Case 45 11 CTBR (NS) 224

Federal Commissioner of Taxation v Cooper 91 ATC 4396

Federal Commissioner of Taxation v Forsyth 79 ATC 4505

The Tribunal affirms the objection decision under review.

In the year of income ended 30 June 1991 the applicant returned a gross income of $34,773. She claimed a sum of $5,621 as work related deductions pursuant to s 51(1) of the Income Tax Assessment Act. The claim was calculated as follows -

Dry Cleaning $240.60

Grooming 84.95

TOTAL $11,243.05

50% claimed as expenditure in excess of normal $5,621.00

2. There is now no dispute as to substantiation of the expenditure. The claim was disallowed, after objection was taken, on the basis that the expenditure was not incurred in gaining assessable income or was of a private or capital nature. This application is brought to review that objection decision.

3. The applicant is senior fashion editor of a top fashion magazine. She has been with the publisher and its overseas associates for over 13 years and has held her present position for almost 3 years.

4. She works with another person, the fashion director, to cover the fashion market, and to deal with all new collections of the designers and manufacturers on site. Sometimes there are 3 or 4 collections per year which they are asked to look at. After seeing all the collections, they formulate ideas from a local point of view and from an international point of view as to how they are going to focus on the presentation of clothing for a particular season in their magazine. They then organise various "shoots" and choreograph certain photographic situations using these formulated ideas. Evidence was tendered, through one issue of the magazine, which had one of these shoots illustrating a chosen theme.

5. The applicant also attends regular fashion events, including parades, launches of new products or clothing and social events. At each of these events she considers that she is representing the magazine. Indeed it was not contested that she may not have been invited to these functions had she not had a connection with the magazine. Many of the functions have some element which relates either to clothes or to accessories. They include such events as the opening of shops, the presentation of new designs, the opening of plays or exhibitions at art galleries or cosmetic launches.

6. The applicant gave evidence that each of her day to day activities required her to present herself in different ways. Evening functions required formal attire. At shoots it was necessary that she appeared casually dressed, but still with style. At fashion designers' premises, she was also required to be appropriately dressed. She agreed in cross-examination that the clothes she put on when she first dressed in the morning were worn by her all day at work, unless she had to change to attend a shoot, or to attend an evening function.

7. In all situations she said that she must dress to demonstrate her knowledge of the latest fashion and her own sense of style. She agreed in cross-examination that her dressing was individually determined by herself in accordance with that sense of style. It was she who determined what she would wear, what accessories were suitable and where she would wear any particular clothes. Although she said she would not have the need for this clothing if she did not work for the magazine, it is clear that there is no compulsion by her employers or by any of her immediate superiors to wear any particular type of clothing.

8. She said that an important consideration in her mind is that wherever she goes, she is an ambassador for the magazine. She must present an image which is synonymous with that magazine being a leader in high fashion. For that purpose, she tries to wear clothing of a style which is slightly ahead of the season. She attempts to present "a leading edge image". The selection of her clothing is also determined by the fact that she has to make a link between stock in the shops at present and that which will be there in 6 months time.

9. The magazine draws most of its revenue from advertising. In order to entice advertisers, it is necessary to gain readers to provide a circulation and to create a readership profile which is attractive to prospective advertisers. These advertisers are aware that it is important, when advertising, to back up their display advertisements with editorial commentary. They are also eager to have their advertisements placed in conjunction with any editorial comment, for which the applicant would be responsible. For this reason, the applicant said that her presentation to the advertisers is important, even though she is on the editorial rather than on the advertising side of the magazine. Her presentation and appearance are important in inducing prospective advertisers to avail themselves of the services of the magazine. It is important to cultivate advertisers, she said. Although the magazine is pre-eminent in its field, it does have competition.

10. The applicant said that it was understood by her that a condition of employment was that she dress in a manner befitting the magazine's image at all times. She said that it is generally the case that people would not seek or be granted employment at the magazine if they were not willing to accept this condition. On the other hand, it is clear that the applicant was not engaged simply because she dressed well. She has skills that distinguish her and which are valuable to the magazine, apart from her ability to project a leading edge image in the fashion of her attire.

