Income tax: employee cleaners - allowances, reimbursements and work-related deductions

This Ruling applies to employee cleaners.

This Ruling deals with: (a) the assessability of allowances and reimbursements received by employee cleaners; and (b) deductions for work-related expenses generally claimed by cleaners.

The Ruling discusses the assessability of allowances and reimbursements received under section 25 and paragraphs 26(e) and 26(eaa) of the Income Tax Assessment Act 1936 ('the Act').

The Ruling also discusses whether deductions are allowable, limited, or are specifically excluded under subsections 51(1), 51(4) or 51(6), or sections 51AGA, 51AH, 51AL, 53, 54, 55, 61 or 82A of the Act.

The tax treatment of allowances and reimbursements received is examined at paragraphs 11 to 20 in the Ruling section.

The common work-related expenses incurred by cleaners and the extent to which they are allowable deductions are discussed at paragraph 23 in the Ruling section in alphabetical order.

The substantiation provisions are not discussed in depth in this Ruling.

Further explanation about specific deduction items in the Ruling section is contained in the Explanations section at the paragraph references indicated.

This Ruling applies to years commencing both before and after its date of issue. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

If a taxpayer has a more favourable private ruling (whether legally or administratively binding), this Ruling applies to that taxpayer to the extent of the inconsistency only from and including the 1995-1996 year of income.

The receipt of an allowance does not automatically entitle a cleaner to a deduction.

Allowances fall into the following categories: (a) fully assessable to the employee with a possible deduction allowable, depending upon individual circumstances (paragraph 13); (b) fully assessable to the employee with no deduction allowable even though an allowance is received (paragraph 14); (c) fully assessable to the employee with a deduction allowable for expenses incurred: (i) up to the extent of the allowance without substantiation; or (ii) in excess of the allowance, subject to substantiation of the whole claim (paragraph 15); (d) not assessable to the employee because the employer may be required to pay Fringe Benefits Tax. A deduction is not allowable to the employee for expenses incurred against such an allowance (paragraph 16).

The following allowances commonly received by cleaners are paid to recognise that expenses may be incurred by cleaners in doing their jobs. These allowances are fully assessable and deductions may be allowable depending on individual circumstances. Allowance Possible allowable deduction (see Explanations section) Mileage/travelling allowance Transport expenses Motor vehicle expenses Fares Uniform Clothing Laundry expenses

The following allowances commonly received by cleaners are paid for carrying out work that may be considered unpleasant, special or dangerous, in recognition of holding special skills, or to compensate for industry peculiarities. The allowances are fully assessable and no corresponding deduction is allowable. Broken shift Division/District First aid Leading Hand On call Refuse Collection Steam Cleaner Toilet Window Cleaning Work in the rain

The Commissioner of Taxation publishes Taxation Rulings annually that indicate amounts considered reasonable for the following allowances: (a) overtime meal expenses; (b) domestic travel expenses; and (c) overseas travel expenses. These allowances are fully assessable. If an allowance is received that is equal to or less than an amount considered to be reasonable, a deduction for expenses incurred is allowable up to the amount of the allowance, without substantiation. If a deduction is claimed in excess of the allowance, the whole claim must be substantiated.

A deduction is not allowable to a cleaner in respect of expenses incurred against the following allowances: (a) living away from home; (b) camping. Note: These allowances are paid to a cleaner who: • is required to live away from home for extended periods; • receives the allowance as compensation for the cost of having to live away from home; and • does not receive the allowance as a form of travel allowance. These allowances are not assessable to the cleaner as the employer may be required to pay Fringe Benefits Tax in respect of the allowance.

If a cleaner receives a payment from his or her employer for actual expenses incurred, the payment is a reimbursement and the employer may be subject to Fringe Benefits Tax. Generally, if a cleaner receives a reimbursement, the amount is not required to be included in his or her assessable income and a deduction is not allowable (see Taxation Ruling TR 92/15).

However, if motor vehicle expenses are reimbursed by an employer on a cents per kilometre basis, the amount is included as assessable income of the cleaner under paragraph 26(eaa) of the Act. A deduction may be allowable for the actual expenses incurred (see Transport expenses , paragraph 117).

If the reimbursement by an employer is for the cost of a depreciable item (e.g. tools and equipment), a deduction is allowable to the employee for depreciation (see Taxation Determination TD 93/145 and Depreciation of tools and equipment , paragraphs 66 to 73 of this Ruling).

If a payment is received from an employer for an estimated expense, the amount received by the cleaner is considered to be an allowance (not a reimbursement) and is fully assessable to the cleaner (see Allowances , paragraphs 11 to 16).

A deduction is only allowable if an expense: (a) is actually incurred (paragraph 25); (b) meets the deductibility tests (paragraphs 26 to 33); and (c) satisfies the substantiation rules (paragraphs 34 and 35).

If an expense is incurred partly for work purposes and partly for private purposes, only the work-related portion is an allowable deduction.

