20 July 2000 External T.I. 2000-0034905 - DEDUCTIBILITY OF BUSINESS EXPENSES

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 the travelling expenses of a group of farmers incurred when visiting New Zealand may be deducted for income tax purposes.

Position: Question of fact.

Reasons: Under subsection 9(1) of the Act, a taxpayer's income from a business or property is the "profit" therefrom for the year, subject to the particular rules in Part I of the Act. Some of these rules are: (i) under para. 18(1)(a), expenses must be incurred for the purpose of producing or gaining income from a business or property, (ii) under para. 18(1)(h), personal or living expenses may not be deducted, except for travel expenses incurred by a taxpayer while away from home in the course of carrying on the taxpayer's business, (iii) under section 67, an outlay or expense is only deductible in computing income to the extent that it was reasonable in the circumstances, and (iv) under paragraph 18(1)(b), an outlay, loss or replacement of is not deductible unless expressly permitted under the Act.

XXXXXXXXXX 	J. Gibbons
		2000-003490
July 20, 2000

Dear XXXXXXXXXX:

We are replying to your facsimile of June 29, 2000, on behalf of a group of XXXXXXXXXX farmers. A representative of this group wishes to know whether the travelling expenses that will be incurred by the farmers on a trip to New Zealand may be included as a farm expense and deducted in computing income for income tax purposes. We offer the following general comments.

Under subsection 9(1) of the Income Tax Act (the "Act"), a taxpayer's income from a business or property is the "profit" therefrom for the year, subject to the particular rules in Part I of the Act. One of the more general rules within Part I is paragraph 18(1)(a), which provides that no outlay or expense is deductible in computing the income of a taxpayer from a business or property unless it was made or incurred for the purpose of producing or gaining income. Another general rule is paragraph 18(1)(h) which denies the deduction of personal or living expenses, except for travel expenses incurred by a taxpayer while away from home in the course of carrying on the taxpayer's business. The deduction of an outlay or expense is also subject to the general rule in section 67 of the Act, which provides that an outlay or expense is only deductible in computing income to the extent that it was reasonable in the circumstances. While reasonable expenses which are laid out to produce income from a business or property are normally deducted in the year in which they are incurred, expenses laid out on account of capital are normally deducted over time.

The question of whether an outlay or expense is deductible in computing income for income tax purposes is a factual determination based on the rules set out in Part I of the Income Tax Act, as discussed above. Thus, in order to make such a determination, one must consider all of the surrounding facts and circumstances in each case. Where a taxpayer combines business travel with a personal vacation, the taxpayer must make an allocation on some reasonable basis to eliminate those expenses that are essentially for vacation purposes.

We trust that these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate

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