Private ruling: Business deductions
Published: August 2014
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 October 2013

Ruling: Q1: Are you entitled to a deduction for the cost of garments which you model and sell as a part of your business activity? | A1: Yes. | Q2: Are you entitled to a deduction for the cost of accessories that are used to physically alter the functionality of the garments which you model as a part of your business activity? | A2: Yes. | Q3: Are you entitled to a deduction for the cost of accessories worn as a part of a desired look, when modelling garments as a part of your business? | A3: No. | Q4: Are you entitled to a deduction for expenses relating to cosmetics and hair styling/products that you use to form a desired look, when modelling garments as a part of your business? | A4: No.

Relevant facts and circumstances: You started a business selling clothing (the garments), which you model and demonstrate to potential clients. You use conventional clothing accessories such as buckles, scarfs, jewellery and shoes to enhance or highlight the garments and their functionality, and to create overall 'looks'. Some of these accessories are used to physically alter the garments to create different styles, highlighting their versatility. You use cosmetics and hair styling/products to also help create the desired 'look' when presenting the garments to clients.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature. | Detailed Reasoning - Conventional clothing: The Commissioners view about the deductibility of expenditure incurred on clothing, uniforms and footwear is found in Taxation Ruling TR 97/12. It states that generally expenditure on conventional clothing is not an allowable deduction as there is not a sufficient connection between expenditure on the clothing and the income earning activities of the taxpayer. However, it also states that the expenditure is only deductible where it is directly attributable to the income earning activities of the taxpayer, and its essential character is work related and not private or domestic in nature. | Detailed Reasoning - Garments modelled for your business: While carrying on your business activity you model and demonstrate garments to potential customers. These garments are sold as a part of your business activity. As the expenses associated with the garments are directly attributable to your income earning activities, they are considered a deductible expense. | Detailed Reasoning - Accessories - used to alter garments: Where accessories are used to physically alter a garment for the purpose of demonstrating its versatility, it is accepted that the expenses associated with the accessories are directly attributable to the income earning activities and are considered a deductible expense. | Detailed Reasoning - Accessories - used to enhance/highlight garments: TR 97/12 states that the fact that a taxpayer may perceive it is important to his/her success in his/her occupation or profession to wear a particular type or style of conventional clothing (including accessories), does not make the cost of that clothing deductible. In Case 72/96 96 ATC 640; AAT Case 11,455 (1996) 34 ATR 1098 ( Case 72/96) a television newsreader was denied a deduction for the cost of clothing purchased for use on camera. The items of clothing included suits, shirts, shoes, dresses, jackets and jewellery, and were selected by the newsreader because they came up well on television, looked appropriate and created the desired image. The AAT found that the items of clothing were 'ordinary articles of apparel' that any professional or business woman might purchase to wear to work. The fact that the clothing would look good on television or create a desired image was not sufficient to make the cost deductible. The clothing expenses were of a private nature. Your circumstances are similar to those in Case 72/96 noted above. Whilst you use accessories to help create a desired look while modelling garments in your income earning activity, they retain their essential character of being private or domestic in nature and are not deductible. | Detailed Reasoning - Cosmetics and hair styling/products: Taxation Ruling TR 96/18 provides the Commissioner's views regarding the deductibility of expenses on personal grooming. Generally grooming expenses are not allowable deductions as there is an insufficient connection between the expense and the income earning activities of the taxpayer. The expenses are private in nature. The decision of the Federal Court in Mansfield v. FC of T 96 ATC 4001; (1995) ATR 367 ( Mansfields case) supports the view that as a general rule, expenses for personal care, grooming and cosmetics are private in nature and cannot be claimed as deductions. The taxpayer in Mansfields case was a flight attendant. The taxpayer claimed deductions for cosmetics and hairdressing. The taxpayer argued that their employer required them to maintain a particular standard of appearance. They also claimed they used moisturising creams and hair treatments to prevent the drying effects of working in pressurised aircraft. The Court only allowed deductions for items that afforded protection against the harsh work environment of the pressurised cabin. The Court did not allow deductions for general grooming and cosmetics. General grooming and cosmetic expenses were private. Whilst you use cosmetics and hair styling/products when modelling garments in your income earning activity, they retain their essential character of being private or domestic in nature and are not deductible.