The common work-related expenses incurred by cleaners and the extent to which they are allowable deductions are discussed below, in alphabetical order. Answering machines, beepers, mobile phones, pagers: See Telephone expenses (paragraphs 109 to 116). Child care: A deduction is not allowable for child care expenses (paragraphs 36 to 38). Clothing, uniforms and footwear: A deduction is allowable for the cost of buying, renting or replacing clothing, uniforms or footwear if these items are: (a) protective; (b) occupation specific; (c) compulsory and meet the requirements of Taxation Ruling IT 2641; (d) non-compulsory and registered with the Textile Clothing Footwear Development Authority (TCFDA) or approved in writing by the Australian Taxation Office (ATO); or (e) conventional, but satisfy the deductibility tests as explained in Taxation Ruling TR 94/22; (paragraphs 39 to 63). Depreciation of equipment: A deduction for depreciation is allowable to the extent of the work-related use of the equipment (paragraphs 66 to 73). Driver's licence: A deduction is not allowable for the cost of acquiring or renewing a driver's licence. (paragraphs 74 to 76). Fares: See Transport expenses paragraphs 117 to 140. Fines: A deduction is not allowable for fines imposed under any law of the Commonwealth, a State, a Territory, a foreign country, or by a court (paragraph 77). First aid courses: A deduction is allowable for the cost of first aid training if a cleaner is required by his or her employer to undertake the training and the cost of the training is not met by the employer (paragraph 78). Glasses/contact lenses: A deduction is not allowable for the cost of buying prescription glasses or contact lenses. The cost of safety glasses is an allowable deduction (see Protective equipment , paragraph 92). Laundry and maintenance of clothing, uniforms and footwear: A deduction is allowable for the cost of laundry and maintenance of supplied or purchased clothing, uniforms or footwear if these items are of a kind described under Clothing, uniforms and footwear (paragraphs 64 to 65). Meals: A deduction is not allowable for the cost of meals eaten during a normal working day, as meal expenses are considered to be private (paragraphs 79 to 84). If an award overtime meal allowance has been paid, a deduction may be allowable (see paragraphs 86 to 89). A deduction may be allowable for the cost of meals incurred by a cleaner who travels for work-related purposes (see Travel expenses , paragraphs 142 to 146). Motor vehicle expenses: See Transport expenses , paragraphs 117 to 140. Newspapers: Generally, a deduction is not allowable for the cost of newspapers (paragraph 85). Overtime meal allowance: A deduction is allowable for the cost of meals bought while working overtime if an award overtime meal allowance is received and if the expenditure is not private in nature (paragraphs 86 to 89). Special substantiation rules apply. Parking fees: A deduction is allowable for parking fees paid by a cleaner while travelling in the course of employment, e.g. between work places (paragraphs 90 and 91). Protective equipment: A deduction is allowable for the cost of safety equipment such as safety glasses, goggles, breathing masks, etc. (paragraph 92). A deduction is not allowable for the cost of sunglasses, sunhats, sunscreens and wet weather gear that is worn or used to provide protection from the natural environment (paragraphs 40 to 48). Repairs to tools and equipment: A deduction is allowable for repairs to tools and equipment to the extent of the work-related use of the item (paragraph 93). Self education expenses: A deduction is allowable for the cost of self education if there is a direct connection between the self education and the income earning activities. Self education costs can include fees, travel, books and equipment (paragraphs 94 to 100). If self education expenses are allowable but also fall within the definition of 'expenses of self education' in section 82A of the Act, the first $250 is not an allowable deduction (paragraphs 101 to 103). Stationery: A deduction is allowable for the cost of buying log books, diaries, etc., used for work-related purposes. Technical or professional publications: A deduction is allowable for the cost of buying or subscribing to journals, periodicals and magazines that have a content specifically related to cleaners and are not general in nature (paragraphs 104 to 108). Telephone, mobile phone, pager, beeper and other telecommunications equipment expenses: Answering machines, beepers, mobile phones, pagers: A deduction is not allowable if these items are supplied by the employer. If these items are not supplied, the rental cost or depreciation on the purchase price of these items is an allowable deduction to the extent of their work-related use (paragraph 109). Cost of calls: A deduction is allowable for the cost of work-related calls (paragraphs 110 and 111). Installation and connection costs: A deduction is not allowable for the cost of installing or connecting a telephone, etc., as it is a capital expense (paragraphs 112 and 113). Rental costs: A deduction is allowable for a proportion of telephone rental costs if the cleaner can demonstrate that he or she is 'on call', or required to telephone their employer on a regular basis (paragraphs 114 and 115). Silent telephone numbers: A deduction is not allowable for the cost of obtaining a silent telephone number (paragraph 116). Tolls: A deduction is allowable for bridge and road tolls paid by a cleaner when travelling in the course of employment, e.g. between work places (paragraphs 90 and 91). Tools: A deduction is allowable for depreciation of the cost of tools. Tools bought after 1 July 1991 are able to be depreciated at a rate of 100% if the cost of each particular tool is $300 or less, or its effective life is less than three years (paragraph 69). A deduction is allowable for the cost of repairs to tools to the extent of the work-related use of the tool (paragraph 93). Transport expenses: Transport expenses include public transport fares and the running costs associated with using a motor vehicle, motor cycle, bicycle, etc. They do not include meals, accommodation and incidental expenses (see Travel expenses , paragraphs 142 to 146). The deductibility of transport expenses incurred by a cleaner when travelling is considered below. Travel between home and work: A deduction is not allowable for the cost of travel between home and the normal work place as it is generally considered to be a private expense. The fact that travel is outside normal working hours or involves a second or subsequent trip does not change this principle. This principle is not altered by the performance of incidental tasks en route (paragraphs 118 to 123). Travel between home and the normal work place but transporting bulky equipment: A deduction is allowable if the transport expenses can be attributed to the necessary transportation of bulky equipment rather than to private travel between home and work. A deduction is not allowable if an employer provides: (a) a secure area for the storage of equipment at the work place; or (b) insurance cover for stolen equipment; or (c) has a policy of compensation for, or replacement of, stolen equipment (paragraphs 124 to 126). Travel between two separate work places if there are two separate employers involved: A deduction is allowable for the cost of travelling directly between two places of employment (paragraphs 127 to 129). Travel from the normal work place to an alternate work place while still on duty and back to the normal work place or directly home: A deduction is allowable for the cost of travel from the normal work place to other work places. A deduction is also allowable for the cost of travel from the alternate work place back to the normal work place or directly home. This travel is undertaken in the course of gaining assessable income and is allowable as a deduction (paragraphs 130 and 131). Travel from home to an alternate work place for work - related purposes and then to the normal work place or directly home: A deduction is allowable for the cost of travel from home to an alternate work place and then on to the normal work place or directly home (paragraphs 132 and 133). Travel between two places of employment or between a place of employment and a place of business: A deduction is allowable for the cost of travelling directly between two places of employment or a place of employment and a place of business, provided that the travel is undertaken for the purpose of carrying out income-producing activities (paragraphs 134 to 140). Travel in connection with self education: See Self education expenses , paragraphs 98 and 99. Travel expenses: A deduction is allowable for the cost of travel expenses (fares, accommodation, meals and incidentals) incurred by a cleaner when travelling in the course of employment, e.g. travel interstate to supervise at another work place (paragraphs 142 and 142). Special substantiation rules apply (paragraphs 144 to 146). Union/professional association fees: A deduction is allowable for union or professional association fees, although a deduction is not generally allowable for levies (paragraphs 147 to 150). Vaccinations: A deduction is not allowable for the cost of vaccinations as a precaution for cleaners at risk from infectious diseases (paragraph 151). Wet weather gear: A deduction is not allowable if this clothing is worn to provide conventional protection from the natural environment. A deduction is allowable if the nature of the work creates conditions that make it necessary for the cleaner to provide protection to his or her person or clothing (paragraphs 46 to 48).

