8 July 2004 External T.I. 2004-0074581E5 - Expenses for Canadian Lobbyists

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: Can a corporation resident in Canada deduct the salaries and other expenses of employees whose primary duties are to lobby the government?

Position: Question of fact. Provided the expenses are paid and incurred to make a representation relating to a business carried on by the taxpayer.

Reasons: 20(1)(cc) of the Act

XXXXXXXXXX
2004-007458
Luisa A. Majerus
(613) 946-3558
July 8, 2004

Dear XXXXXXXXXX:

Re: Expenses for Canadian Lobbyists

This is in reply to your letter of May 8, 2004, requesting our views on whether lobbyist expenses incurred by a corporation resident in Canada are deductible for income tax purposes. In addition, you requested information on the types of lobbyist expenses that would qualify for such a deduction.

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 are prepared to offer the following general comments.

In computing the income of a taxpayer from a business or property, paragraph 18(1)(a) of the Income Tax Act (the "Act") prohibits the deductibility of an expense unless it was made or incurred by a taxpayer for the purpose of gaining or producing income from the business or property. Paragraph 18(1)(b) of the Act provides a similar rule for capital expenditures. However, paragraph 20(1)(cc) of the Act provides an exception to these general rules for expenses paid by the taxpayer to make representations to certain governments or its agencies, as follows:

20(1) - Notwithstanding paragraphs 18(1)(a), (b) and (h), in computing a taxpayer's income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(cc) an amount paid by the taxpayer in the year as or on account of expenses incurred by the taxpayer in making any representation relating to a business carried on by the taxpayer,

(i) to the government of a country, province or state or to a municipal or public body performing a function of government in Canada, or

(ii) to an agency of a government or of a municipal or public body referred to in subparagraph (i) that had authority to make rules, regulations or by-laws relating to the business carried on by the taxpayer,

including any representation for the purpose of obtaining a licence, permit, franchise or trade mark relating to the business carried on by the taxpayer.

The Act does not define the specific types of expenses that qualify for the deduction under paragraph 20(1)(cc). In our view, depending on the facts of the situation, such expenses could include wages, travel costs or other related expenses paid by the taxpayer in the year to make the representation. Where an amount paid qualifies as an expense of representation, the taxpayer will be allowed to deduct the full amount of the expense in the year paid, or the taxpayer can elect to deduct the same amount over a 10-year period pursuant to subsection 20(9) of the Act.

We trust these comments are helpful.

Yours truly,

Randy Hewlett, B.Comm.

for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch