CASE 31/93

Members:
DP Breen DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 23 July 1993

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DP Breen (Presidential Member)

The taxpayer is Personal Assistant to an occupant of high public office. Prior to the incumbent taking office, the taxpayer was employed as Personal Secretary to the wife of the former occupant of the office. The taxpayer took up that position on 20 August 1990. In the year ended 30 June 1991, she claimed $4,100 as deductions under subsection 51(1) of the Income Tax Assessment Act 1936 (``the Act'') being two-thirds of work- related clothing expenditure. This is an application to review the objection decision of the respondent disallowing an objection against the assessment of income tax for the year ended 30 June 1991.

2. The Tribunal had in evidence before it the documents lodged in accordance with Section 37 of the Administrative Appeals Tribunal Act 1975; an analysis of figures tendered by the respondent although based upon the figures of the applicant; letter of appointment including job description; itinerary and function sheets for the period 4 September to 11 September 1990; and itinerary and function sheets for the period 23 September to 1 October 1990. The taxpayer gave oral evidence at the hearing. Mr D Russell QC appeared for the applicant instructed by Minter Ellison Morris Fletcher, Solicitors. Mr P Bickford of Counsel appeared for the respondent instructed by the Australian Government Solicitor.

3. The taxpayer gave evidence that prior to 1990 she was employed as Executive Secretary to International Hotel General Managers with a large and successful international chain. Prior to her position with that hotel company which she held for two years, the taxpayer was employed as Executive Secretary and Administrative Assistant to the International Hotel General Manager at the head office in Memphis Tennessee of another chain. The taxpayer stated that her previous employment as Executive Secretary required an executive corporate wardrobe of the same quality as that required for her use in her present position. The taxpayer stated, however, that she did not previously require hats, gloves, and black tie formal evening wear. In addition, a leather briefcase previously was sufficient for everyday use.

4. The taxpayer gave evidence that her employment as Personal Secretary in August 1990 required an increase in quantity in terms of her executive corporate wardrobe rather than an increase in the quality thereof.

5. On the day of the interview for employment the taxpayer was taken by the then Personal Secretary to her living quarters. The taxpayer was shown hats, gloves, handbags, and clothing of the type that she would be required to wear. The Personal Secretary at that time advised the taxpayer that the hats and gloves were worn on many occasions and that if the employer wore hat and gloves then the Personal Secretary was expected to wear hat and gloves. Upon commencement of employment, the taxpayer spoke with the employer also in relation to what the taxpayer would be required to wear. The taxpayer stated that the employer often showed the taxpayer different clothing she had bought in order that she might herself acquire apparel of a compatible quality and character. Particularly before travelling (and frequent travel was a feature of the employment), the taxpayer would discuss with the employer what attire would be required in order again that the need for compatibility might be observed whilst away.

6. The taxpayer gave evidence that there was no express condition of her employment that she had to wear or purchase a particular outfit.

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However, the taxpayer well understood that she would not have been employed if she did not dress in accordance with the dress standards and requirements for each particular occasion. The taxpayer stated that she had to conform to a standard of dress required as an understood and accepted condition precedent to appointment to the position.

7. The taxpayer's duties required that she attend the employer on all public engagements. The taxpayer stated that on any day there could be a number of engagements requiring different attire, for example, a day dress and hat followed by black tie evening wear. The taxpayer described two changes of clothes in one day as being ``very normal'' and that three changes of clothes in one day as being ``not abnormal''.

8. The taxpayer explained that although a number of functions in a particular day may require the same type of attire, the taxpayer may need to change her outfit more than once so that she would not present a ``crumpled'' or otherwise unacceptable appearance. The taxpayer stressed that such were the requirements of standard for those attending upon the occupant and/or spouse of the occupant of the particular public office. The taxpayer was exposed to the public eye and scrutiny more than previously when she was an Executive Secretary in the hotel industry.

9. When the taxpayer travelled with the employer, there would be insufficient time available to launder or dry-clean such that the taxpayer would need to pack many outfits in order to meet the standards of dress required as she discharged her duties in the many and varying forums and activities to which those duties took her.

10. The taxpayer's employment as Personal Secretary was a seven days a week occupation on a live-in basis of tenure. The taxpayer described her standard of clothing for personal use as casual being T-shirt, jeans, shorts or track suit. The taxpayer received approximately $6 per week as a clothing allowance.

11. As the respondent has conceded that the substantiation requirements regarding work- related expenses have been satisfied, the issues are whether the taxpayer can claim her additional expenditure as a deduction under subsection 51(1) or whether she can claim depreciation therefor under subsection 54(1).

12. Subsection 54(1) is not applicable on these facts. The clothing purchased was not plant or articles as under Section 54 and not of a capital nature. It is not an expense incurred once and for all nor for the provision of an asset of an enduring nature.