In short, a deduction is allowable if an expense: (a) is actually incurred; (b) meets the deductibility tests; and (c) satisfies the substantiation rules.

The expense must actually be incurred by the cleaner to be considered for deductibility. A deduction is not allowable for expenses not incurred by a cleaner, e.g. if items are provided free of charge. Under section 51AH of the Act, a deduction is not generally allowable if expenses are reimbursed (see paragraphs 18 and 19 for an exception to this rule).

The basic tests for deductibility of work-related expenses are in subsection 51(1) of the Act. It says: '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.'

A number of significant court decisions have determined that, for an expense to satisfy the tests in subsection 51(1): (a) it must have the essential character of an outgoing incurred in gaining 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; 11 ATD 404 (Lunney's case)); (b) there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T (1949) 78 CLR 47; 8 ATD 431); (c) it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344; 11 ATD 147; 6 AITR 379; FC of T v. Cooper 91 ATC 4396; (1991) 21 ATR 1616 (Cooper's case); Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508; (1993) 26 ATR 76; FC of T v. Hatchett 71 ATC 4184; 2 ATR 557).

A deduction will be denied under the exclusionary clauses of subsection 51(1) of the Act if the expense is incurred for an item that is either: (a) private or domestic in nature (e.g. sunscreen or driver's licence); (b) capital, or capital in nature (e.g. purchase of an industrial vacuum cleaner); or (c) incurred in earning tax exempt income (e.g. income of Army Reserve personnel).

Private or domestic expenditure is considered to include costs of living such as food, drink, shelter and clothing. In Case T47 18 TBRD (NS) 242; 14 CTBR (NS) Case 56 , J F McCaffrey (Member) stated (TBRD at 243; CTBR at 307): 'In order to live normally in our society, it is requisite that individual members thereof be clothed, whether or not they go out to work. In general, expenditure thereon is properly characterised as a personal or living expense...'

The fact that an expense is voluntarily incurred by a cleaner does not preclude it from being an allowable deduction (Taxation Ruling IT 2198).

Example: Graeme, a cleaner, is supplied with protective overalls by his employer and also voluntarily buys another pair. The cost of the protective overalls that he purchased, and the laundry costs of both pairs, are allowable deductions.

The fact that an expense is incurred by a cleaner at the direction of his or her employer does not mean that a deduction is automatically allowable.

In Cooper's case, Hill J said (ATC at 4414; ATR at 1636): '...the fact that the employee is required, as a term of his employment, to incur a particular expenditure does not convert expenditure that is not incurred in the course of the income producing operations into a deductible outgoing.' In Cooper's case a professional footballer was denied the cost of purchasing food and drink. His coach had instructed him to consume additional food, so he would not lose weight during the football season. The character of the expense was private.

The income tax law requires substantiation of certain work-related expenses. If the total of these expenses exceeds $300, the records that must be kept include receipts, invoices or similar documents, diaries or log books (e.g. in relation to car expenses).

A deduction is not allowable if the substantiation requirements are not met.

A deduction is not allowable for child care expenses, even if it is a prerequisite for a cleaner to obtain and pay for child care so that he or she can go to work and earn income. These expenses are also not an allowable deduction if incurred by a cleaner to undertake studies relevant to his or her employment.

The High Court held in Lodge v . FC of T (1972) 128 CLR 171; 72 ATC 4174; 3 ATR 254, that child care expenditure was neither relevant nor incidental to gaining or producing assessable income and was therefore not an allowable deduction. The expenditure was also of a private or domestic nature. (see also Jayatilake v . FC of T (1991) 101 ALR 11.); 91 ATC 4516; (1991) 22 ATR 125).

Taxation Determination TD 92/154 provides further information about these expenses.

Deductions for the cost of buying, renting or replacing clothing, uniforms and footwear ('clothing') are allowable if: (a) the clothing is protective in nature; (b) the clothing is occupation specific and not conventional in nature; (c) the clothing is a compulsory uniform and satisfies the requirements of Taxation Ruling IT 2641; (d) the clothing is a non - compulsory uniform or wardrobe that has been either: (i) entered on the Register of Approved Occupational Clothing of the TCFDA; or (ii) approved in writing by the Tax Office under the transitional arrangements contained in section 51AL of the Act (all such approvals cease to have effect from 1 July 1995); or (e) the clothing is conventional and the taxpayer is able to show that: (i) the expenditure on the clothing has the essential character of an outgoing incurred in gaining or producing assessable income; (ii) there is a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income; and (iii) the expenditure is not of a private nature (see Taxation Ruling TR 94/22 covering the decision in FC of T v . Edwards 94 ATC 4255; (1994) 28 ATR 87 ( Edwards case)).

Protective clothing must satisfy the deductibility tests in subsection 51(1) of the Act and must not be private or domestic in nature.

Cleaners may be provided with protective clothing by their employer (e.g. overalls for the protection of their conventional clothing). Cleaners may also buy additional items of protective clothing and the cost of this clothing is an allowable deduction under subsection 51(1).

It is considered that heavy duty conventional clothing such as jeans, drill shirts and trousers is not protective. We consider that the cost of these items is a private expense and is not an allowable deduction (Taxation Determination TD 92/157).

