94 ATC 422
BA Barbour SM
Administrative Appeals Tribunal
Judgment date: 18 August 1994
BA Barbour (Senior Member): This is an application, lodged on 23 September 1993 and heard before me on 18 and 19 July 1994, to review an objection decision of the respondent, the date of which is illegible (document T10 in the documents provided pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (T Documents)), that decision disallowing claims for expenses in relation to items of clothing, and dry-cleaning and hair care expenses.
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2. The applicant, represented by Mr Bevan of Counsel, tendered her tax return for the year ended 30 June 1991 (exhibit 1), statements of the applicant dated 15 April 1994 and 18 July 1994 (exhibits 2 and 9), four documents that I will loosely term witness statements (exhibits 3 through 6) and a schedule of receipts and expenses (exhibit 7) and speaking engagements (exhibit 8). The respondent, represented by Mr Bloom of Senior Counsel and Mr Gibb, tendered the T documents, (exhibit A) a witness statement (exhibit B), a comparative spreadsheet document (exhibit C) and a programme of training at the Repatriation General Hospital (exhibit D). The applicant, and five other witnesses gave oral evidence before the Tribunal.
3. The issue before me is whether $6907 spent by the applicant during the tax year ended 30 June 1991 on clothes and shoes worn only while working, and worn at no other time (as set out in the applicant's statement of 15 April 1994 (exhibit 2) and hereinafter referred to as A list clothes), and $55 spent on hairdressing and $116 on laundering, are deductible under subsection 51(1) Income Tax Assessment Act 1936 (ITAA).
4. In relation to the substantiation of these claims, the respondent did not take issue with the amounts claimed as deductions for a lack of evidence, and the documentary material before me supports the great majority of the claims made for clothing.
5. The applicant gave evidence that she was a professional presenter and speaker, who had commenced this self-employment on 1 September 1990. For 12 years prior to this, the applicant was an industrial advocate with the NSW Nurses Association, and had previously worked as a registered nurse.
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 (i.e. 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 (e.g. 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 (e.g. 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
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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 presentations, and would not wear them at any other time.
12. At the commencement of her business, the applicant agreed with the Tribunal that she did not have sufficient clothes in the A list to meet her working needs, and had recourse to the remainder of her wardrobe, and that it was not until December of 1990 that she had sufficient A list clothes to cover all her employment requirements. The applicant had earlier given evidence that none of her other clothes would be suitable for business purposes.
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.
16. A variety of persons involved in the business of professional speaking, presentation and training gave evidence on behalf of the applicant as to the importance of image in carrying out presentation engagements. Their evidence was to the effect that clothing was an important aspect of the image that the presenter projected, and important in securing work and effectively carrying out that work. One witness, a training director, spoke of the need to dress above the audience so as to command authority, and another, of the lack of credibility of a speaker who was inappropriately dressed.
17. A Director of a company involved in engaging public speakers on behalf of others noted that some clients requested specific dress requirements, and that dress requirements are part of contracts with speakers, and that on one
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occasion, a celebrity speaker was not engaged because he had arrived at an interview unshaven, wearing jeans and an open shirt. This witness had not engaged the applicant for a public speaking engagement.
18. A fourth witness, a profile management consultant, noted the roles of a presenter being to entertain, train and speak, that it was important that the presenter be accepted by her or his audience, and that image played a large part in this acceptance. She also spoke of the relevance of such factors as age and gender, and the material to be presented, in relation to the image presented by the presenter. This witness also gave evidence as to the quality of women's clothes as compared to men's, and that men dressed to express power and competency, and women to reflect mood.
19. In relation to the evidence of these witnesses, the respondent objected to much of its reception on the basis that the witnesses lacked competency to provide the Tribunal with expert or opinion evidence. Given their extensive involvement in the industry in which the applicant is engaged, I would accept their evidence on the basis that it supports statements of the applicant in relation to the importance of clothing to the image presented to audiences and clients. Beyond this, and particularly with regard to evidence relating to the quality of women's clothes, and hence the need for greater purchases, I would reject the evidence on the basis of irrelevancy, as the witness who gave this evidence was in no way qualified to express an expert opinion upon this subject. I also note that the witnesses did not suggest specific clothes that would be required by female presenters in order to meet perceived audience expectations, and that their evidence was based largely on personal impressions and their own training philosophies.
