13 May 2016 External T.I. 2016-0635601E5 F - Dépenses de commandite -- translation

Principal Issues: What is the tax treatment of some sponsorship expenses made to a golf club?

Position: None. General comments.

Reasons: Question of fact

XXXXXXXXXX I. Landry, M. Fisc.

2016-063560

May 13, 2016

Dear Sir,

Subject: Sponsorship Expenses

This letter is in response to your email of March 3, 2016 in which you inquired as to the tax treatment of certain sponsorship expenses incurred in favour of a golf club.

All statutory references herein are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th Supplement), c.1, as amended (the "Act").

Our Comments

This technical interpretation provides general comments on the provisions of the Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Generally, a taxpayer may deduct in computing income from a business or property reasonable expenses of a current nature incurred for the purpose of gaining or producing income where the deduction of these expenses is not otherwise limited, including under sections 18, 67 or 67.1.

In particular, under paragraph 18(1)(a), expenses are not deductible in computing the income of a taxpayer from a business or property, except insofar as they were made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property. This will usually be the case where an expense was made or incurred by the taxpayer with a view to increasing or maintaining the income from the business or property. The question of whether an expense was made or incurred by the taxpayer for the purpose of gaining or producing income from a business or property is a question of fact that cannot be resolved without an analysis of the specific circumstances of each situation.

In addition, subparagraph 18(1)(l)(i) denies the deduction of any expenses incurred in particular for the use or maintenance of a property that is a golf course or facility, unless the taxpayer made or incurred the outlay or expense in the ordinary course of the taxpayer’s business of providing the property for hire or reward. For that purpose, a golf facility does not include its dining room, function rooms, conference rooms, lounges or bar.

Furthermore, section 67 provides that no deduction may be made in respect of an otherwise-deductible outlay or expense, except to the extent that the outlay or expense was reasonable in the circumstances.

As for subsection 67.1(1), generally provides that an otherwise-deductible amount paid or payable in respect of the human consumption of food or beverages is deemed to be 50% of the lesser of the amount actually paid or payable and an amount that would be reasonable in the circumstances.

However, subsection 67.1(2) provides for exceptions to the application of the general rule in paragraph 67.1(1). For more details, we would refer you to Interpretation Bulletin IT-518R ARCHIVED, Food, Beverages and Entertainment Expenses. You will find this bulletin on the Canada Revenue Agency website http://www.cra-arc.gc.ca/E/pub/tp/it518r/README.html.

We trust that these comments will be of assistance.

Michel Lambert, CPA, CA, M. Fisc.
Manager
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and
Regulatory Affairs Branch