A deduction is allowable for expenditure on footwear specifically designed to provide protection to the wearer at work, e.g. steel-capped boots, rubber boots (gum boots) and special non-slip shoes.

A deduction is not allowable for the cost of conventional footwear such as running shoes, sports shoes and casual shoes, as it is not considered to be protective. We consider that the cost of this footwear is a private expense and is not an allowable deduction.

A deduction is not allowable for the cost of items that provide protection from the natural environment (e.g. sunglasses, sunhats, sunscreen, umbrellas and thermal underwear). The cost of these items is considered to be a private expense. This view is supported in Case Q11 83 ATC 41; 26 CTBR (NS) Case 75 and in Case N84 81 ATC 451; 25 CTBR (NS) Case 43 (see also Taxation Ruling IT 2477 and Taxation Determination TD 93/244).

An exception to this general rule can arise if the nature of the work (rather than the natural environment) creates conditions that make it necessary for the cleaner to provide protection to his or her person or clothing (e.g. using chemicals or high pressure water hoses).

Example : Barry uses a high pressure hose in his job as a cleaner. He wears heavy duty wet weather gear to protect himself and his clothing. A deduction is allowable for the cost of buying and maintaining this protective wet weather gear.

In Case Q11 the taxpayer was a self-employed lawn mowing contractor. Amongst other things, he claimed the cost of transistor batteries and sunscreen lotions. Dr G W Beck (Member) said (ATC at 43; CTBR at 525): '...a man catering for his desire to listen to music and protecting himself from skin damage is acting in a private capacity and the expenditure is thus of a private nature and excluded by sec. 51...' Although this taxpayer was self-employed, the same deductibility tests as set out in paragraphs 26 to 33 applied.

Occupation specific clothing is defined in subsection 51AL(26) of the Act. It distinctly identifies the employee as belonging to a particular profession, trade, vocation, occupation or calling. It is not clothing that can be described as ordinary clothing of a type usually worn by men and women regardless of their occupation. Examples of clothing that are considered to be occupation specific are female nurses' traditional uniforms, chefs' checked pants and a religious cleric's ceremonial robes.

It is not considered that cleaners would wear occupation specific clothing.

A 'corporate' uniform or wardrobe (as detailed in Taxation Ruling IT 2641) is a collection of inter-related items of clothing and accessories that are unique and distinctive to a particular organisation.

Paragraph 10 of IT 2641 lists the factors to be considered in determining whether clothing constitutes a 'corporate' wardrobe or uniform.

In Case R55 84 ATC 411; 27 CTBR (NS) Case 109 , it was concluded that: '...conventional clothing of a particular colour or style does not necessarily, because of those factors alone, assume the character of a uniform. Likewise, ordinary clothing is not converted into a uniform by the simple process of asserting that it fills that role or by the wearing of a name plate, etc. attached to clothing' (ATC at 416; CTBR at 874).

In Case U95 87 ATC 575, a shop assistant employed by a retail merchant was required to dress according to the standard detailed in the staff handbook. The prescribed dress standards were as follows: 'SELLING STAFF: FEMALE STAFF - To wear a plain black tailored dress, suit or skirt, plain black or white blouse, either long or short sleeved. No cap sleeved, or sleeveless dresses or blouses are to be worn' (ATC at 577).

The deduction for clothing was denied because there was: '...nothing distinctive or unique about the combination of clothing which would identify the wearer as a [name of employer] shop assistant or even a shop assistant from another department store. The colour combination of the clothing would be included in the range of acceptable street dress unassociated with business or employment, as well as a combination of colours sometimes worn by female drink or food waiting staff' (ATC at 580).

A deduction is not allowable for the purchase and maintenance costs of a non-compulsory uniform or wardrobe unless the conditions outlined in section 51AL of the Act are met. Section 51AL provides that expenditure on a non-compulsory uniform or wardrobe will be allowable under subsection 51(1), only if the design of the clothing has been entered on the Register of Approved Occupational Clothing kept by the TCFDA, or if the design of the clothing is approved in writing by the ATO under Taxation Ruling IT 2641. Transitional arrangements enabling the ATO to approve designs of non-compulsory uniforms and wardrobes will expire on 30 June 1995.

If cleaners are provided with uniforms by their employers, that bear the employer's logo, and it is not compulsory to wear the uniform, no deduction is allowable unless the uniform is approved or registered.

The views of the ATO on the deductibility of costs of buying and maintaining conventional clothing are set out in Taxation Ruling TR 94/22. That Ruling sets out our views on the implications of the decision of the Full Federal Court of Australia in Edwards case. Mrs Edwards was the personal secretary to the wife of a former Queensland Governor. She was able to establish that her additional clothing expenses were allowable in her particular circumstances. In most cases, expenses for conventional clothing will not meet the deductibility tests of subsection 51(1) of the Act as they are of a private nature (see also paragraph 28).

There are a number of cases that support the general principle that the costs of conventional clothing do not meet the deductibility tests of subsection 51(1) of the Act.

In Case 48 / 94 94 ATC 422; AAT Case 9679 (1994) 29 ATR 1077, a self-employed professional presenter and speaker was denied a deduction for the cost of conventional clothing. The taxpayer gave evidence that she maintained a separate wardrobe to meet her work requirements, and that she used this wardrobe exclusively in relation to her work. Sometimes, a client would request that she dress in a specific manner when performing a presentation. Her image was of vital importance in both securing and performing her duties, and her clothes were an aspect of her image. The taxpayer submitted to the Tribunal that her matter could be paralleled to the facts in the Edwards case.

Senior Member Barbour distinguished this case from the Edwards case on the basis of the emphasis placed by the Tribunal and Court on Mrs Edwards' additional changes of clothes throughout a work day - a fact not present in this one - and found the essential character of the expense to be private, saying (ATC at 427; ATR at 1082): 'While the A list clothes [those used exclusively for work] 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.' Senior Member Barbour went on to say (ATC at 428; ATR at 1083): 'For it was essential that the applicant wear something to her income producing activities...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 find the nature of the expense is essentially private.'

