22 November 2000 Internal T.I. 2000-0051727 - MEAL, BEVERAGES & ENTERAINMENT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Is paragraph 67.1(2)(c) or (e) of the Act applicable to meals supplied to a film crew shooting television commercials on location?

Position: No. However, paragraph 67.1(2)(d) may apply.

Reasons: Paragraph 67.1(2)(c) does not apply since the compensation received by the film company for amounts paid or payable in respect of the consumption of food or beverages was not specifically identified in writing to the person paying the compensation. Paragraph 67.1(2)(e) - as it read prior to expenses incurred before February 24, 1998 - does not apply since a location where filming is done for a day or two is not a particular place of business of the film company. Paragraph 67,1(2)(d) would have application to the extent the meals were provided to an employee who was required to report such a taxable benefit pursuant to section 6 of the Act.

		November 22, 2000

	XXXXXXXXXX  Tax Services Office	HEADQUARTERS
	XXXXXXXXXX 	Jacques E. Grisé
	Verification and Enforcement Division	957-2059

2000-005172

Meal Deduction Limitation

This is in reply to your memorandum of October 13, 2000 requesting our opinion with respect to the application of paragraph 67.1(2)(c) of the Income Tax Act (the Act) and paragraph 7 of Interpretation Bulletin IT-518R, Food, Beverages and Entertainment Expenses.

The facts of your audit are as follows:

• XXXXXXXXXX (the company) films television commercials for its clients who are Canadian advertising agencies.
• The filming is on location, primarily in and around the XXXXXXXXXX area. The company's office and place of business is in XXXXXXXXXX.
• The company prepares detailed job quotes when it is requested by an advertising agency to bid on a specific television commercial. The quotes are made on standardized forms titled "XXXXXXXXXX".
• The quotes are submitted to the advertising agencies for approval. Eventually the total cost of filming the commercial is agreed to between the company and the advertising agency. The company then adds a XXXXXXXXXX% mark-up of the total cost shown on the quote forms.
• The Quote forms have line by line estimates of costs for every type of category that is a part of the production of a television commercial including an item entitled "XXXXXXXXXX".
• The "XXXXXXXXXX" are budgeted as the estimated number of personnel (part-time employees, independent contractors and employees) who will be at the filming location multiplied by the estimated per capita cost of catered food delivered to the filming location.
• The "XXXXXXXXXX" consist of catered food delivered to the shooting site. These meal expenses are deducted in the cost of sales job account by the company. There is no reference on the company's billings to the actual cost of the meals provided.
• The company compares budgeted versus actual results for internal purposes. There is no adjustment to customers' invoices with respect to the individual categories on the quote forms with respect to the actual expenses incurred.
• XXXXXXXXXX.
• The company does not have any arrangement with its customers whereby the customer is notified of the actual cost of the meals or that the customer will notify its ultimate client of the meal cost.
• None of the company, their customers or the ultimate client restricts the deduction of the meal expense in accordance with section 67.1 of the Act.
• The company does not report the taxable benefit arising from the catered meals on any T-4s. Therefore, neither the employees nor the casual independent contractors hired for a specific film shooting report any taxable benefit for the meals.
• The transactions in question occurred during the period XXXXXXXXXX.

We agree with your position that each of the filming locations of the company where filming is done "on location" in XXXXXXXXXX do not constitute a "particular place of business" of the company as contemplated by paragraph 67.1(2)(e) of the Act, as it read for expenses incurred prior to February 24, 1998. In our view, it would be difficult to argue that a location used by the company for one or two days constitutes a place of business of the company. Also, one should consider the meaning of employed within the context of "employed by the person at a particular place of business of the person". In this context, employed, in our view, should be interpreted as being more of a reference to the employee's normal place of employment and not a temporary work location. In this regard, it can be said that an employee may perform certain functions at different locations of the employer and at locations of customers or clients but an employee would be considered to be employed at the employer's place of business where work is normally reported for, direction is received, pay cheques are picked up, etc. An individual would be considered to be employed at one particular place of business rather than being employed at every different location that each performs a function of their employer. These comments apply equally to paragraph 67.1(2)(f) of the Act for expenses incurred after February 23, 1998.

In our view, the company has not met the onus in paragraph 67.1(2)(c) of the Act of specifically identifying in writing the amount paid or payable by the company in respect of the consumption of food to the person paying the compensation (i.e. the advertising agency). The company provided the advertising agency with a written estimate of the cost of food to be consumed at the filming location, not a written statement of the amount paid or payable by the company for the cost of food consumed. Our understanding of the intent with respect to paragraph 67.1(2)(c) of the Act is that the customer would have to apply the 50% restriction on the specific costs identified in the billing by the person paying the cost of food, beverages or entertainment. This is not possible under the type of billing, based on estimates, used by the company.

Although your facts indicate that the company did not report the taxable benefit arising from the catered meals on any T-4s, the possible application of paragraph 67.1(2)(d) of the Act should nevertheless be considered. Paragraph 67.1(2)(d) of the Act should apply to the extent that the cost of a meal provided to an employee is required to be included in that employee's income because of the application of section 6 of the Act.

We hope our comments are helpful.

John Oulton
Manager
Business, Property and Employment
Income Section III
Business and Publications Division
Income Tax Rulings Directorate

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