15 July 2004 External T.I. 2004-0078521E5 - Deduct. of Meals Invoiced To A Client

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.

Principal Issues: Whether the cost of meals incurred in respect of a business would be fully deductible when they are invoiced separately to a client.

Position: Question of fact.

Reasons: There is an exception to the application of subsection 67.1(1) of the Act in paragraph 67.1(2)(c) in respect of amounts for which another person compensates the taxpayer.

XXXXXXXXXX

Randy Hewlett, B.Comm.

613-957-8973
2004-007852
July 15, 2004

Dear XXXXXXXXXX:

Re: Deductibility of Meals Invoiced To A Client

We are writing in response to your e-mail of May 27, 2004, wherein you requested our opinion on whether the cost of meals incurred in respect of a business would be fully deductible when they are invoiced separately to a client.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following comments.

In computing income from a business or property, a taxpayer can generally deduct reasonable expenses to the extent that they were made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property. Subsection 67.1(1) of the Income Tax Act (the "Act"), however, provides that an otherwise deductible amount paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment is restricted to 50% of the lesser of the amount actually paid or payable and an amount that is reasonable in the circumstances.

There are exceptions to the application of subsection 67.1(1) of the Act contained in subsection 67.1(2), including an exception in respect of amounts for which another person compensates the taxpayer. Under paragraph 67.1(2)(c) of the Act, the 50% limitation does not apply if the amount paid or payable by the taxpayer for the food, beverages or entertainment is an amount for which the taxpayer is compensated by another person and the amount of the compensation is reasonable and specifically identified in writing to the person who is paying the amount. For example, where a self-employed individual expends a reasonable amount for meals while away from home, if the amount is billed to a client and specifically identified on the invoice as an expense relating to meals, the self-employed individual would be entitled to fully deduct the expense. It should be noted, however, that the 50% limitation would apply to the client. For more information on the application of these provisions, see Interpretation Bulletin IT-518R Food, Beverages and Entertainment Expenses, which can be found on our website at http://www.ccra-adrc.gc.ca.

We trust our comments will be of assistance to you.

Yours truly,

Randy Hewlett, B. Comm
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch