TAX DEDUCTIONS

Income tax is calculated based on taxable income – which is assessable income less allowable deductions.

There are two types of deductions that can be used to reduce taxable income:

• General deductions
• Specific deductions

Specific deductions are those for which there is a specific section of the ITAA which allows the deduction (for example donations and cost of managing tax affairs). General deductions are those amounts that can be claimed under the general deduction section of the ITAA 1997, section 8-1. Where an amount is deductible under more than one provision, the most appropriate provision is used.

These are only mentioned so you can determine when an amount is deductible under a specific provision and when the rules that apply to that provision must be applied, or when you must use the rules outlined in the general deduction section.

GENERAL TAX DEDUCTIONS

Under s 8-1 of the ITAA, an expense is deductible to the extent that it is –

• • incurred in gaining or producing assessable income or
• • necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income

AND it satisfies the following tests:

• • it is not capital in nature
• • it is not private or domestic in nature
• • it is not incurred in gaining or producing exempt or NANE income, and
• • a provision of the ITAA does not prevent it from being deductible.

It should be noted that only expenses that have been paid for out of ‘after tax money’ will be tax deductible. This means that items that have been provided under a salary sacrifice arrangement will not be claimable. In addition, a taxpayer cannot claim a deduction for an expense that has been, or will be, reimbursed by their employer or any other person.

If a taxpayer’s work related expenses include an amount for GST (goods and services tax), that GST is part of the total expense and is therefore part of any allowable deduction. GST would only be excluded from the cost of an expense if a taxpayer was registered for GST and able to claim input tax
credits.

These are the basic rules that must be satisfied for an expense to be deductible under s 8-1. This section applies to deductions in respect of all income producing activities (employment, investment, business), however, in this section we will look mainly at work related expenses. The ATO have issued TR 2020/1 to assist in applying s 8-1 to work related expenses.

INCURRED

For expenses deductible under s 8-1, the amount has generally been incurred when either:

• the taxpayer has paid the amount or

• a definitive obligation to pay the amount arises (TR 97/7).

Example 1

Marilyn uses her mobile phone exclusively for work related purposes. On 28 June 2023, she receives a phone account that gives rise to a presently existing liability. She pays the account on 4 July 2023. Marilyn has incurred the outgoing in the 2023 tax year, as it is properly referable to that year.

Example 2

Dolores is employed by a tax accountant. She orders some reference books from a commercial publisher for herself on 15 June 2023, which arrive on 27 June 2023. The books are sent on the basis that they are on 10 days approval from the date of arrival and can be returned if not wanted. Assuming the outgoing is deductible, it will not be incurred until Dolores finally commits to the outlay. In this case, that will be when the books are not returned at the expiration of the 10-day approval period or when payment is made, whichever is first.

Example 3
Bob is an employee superannuation expert who has a contract with a commercial publisher to supply him with a loose-leaf service. He receives the annual invoice for the next 12 months service on 12 June 2023 and pays it by direct debit over the next 12 months, commencing 15 July. Notwithstanding that an annual invoice is received, Bob may cancel the service at any time and the direct debit will cease. The outgoing will be incurred when each direct debit is made.

Example 4
Dianna is an employee and is a member of a work union. She has gone through hard times and currently her union fees are in arrears in the amount of $244 as at 30 June 2023. She does not pay the outstanding amount until August 2023. On the basis that Dianna is definitively committed to paying
the fees, she has incurred the expense in the 2023 year. However, if she were not definitively committed to payment of the fees (for example, she disputed the liability), she will not have incurred the outgoing until it is actually paid.

PREPAID EXPENSES

Generally, a deduction has been incurred and can be claimed under s 8-1 when the money has been spent, as long as the deduction properly relates to the income year. However, where an expense is prepaid, that is expenditure is incurred for something to be done (in whole or in part) in a later income year, then the expense may need to be claimed over the period to which it relates or 10 years, whichever is less.

However, a prepaid expense may be deductible in full in the year it was incurred if:

• • it is excluded expenditure or
• • the 12 month rule applies.

Excluded expenditure includes:

• • amounts of less than $1,000
• • amounts required to be incurred under a court order or law of the Commonwealth, state or territory (for example car registration) and
• • payments of salary or wages.

Under the ’12 month rule’, a taxpayer that is either an individual incurring non-business expenditure or a small or medium sized business can claim a deduction for prepaid expenses if:

• • the payment is incurred for an eligible service period not exceeding 12 months and
• • the eligible service period ends in the next income year.

