21 August 2002 External T.I. 2002-0153455 - MEALS PROVIDED AT A YOUTH FACILITY

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Are Meals Provided At A Youth Facility Subject To The 50% Limitation?

Position:

No.

Reasons:

67.1(2)(a)

XXXXXXXXXX 	2002-015345
					         			         Randy Hewlett, B.Comm.
August 21, 2002

Dear XXXXXXXXXX:

Re: Meals Provided At A Youth Facility

We are writing in response to your letter dated July 22, 2002, wherein you requested our opinion on whether the cost of meals provided to residents of a youth facility are subject to the application of subsection 67.1(1) of the Income Tax Act (the Act).

You describe a situation where a corporation operates a facility that provides "housing and supervision to troubled youth", including providing meals to the youths. You inquire whether the cost of providing these meals is subject to the 50% limitation in subsection 67.1(1) of the Act.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (TSO). However, we offer the following comments.

Subsection 67.1(1) of the Act provides that an amount paid or payable in respect of the human consumption of food or beverages, or the enjoyment of entertainment is deemed to be 50% of the lesser of:

(a) The amount actually paid or payable in respect of these items; and

(b) An amount that would be reasonable in the circumstances to pay for such items.

Subsection 67.1(2) of the Act provides several exceptions to this 50% limitation. Under paragraph 67.1(2)(a) of the Act, the 50% limitation does not apply if the amount is paid or payable for food, beverages or entertainment to be provided in the ordinary course of a person's or a partnership's business of providing the food, beverages or entertainment for compensation or in expectation of compensation. This exempts, for example, restaurants, hotels and airlines from the 50% limitation if the expenses are incurred to provide food, beverages, or entertainment to paying customers.

In our view, if the revenue earned by the corporation includes compensation for the meals provided at the youth facility, the exception in paragraph 67.1(2)(a) of the Act would apply to the cost of the meals provided to the youths. You should note, however, that subsection 67.1(1) of the Act may apply to other expenditures for food, beverages or entertainment incurred by the corporation.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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