Principal Issues: Deductibility of costs incurred by an individual on a missionary trip.
Position: Question of fact but amounts do not appear to be connected to any business or employment. General comments on the charitable tax credit rules.
Reasons: The law.
XXXXXXXXXX 2009-034502
Michael Cooke, C.A.
January 13, 2009
Dear XXXXXXXXXX :
Re: Costs of a Volunteer on a Missionary Trip
This is in response to your letter dated October 20, 2009, wherein you asked whether there are any tax breaks where an individual (the "Taxpayer"), as part of a missionary trip, volunteered to assist in the construction of a XXXXXXXXXX and incurred travel and other related expenses in connection with that trip.
Our Comments
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 Canada Revenue Agency ("CRA") Tax Services Office. A list of TSOs is available on the "Contact Us" page of the CRA's website as well as copies of any publications mentioned herein. Notwithstanding the foregoing, we are prepared to offer the following comments.
Generally speaking, under the Income Tax Act (the "Act"), and subject to numerous rules, outlays or expenditures that are incurred by a taxpayer for the purpose of earning income from a particular source of income may be deductible in computing the income from that source for income tax purposes.
In order for an outlay or expenditure to be deductible in computing income from a source of income that is an office or employment, the particular expenditure must be reasonable and have been incurred for the specific purpose of earning such income and its deduction must otherwise be specifically enumerated by the rules in section 8 of the Act.
Similarly, in order for an outlay or expenditure to be deductible in computing income from a source that is a business, all the following tests must be met:
(a) the outlay or expenditure must have been made for the purpose of gaining or producing income from business (paragraph 18(1)(a) of the Act);
(b) the outlay or expenditure must not be on account of capital (paragraph 18(1)(b) of the Act);
(c) the outlay or expenditure must not be made for the purpose of gaining or producing exempt income (paragraph 18(1)(c) of the Act);
(d) the outlay or expenditure must not be a personal or living expenses of the taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer's business (paragraph 18(1)(h) of the Act); and
(e) the outlay or expenditure must otherwise be reasonable in the circumstances (section 67 of the Act).
While a question of fact, it appears that the Taxpayer has not incurred the particular expenditures in connection with any employment or business carried on by him. In such circumstances, the amounts paid by the Taxpayer would not be deductible under the Act.
However, if XXXXXXXXXX is a registered charity, the Taxpayer may be able to claim a charitable donation tax credit. To do so, the Taxpayer will need to have made a gift to the charity and have received a donation receipt from the charity for the eligible amount of the gift. A gift for tax purposes includes a gift of cash or a gift in kind, which is a gift of property. A gift of services is not a gift for tax purposes because services are not property.
Under proposed legislation, the eligible amount of the gift is equal to the fair market value of the gift less the value of any advantage or benefit (generally not to exceed 80% of the gifted property) received by the donor in respect of the gift. The advantage is generally the total value of any property, service, compensation, use or any other benefit that the donor is entitled to as partial consideration for, or in gratitude for, the gift.
We trust the above comments are of assistance.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