A small business taxpayer is a taxpayer that is in business and has a turnover of less than $10m. From the 1 July 2020, the ‘12 month rule’ also applies to business with a turnover of less than $50m.

Example
Tom is an employee. He is leasing a computer that is used only for work related purposes. The cost of the lease is $100 per month. In June 2023, he prepays the 12 months lease fees. The full amount of $1,200 can be claimed as a deduction in the 2023 year.

GAINING OR PRODUCING ASSESSABLE INCOME

The pivotal element of section 8-1 for work expenses is the requirement that the expense is incurred in the course of ‘gaining or producing assessable income’. This involves considering the proper scope of the particular taxpayer’s work activities to determine if the expenditure has sufficiently close connection to the performance of the employment duties. Where expenditure is regarded as being too remote from the income earning activities or where it is incurred only as a prerequisite to earning income, it will not be deductible. Expenses such as the cost of travel to and from work and the cost of childcare while working may be prerequisites to allow employees to attend work, but the expenses are not incurred in the course of gaining or producing assessable income. Accordingly, they are not deductible.

The fact that an employee incurs expenditure on items that are an express or implied condition of employment, or is encouraged by the employer to incur certain expenses, does not necessarily mean the expenses are deductible.

Example
Dermott is employed as a receptionist at a dental practice. His employer encourages him to undertake a Certificate III in Dental Assisting, offering study leave and a guaranteed job with increased salary as a dental assistant if he completes the course. Dermott cannot claim a deduction for the course fees despite his employer encouraging the study. The course does not assist him in carrying out his existing employment duties or improve the knowledge or skills he needs as a receptionist to earn his current income. As the study relates to a potential new job as a dental assistant, the expenses of the study are a prerequisite to earning income from a new role and not incurred in the course of earning his income.

Although the directions of an employer do not determine deductibility, they may be relevant in determining the scope of an employee’s duties. This may assist in determining whether a voluntary expenditure was incurred in the course of producing assessable income.

Example
Salome works as the practice manager for a suburban doctor’s surgery. To help develop her skills in her current role she undertakes a Diploma of Practice Management. Her employer does not directly encourage her to do the course and does not offer any financial incentive or time off. Despite not having her employer’s direct support, Salome can claim a deduction for the cost of undertaking the course as it will assist her in carrying out her current employment duties by improving the specific knowledge and skills she requires to do her job.

Example
Barry drives a courier van provided by his employer. In the event that the vehicle breaks down, Barry’s employer has provided him with a road service phone number and instructed him not to attempt to carry out any repairs himself. Barry cannot claim a deduction or depreciation for auto repair tools he may have purchased. He has been employed only to drive the van and the repair activities cannot be done in connection with his employment. As the expenses do not relate to his employment, they do not have the necessary connection with the earning of assessable income and are not deductible.

TIMING OF A DEDUCTION

It is important to note the timing of the expenditure. In order to be deductible under s 8-1, the expenditure has to be incurred at the same
time the taxpayer is gaining assessable income, not just within the income year. Where the expenditure is incurred ‘at a point too soon’ it will
not be deductible.

Example
Alan is a teacher and buys some files and stationery in August but is not employed at the time. He gains employment in November. He will
not be allowed to claim the cost of these expenses as the expenditure occurred “at a point too soon”.
NEW JOB EXPENSES
The cost to an employee of obtaining employment or changing jobs is not deductible. This is expenditure related to obtaining, not doing a
job. In other words, it comes at a point too soon to be properly regarded as being incurred in the course of producing assessable income.
Expenses such as the cost of attending job interviews, the cost of relocation expenses to work in a different city or state and education expenses to obtain qualifications for new employment would not be incurred in the course of gaining or producing assessable income.
This is so even if a person is in receipt of a taxable benefit, such as Austudy or Jobseeker Payment, which may be contingent on incurring
expenses on study or attending job interviews. Expenses incurred in earning rebatable benefits such as Austudy and Jobseeker Payment are
specifically disallowed.
Example
Paul is unemployed and completes a security course in order to be employed as a security officer. The course is not deductible as it occurred ‘at a point too soon’.
‘TO THE EXTENT’ INCURRED IN GAINING OR PRODUCING ASSESSABLE INCOME
The use of the phrase ‘to the extent’ means that expenses may be only partly deductible if the expenses are incurred partly for earning assessable income as well as for some other purpose. The expenses must be apportioned between the income producing purposes and other
purposes. Where there is no obvious method of apportionment, this must be done on a ‘fair and reasonable’ basis. One common method is
a time-based apportionment.