20. The respondent called an education administrator of a large public hospital, who gave evidence that she had engaged the applicant during the relevant year of income to conduct assertiveness and communication sessions for Nurse Unit Managers, and that she had known the applicant as a union organiser. She gave evidence that the applicant had always dressed well and was always ``immaculate'', and that she had not noticed a change in the manner of dressing of the applicant from her time as an organiser to her role as a consultant. The witness disputed the record of conversation recorded in the applicant's affidavit of 18 July 1994 to the effect she had commented that the applicant had ``gone upmarket'' and that ``consultancy must be very lucrative''.
21. The witness stated in cross-examination she recommended that the applicant be contracted to perform workshops because she had a close professional relationship with the applicant and was impressed with her skills, and that she did not turn her mind to the applicant's manner of dressing.
22. I find that the applicant is, on the whole, an honest witness. While I would agree with Counsel for the respondent that the applicant advocated her case from the witness box, this does not greatly affect my opinion of her candidness. I do however find that the applicant exaggerated certain aspects of her evidence, and this is reflected in certain of my findings. In relation to particular conflicts between the applicant and the respondent's witness, not much turns upon specific inconsistencies, but given the applicant's personal involvement in the matter, the witness's detachment from the outcome of the application, and her frankness and candidness, to the extent that there are inconsistencies, I prefer the evidence of that witness to the evidence of the applicant, although I would in no way regard the applicant as attempting to deliberately mislead the Tribunal.
23. In relation to clothing on the A list, I make the following findings: firstly, this clothing was worn exclusively by the applicant while performing presentations or travelling to and from presentations, or when attending clients for the purposes of attaining or discussing employment; secondly, the applicant did not wear any of the A list clothing while not performing these tasks, to the extent that she would change from A list clothes to other clothes if she was to attend an employment connected social function; thirdly, the applicant's A list clothes were of a high quality, and more expensive than the clothes the applicant wore for employment-related purposes while an industrial advocate; and fourthly, the applicant bought the A list clothes because she perceived an expectation in her clients and audience that she dress in a particular manner, and that it was therefore necessary to present an image that ``mirrored and matched'' those perceived expectations in order to effectively conduct a presentation.
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24. I find that the clothing in question is of a conventional nature, in that it would have been suitable for wearing in most professional contexts, and was not peculiarly suited to the applicant's presentation requirements. It was not protective clothing, or uniform clothing, or occupation specific clothing, and I find that it would also be suitable for wearing in circumstances outside work, this finding based upon both the applicant's own evidence, and my observation of her attire at the hearing.
25. In order for the A list clothing to be deductible, it must be an outgoing as defined by subsection 51(1) ITAA, which provides:
``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such 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, or are incurred in relation to the gaining or production of exempt income.''
26. The Full Federal Court has recently considered the question of deductibility of clothing expenses pursuant to subsection 51(1) ITAA; see
FC of T v Edwards 94 ATC 4255, a case dealing with clothing expenditure by the personal secretary to Lady Campbell, the wife of the then Queensland Governor. The Court at first instance and on appeal upheld a decision of the Administrative Appeals Tribunal (Case 31/93,
93 ATC 359) that allowed deductions for expenditure on additional clothing required by the taxpayer to dress compatibly with her employer, because this expenditure was incurred in the course of gaining her income. In dismissing an appeal of the respondent in this matter, the Court rejected the proposition that expenditure on additional clothing of a conventional kind to be worn in a conventional way could never attract deductibility under the ITAA, but rather stated that ``... Each case must be approached by the application of the section, properly construed, to its particular facts...''.
27. The Court cited with approval the approach of the Administrative Appeals Tribunal sanctioned by Gummow J at first instance (93 ATC 5162). The Court noted the following passage of Lockhart J in
FC of T v Cooper 91 ATC 4396; (1991) 29 FCR 177:
``... 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...
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 ATD 435; 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.... The essential character test is also applied to determine if the expenditure is of a capital, private or domestic nature as these cases illustrate....
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.''
28. The Full Federal Court placed emphasis on the findings of the Administrative Appeals Tribunal, particularly referred to by Gummow J, that there was nothing about the additional change of clothes in that taxpayer's workday that served a private purpose, and that her first change of clothes met her personal requirements, the additional changes of clothing serving solely work-related purposes.
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
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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 others' expectations were important.
30. The applicant also submitted that she required additional clothing because the requirements of travel and the level of commitments she undertook made it difficult for her to clean her A list clothes and required her to have a greater number of clothes. The number of clothes she required also was greater because of the different expectations of her as a woman presenter, as opposed to a male presenter who required only a selection of suits, shirts and ties.
