Tax on Clothing Allowance There had been several controversies about the tax perspective on Clothing Allowance, especially for workers in the banking space where always looking sharp and professional is key to their industry. I don’t know your take on the subject, but the Income Tax Act and Practice Note provide better perspective.

Section 4(2)(a)(iii) of the Income Tax Act (ITA) 2015 (Act 896), prescribes that a person who is ascertaining the profits or gains of an individual from employment for a Year of Assessment or part of that year shall include in the calculation personal allowances including cost of living allowance, subsistence, rent, entertainment, clothing, and travel allowance.

Section 130 (1)(c) of the ITA also provides that, ‘Where an individual incurs expenditure in respect of that individual, the expenditure is domestic to the extent that it is incurred in acquiring clothing for the individual, other than clothing that is not suitable for wearing outside of work.’

Clothing Not Suitable for Wearing Outside of Work
For the purpose of Section 130(1)(c), clothing would be considered not suitable for wearing outside of work, where among others:
- The employer’s logo is clearly embossed on the uniform, dress or clothing (a detachable badge is not sufficient to make it a uniform)
- It is customized with the name of the employer written on it
- It is a specialized or a safety clothing
- It is a ceremonial clothing of the employer/organisation (E.g. Friday wear)
- The employee would readily be recognised as wearing a uniform by a person on the street.

From the above, there is much clarity on how clothing allowance should be characterised. It is a taxable allowance and should be included in the assessment of profit or gains of an individual from employment unless the aforementioned criteria are met.

Please note that where an employer/organisation requires an employee to wear a specific attire (suits, jackets) other than those suitable for work only, it cannot be excluded from the chargeable income of that employee, since one can wear the attire to weddings, funerals, interviews etc that do not relate to the work.