11. Evidence was given of the promotions run in conjunction with at least one retail store. The fact that the editor of the magazine (not the applicant) offered to give tuition to store patrons in how to choose appropriate accessories was sufficient to generate business both for the store and advertising business for the magazine, because of the reputation of the magazine and the involvement of its editor in a field in which the magazine excels. The applicant said that she was proposed to take part in a similar promotion but was unable to attend the scheduled program.

12. In addition to the claim for clothing, the applicant estimated that she spent some $2,300 in the year in question for hair care and nail attention. However she was able to substantiate only $84-95. In the year in question, her dry cleaning bill was substantiated at $240-60. At the time when she gave her evidence, her dry cleaning bill for the current year exceeded $1,731.

13. Much of her evidence was corroborated by her immediate supervisor, who is the fashion director of the magazine. She made the point that both of them must dress to reflect both the commitment of the magazine and themselves to promoting leading edge fashion, and to encourage the exposure of it to the magazine's readers, as she put it - as if the determining factor of their credibility was their appearance. She said that there is not much point in promoting ideas and clothing that you believe in and then walking around "looking like a misfit".

14. According to this witness, it was hard to separate the social aspect from the more clinical observation of fashion on the designers' premises. On several occasions each week she and the applicant would attend functions in the evenings, for the opening of shops, the launch of perfumes or occasions which were symbiotic with fashion such as art gallery openings and launches of films or plays. Because of the variety of the locations in which they needed to work, she made the point that both she and the applicant have 3 wardrobes, namely one for their fashion design work, one for socialising and one for the shoots. These wardrobes must be maintained, cleaned and serviced on a regular basis.

15. Another reason why a variety of clothing is important is because of the necessity for travel. The witness said that if they fly to Paris, they may be going from a summer to a winter environment. The seasonal change and the 3 areas of clothing required meant that there was a constant emphasis on the clothes which they wore, upon making sure that they were cleaned, and that she and the applicant were groomed in an appropriate way.

16. She agreed that she did not give any instructions to the applicant as to the manner in which she should dress. She also agreed that as a consequence, the applicant dressed in her own individual style. The applicant's talent for choosing the correct accessories was important because even when wearing an expensive suit, the overall effect could be lost if inappropriate accessories were displayed.

17. Evidence was given by the National Advertising manger of the magazine. Her role is meeting with marketing managers and sales managers of various companies who are interested in advertising, or who are targets for enticement to advertise in the magazine. She confirmed that it was important to portray an image to potential advertisers which favourably reflected upon the magazine. In the fashion editorial area, she said, this was equally important because there was a strong cross correlation between advertising and editorial. The quality of the editorial matter often determines the amount of money that an advertiser will spend to have his layout associated with that material. It was important, in her view, that the magazine presents more favourably than its competitors so as to give an impression of being of a higher standard. Part of this presentation comes from the appearance of its representatives.

18. Evidence was also given by the proprietor of a fashion organisation which both manufactures and sells by retail. Its "label" is sold nationally at the top end of the fashion market. To maintain its prosperity in the business, it is necessary to advertise extensively. She said that major factors which her company takes into account when advertising are the fashion content of the magazine and the image which the magazine has in the market place, both from the point of view of the readers and competitive manufacturers.

19. She confirmed that various fashion editors from the magazine visit her organisation for the purpose of learning about its new season ranges and for the purpose of considering the possibility of running editorial material in the magazine on those new fashion lines. She would see the applicant some 4 or 5 times a year in this connection. She also saw the applicant from time to time at industry functions, promotions and launchings. In the witness's opinion, it was necessary for people in the applicant's position to demonstrate their knowledge and awareness of the latest fashion both nationally and internationally. A favourable demonstration has a significant bearing when the witness's company considered placing advertising with the magazine.

20. She added that if a fashion editor did not present in a way which she (the witness) considered to be "leading edge" both in clothing, method of wear and grooming, and did not present leading edge fashion knowledge, her company would be less likely to advertise in the magazine. She felt that the personal fashion skills of an editor, presented in an agreeable way, reflected the quality and content of the magazine and the readership and effect the witness was trying to obtain in selling her company's label.

21. Evidence was given through tendering a number of copies of the magazine, a related magazine and some newspaper clippings. This material did not appear to take the oral evidence much further. It served merely to illustrate by way of background information, the nature of the magazine, its concerns, its manner of advertising, themes chosen for illustration and so on. There were one or two articles dealing with the applicant and with one or two of the witnesses. I took this material to be no more than background information.

