1 May 1998 Internal T.I. 9807736 - EMPLOYER'S PRE-98 LIMIT ON EMP MEALS

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:

whether 98 budget proposal on 67.1(2)(e) impacts on our position with respect to the lack of exemption for meals provided at a special work site

Position:

no, the 98 budget proposal is consistent with our understanding of the provision as it applies before Feb 24, 1998

Reasons:

clarified that our position in respect of (e) in previous memoranda was not based on whether the meal was provided at a festive occasion rather than a business occasion but whether the meal was made available to all employees who worked at the same location - which is not normally the case in respect of meals provided at a special work site

		May 1, 1998
	Verification, Enforcement and	HEADQUARTERS
	  Compliance  Research Branch	A. Humenuk
	Large Business Audit Division

	Attention: Ian Rathwell
		980773
	Limitation on the Deduction of Meals provided to Employees

This is in response to your memorandum of March 23, 1998, concerning the application of paragraph 67.1(2)(e) of the Income Tax Act (the "Act").

As discussed on April 8, 1998 (Rathwell/Humenuk), it is your understanding that the memoranda written by the Directorate of December 11, 1995 (E9518687) and September 17, 1986 (E9618007) stand for the proposition that the exemption in paragraph 67.1(2)(e) of the Act only applies to meals provided to employees upon festive occasions. You have asked whether this position should be revisited in light of the amendments proposed in the 1998 budget. For meal and entertainment expenses incurred after February 23, 1998, the 1998 budget proposes to extend the exception in paragraph 67.1(2)(d) of the Act to expenses that would be required to be included in computing the income of an employee but for subparagraph 6(6)(a)(i) of the Act, as well as to limit the exemption in paragraph 67.1(2)(e) to 6 occasional events in a year. The proposed amendments also extends the exception to the 50% limitation to meal expenses incurred at work sites which are at least 30 kilometres away from the nearest urban area having a population of at least 40,000 persons.

The budget proposal is consistent with our position that the exception in subsection 67.1(2) of the Act as it currently reads does not eliminate the restriction on an employer's expense for meals incurred in respect of special work sites. This was the point we were making in our previous memoranda, and not whether the exception only applied to meals provided upon the occurrence of a festive occasion. The reason why we stated that paragraph 67.1(2)(e) has limited application is that, other than meals provided in the circumstances described in subsection 6(6) of the Act, the provision of a meal to an employee by an employer normally constitutes a taxable benefit to the employee. For a meal which constitutes a taxable benefit to the employee, paragraph 67.1(2)(d) applies to remove the 50% limit on the employer's cost of that meal. Paragraph 67.1(2)(d) also applies when a meal is provided to an employee at a remote work location such that subparagraph 6(6)(a)(ii) applies. However, for meal expenses incurred by an employer before February 24, 1998, no exception exists in respect of meals provided to employees at a special work site as that term is used in subsection 6(6) of the Act. Accordingly for meal expenses incurred before February 24, 1998, an employer's deduction was limited to 50% of the cost of meals provided to employees at a special work site unless paragraph 67.1(2)(e) of the Act applies which, as stated in our previous memoranda, was not normally the case.

Notwithstanding our comments in memoranda E9518687 and E9618007 and paragraph 11 of Interpretation Bulletin IT-518R , the determination of whether a special work site is a particular place of business of the employer involves a finding of fact. Under the wording of paragraph 67.1(2)(e) applicable to taxation years ending before July 14, 1990, an employer's cost was not subject to the 50% limitation if the meal was provided to all the employees at a particular location, including a special work site. The Technical Notes to Bill C-18 released by the Department of Finance on May 30, 1991 state that the purpose of the 1991 amendment was to clarify that the exemption only applied when the meal is made available to all the employees employed at a particular place of business of the employer. Consequently, it was necessary to determine the location where an employee was employed in order to determine if the employer's cost of a meal provided to that employee was excluded from the 50% limitation by reason of paragraph 67.1(2)(e) of the Act. If it is established that the meal was not made available to all the employees who are employed at that location, the exemption in paragraph 67.1(2)(e) did not apply.

The fact that an employee is performing temporary duties at a location away from the employer's regular place of business does not necessarily make that place the employer's place of business. As stated in memorandum E9618007, the location of a bus company's place of business would generally be the home terminal and not each bus which is driven by an employee. Similarly, when an employee travels away from the employer's regular place of business to perform a duty of employment elsewhere, the employer's place of business has not necessarily changed nor has a new place of business been created, although it may be that the employee is performing duties of employment at another regular place of business of the employer. In the case of an employer with several branch locations, an employee who is temporarily transferred to another location may be entitled to employer-provided meals which are excluded from income by reason of subparagraph 6(6)(a)(i) of the Act but the employer's cost of such meals under the current legislation would only be exempted from the 50% limit if the meal was provided to all the employees at that location, including those for whom it was not a special work site. If an employee is required to work at a customer's place of business for a temporary period of time and is provided with meals paid for by the employer that are excluded from the employee's income by reason of subparagraph 6(6)(a)(i) of the Act, the employer's cost of such meals is limited to 50% under the current legislation since the customer's place of business is not the employer's place of business and the meal so provided is not available to all the employees employed at the employer's place of business.

The situation which is most problematic under the current legislation is where an employer sends a group of employees to a location to perform the duties of employment for a period of time that is temporary but long enough that the place might be considered to be a place of business of the employer. Paragraph 11 of IT-518R suggests that such places will generally be considered to be the employer's place of business. Consider the situation in which the employer's business is making films. If the employer's head office is located in Vancouver but the film takes place on the Prairies, the employer may send a group of employees to Regina to make the film. Regina may be both a special work site for the employees involved with that particular film and a place of business for the employer. However, if the film requires one or two days shooting at various locations (in a forest, near a river, etc.), it is our view that each of those locations is not a place of business of the employer.

In light of the budget proposal to extend the exemption in paragraph 67.1(2)(d) to amounts paid to employees for meals at special work sites, the relevance of the issue raised in our previous memoranda is limited to expenses incurred before February 24, 1998.

P. Spice
Section Chief
Business, Property and Employment Section III
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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