CAPITAL, PRIVATE AND DOMESTIC IN NATURE

CAPITAL

The term capital or capital in nature refers to expense items that are not regular or recurrent, but rather, are one-off expenditures that can be
expected to have an enduring or lasting benefit. In the context of employee expenses, examples would be items such as a tradesperson’s box of tools or a laptop computer used to perform employment tasks.
Capital expenditure is not deductible under s 8-1 of the ITAA. However, for depreciating assets (tools, equipment etc.) a deduction may be
allowable under the Uniform Capital Allowances (UCA) provisions. Under this section, the deduction may be spread over a number of years.
This will be covered in a later module.

PRIVATE NATURE

Everyday clothing, personal grooming items and food and drink are private expenses and are generally not deductible. In order to be
deductible, there must be sufficiently close and real connection to the employment activities.
The fact that an employee incurs an expense as an express or implied condition of employment does not necessarily mean the expense is
deductible. Often employers may require that employees possess an ordinary driver’s licence or present themselves in a well-groomed
manner. Standards set by employers in this regard do not change the essentially private character of expenses of maintaining a driver’s
licence or maintaining a particular level of personal appearance.
Expenses that are typically of a private nature may be deductible when there is a sufficiently close connection to the employment activities,
for example, where an employee incurs expenditure on food and drink when required to travel away from home overnight for work purposes.

DOMESTIC NATURE

Domestic nature means all expenditure incurred by a taxpayer as a member of a household, such as rent, mortgage interest, rates and
insurance.
There may be instances where these expenses are not regarded as being domestic, such as where a portion of a residence is properly
characterised as a place of business. However, in most cases these expenses will not be deductible for an employee.

EXPENDITURE INCURRED IN EARNING EXEMPT OR NANE INCOME

In order to be deductible, expenditure must be incurred in gaining or producing assessable income. Expenditure incurred in earning exempt
or NANE income is not deductible.
Example
Jane is a member or the army reserves (not on continuous full-time service) and has received $4,572 during the year for her service. She
purchased equipment required for her army reserve service at a cost of $280. Jane cannot claim a deduction for this expense, as amounts
Jane has earned for the army service is exempt income.

PROVISIONS OF THE ITAA WHICH PREVENT A DEDUCTION BEING CLAIMED

There are some provisions of the ITAA, which will prevent a deduction being claimed for an expense, even if all of the above conditions are
met. For example:
• If the substantiation provisions in Div 900 are not met the expense will not be deductible
• Fines – excluded under s 26-5 of the ITAA 1997
• Expenses relating to illegal activities – excluded under s 26-54
• Entertainment expenses – limited under s 32-1 to 32-90
• Expenses incurred in relation to rebatable benefits s 26-19

SUBSTANTIATION

Under the substantiation requirements, if an employee taxpayer is claiming more than $300 for work related expenses, written evidence
must be kept to prove the total claim, not just the amount over $300.
Where the total claimed in the tax return does not exceed $300, receipts do not have to be kept. However, a deduction cannot be claimed
unless the taxpayer has actually incurred the expense.The ATO may still ask for an explanation of how the claim was calculated.
The $300 limit does not include claims for car expenses, overtime meal expenses, award transport payments or travel allowance expenses.
These have their own special rules for claiming and the taxpayer must have kept appropriate records to prove these claims. When
determining if a taxpayer’s work-related expenses claim is over $300, do not include these amounts.
Diary Record for Small Expenses
The requirement to obtain documentary evidence does not apply where the taxpayer claims work related expenses that individually do not
exceed $10 and which, in total, do not exceed $200 for the income year. In such cases, it will be sufficient to keep a diary record of the
expenses.
Diary Entries for Undocumentable Expenses
Where the Commissioner considers it would be unreasonable to expect the taxpayer to have obtained documentary evidence due to the
nature of the expense (e.g. vending machines, coin-operated laundromat) the taxpayer may record the necessary details in a diary.There is
no limit to how much can be claimed under this rule and amounts are not included in the $200 limit that applies to diary entries for small
expenses.
The taxpayer’s diary records must show the same details as a receipt from a supplier as described below (See WRITTEN EVIDENCE).

