Private ruling: Income Tax: Protective clothing expenses
Published: June 2013
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Q1: Can the cost of providing high visibility (hi-vis) two tone jumpers/hoodies and jackets as 'protective clothing' to personnel be treated as a business expense for income tax purposes? | A1: Yes.

Relevant facts and circumstances: Your company is in the manufacturing industry and operates in a factory environment. Your work environment is one which creates potentially dangerous or hazardous situations for employees or visitors. You explained your work environment has potential dangers due to the constant use of machinery such as overhead cranes, forklifts, and moving trucks. You wish to minimise the likelihood of such situations by implementing every available precaution that can be put in place for the safety of the users of these premises. As the employer it is important for you to adopt satisfactory safety measures in order to ensure the safety of the employees by adhering to required industrial work standards. To ensure a safe work environment you have provided hi-vis two tone orange/navy or yellow/navy full zip polar fleece jumpers/hoodies and/or hi-vis two tone orange/navy or yellow/navy waterproof, quilt-lined jackets with reflective tape to be worn by employees or visitors within the premises. You believe the hi-vis two tone jumpers/hoodies and jackets, which are widely accepted as 'protective clothing' in many occupations, will assist in protecting your employees by making them more easily noticed and identified as being in a high risk area or work procedure. You stated that due to the heavy duty work involved, these items of protective clothing often get worn out and will need regular replacement as required. You have submitted a copy of an invoice as a sample from your company to indicate what type of clothing is being purchased. You have submitted a copy of the pages from the work wear brochure that describes the clothing you are providing. You have submitted a copy of your internal Safety Policy that makes it mandatory for workers to wear high visibility clothing in the workplace. You wish to find out if these hi-vis two tone jumpers/hoodies and jackets can be classed as 'protective clothing' and thus have their cost claimed as a business deduction.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 paragraph 8-1(1)(a) | Income Tax Assessment Act 1997 subsection 34-20(2).

Reasons for decision: Summary: The expenditure you have incurred on 'protective clothing', being the hi-vis two tone jumpers/hoodies and jackets, will be an allowable deduction as a business expense to your company under paragraph 8-1(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Detailed reasoning: Subsection 34-20(2) of the ITAA 1997 defines 'Protective clothing' as clothing of kind that you mainly use to protect yourself, or someone else, from risk of: · death; or · disease; or · injury; or · damage to clothing; or · damage to an artificial limb or other artificial substitute, or to a medical, surgical or other similar aid or appliance. The subsection also provides an example of protective clothing and includes overalls, aprons, goggles, hard hats and safety boots, when worn to protect the wearer. In your work environment you require personnel to wear hi-visibility clothing including two tone jackets and jumpers/hoodies. The main purpose of this is to prevent the death of or injury to your employees by making them more visible in the workplace. The jumpers/hoodies and jackets also provide added protection from the elements and insulate them from falls or brushing against rough or hazardous surfaces. Section 8-1 of the ITAA 1997 allows a general deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. Expenditure on protective items falls for consideration under paragraph 8-1(1)(a) - the 'first positive limb' of section 8-1 of the ITAA 1997. This limb applies to all taxpayers, including employees and those carrying on a business. The courts have established that for a loss or outgoing to be deductible under paragraph 8-1(1)(a) of the ITAA 1997: it must have the essential character of a loss or outgoing incurred in gaining your assessable income or, in other words, of an income producing expense: Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478; (1958) 11 ATD 404; there must be a sufficient connection between the loss or outgoing and the activities by which you gain your assessable income - so that the outgoing is incidental and relevant to the gaining of your assessable income: Ronpibon Tin NL v. FC of T (1949) 78 CLR 47; (1949) 8 ATD 431; Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344; (1956) 11 ATD 147; 6 AITR 379; FC of T v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557; and it must not be expenditure that is private or domestic in nature or that produces exempt income: FC of T v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616 (the Cooper Case); Mansfield v. FC of T (1996) 31 ATR 367; 96 ATC 4001 (the Mansfield Case) and Morris & Ors v. FC of T (2002) 50 ATR 104; 2002 ATC 4404; [2002] FCA 616 (the Morris Case). Taxation Ruling TR 2003/16 Income tax: deductibility of protective items, sets out the Commissioner's views on the deductibility of expenses incurred in protecting yourself from the risk of illness or injury in the course of carrying out your income earning activities. The term 'protective items' in TR 2003/16 means things that, according to their design, properties and practical application, protect you against illness or injury. Paragraph 7 of TR 2003/16 explains that you can deduct expenditure on a protective item you use to protect you from risk of illness or injury if you incurred the expense, there is a sufficient connection between the expenditure and the earning of your assessable income so that the outgoing is incidental and relevant to the gaining of assessable income and the expenditure has the essential character of an outgoing incurred in gaining your assessable income. Paragraph 8 of TR 2003/16 further provides that expenditure on a protective item will have a sufficient connection with the earning of your assessable income where: · you are exposed to the risk of illness or injury in the course of carrying out your income earning activities, · the risk is not remote or negligible, · the protective item is of a kind that provides protection from that risk and would reasonably be expected to be used in the circumstances, and · you use the item in the course of carrying out your income earning activities. You as the employer state that your factory environment is used in earning your assessable income and could pose particular risks or dangers to personnel if the necessary precautions are not adopted. As the provision of protective clothing of the type described is essential to ensure the safety of the employees it becomes a necessary outgoing in gaining your assessable income. As well as having a sufficient connect with earning your assessable income the expenditure must also have the essential character of an outgoing incurred in gaining your assessable income. Paragraph 11 of TR 2003/16 provides several indicators to be considered when determining the essential character of the expenditure, these include: · you are required to work in an environment which could be harmful if adequate safety precautions are not taken; · you use the item principally for income producing activities; and · it is a requirement of your employer, work-related safety laws or an industrial agreement for you to use protective items. There is a material risk of injury at your workplace from the machinery and vehicles used in and around your factory. The requirement to wear the brightly coloured hi-vis clothing provides a sufficient degree of protection against that risk. You have included this requirement in your internal Safety Policy. It is evident from the operations conducted in your work environment, the above requirements are satisfied. Therefore in your circumstances the provision of hi-vis tow tone jumpers/hoodies and jackets are considered to be protective clothing as they contribute to a safe work environment by acting as a deterrent from allowing potentially dangerous situations to arise and injure personnel. As this expense is not of a capital, private or domestic nature it will be deductible in the income year in which it is incurred.