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: What portion, if any, of the expenses of taking employees or customers to a resort would be deductible in three scenarios presented?
Position: Scenarios one and three represent the two extremes and clearly the first situation is deductible and the third is not. The second scenario is an even split between attending meetings and participating in recreational activities. The facts would need to be reviewed to determine what the principal activity was.
Reasons: We indicate in paragraph 3 of IT-148R3 that paragraph 18(1)(l) will not be applied if a hotel or lodge is used for a genuine business purpose which does not include the entertainment or recreation of clients or employees. There could be situations where half the normal work day or work week is used for business meeting but the main activity would nevertheless be recreation. If the main activity is recreation then 18(1)(l) applies and there is no deduction (i. e. the expenses related to the prorated portion of the time used for business cannot be deducted).
XXXXXXXXXX 2000-003953
J. E. Grisé
March 2, 2001
Dear XXXXXXXXXX:
Re: Use of a Resort Facility
This is in reply to your letter of July 24, 2000, requesting a technical interpretation regarding the deductibility of the use of a resort facility. We apologize for the delay in our response.
Our comments are given in accordance with the practice of providing opinions referred to in paragraph 22 of Information Circular 70-6R4, Advance Income Tax Rulings, dated January 29, 2001 and are not binding on the Canada Customs and Revenue Agency.
Your request relates to the deductibility of the use of a resort facility under three scenarios as follows:
Scenario One - A corporation takes employees or customers to a resort to attend meetings. The employees participate in recreational activities while at the resort, but the main activity is a business-related conference.
Scenario Two - A corporation takes employees or customers to a resort to attend meetings and participate in recreational activities. The employees spend 50% of their time at meetings and 50% on recreational activities.
Scenario Three - A corporation takes its employees to participate in recreational activities. The employees and customers attend some meetings while at the resort, but the main activity is recreation.
Your main concern seems to be with the position set out in paragraph 3 of Interpretation Bulletin IT-148R3 which reads as follows:
"If a resort hotel or lodge is used for a genuine business purpose which does not include the entertainment or recreation of clients, suppliers, shareholders or employees, the related expenses are not considered to be subject to paragraph 18(1)(l). Notwithstanding the above, paragraph 18(1)(l) applies in situations where some business meetings may be involved but the main activity is recreation or entertainment."
Since the main activity in scenario one is a business-related conference, we agree with your conclusion that the use of the resort would be deductible, subject to the 50% limitation in subsection 67.1 of the Income Tax Act (the Act). This would be the case even if the facilities meet the definition of a lodge.
We do not agree that the resort costs would need to be prorated in scenario two to determine the amounts that would be available for deduction, subject to the 50% limitation. In our view, if the main activity is recreation or entertainment no portion of the costs is deductible and if the main activity is a genuine business purpose other than recreation or entertainment the costs would be deductible subject to the 50% limitation. The determination of the main activity can only be determined by a review of all the facts in a particular situation.
We agree that none of the cost of the resort would be deductible in scenario three.
We hope our comments are helpful.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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