WRITTEN EVIDENCE

PS LA 2005/7 explains what records are acceptable. The records that the taxpayer must have kept are receipts, invoices or similar
documents, except where a diary is sufficient.
The document must show:
• Date of purchase
• Item purchased
• Date the document was prepared
• Name of supplier
• Value of item
Where the document does not show what the goods or services are, or the date the expense was incurred, the taxpayer can write in the
missing details. Alternatively, they can use other supporting evidence in conjunction with the document to show this information (e.g. a bank
statement or credit card statement). Documentary evidence must be kept for 5 years after the later of 31 October in the year the return has
been lodged or from the date of lodgement.
NOTE
For most EFTPOS transactions, a bank statement alone would not be sufficient evidence to substantiate a claim. This is because bank
statements do not generally show a cash withdrawal separately from the amounts associated with the item(s) purchased in the transaction,
nor do they generally show the nature of the items purchased.
If the taxpayer does not obtain or retain the receipt for an EFTPOS transaction, they will generally need further evidence to show the amount
of the item purchased – for example, a written breakdown of the transaction from the supplier or packaging marked with the price.
Example 1
Daniel, who is employed by a large firm of solicitors, received a bill for his annual professional subscription fees, which he paid using his
credit card. His credit card statement bears the date of the transaction, the name of the professional association and the amount paid.
Before he lodged his income tax return, Daniel made a note on his credit card statement to the effect that the transaction related to his
professional subscription fees. This will be sufficient to substantiate the claim.
Example 2
Kylie, having just started her first full time job as a clerical worker, purchased a pen to use at work. She bought it from a jeweller’s shop for
$50. She also bought a pair of earrings for $100 and paid for both items on her credit card. Having never completed a tax return before, she
was not aware that the pen would be a deductible expense. She did not request or receive a receipt.

When it was time to prepare her return, Kylie realised that she could claim her pen as a work expense. She checked her credit card statement and found that it showed an amount of $150 and the name of the jeweller’s shop. Initially, she decided it would be safest not to claim
for the pen because she had no specific receipt and she was not sure of the exact amount. However, she had kept the box the pen came in
and noted the $50 price sticker on the outside. Before lodging her income tax return, Kylie made a note on the credit card statement
detailing the two items and their respective prices and kept the packaging along with her bank statement. Kylie now has sufficient
information to substantiate her claim.
Had Kylie not kept the box but instead obtained a written breakdown of purchases from the jewellery store, she would also have been able to
make a note on her credit card statement detailing the two items and their respective prices, which would have been sufficient evidence to
substantiate her claim.
Examples of other written evidence are:
• Income Statement or PAYG Payment Summary – may show union fees
• BPAY reference number combined with a tax invoice or email receipt
Electronic copies (such as a scan or photo) that are a true and clear reproduction of the originals are also acceptable.
WARNING
Income Statements show certain amounts deducted from wages after tax, such as union fees and workplace giving. These amounts
should be confirmed with the client before claiming a deduction, particularly if they appear excessive, as employers may have included other
amounts that have been deducted by the employer from wages, such as child support payments.

WHEN SUPPORTING DOCUMENTS MUST BE AVAILABLE

For most work-related expenses, there is no time limit for obtaining written evidence, but until written evidence is available, the taxpayer is
not entitled to a deduction for the expenses. If, when the tax return is lodged for the income year, there is good reason to expect that written
evidence will be available for an expense within a reasonable time, a deduction can be claimed. If the evidence is not available within a
reasonable time, the entitlement to the deduction ceases and the assessment may be amended to disallow the deduction.
However, in the case of expenses recorded in a diary, the diary entry must be made as soon as possible after incurring the expense and the
record must be available prior to lodging the tax return.

Lost or Destroyed Documents
Generally, if the taxpayer’s records are lost or destroyed, the ATO will disallow the claim. However, there are exceptions to this. The rules will
be waived in circumstances where the taxpayer can show that the original documents were lost or destroyed in circumstances beyond their
control. A fire or police report would normally be required as evidence of the incident. The taxpayer could be expected to show they took
reasonable precautions to prevent any such loss

TAX ALLOWANCES

Receiving an allowance from an employer to cover an anticipated expense does not automatically entitle the taxpayer to a deduction – they must still meet the rules above to make a claim. The taxpayer can only claim the amount they have paid for the expense incurred, regardless of the amount of the allowance they have received from their employer.

Example: Craig received a tool allowance of $600 and his tool expenses were $250. The whole amount of the allowance ($600) is included as income at Item 2 on his tax return and the $250 deduction is claimed at Item D5.