In Case U80 87 ATC 470, a shop assistant was denied a deduction for the cost of black clothes. Senior Member McMahon stated (ATC at 472): 'The fact that the employer requires garments of a particular colour to be worn and would even terminate the employment if another colour was substituted, does not in any way detract from the character of the garments as conventional attire, the cost of which must be regarded as a private expense.'

It is our view that in most cases expenditure on conventional clothing is not an allowable deduction. This applies to conventional clothing commonly worn by cleaners, such as singlets, T-shirts, flannelette shirts, drill shirts, drill trousers, shorts, jeans, socks, running shoes (joggers) and other conventional footwear. If the taxpayer is able to show in his or her case that a sufficient nexus exists between expenditure on conventional clothing and the gaining of assessable income, it may be necessary to apportion the claim for deduction. A reasonable estimate of the work use of the clothing should be applied.

A deduction is allowable for the cost of cleaning and maintaining clothing that falls into one or more of the categories of deductible clothing listed in paragraph 39. This applies whether the clothing is purchased by the cleaner or supplied by the employer.

Further information can be found in Taxation Ruling IT 2452 and Taxation Determination TD 93/232.

A deduction is not allowable under subsection 51(1) of the Act for the cost of tools and equipment as it is capital expenditure.

A deduction is allowable under subsection 54(1) of the Act for depreciation on tools and equipment owned and used by the cleaner for work-related purposes. In addition, a depreciation deduction is allowable on tools and equipment that are not actually used during the year for work-related purposes but are installed ready for use for that purpose and held in reserve.

There are two methods to calculate a deduction for depreciation. These are the prime cost method and the diminishing value method. Prime cost depreciation is calculated as a percentage of the cost of the equipment. Diminishing value depreciation is calculated initially as a percentage of the equipment's cost and thereafter as a percentage of the written down value.

Any item of equipment bought on or after 1 July 1991 is able to be depreciated at a rate of 100% if the cost is not more than $300, or if the effective life is less than three years (section 55 of the Act). This means an immediate deduction is available for the cost of each item in the year in which it are purchased. However, the item may be depreciated at a rate less than 100% if the taxpayer so elects (subsection 55(8)). The current depreciation rates are set out in Taxation Ruling IT 2685.

If equipment is used partly in the course of employment and partly for other purposes, then the depreciation expense should be apportioned based on an estimate of the percentage of income-producing use (section 61 of the Act).

Example : Alison is a cleaner who owns a vacuum cleaner. She uses this vacuum cleaner at work during the week and at home on weekends for her home cleaning. She is entitled to a deduction for a proportion of the depreciation based on the work use of the vacuum cleaner. A reasonable apportionment might be 5/7 business use.

If the equipment used is bought part way through the year, the deduction for depreciation should be apportioned on a pro-rata basis.

An arbitrary figure is not acceptable when determining the value of equipment for depreciation purposes ( Case R62 84 ATC 454; 27 CTBR (NS) Case 113 ). In determining the value of an item to be depreciated, its opening value is the original cost to the taxpayer less the amount of any depreciation that would have been allowed if the unit had been used, since purchase, to produce assessable income (Taxation Determination TD 92/142).

A deduction is not allowable for the cost of obtaining or renewing a driver's licence. The cost associated with obtaining a driver's licence is a capital or private expense. The cost of renewing a licence is a private expense.

In Case R49 84 ATC 387; 27 CTBR (NS) Case 104 , it was held that even though travel was an essential element of the work to be performed by the taxpayer, a driver's licence was still an expense that was private in nature and therefore is not an allowable deduction under subsection 51(1).

Taxation Determination TD 93/108 confirms that a deduction is not allowable for the cost of renewing a driver's licence even if the holding of a driver's licence is a condition of employment.

A deduction is not allowable for fines imposed under any law of the Commonwealth, a State, a Territory, a foreign country or by a court (subsection 51(4) of the Act).

A deduction is allowable for the cost of first aid training incurred by a cleaner if a cleaner is required by his or her employer to undertake the training and the cost of the training is not met by the employer.

A deduction is not allowable for the cost of meals consumed by cleaners in the normal course of a working day. It is our view that the cost of meals will not have sufficient connection with the work-related activity and, in any case, the cost is a private expense and fails to meet the tests of deductibility described in paragraphs 26 to 33.

The Full Federal Court considered the deductibility of food costs in Cooper's case. In that case, a professional footballer had been instructed to consume large quantities of food during the off-season to ensure his weight was maintained. By majority, the Full Federal Court found that the cost of additional food to add to the weight of the taxpayer was not allowable. Hill J (ATC at 4414; ATR at 1636) said: '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.' Hill J went on to say (ATC at 4415; ATR at 1638): 'Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work-related entertainment or expenditure incurred while away from home.'

We do not accept that the cost of meals can be apportioned between what the cost of a home-made meal would be and the cost of a meal purchased during an ordinary working day.

A deduction is generally not allowable for the cost of food or meals consumed while on duty. These costs fail to meet the tests of deductibility described in paragraphs 26 to 33, and are considered to be private in nature.

In Case Y8 91 ATC 166; AAT Case 6587 (1991) 22 ATR 3037, a police officer claimed deductions for the cost of meals while performing special duties away from his normal place of residence. It was held that the cost of these meals was private in nature and no deduction was allowable under subsection 51(1) of the Act.

A deduction is allowable for the cost of meals bought while working overtime, if an award overtime meal allowance has been paid (paragraphs 86 to 89).

A deduction is generally not allowable under subsection 51(1) of the Act for the cost of newspapers and magazines, as it is a private expense. Even though a cleaner may be able to use part of the information in the course of his or her work, the benefit gained is usually remote and the proportion of the expense that relates directly to work is incidental to the private expenditure. This view is supported in Case P30 82 ATC 139; 25 CTBR (NS) Case 94 and Case P114 82 ATC 586; 26 CTBR (NS) Case 47 .