13. There is no general rule of law against clothes being claimed as a deduction under subsection 51(1). The Tribunal, in the past, has applied two tests as a guide for determining whether expenditure on clothing is allowable as a deduction under subsection 51(1): the ``necessary and peculiar'' test and the ``abnormal expenditure on conventional clothing'' test. The applicability of the ``abnormal expenditure'' test has arisen on these facts. The tests have fallen into disfavour: Case M71,
80 ATC 492, Case N76,
81 ATC 394, Case U95,
87 ATC 575, Case S85,
85 ATC 619 and Case H32,
76 ATC 280. I concur with the view expressed in the cases such as Case N76,
81 ATC 394 at 398 that:

``It is the words of the statute which must be given effect. Tests such as `necessary and peculiar' and `excessive expenditure' do not supplant the words of sec. 51(1). The use of such `secondary' tests tend in my view to obscure the application of the section.''

14. The taxpayer contended that the peculiar and unavoidable conditions of her employ which required frequent changing of clothes, frequent travel, the availability at all times of pressed and clean clothes, were directly attributable to the activities which produced the assessable income. The taxpayer's evidence that if she did not conform with these requirements she would not have secured or later retained the job was unchallenged. I was impressed by the taxpayer who presented as a very credible witness and I accept that her intention was to spend as little money as possible on clothing and accessories. She has not been wasteful or frivolous in respect of her clothing expenditure.

15. The taxpayer also contended that there was a need for the amount of the dry-cleaning expenses because of the necessary frequent change of clothes. The taxpayer contended that there would not have been the need for the hairdressing expenses incurred except that they were directly referable to the incidence of her employment.

16. It was submitted by the respondent that Case S85,
85 ATC 619 was on all fours with the present case and therefore Case S85 should

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be followed to arrive at the same decision in this case. I do not accept this submission. The claims for deductions in the instant case and those in Case S85 were sought on different bases and the evidence proved in each case accordingly was quite different. I agree with the following analysis of Case S85 provided by Senior Member Dr RA Hayes of this Tribunal in Case U85,
87 ATC 491 at 494 although made in the context of the ``abnormal expenditure'' test discussion:

``... it is important to note that the claim of the Governor's secretary in Case S85 was for the cost of the more formal clothing that she had to buy in her position, rather than its abnormally large quantity. Indeed, there was no suggestion that the taxpayer in Case S85 purchased more clothing than normal. The claim was that it was of a different quality and kind, and more expensive, than would otherwise have been the case.''

17. Excluding the expenditure on the more non-conventional items (hats, gloves and the black tie formal evening wear), the taxpayer's claim in the present case relates to an increase in quantity of clothing required rather than an increased quality. Unlike Case S85, the taxpayer was formerly an Executive Secretary with the same standard of wardrobe.

18. Similarity of facts as between this case and previously determined cases are not determinative of the issues. The principles are to be applied to the facts which have been proved on the civil standard of probabilities. It is the application of principles, not the similarity of facts, in reaching a conclusion which promotes consistency in decision- making.

19. There is nothing about the additional changes of clothes in a work day for this taxpayer which serve a private purpose. Her personal requirements of modesty, decency and warmth are met by her first set of clothes for the day. Her additional changes of clothing throughout the day solely serve work-related purposes which enable the taxpayer to attend the wife her employer in the performance of her duties at many different types of functions as Personal Secretary. The expenditure on the additional clothing is incurred in the course of gaining the income. Although not determinative of the issue, it is a relevant consideration that she makes the additional changes of clothes because the employer requires her to wear them. This case is not in respect of clothes generally, as found to be the situation in Case S85, but it is in respect of the additional clothes.

20. As indicated by Lockhart J in
FC of T v Cooper 91 ATC 4396, the deductibility of the expenditure depends upon determining the essential character of the expenditure itself and is not to be supplanted by any other requirement such as the expenditure being a prerequisite to the earning of the assessable income.

21. It is also not by virtue of the fact that the expenditure is over and above normal outgoings that the deduction can be allowable. That is a consideration more apposite to the calculation of any deduction in this case. I am satisfied on the evidence that the occasion of the outgoing operates to give it the essential character of a working expense. I am satisfied on the evidence that the expenditure on the additional clothing (including hats, gloves and black tie formal evening wear) is both incidental and relevant to the derivation of the taxpayer's income.

22. In Cooper's case, the taxpayer was a professional footballer. He played in first grade which was better remunerated than reserve grade football. His ability as a forward player was affected by a weight loss problem. The taxpayer claimed a deduction for the cost of additional food and drink which was incurred in accordance with the written ``instructions'' by his coach. The Full Federal Court, by majority, held that the taxpayer's expenditure on additional food and drink was not incurred in gaining or producing his assessable income and therefore was not deductible.

23. The respondent submitted that the taxpayer must fail in this case as Cooper's case cannot be distinguished because it was a case which also applied subsection 51(1) to abnormal or additional expenditure. I do not accept that Cooper's case is authority for the proposition that a taxpayer can never claim a deduction in relation to additional expenditure. Indeed, such a proposition is contrary to the terms of subsection 51(1) which expressly contemplates apportionment.