WORK RELATED EXPENSES

Deductions for work related expenses are claimed at the following items of the tax return:
D1 Car expenses
D2 Travel expenses
D3 Clothing, laundry and dry cleaning expenses
D4 Self education expenses (in relation to a course to get a formal qualification from a school, college, university or other place of
education)
D5 Other work-related expenses
D6 Low value pool deduction – a deduction for the decline in value for certain low cost and low value assets. This may include a
deduction in relation to work related expenses, rental or investment income

Work-related clothing, laundry & dry cleaning

CONVENTIONAL CLOTHING

Clothing expenditure is generally considered private in nature. A deduction is not generally available for conventional clothing. Conventional
clothing is ‘everyday’ clothing that would ordinarily be worn, or could reasonably be worn, irrespective of whether the wearer is working or
not. For example, a pair of jeans and a shirt could be worn at the workplace or as ordinary casual wear.
Expenditure on clothing is only deductible where there is sufficient connection between the clothing and the activities involved in the
production of assessable income.
It is not sufficient that clothing be important to the taxpayer’s occupation or profession or that the employer specifically requires the
employee to incur the expense. A manager’s suit is conventional clothing even if it is an express or implied condition of employment that the
manager wears a suit, or the manager is the only person in the workplace who wears a suit and the manager only wears the suit to work. It
is not deductible.
Example
Kayne is employed as a waiter in a wine bar and is required by his employer to wear a white collared shirt, black trousers and black shoes.
Notwithstanding his employer’s specific instructions, Kayne’s clothing remains conventional, maintains its private nature, and is not
expenditure incurred in earning his employment income. Kayne cannot claim a deduction for the purchase of this clothing.
Examples of non-deductible clothing include:
• tracksuits and sports clothes for sports teachers
• dinner suit for a senior public servant to attend formal ‘black tie’ functions as expected by his department
• solicitor’s suit bought solely for the purpose of appearing in court
• dinner suits for members of an orchestra
• waiter’s black trousers (or skirt) and white shirt
• an employer’s brand name conventional clothing, such as a t-shirt, that a sales assistant must wear as a condition of employment.
Conventional clothing – special circumstances
A deduction for conventional clothing can be claimed where there is a significant connection between the expenditure on the clothes and
the taxpayer’s income producing activities.

Examples of situations where conventional clothing may be claimed are:
• a professional actor buys clothing to wear on stage as a costume in a particular production
• a police officer is required to wear clothing of a kind he does not normally wear (e.g. where he poses as a criminal as part of undercover
law enforcement activities)
• conventional heavy duty work clothing – worn for protection (see protective clothing below)
The fact that conventional clothing is damaged at work does not necessarily make the repair or replacement of the garment a deduction.
Example
Rachael stains her floral dress with hair dye while colouring a client’s hair. A deduction is not allowable for the laundry or the replacement of
the dress. However, had Rachael stained a protective apron in the same circumstances, she would be able to claim a deduction for the
laundry or replacement of the apron.
There are some types of clothing that can be claimed as the expenditure has the character of an income producing expense (TR 97/12 and
TR 2003/16). These types of clothing are claimed at Item D3 of the tax return and require the appropriate code:
P Protective Clothing
S Occupation Specific Clothing
C Compulsory Clothing
N Non-Compulsory Clothing

PROTECTIVE CLOTHING (P)