22. Through her counsel, the applicant submitted that the amount claimed should be an allowable deduction as it was essentially related to her business as an employed fashion editor. Clothing, it was submitted, is fundamental to her job. It is more important even than clothing in the working life of a model. It was accepted that merely because the applicant had to purchase clothes in order to work, this alone did not make the cost of clothing a relevant working expense. Nevertheless it was sought to distinguish the facts in the present case from facts considered elsewhere by emphasising the fundamental importance of the role played by clothing, grooming and cleaning and presentation generally in the applicant's working life.

23. The respondent submitted that unlike a model, the applicant was not paid to wear clothes, just as the footballer in Federal Commissioner of Taxation v Cooper 91 ATC 4396 was not paid to eat food. The essential characteristic of her expenditure was not for the purpose of gaining assessable income and in any event it was expenditure of a private nature. The fact that she spends a large proportion of her income on the items the subject of this claim, is (it was submitted) a matter of choice. The applicant is not directed to wear any particular clothes or to spend any particular amounts on grooming. It was pointed out that the applicant would not have been employed simply because she dressed well. She was not employed for that purpose.

24. Claims of this nature have been considered in many cases. Through her counsel, the applicant referred to a number of decisions of Boards of Review and of this Tribunal. In my view, however, she can gain little comfort from the 2 earlier cases to which reference was made, namely Case 70 10 CTBR (NS) 423 and Case 45 11 CTBR (NS) 224. Both cases relate to claims made by manequins for expenses incurred on clothing, fares, hair dressing and cosmetics. The reasoning of Board Members in Case 70 gives little indication of the way in which they arrived at a conclusion favourable to the taxpayer. The members appear to have been concerned more with quantum than with principle. In Case 45 the Board appeared to be concerned with quantum expressed as an additional amount beyond the average, both in quality, quantity and diversity, rather than with the principle whether expenditure on the clothing and other items was deductible under the first limb of s 51. In any event, the course of decisions since the early '60s suggests that abnormal expenditure is now no longer a useful guide in determining the character of an outlay as a working expense.

25. The validity of the abnormal expenditure test has been expressly doubted. Dr Gerber referred to it in Case S85 85 ATC 619. In that case, the taxpayer was the secretary to the wife of a State Governor and was required to dress in a more formal type of clothing than she would otherwise have worn. In that case, the Board concluded that although the clothing was not to her natural taste, and although it was therefore out of the ordinary in the sense that it was not part of her normal wardrobe, it could not be said to constitute a uniform and its cost was therefore not deductible. The applicant in the present proceedings also relied upon Case U85 87 ATC 491. In that case, the applicant was the manageress of a footwear retailer. As part of the terms of her employment she was required to purchase from her employer and wear footwear of a style different from that, and at a price higher, and in quantities greater, than would otherwise have been the case. This requirement by the employer and the implied threat of dismissal if the requirement was not met, must put the facts of this case in a particular category of its own.

26. The applicant also relied upon Case V143 88 ATC 899 where a marriage celebrant was successful in claiming deductions for expenditure for clothing and accessories, cleaning, shoes, stockings, hairdressing and cosmetics. It must be remembered however that in that case, the Tribunal found as a fact (paragraph 27) that the relationship between the applicant's clothing and her income earning activities was such that the consequence was that she was required to have some garments suitable only for her income producing activities and to have such garments in a personal wardrobe in abnormal number and variety. The particular requirements of her calling and the "necessary and peculiar" nature of the garments as found by the Tribunal, again must result in this case being restricted to its own facts.

27. There are other decisions concerning purchases of clothing which gave results unfavourable to the taxpayer. Expenditure on more formal conventional clothes for the governor's wife's secretary was characterised as non-deductible expenditure, as was the cost of a suit for a solicitor, who would not otherwise have bought a suit, but who required one for court appearances (Case K2 78 ATC 13).