An overtime meal allowance is paid under a law or industrial award for the purpose of enabling an employee to buy food and drink at meal or rest breaks while working overtime.

A deduction is allowable for the cost of meals bought while working overtime if the expenditure meets the deductibility tests in paragraphs 26 to 33 and it is not of a private nature.

The general rule is that no deduction is allowed for overtime meal expenses unless documentary evidence, such as a receipt, is obtained. However, special substantiation rules apply if a cleaner receives an overtime meal allowance paid under an industrial award. A deduction is allowable without substantiation, provided the claim does not exceed the allowance received and the allowance is considered reasonable by the Commissioner of Taxation (Taxation Ruling TR 94/23).

If a deduction claimed is more than the allowance received the cleaner must have documentary evidence to support the total claim, not only the excess.

Deductions are allowable for parking fees (but not fines) and tolls if the expenses are incurred while travelling: (a) between two separate places of work; (b) to a place of education for self education purposes (if the self education expenses are allowable deductions); (c) in the normal course of duty and the travelling expenses are allowable deductions. This decision is supported by Case Y43 91 ATC 412; AAT Case 7273 (1991) 22 ATR 3402. Note : A deduction is denied to an employee cleaner for certain car parking expenses where the conditions outlined in section 51AGA of the Act are met.

A deduction is not allowable for parking fees and tolls incurred when cleaners are travelling between their home and their normal work place. The cost of that travel is a private expense and therefore the parking fees and tolls have the same private character (see exception in paragraphs 124 to 126).

A deduction is allowable for the cost of protective equipment used at work. Protective equipment includes safety helmets, ear muffs, face masks, harnesses, goggles, safety glasses, breathing masks, etc. A deduction is not allowable for the costs of prescription glasses or contact lenses as the expense relates to a personal medical condition and is private in nature.

A deduction is allowable under section 53 of the Act, for repairs to tools and equipment to the extent of the work-related use of the items.

A comprehensive explanation of the deductibility of self education expenses is contained in Taxation Ruling TR 92/8. Key points include: (a) A deduction is allowable for self education expenses if the education is directly relevant to the taxpayer's income earning activities. This particularly applies if a cleaner's income earning activities are based on skill/knowledge and the education enables him or her to maintain or improve that skill/knowledge. (b) A deduction is allowable if the education is likely to lead to an increase in the cleaner's income from his or her current income earning activities. (c) A deduction is not allowable if the education is designed to enable a cleaner to get employment, to obtain new employment or to open up a new income earning activity ( FC of T v . Maddalena 71 ATC 4161; 2 ATR 541). (d) Self education includes courses undertaken at an educational institution (whether leading to a formal qualification or not), attendance at work-related conferences or seminars, self-paced learning and study tours. (e) Self education expenses include fees, travel expenses (e.g. attending a conference interstate), transport costs, books and equipment.

Example : Kim is studying accountancy at a college and is working as a cleaner. A deduction is not allowable for any of her self education expenses as her course is not relevant to her income earning activities.

Example : Jane is an employee cleaner who would like to go into business for herself. She is doing a part-time course in Business Administration. Jane is not allowed any deduction for the costs of this course as there is insufficient connection with her current income earning activities.

A deduction is allowable for transport costs in connection with a course of education in the following situations: (a) the cost of travel between home and the place of education and then back home; (b) the first leg of the trip, if a taxpayer travels from home to the place of education and then on to work (the cost of travelling from the place of education to work is not a self education expense); (c) the first leg of the trip, if a taxpayer travels from work to a place of education and then home (the cost of travelling from the place of education to home is not a self education expense); (d) the cost of travel between work and the place of education and then back to work. A summary of items (a) to (d) is contained in the following table:

Example : Francesco is a trainee cleaner who travels a long distance to a technical college to undertake a certificate course in Basic Cleaning and Hygiene Technology for two consecutive days each fortnight. He is allowed a deduction for the cost of travel to and from his place of education, overnight accommodation, meals and incidentals.

Example : Robert, a cleaning supervisor, attends a two day conference run by the Australian Liquor, Hospitality & Miscellaneous Workers Union. The conference is designed to keep him abreast of developments in the field of cleaning. The cost of the conference is $500 and this includes the conference fees, travel to and from the conference, as well as accommodation and meals while at the conference location. Robert is allowed a deduction for the full $500.

The following expenses related to self education are not allowable under subsection 51(1) of the Act: (a) a Higher Education Contribution Scheme (HECS) payment (subsection 51(6)); (b) meals purchased by a taxpayer while attending a course at an educational institution other than as part of travel expenses.

If self education expenses are allowable under subsection 51(1) of the Act but also fall within the definition of 'expenses of self education' in section 82A, only the excess of the expenses over $250 is an allowable deduction, i.e. the first $250 is not an allowable deduction.

'Expenses of self education' are defined in section 82A as all expenses (other than HECS payments, Open Learning charges and debt repayments under the Tertiary Student Financial Supplement Scheme) necessarily incurred by a taxpayer in connection with a prescribed course of education. 'A prescribed course of education' is defined in section 82A as a course provided by a school, college, university or other place of education and undertaken by the taxpayer to gain qualifications for use in the carrying on of a profession, business or trade, or in the course of any employment.

Example : Francesco is a trainee cleaner who incurs self education expenses totalling $1650 in connection with his course in Basic Cleaning and Hygiene Technology at a technical college. Francesco is allowed a deduction for the remaining $1,400.

A deduction is allowable under subsection 51(1) of the Act for the cost of buying or subscribing to journals, periodicals and magazines that have a content specifically related to a cleaner's work and are not general in nature.

In Case P124 82 ATC 629; 26 CTBR (NS) Case 55 , an air traffic controller was not allowed a deduction for the purchase of aviation magazines. Dr G W Beck (Member) said: 'His work did not require him to buy the papers and magazines...[and although]. There might be some tenuous connection between the cost of aviation magazines and the maintenance of knowledge necessary for holding a flying licence...but it seems to me that the possible connection is altogether too remote' (ATC at 633-634; CTBR at 422).

