assessable income.
10. Furthermore, we express the view that the outgoings under review were of a private nature, and that deductibility is denied by the words of exclusion contained in sec. 51(1). In reaching that decision, we have applied the rationale expressed by Murphy J. in
F.C. of T. v. Forsyth 79 ATC 4505 at p. 4508:
``The cost of clothes purchased to enable a person to appear respectably in public are of a private or domestic nature, and do not become outgoings incurred in gaining or producing the assessable income simply because they are worn, and must necessarily be worn, when gaining the assessable income. Nor does the cost of having such clothes drycleaned in the ordinary course constitute such an outgoing.''
In re-echoing that dictum, we do not perceive any substantive difference between the costs of hairsets as opposed to those incurred on clothing and dry cleaning. Also we find support for our view in the recent House of Lords decision in
Mallalieu v. Drummond (1983) 2 A.C. 861. There, the Court was concerned with sec. 130 of the United Kingdom Income and Corporation Taxes Act 1970, and in particular with disbursements ``wholly and exclusively laid out or expended for the purpose of the trade, profession or vocation...'' as represented by outlays incurred by a female barrister in replacing and cleaning items of clothing which she wore in Court and to Court. The words ``wholly and exclusively'' are not synonymous with the basis of deductibility reflected in sec. 51(1), but we consider that the broad sweep of Lord Brightman's comments (in speaking for the majority) places a heavy emphasis on the inherently private nature of the expenditures there in issue, and in issue in the instant case.
11. For the reasons detailed above, we uphold the Commissioner's decisions on the objections and confirm the assessments before us.