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.
ADM'S OFFICE (3)
RETURN TO RULINGS, ROOM 303, MET. BLDG.
AUTHOR
SUBJECT OR CORPORATE FILE
November 9, 1994
XXXXXXXXXX
Dear XXXXXXXXXX:
I am responding to your letter of November 7, 1994 wherein you asked for the Department's view on the deductibility of meals and entertainment expenses in a particular scenario.
In order to be deductible, an expense must be incurred for the purpose of gaining or producing income from a business or property (paragraph 18(1)(a)), must be reasonable in the circumstances (section 67), and must not be restricted by any other provision of the Income Tax Act (for example, paragraph 18(1)(l) and section 67.1).
In the scenario which you outlined, you commented that the Canadian business was attempting to attract XXXXXXXXXX investment. In our view, to the extent that the XXXXXXXXXX investment would represent an investment in share capital of the Canadian business, the costs of entertaining possible investors may be denied on the basis that they are not incurred for the purpose of gaining and producing income from a business. I will comment on the restrictions which would apply on the assumption that the Canadian business was attempting to attract a XXXXXXXXXX customer.
Subparagraph 18(1)(l)(ii) specifically denies the deduction of fees paid to any club the main purpose of which is to provide sporting facilities to its members so that the deduction of the cost of admission to a fitness club and the cost of the massage while there would be denied under this provision. Section 67 restricts the deduction of expenditures to the extent that they are reasonable in the circumstances and whether the deduction of the cost of a $30 bottle of wine or the cost of a bottle of Dom Perignon is reasonable in the circumstances would be a question of fact. Accordingly, it is possible that after a review of all the facts of the situation that section 67 could apply to deny the cost of the bottle of Dom Perignon. In addition, section 67.1 would apply to restrict the deduction of all the other meal and entertainment type expenditures to 50% of that incurred.
I trust that this information will be of assistance.
Denis Lefebvre
Interim Assistant Deputy Minister
Policy and Legislation Branch
R. Albert
957-2100