This can be contrasted with Case R70 84 ATC 493; 27 CTBR (NS) Case 124 , in which an accountant employed with the Public Service was allowed a deduction for the cost of publications produced by a business and law publisher. The nexus between the expense and the accountant's occupation was established, as the publications contained current technical information that related to her day-to-day work. She was, however, not allowed a deduction for the cost of daily newspapers and periodicals.

Example : Warren, a cleaning supervisor, subscribes to the Inclean magazine to keep informed of new technology. The cost is an allowable deduction as there is sufficient nexus between the expense and Warren's job.

Example : Bob is a cleaner at an airport and subscribes to The Australian Aviation magazine. The cost would not be an allowable deduction as there is insufficient nexus between the expense and Bob's income earning activities.

A deduction is not allowable if these items are supplied by the employer. If these items are not supplied, and are used in earning assessable income, the rental cost or depreciation on the purchase price of these items is an allowable deduction to the extent of their work-related use.

A deduction is allowable for the cost of telephone calls made by a cleaner in the course of carrying out his or her duties.

Work-related calls may be identified from the itemised telephone account. If such an account is not provided, a reasonable estimate of call costs, based on diary entries of calls made over a period of one month, together with relevant telephone accounts, will be acceptable for substantiation purposes.

A deduction is not allowable for the cost of installing or connecting a telephone, mobile phone, pager, beeper and other telecommunications equipment (See Taxation Ruling IT 85).

In Case M53 80 ATC 357; 24 CTBR (NS) Case 29 , it was held that (ATC at 359; CTBR at 236): '...on payment of the connection fee, this taxpayer bought into existence an advantage for the enduring benefit of his newly established medical practice.'

The situations where telephone rental will be an allowable deduction, especially for employees, are identified in Taxation Ruling IT 85. It states that taxpayers who are either 'on call' or required to contact their employer on a regular basis may be entitled to a deduction for some portion of the cost of telephone rental.

If the telephone is not used 100% for work-related purposes, only a proportionate deduction will be allowable. The proportion can be calculated using the following formula: Business calls (incoming and outgoing) / Total calls (incoming and outgoing)

A deduction is not allowable for the cost of obtaining a silent number listing as it is a private expense (Taxation Determination TD 93/115).

Transport costs include public transport fares and the costs associated with using a motor vehicle, motor cycle, bicycle, etc. They do not include meals, accommodation and incidental expenses (see Travel expenses, paragraphs 142 to 146). The deductibility of transport costs incurred by a cleaner when travelling is considered below.

A deduction is not allowable for the cost of travel by a cleaner between home and his or her normal work place as it is generally considered to be a private expense. This principle is not altered by the performance of incidental tasks en route (paragraph 34 of Taxation Ruling MT 2027).

The High Court considered travel expenses incurred between home and work in Lunney's case. A joint judgment by Williams, Kitto and Taylor JJ stated the following: 'The question whether the fares which were paid by the appellants are deductible under section 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 income...But to say that the expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such income is incurred in or in the course of gaining or producing his income' (CLR at 498-499; ATD at 412-413).

The fact that the travel is outside normal working hours, or involves a second or subsequent trip, does not change this principle. For more information see paragraph 6 of Taxation Ruling IT 2543, Taxation Ruling IT 112 and Taxation Determination TD 93/113.

Example: A cleaning supervisor is phoned at his home outside normal working hours as the building has been flooded. He travels between his home and the building in response to this emergency. The cost of travel to and from the work place is not an allowable deduction.

A cleaner may be regularly employed at one work place some days and at another place on other days. In both cases, the normal work place is where the cleaner performs normal duties.

Example: Jack and Bill are cleaners who are employed to clean their employer's head office two days a week and the employer's factory in another suburb on the other days. The travel between home and either of these locations is travel to and from their normal work place. It is private and no deduction is allowable (but see paragraphs 124 to 126).

A deduction is allowable if the transport costs can be attributed to the transportation of bulky equipment rather than to private travel between home and work (see FC of T v. Vogt 75 ATC 4073; 5 ATR 274). A deduction is not allowable if an employer provides: (a) a secure area for the storage of equipment at the work place; or (b) insurance cover for stolen equipment; or (c) has a policy of compensation for, or replacement of stolen equipment (see Case 59/94, 94 ATC 501).

Example: Charlie is a cleaner who uses his car to travel to his work place each day in order to transport a vacuum cleaner, polisher, mop and bucket. There is no secure place at his work place for the storage of his equipment. His employer also does not have insurance cover for, nor a policy of compensating for, or replacing, stolen equipment. Because of the bulk of this equipment, Charlie would be entitled to claim a deduction for his car expenses.

Example: Geoffrey, a cleaner, carries only his overalls to work in his car. Geoffrey's car expenses are private as his travel from home to work is not attributable to carrying bulky equipment.

A deduction is allowable for the cost of travelling directly between two work places.

Example: Jane works as a cleaner for two separate employers. She completes her shift at the first employer before lunch and returns home before she starts her second job later that afternoon. Her travel is between home and work and is not an allowable deduction as it is a private expense.

Example: Mary also works for two separate employers. She travels directly from one place of employment to the next place of employment to commence her shift. The cost of this travel is an allowable deduction.

A deduction is allowable for the cost of travel from a cleaner's normal work place to other work places. The cost of travel from the alternate work place back to the normal work place or directly home is also an allowable deduction. This travel is undertaken in the performance of a cleaner's duties. It is incurred in the course of gaining assessable income and is allowable as a deduction.

Example: David, a cleaning supervisor, travels from his normal work place to his employer's head office to attend a meeting. After the meeting he travels directly home. The cost of each journey is an allowable deduction to David.

A deduction is allowable for the cost of travel from home to an alternate work place. The cost of travel from the alternate work place to the normal place of employment or directly home is also an allowable deduction (see paragraphs 32 to 35 of Taxation Ruling MT 2027).