31. The respondent contended that the A list clothes had a dual purpose, one purpose being the presentation of an image, and the other being that of the provision of clothing that the applicant wore to meet her personal clothing needs. While agreeing that Edwards provided an authority for the proposition that conventional clothing can be deductible under subsection 51(1) ITAA, the respondent submitted that it should be confined to its peculiar facts.
32. I was referred by both parties to an extensive list of authorities, to which I have had regard; I have also reviewed all the oral and documentary material placed before me. I would begin by observing that given the extensive, authoritative and recent exposition of the Federal Court (both at first instance and on appeal) in relation to the deductibility of clothing expenses in subsection 51(1) ITAA, little would be gained in me again reviewing those authorities here.
33. I would note however the observations of Dixon CJ in
Lunney v FC of T 11 ATD 404; (1957-1958) 100 CLR 478, a matter dealing with the deductibility of fares paid by persons in order to get to work, where he commented on that matter that ``... If the whole subject is to be ripped up now it is for the legislature and not the court to do it...''. In that case the majority found that the expense incurred there was so that a person may live away from their workplace, and was a living expense as opposed to a deductible expense.
34. I would also note the following observation of the Full Court in Edwards [at 4259]:
``... The decision turns on its own special facts. It involves no new principle, nor does it depart from established tests as to deductibility under s 51(1). It should be noted that the decision does not establish that the cost of all clothing acquired and worn at work will, because of that circumstance alone, become deductible as an outgoing incurred in deriving assessable income.''
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 subsection 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
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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 subsection 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 subsection 51(1) ITAA. Further, I find substantial similarities between this application and Case 16/93,
93 ATC 208, 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.
40. Dealing with some of the applicant's particular submissions, I would firstly reject that because the applicant is a woman, she requires a greater volume of clothing, and that this somehow contributes to clothing expenditure being deductible in this matter. I am far from convinced that a woman such as the applicant would be unable to meet professional obligations with a wardrobe consisting of suits and shirts or blouses, and the fact that the applicant chose to clothe herself in other than this style is essentially a personal preference rather than a necessarily incurred business expense.
41. Secondly, as regards the volume of A list clothes. I would note that the purchases consisted of 2 suits, 4 shirts/blouses, 3 skirts, 3 jackets/blazers, 2 dresses, and 3 pairs of shoes. Given that the applicant was in her first year of practice as a professional presenter, I do not find these purchases as abnormally large, certainly if it is remembered that these clothes were to comprise the applicant's entire business apparel. There is nothing additional, in the sense that that term is used in Edwards' case, in these items or this expenditure. The volume of clothing purchases confirms my finding that these A list clothes met the applicant's personal clothing needs for use in presentations, as opposed to being additional clothes, the expense of which is a business expense. In the same way as a student who completes a university course would be required to make purchases of clothing to begin a professional career, so too the applicant perceived a need to upgrade her clothes to ``match and mirror'' her perceptions of her employers' expectations, but this does not lead to the deductibility of this expense.
42. Some reliance was placed on the fact that the applicant sought deductions in relation to the whole of the A list clothing as opposed to an apportionment of that expenditure, as the applicant only wore the clothing for professional engagements. Much was also made of the applicant's increase in purchases of clothing from the previous year, when she spent $3000 or so on clothing. These matters do not, however, alter the character of the expenditure, which is private in nature as opposed to a business expense.
43. I am also unable to be satisfied, on the evidence, that the applicant could not have recourse to proper cleaning facilities, such that she required additional clothes to meet her business needs. While I accept that the applicant was a busy person during the year of income, I am not satisfied that she could not access dry-cleaning services such that additional clothes purchased because of this are deductible under subsection 51(1) ITAA as business expenses. I reject the applicant's evidence on this point.
44. I would also note that despite the submissions of the applicant to the contrary, I think that to find for the applicant on this occasion would be to depart not only from established legal interpretations of section 51(1)
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ITAA, but also from a generally held perception that expenses on conventional clothing worn conventionally is ordinarily a private matter. That is not to say that such clothing can never be deductible, and Edwards is a prime example of this, but a departure from the generally held perception on such conventional, ordinary and unexceptional facts as these, I believe, is not an appropriate function for this Tribunal, but rather, should be left to the Parliament.
45. As regards the applicant's expense on dry-cleaning and hairdressing, I have insufficient material before me to disagree with the assessment of the Commissioner. The applicant did not call evidence in relation to the nature of this expense, and, she carrying the onus of proof that the assessment is excessive, I would have to affirm the Commissioner's decision in relation to those expenses; see section 14ZZK, Taxation Administration Act 1953.
46. I would therefore affirm the objection decision under review.