A deduction can be claimed for clothing, footwear and other protective items where the items are designed to protect the wearer from the
risk of illness or injury or to prevent damage to ordinary clothes caused by the work environment.
Expenditure on protective clothing and other protective items will have sufficient connection with an income producing activity to be
deductible where:
• the taxpayer is exposed to the risk of illness or injury in the course of carrying out their income producing activity
• the risk is not remote or negligible and
• the protective item is of a kind that provides protection from that risk and would reasonably be expected to be used in the
circumstances.
(TR 2003/16)
Where expenditure on items used to protect against the risk of illness or injury is incurred as part of normal personal requirements, it will be
private or domestic in nature. For instance, a deduction cannot be claimed for prescription glasses only because of short sightedness.
Similarly, expenditure on warm clothing merely for protection where the weather may be cold, but not extreme, is not tax deductible even if
the clothing is worn only at work. The character of the expenditure is essentially concerned with meeting personal needs of modesty,
decency and warmth.
NOTE
The work-related portion of protective items such as hard hats, safety glasses, facemasks and sunscreens are claimed at Item D5. It is only
expenditure related to protective clothing and footwear that is claimed at Item D3. However, the conditions that are required to be satisfied
for the items to be deductible are the same, so we will discuss these together.
Clothing or items that are deductible as they protect a person from injury include:
• safety or steel cap boots
• non slip nurses’ shoes
• protective gloves
• high visibility (HI VIZ) clothing
• fire resistant clothing
• woollen outer garments worn by blast furnace operators because the fire-retardant quality of the wool would afford some protection
• waterproof jacket, woollen jumper and thick socks worn when working outdoors during winter in alpine areas
• thermal clothing or special cold room gear for working in cold rooms
• heavy duty shirts and trousers
• sun protective clothing (including sun hats)
• heavy duty occupational wet weather gear and in some circumstances conventional wet weather gear.
• safety glasses (including prescription safety glasses)
• sunglasses, where required to work outside (including prescription sunglasses)
• facemasks and face shields
• earplugs
• hard hats and safety helmets
Clothing or items that are deductible as they protect conventional clothes include:
• overalls
• dust jackets
• aprons
• white coats of the kind worn by dentists and laboratory technicians
The type of personal protective equipment (PPE) a taxpayer can claim as a deduction will depend on the nature of the employment duties.
Where a taxpayer is working in a job that requires physical contact or close proximity with customers, clients or work colleagues during
COVID-19, they are able to claim a deduction for face masks, if they have paid for the masks themselves and have not been reimbursed.
Where a taxpayer’s work duties either:
• bring them in close contact with clients or customers or
• involve cleaning a premises,
they will be able to claim a deduction for items such as gloves, sanitisers or anti-bacterial spray.
This will usually be people working in the following industries:
• medical industry
• cleaning industry
• airline industry
• hairdressing and beautician industry
• retail, café and restaurant industry.
Conventional heavy-duty clothing – worn for protection
Although conventional clothing would generally be regarded as non-deductible private expenditure, where the clothing is worn to help prevent illness or injury at work it may be deductible.
Clothing, such as jeans, cotton drill trousers and shirts, is widely worn in the community. It does not have a distinct or direct link with any
particular occupation and retains its conventional nature even if it is not worn outside the workplace.
However, where the clothing is made of heavy-duty denim or heavy-duty drill and the clothing is purchased specifically to provide additional
protection than that provided by everyday jeans or drill clothing, then a deduction may be allowable. It should be noted that heavy-duty clothing (e.g. drill shirts, drill pants) will only be deductible where the taxpayer is engaged in an occupation where the extra protection is necessary to prevent injury. It is not sufficient to have simply bought heavy-duty clothing to wear to work. Heavy duty shorts do not provide sufficient protection to enable the taxpayer to make a claim for these items. See TR 2003/16.
Example
A station hand has a range of duties that includes mustering on horseback and motorbike, cattle dipping and fencing. She
purchases jeans to wear as protection from chafing, burns, chemicals and barbed wire. The jeans are only worn at work.
The cost of the jeans is not
deductible. Although they provide some protection, they are not considered protective clothing as such.
Had she purchased heavy-duty jeans, overalls or other recognised protective clothing instead, she would have incurred a
deductible
expense.
Example
Jack is a welder and purchased two King Gee work shirts and two pairs of Hard Yakka drill pants to wear to work. The
thicker material gives him additional protection from the heat and sparks off his welding equipment. He also bought two
pairs of heavy-duty cotton drill shorts for the summer weather.
He would be allowed a deduction for the work shirts and drill pants, but the heavy-duty cotton drill shorts, that provide no
additional
protection from the hazards of his job, would not be allowed. The shorts have the nature of conventional clothing only.
Capital Expenditure on Protective Clothing
A deduction cannot be claimed under s 8-1 for expenditure if it is capital in nature. As most work-related protective items
(such as hats, clothing and sunglasses) are used more or less continuously in the course of income producing activities
and are often subject to
particularly harsh wear and tear, they need to be replaced reasonably frequently and are of little enduring benefit. In these
circumstances, the expenditure will be treated as being of a revenue and not capital nature.
If expenditure on a protective item is capital in nature, a deduction may be available under the uniform capital allowances
provisions. This is covered in a later module.