24. The present case can be distinguished from Cooper's case as the causal nexus in relation to the expenditure is different in each case. As Lockhart J held in Cooper's case at page 4402,

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``... there is no necessary nexus between the instruction and the playing of football by the taxpayer.''

His Honour also stated at page 4403,

``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.''

25. By contrast, the nexus between the expenditure and the income-producing activity is not tenuous in this case. The taxpayer was paid money to attend upon the employer at all public engagements the employer undertook. Her income-producing activities included her being suitably attired to meet the formality of the occasion of each engagement in any one day. The nexus is direct. Additional eating and drinking could not ensure that the footballer would play well, let alone that his team would win, whereas if the Personal Secretary changed outfits during the day to meet the standard of attire required for each engagement then she did so as an exigency of the proper performance of her job. The consumption of food and drink is intrinsically of a private nature. There is, however, no question that expenditure on clothing can, in certain circumstances, be allowable as a deduction.

26. There are English cases such as
Norman v Golder (1945) 1 All ER 352 at 354 which treat expenses for food and clothing as being similarly non-deductible because ``[t]hey are laid out in part for the advantage and benefit of the taxpayer as a living human being''. The English cases must be read in the context of the English legislation which, unlike the Australian legislation, requires that the expenditure be ``wholly and exclusively'' for work purposes.

27. Having determined which items in relation to which the expenditure is deductible, it is necessary to determine how the deduction is to be calculated. The applicant's evidence was that her expenditure on clothing as an Executive Secretary for the years ended 30 June 1989 and 30 June 1990 were $2,220.21 and $2,948.06 respectively. Her total clothing expenditure for the year ended 30 June 1991 was $6,149.86.

28. The taxpayer claimed as a deduction two- thirds of her total clothing expenditure as representing the additional expenditure over and above that incurred in the preceding two years. The respondent submitted that the appropriate test for calculating the deduction is whether or not the taxpayer spent more than would normally be expended by a Personal Secretary to the wife of the occupant of the public office. As the respondent submitted, there was no evidence that the taxpayer expended any more than would normally be required to be spent by an employee in that type of employment. In the context of the abnormal expenditure test, Dr RA Hayes, in Case U85 at page 495, stated:

``The pertinent question is what would have been the `normal' expenditure on footwear of a female footwear sales manager.''

29. In Cooper's case at page 4414, Hill J stated:

``The word `additional' was used in the sense of additional to Mr. Cooper's normal expenditure on food and drink. There was, however, no evidence to suggest that Mr. Cooper suffered some medical condition which caused him to lose weight. Nor was there any evidence of expenditure which other forwards might normally make on food and drink. It may well be the case, the evidence is silent on the matter, that the ordinary expenditure of Mr. Cooper on food and drink was considerably less than the ordinary expenditure on food and drink of other forwards. To allow to Mr. Cooper a deduction for expenditure, which may ordinarily be incurred by other players as part of their normal expenditure, merely because the food upon which the expenditure was outlaid is in excess of Mr. Cooper's normal food intake, seems illogical.''

30. The indication by Hill J in Cooper's case at page 4414 that in order to ascertain the amount of any deduction one is to compare the expenditure with the normal expenditure of another employee in the same employment position highlights the distinguishing features between Cooper's case and the present. In Cooper's case it would have been illogical to allow a deduction to the taxpayer on expenditure in addition to his own normal expenditure even if that additional expenditure was less than the normal expenditure of other forwards because expenditure on food is necessarily personal to the user. The taxpayer in this case must have an extensive wardrobe irrespective of whether she personally needs to

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wear more clothes or not. It is the job, not the personal requirements or preferences of the taxpayer, which dictates that she have an extensive wardrobe. By virtue of these distinguishing features, the logic of comparing expenditure with other employees is inapplicable in this case.

31. Moreover, that cannot be the test because if the comparison revealed no difference between all Personal Secretaries, then the deduction would be incapable of calculation. If the other Personal Secretaries spent less than this taxpayer, then the calculation could be subject to the criticism that there was no valid basis for comparison.

32. The essential character of the expenditure of the taxpayer is the point. On the particular facts of this case, including that the taxpayer had an executive wardrobe of similar quality for at least two years previous to the subject year, I am satisfied that the amount of deduction allowable should be based on the amount by which the expenditure for the year ended 30 June 1991 ($6,149.86) exceeds the average of the level of expenditure over the two years ended 30 June 1989 ($2,220.21, as I have recorded in paragraph 27) and 1990 ($2,948.06). The total expenditure for those two years amounts to $5168.27, producing an annual average for each of $2,584.13. This in turn, when deducted from the amount expended in 1991, produces an allowable deduction quantified at $3,565.73.

33. The Tribunal determines that the objection decision under review for the year ended 30 June 1991 be set aside and the objection allowed in part by allowing deductions in the amount of $3,565.73.