Principal Issues: [TaxInterpretations translation] In this case, can the taxpayer either deduct the cost of clothing (a suit of clothes) from his business income or, alternatively, can he claim capital cost allowance in respect of the cost of the clothing?
Position: No. This is a personal or living expense under paragraph 18(1)(h) of the Income Tax Act.
Reasons: The Income Tax Act.
XXXXXXXXXX 2005-015525
May 16, 2006
Dear Sir,
Subject: Request for Technical Interpretation - Deductibility of Clothing Expenses
This is further to your email dated October 19, 2005, in which you requested a technical interpretation of the tax treatment of expenses incurred by a minister of a religion for the purchase of suits. We regret the delay in responding to your question.
SITUATION
Your request for a technical interpretation raises the case of a self-employed person who is a pastor (the "taxpayer") for a religious order. Because of his profession, he must regularly wear suits - jacket, shirt, tie, pants - which requires him to incur significant costs.
QUESTIONS
You wish to determine whether the taxpayer may deduct the cost of the clothing from his business income or, alternatively, whether he may claim capital cost allowance in respect of the cost of such property.
ANALYSIS
In a telephone discussion (Bordeleau/XXXXXX), you indicated to us that the Canada Revenue Agency ("CRA") had already determined that the taxpayer in question was self-employed in the course of his duties. While our interpretation assumes that this is the case, we have not been able to confirm that such a determination has been made. Thus, our interpretation should not be taken as confirmation of the taxpayer's self-employed status.
In addition, due to the limited facts you have provided, we are only able to provide the following comments.
Case law has established that an expenditure for clothing, suits or uniforms is generally a capital expenditure that is not deductible in computing a taxpayer's business income pursuant to paragraph 18(1)(b) of the Income Tax Act (the "Act"). However, the cost of uniforms may be included in Class 12 of Schedule II of the Income Tax Regulations ("ITR") and the cost of clothing and costumes may be included in Class 8 of Schedule II for capital cost allowance purposes. However, in order to claim capital cost allowance on property, a taxpayer must have acquired the property for the purpose of earning income. It is our view that a self-employed individual has acquired clothing, suits or uniforms for the purpose of earning income only when such property is acquired specifically for the purpose of earning income from self-employment.
Where a taxpayer acquires clothing that can be used both in the taxpayer's business activities and in the taxpayer's personal activities, such as a suit as in this case, the CRA takes the position that such expense is a personal or living expense that is not deductible by virtue of paragraph 18(1)(h).
CONCLUSION
In summary, and as a result of the above comments, we are of the view that the cost of the clothing in this case is not deductible from the taxpayer's business income and does not qualify for capital cost allowance.
If you have any comments or questions regarding this document, please do not hesitate to contact us.
Best regards,
François D. Bordeleau, LL.B.
Individuals, Business and Partnerships Section
Income Tax Rulings Directorate