FOOTWEAR

The ATO take the view that most footwear is conventional in nature and therefore considered to be private or domestic.
Conventional footwear (such as dress shoes, casual shoes or joggers) is not allowable even if required by an employer. For
a claim to be allowed the taxpayer MUST demonstrate that the footwear either:
• forms part of a compulsory uniform (as discussed below), or
• fulfils a protective role reducing the risk of injury that is likely to be experienced whilst performing normal duties.
Although some footwear offers a level of protection (e.g. closed in shoes), unless the protection goes over-and-above a general level of foot
protection, no deduction will be allowed.
Examples of footwear that is deductible include:
• steel cap boots
• rubber boots for concreter, farm hand etc.
• special non-slip shoes for a roof tiler
• non-slip nurse’s shoes
Footwear manufactured specifically for an occupation will also be allowed (e.g. anti-static theatre shoes for a nurse, magnetic shoes for a
roof tiler).

OCCUPATION-SPECIFIC CLOTHING (S)

Occupation specific clothing is clothing that:
• is specific to the taxpayer’s occupation,
• is not conventional in nature, and
• allows members of the public to easily recognise the taxpayer’s occupation.
Examples of occupation-specific clothing are:
• a chef’s check pants
• security guard’s uniform
• a traditional nurse’s uniform (including cardigans and vests)
• cleric’s robes
• a judge’s robe
• a barrister’s silk robe and wig
What is not occupation-specific clothing?
Clothing that could be worn in a number of occupations is not occupation-specific clothing.
Shoes, socks, stockings and underwear can never form part of occupation-specific clothing.
Example
A person who wears a white coat and white trousers may be identified as a health worker but it is generally not possible to determine
whether the person is (for example) a dentist or a laboratory technician. Therefore, it is not possible to say that the clothing is specific to
their particular occupation. However, a deduction for the cost of some of these items, such as a white coat, may be allowable to a dentist or
a laboratory technician as protective clothing.
Occupation specific clothing distinctly identifies the employee as belonging to a particular profession, trade, vocation, occupation or calling.

COMPULSORY WORK UNIFORM / CORPORATE WARDROBE (C)

A work uniform/corporate wardrobe is compulsory when the employer strictly enforces a policy that requires the taxpayer to wear a set, or
single item, of clothing that identifies them as an employee of a particular organisation.
A deduction can be claimed for a set of distinctive clothing, such as trousers (or skirt), shirt (or blouse) and jacket if, when worn together,
they identify the taxpayer as an employee of a particular organisation.
A deduction can be claimed for a single item of clothing, such as a jumper, that has the employer’s logo embroidered on it.
Sets of clothing, single items of clothing, shoes, socks, belts and stockings may be included in a compulsory work uniform/corporate
wardrobe. This may apply, for example, to Defence Force Members and Police Officers.
Claiming sets and single items of clothing
A deduction can only be claimed for the cost of a set or a single item of clothing as a compulsory work uniform/corporate wardrobe if it is:
• distinctive,
• not available to be worn by the general public, and
• an employer strictly enforces a policy that the employee wears it at work.
Claiming shoes, socks, belts and stockings
A deduction can only be claimed for the cost of shoes, socks, belts and stockings if they:
• are an essential part of a distinctive compulsory uniform/corporate wardrobe,
• have the characteristics such as colour, style and type specified in the employer’s uniform/corporate wardrobe policy, and
• form part of an enforceable dress code.

NON-COMPULSORY WORK UNIFORM / CORPORATE WARDROBE (N)

A work uniform/corporate wardrobe is non-compulsory where an employer does not strictly enforce the wearing of this clothing at work.
This usually means that the taxpayer (not the employer) decides whether to wear particular types of clothing.
Important requirement
A deduction can only be claimed for a non-compulsory work uniform/corporate wardrobe if the employer has registered the design in the
Textile, Clothing and Footwear (TCF) Corporatewear Register,
AusIndustry,
Department of Industry, Science, Energy and Resources
The employer will supply a letter to their employees advising them about the registration of the work uniform.
Condition of eligibility
The design of the non-compulsory uniform must meet the Approved Occupational Clothing Guidelines. Some of the uniform design basics
to meet are:
• The uniform must be a complete outfit, e.g. dress, shirt and trousers, shorts, and/or skirt.
• A company identifier (discrete logo/name/initials) must be on all items in the uniform, including accessories.
• For clothing, the identifier must be at least 80% of a four cm square.
• For accessories, such as a tie or scarf, the identifier must be at least a one cm square.
• Identifiers must be in a contrasting colour or shade to the garments they are attached to in order to be visible from two metres away.
• Identifier must be permanently attached to each garment (e.g. embroidered, iron on, heat seal).
• The entire garment range can have a maximum of eight colours. This includes different shades of a colour and excludes those found in
the identifier.
• The number of colour/pattern/print combinations allowed is limited by the number of employees in a class.
• Where a variation on a uniform is worn by different groups in an organisation, there must be a common theme between these groups or
classes of employees, and the male and female uniform.
• The uniform must be appropriate for the duties of the employee.
Shoes, socks and stockings can never form part of a non-compulsory uniform. Neither can a single item of clothing such as, a jumper.