28. A radio station announcer and public relations officer was unsuccessful in her claim for deduction for expenditure on clothing, dry cleaning and hair sets, in Case R54 84 ATC 408. Like the present applicant, she considered that she was representing her employer in various outside engagements. There also existed (paragraph 3) 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 the support of the listening public to her program. It was also submitted that the taxpayer's presence at those events assisted the promotion of the employer's community image. Notwithstanding these considerations, the Board came to the view that the outgoings did not possess any attributes capable of giving them the colour of business expenses. In doing so, the Board followed principles that have been expressed on a number of occasions, concerning the nature of expenditure on clothes.

29. In Federal Commissioner of Taxation v Forsyth 79 ATC 4505 at page 4508, Murphy J (of the Supreme Court of Victoria) said -

"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 dry cleaned in the ordinary course constitute such an

outgoing."

30. Of course special considerations may apply to special types of clothes. A useful range of tests was proposed by the Tribunal in Case U95 87 ATC 575. At paragraph 17, the members said -

"There is no one test which will satisfy all facts, but clearly on

the decided cases, relevant considerations include -

(1) Express or implied requirements of the employer or business

concerning clothing;

(2) The extent to which the clothing is distinctive or unique to the

nature of the employment or business having regard to particular,

special or accepted work clothing requirements, including its

availability to be worn by members of the general public;

(3) The extent to which the clothing is used solely for work;

(4) The extent to which the clothing is unsuitable for any activity

other than work;

and no doubt other factors may become relevant depending on particular

facts or circumstances of a given case."

31. In the present circumstances, the evidence is clear that there are no express requirements of the employer concerning clothing. The implied requirements are satisfied by the fashion, style and judgment of the applicant, who makes decisions appropriate to her own personality and purposes.

32. The clothing in the present case is not distinctive or unique. Although evidence was given that a lady's suit, for example, can become unfashionable in as short a period as 2 years and that to maintain a leading edge, it is necessary to buy a new suit, nevertheless, the new garment is still recognisable as a suit. There is nothing "necessary and peculiar" about the clothing under consideration. The applicant's clothing is not such that it can be used only for work. It is suitable to wear (subject to the exigencies of the event) at all times, in all places. The clothing is not unsuitable for any other activity.

33. In the end, however, one must always return to the words of s 51. The authorities indicating how those words are to be understood were comprehensively collected in Federal Commissioner of Taxation v Cooper 91 ATC 4396. The court again affirmed that it is necessary to characterise the expenditure in relation to the gaining of assessable income to determine whether that expenditure is a working expense in the gaining of that income. In the present case, much of the evidence was directed towards the way in which the magazine earns its income. The correct approach is to consider the way in which the applicant gains her assessable income and to look at the expenditure in relation to that activity. In Cooper at page 4403, Lockhart J noted that the appellant's expenditure on food and drink was not directly related to his income earning activity of playing football.

"The taxpayer incurred the expenditure on additional food and drink

for the purpose of increasing his weight and thus to play professional

football and earn assessable income. But its character as the cost of

additional food and drink is neither relevant nor incidental to the

training for and playing of football matches, which is the activity by

which he gained assessable income. The expenditure was not incurred in

or in the course of that activity. The taxpayer was paid money to

train for and play football, not to consume food and drink. His income

producing activities did not include the consumption of food and

drink."

34. These views were shared by Hill J at page 4414 -

"The income-producing activities to be considered in the present

case are training for and playing football. It is for these activities

that a professional footballer is paid. The income-producing

activities do not include the taking of food, albeit that unless food

is eaten, the player would be unable to play. Expenditure on food,

even as here "additional food" does not form part of expenditure

related to the income-producing activities of playing football or

training."

35. The expenditure by the present applicant can not be esssentially characterised as an outlay incurred in gaining her assessable income. Her income producing activities do not include the wearing of clothes, however important it may be that the wearing of suitable clothes is observed in the course of her employment.

36. Furthermore the expenditure must be characterised as private. As Hill J pointed out in Cooper, there is a considerable overlap between the positve aspects of the first limb of sub-section 51(1) and the exclusionary phrases. Nevertheless, as has been observed, expenditure on clothing (as on food and drink) is ordinarily a private matter and the essential character of expenditure on clothes would ordinarily be private rather than having the character of a working or business expense. There are no circumstances in the present application which would have the effect of altering that generally held perception of the expenses under consideration.

37. For these reasons the objection decision is affirmed.