CRA finds that an incentive Caribbean trip is “entertainment” under s. 67.1

A Canadian company provided free annual trips to Caribbean (or the like) resorts to the high-performing brokers and sales agents for its products or services (the "Sellers").  Where the Seller was an individual independent contractor, 50% of the Canadian company’s costs were denied under s. 67.1 because the trips constituted "entertainment" (notwithstanding that the Sellers were required to attend some morning sessions explaining the company’s products).

Where the Seller worked for his or her own personal corporation, "the value of the trip must be included in the computation of the income of the [personal] corporation by virtue of section 9."  (Note that on similar facts in Philp, only half of the cost of the trip was included in the personal corporation’s income.)   Furthermore, the Canadian promoting company was not in this case subject to the 50% expense denial under s. 67.1 if the value of the trip enjoyed by the shareholder-employee of the personal corporation (i.e., the Seller) was included in his or her income qua employee under s. 6(1)(a) rather than in income under s. 15 qua shareholder.

Neal Armstrong.  Summaries of 18 December 2013 Memo 2012-0472211I7 F under s. 67.1(4)(b), s. 6(1)(a), s. 9 – Nature of income, and s. 67.1(2)(d).