6 March 2003 External T.I. 2003-0000025 - GIFTS OF FOOD MEALS AND ENTERTAINMENT

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: Whether gifts of food (e.g. a restaurant gift certificate), beverages (e.g. a private labelled bottle of wine) or entertainment (e.g. a book) are subject to the 50% rule in subsection 67.1(1) of the Act.

Position: Yes

Reasons: Subsection 67.1(1) applies for all purposes of the Act. Subsection 67.1(1) of the Act applies to an amount regardless of the taxpayer's classification of it as "advertising and promotion" or the fact that a taxpayer has not personally consumed the food and beverages or enjoyed the entertainment. In this respect, subsection 67.1(1) of the Act only requires that the amount in question be paid or payable in respect of the human consumption of food or beverages or enjoyment of entertainment.

Randy Hewlett, B.Comm.

XXXXXXXXXX 613-957-8973
2003-000002
March 6, 2003

Dear XXXXXXXXXX:

Re: Subsection 67.1 of the Income Tax Act (the Act)

We are writing in response to your letter dated January 24, 2003, regarding a technical interpretation request on the above-noted provision of the Act. We also acknowledge additional information provided in your telephone conversation with Randy Hewlett on March 3, 2003.

You have requested our views on whether a taxpayer's gift to a client of food, beverages or certain entertainment items are subject to the 50% rule in subsection 67.1(1) of the Act. Your general concerns are whether an amount is subsection to the 50% rule if:

? The taxpayer classifies it as "advertising and promotion" (versus "meals and entertainment"); or

? The taxpayer is not the individual who personally consumes the food and beverages or enjoys the entertainment.

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 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following general comments.

Subsection 67.1(1) applies for all purposes of the Act (other than sections 62, 63 and 118.2). Pursuant to this provision, any 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 the amount actually paid or payable and an amount that would be reasonable in the circumstances. For the purpose of this section, paragraph 67.1(4)(b) of the Act defines "entertainment" to include amusement and recreation. As well, subsection 67.1(2) of the Act enumerates specific exceptions to the application of subsection 67.1(1). For example, paragraph 67.1(2)(a) of the Act exempts food, beverages or entertainment provided in the ordinary course of a person's business of providing those items for or in the expectation of compensation (e.g. restaurants and hotels).

In our opinion, unless one of the exceptions in subsection 67.1(2) applies, subsection 67.1(1) reduces by 50% any otherwise deductible expense that is incurred for the human consumption of food or beverages or the enjoyment of entertainment, including the cost of a gift for a client. Further, subsection 67.1(1) of the Act applies to an amount regardless of the taxpayer's classification of it as "advertising and promotion" or the fact that a taxpayer has not personally consumed the food and beverages or enjoyed the entertainment. In this respect, subsection 67.1(1) of the Act only requires that the amount in question be "paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment" (emphasis added).

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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