Example: Janet, a cleaner, is required to travel from home to assist with an emergency clean up operation at her employer's head office. She then travels to her normal work place. The cost of travelling from home to the head office and then on to the normal work place is an allowable deduction. However, the cost of travelling home from the normal work place is not an allowable deduction.

A deduction is allowable for the cost of travelling directly between two places of employment or between a place of employment and a place of business. This is provided that the travel is undertaken for the purpose of engaging in income-producing activities.

Example: When Abdul finishes work as a cleaner, he travels directly to his restaurant to commence work as a cook. The cost of travelling from his job to his business is an allowable deduction as the cost is incurred in travelling between two places of employment.

If the cleaner lives at one of the places of employment or business, a deduction may not be allowable as the travel is between home and work. It is necessary to establish whether the income-producing activity carried on at the person's home qualifies the home as a place of employment or business. The fact that a room in the cleaner's home is used in association with employment or business conducted elsewhere will not be sufficient to establish entitlement to a deduction for travel between two places of work (Taxation Ruling IT 2199).

A deduction is not allowable for the cost of travel between a person's home, at which a part-time income-producing activity is carried on, and a place of full-time employment unless there is some aspect of the travel that is directly related to the part-time activity (Case N44 81 ATC 216; 24 CTBR (NS) Case 114).

In this case, a qualified accountant, employed by a firm of accountants, conducted a limited private practice from his home. He set up a separate room in his home as an office. The taxpayer claimed a deduction for car expenses incurred in travelling between his residence/office and his place of employment. The fact that the taxpayer's home was, incidentally, used in the production of income was insufficient to make the travel between his home and his place of employment an outgoing incurred in the production of assessable income. The travel retained its essential character of travel between home and work and therefore, it was not an allowable deduction.

Example: Virginia is a cleaner who teaches guitar at her home in the evenings. The cost of travelling from the work place to home is not an allowable deduction. It is a private expense rather than an expense incurred in deriving assessable income.

Taxation Rulings IT 2199 and MT 2027 provide further information on the deductibility of travelling expenses between places of employment/business.

A depreciation balancing adjustment may be necessary on the disposal of a motor vehicle that has been used for work-related activities (see Taxation Ruling IT 2493).

Travel expenses include the costs of fares, accommodation, meals and incidentals. A deduction is not allowable for travel expenses unless documentary evidence is obtained.

A deduction is allowable for the costs incurred by a cleaner in undertaking work-related travel. An example is if a cleaner attends a technical training course interstate.

No substantiation is required if the cleaner receives a travel allowance that the Commissioner considers is reasonable, and the deduction claimed does not exceed the amount of the allowance.

If the cleaner receives an allowance that is less than the reasonable rates, a deduction up to the amount of the allowance received is allowable without the need for substantiation.

Claims that exceed a reasonable allowance must be substantiated in full (Taxation Ruling TR 94/23).

A deduction is allowable for the cost of union or professional association fees. Taxation Rulings IT 299, IT 327, IT 2062 and IT 2416 provide further information on the deductibility of union and professional association fees.

IT 2062 sets out our views on the deductibility of levies paid to unions and associations. It says: '...where levies are paid by employees to a trade union or professional association it is necessary to have regard to the purposes for which the payments are made in order to determine whether they satisfy the terms of subsection 51(1). It is not decisive that the levies may be compulsory. What is important is the connection between the payment of the levy and the activities by which the assessable income of the employee is produced. Levies made specifically to assist families of employees suffering financial difficulties as a result of employees being on strike or having been laid off by their employers are not considered to be allowable deductions under subsection 51(1) - they are not sufficiently connected with the activities by which the assessable income is produced to meet the requirements of the subsection.'

A deduction is allowable for a levy paid to enable a trade union or professional association to provide finance to acquire or construct new premises, to refurbish existing premises or to acquire plant and equipment to conduct their activities (see IT 2416).

A deduction is allowable for a levy if it is paid into a separate fund and it can be clearly shown that the monies in that fund are solely for protecting the interests of members and their jobs, and for the obtaining of legal advice or the institution of legal action, etc., on their behalf (see IT 299).

A deduction is not allowable for the cost of vaccinations to protect cleaners at risk from infectious diseases in the work place as the expense relates to a personal medical expense.

The following index refers to the paragraph references in the Explanations section of the Ruling. Paragraph Answering machine, telephone, mobile phone, pager, beeper and other telecommunications equipment 109 Car expenses 117 Child care 36 Clothing , uniforms and footwear 39 Protective clothing 40 Occupation specific 49 Compulsory uniforms or wardrobe 51 Non-compulsory uniforms or wardrobe 56 Conventional clothing 58 Laundry and maintenance 64 Compulsory expenses 32 Deductibility of work - related expenses 21 Depreciation of equipment 66 Driver's licence 74 Equipment 66 Fares 117 Fines 77 First Aid Course 78 Food 79 Footwear 39 Laundry 64 Magazines 85 Meals 79 Motor vehicle expenses 117 Newspapers 85 Overtime Meal Allowance 86 Parking fees and tolls 90 Private expenditure 28 Professional publications 104 Protective clothing 40 Protective equipment 92 Repairs to equipment 93 Self education expenses 94 Allowable expenses 94 Transport costs 97 Non-allowable expenses 100 Limit on deductibility 101 Substantiation 34 Technical or professional publications 104 Telephone expenses Answering machine, mobile phone, pager, beeper and other telecommunications equipment 109 Cost of calls 110 Installation or connection costs 112 Rental costs 114 Silent numbers 116 Tolls 90 Tools 66 Transport 117 Between home and work 118 Carrying bulky equipment to and from work 124 Between work places (different employers) 127 Between normal and alternate work places 130 Between home and alternate work place 132 Between two places of employment 134 Travel expenses 142 Travel allowance 144 Uniforms 39 Union fees 147 Vaccinations 151 Voluntary expenses 30 Wet weather gear 46

If you wish to comment on this Draft Ruling, please send your comments by 31 March 1995; to: Contact officer details have been removed following publication of the final ruling.