16 February 2004 External T.I. 2004-0057101E5 - Subsection 67.1(1) of the Act

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.

Principal Issues: Whether the cost of coffee and water a business provides to clients and staff is subject to the 50% rule in subsection 67.1(1) of the Act.

Position: Yes.

Reasons: Subsection 67.1(1) of the Act provides that an otherwise deductible amount paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment is restricted to 50% of the lesser of the amount actually paid or payable and an amount that is reasonable in the circumstances. This restriction applies to the costs incurred by a business for coffee and water provided to clients and staff. There are exceptions to the application of subsection 67.1(1) of the Act contained in subsection 67.1(2), but it is not evident that any of these exceptions are applicable in the situation described.

Randy Hewlett, B.Comm.

XXXXXXXXXX 613-957-8973
2004-005710
February 16, 2004

Dear XXXXXXXXXX:

Re: Subsection 67.1(1) of the Income Tax Act (the "Act")

We are writing in response to your letter of January 16, 2004, wherein you requested our opinion on whether the cost of coffee and water a business provides to clients and staff is subject to the 50% rule in subsection 67.1(1) of the Act.

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 comments.

Subsection 67.1(1) of the Act provides that an otherwise deductible amount paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment is restricted to 50% of the lesser of the amount actually paid or payable and an amount that is reasonable in the circumstances. In our view, this restriction applies to the costs incurred by a business for coffee and water provided to clients and staff. There are exceptions to the application of subsection 67.1(1) of the Act contained in subsection 67.1(2), but it is not evident that any of these exceptions are applicable in your situation. For more information on the application of these provisions, see Interpretation Bulletin IT-518R Food, Beverages and Entertainment Expenses. This publication can be found on our website at http://www.ccra-adrc.gc.ca.

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 Planning Branch