MAINTENANCE OF CLOTHING AND UNIFORMS

Costs of maintaining, cleaning and hiring clothing items are only deductible if the clothing itself is of a type that is allowable. This would include dry cleaning, washing, repairs and alterations.

LAUNDRY (TR 98/5)

A deduction can be claimed for the cost of washing (cleaning), drying and ironing uniforms, corporate wardrobes, protective clothing,
occupation specific clothing etc. (eligible work clothes) as laundry expenses.
Calculating laundry and dry cleaning expenses
The method used to calculate laundry expenses will depend on how the eligible work clothes are laundered (cleaned).
The following table lists some possible means of laundering (cleaning) and appropriate methods of calculating expenses.
Method of cleaning Method of calcuating expenses
Laundering at home Commissioner’s estimate
Laundromat Commissioner’s estimateortotal of actual expenses incurred
Dry cleaning Total of actual expenses incurred
Commissioner’s estimate
The Commissioner’s estimate of laundry expenses provides the following basis for working out a laundry claim:
If the load is made up of … then the claim can be …
eligible work clothes only $1 per load
eligible work clothes and other laundry items 50 cents per load
NOTE
The amount per load includes the cost of washing, drying and ironing.
If the Commissioner’s estimate is used as the basis of the claim, the following details should be kept:
• the number of times the clothes were washed during the year, and
• the type of clothes (work-related, private or both) that were included in each load.
If a different method is chosen to calculate the claim, an explanation of the basis of the calculation may be required.
Substantiating Laundry Expenses
Laundry expenses not exceeding $150
There is no need for written evidence of laundry expenses where:
• the total amount of laundry expenses is $150 or less, and
• the Commissioner’s estimate of laundry expenses is used to calculate the claim.
NOTE
A taxpayer may still be required to explain how they calculated their claim using the Commissioner’s rates.
Example
Joe works as a mechanic. He purchased protective overalls that cost $190 and boots that cost $130. He has receipts for these items. He
washes the overalls twice a week, in a separate wash, and has had 4 weeks leave during the year. Joe’s claim for laundry is calculated as:
= 2 x 48 weeks x $1
= $96 for laundry expenses.
Joe’s laundry expenses are less than $150, therefore he does not need to provide written evidence to verify his claim. However, he should
keep appropriate records to show how he worked out his claim.
Joe can claim a total of $416 ($190 + $130 + $96) at Item D3 of the tax return.
If Joe did not have receipts for his overalls and boots, he could claim a maximum of $300 at Item D3 of the return.
NOTE
Do not forget to allow for any leave taken during the year where the work-related clothing would not have been washed.
Laundry expenses more than $150
When laundry expenses are more than $150, written evidence of all laundry expenses may be required. The following table shows when written evidence of laundry expenses is required.
If laundry expenses are over $150 and total work expenses
(including laundry) are … then written evidence of …
$300 or less laundry expenses is not required
more than $300 all expenses, including laundry expenses, must be kept
Example
Melinda works as a plumber. She purchased protective overalls for $40. Her laundry expenses totalled $240. She has no other work-related
expenses. Although Melinda’s laundry expenses are more than $150, she will not need to provide written evidence because her total work
expenses of $280, including laundry expenses, do not exceed $300.
Example
Lisa works as a nurse. She wants to claim a deduction for the cost of laundering her nurse’s uniform ($170) and other work expenses of
$250. Lisa’s total work expenses ($420) are more than $300, therefore, if she wants to claim the full $420 she must keep evidence of all the
work expenses, (including laundry expenses) she incurred. If she can substantiate the other work expenses of $250, but not the laundry, she
can still claim laundry expenses of $150, giving her a total deduction of $400 at Item D3.
Dry cleaning expenses
A deduction can be claimed for dry cleaning expenses that are incurred maintaining tax-deductible clothes. The usual substantiation rules
apply to dry cleaning expenses.
Information submitted to the ATO
From 1 July 2019, the ATO require tax agents to provide details for tax deductions in individual returns. The details included at Items D1 to
D15 will be seen by the ATO, so care must be taken to ensure the calculations of items such as laundry are shown and the information provided is correct.