20 October 2004 External T.I. 2004-0087791E5 - Business Expenses

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: To determine if an amount paid for an out of the country seminar is deductible for the purposes of calculating income from the business.

Position: Eligible Capital Expenditure

Reasons: Where the training will result in a lasting benefit to the taxpayer, the training costs are capital expenditures and can be added to the eligible capital expenditure pool if incurred in respect of a business and for the purpose of gaining or producing income.

2004-008779

XXXXXXXXXX Luisa A. Majerus, C.A.

(613) 957-2138
October 20, 2004

Dear XXXXXXXXXX:

Re: Business Expenses

This is in reply to your facsimile dated July 19, 2004 wherein you requested our opinion on whether certain training costs could be written off as a business expense. Specifically, you have indicated that your wife is planning to attend a seminar in Malaysia. The six-day workshop covers the fundamentals of Feng Shui after which your wife plans to open a home-based consulting business.

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.

Whether a seminar is a convention or a training course is a question of fact. The term "convention" is not defined in the Income Tax Act (the "Act"). As discussed in paragraph 9 of Interpretation Bulletin IT-357R2 - Expenses of Training, a convention is considered a formal meeting of members for professional or business purposes unlike a training course that generally has a classroom format for teaching a subject in accordance with a formal course of study. A copy of IT-357R2 can be found on our website at http://www.cra-arc.gc.ca/menu/APAP-e.html.

From the information you provided, it is our view that the expenses are training costs. Where a taxpayer is carrying on a business or practising a profession and incurs training costs, these costs may be considered personal expenses, current expenses, or capital expenditures. Training costs that are personal or unreasonable are not deductible. Where training is taken to maintain, update or upgrade an already existing skill or qualification, the related costs (course fees, travel, food, beverages and lodging) are deductible as a current business expense. However, the deductibility of such expenses is subject to any limitations in the Act on deductibility, such as the 50% rule in section 67.1 for food and beverages. Training costs that result in a lasting benefit to the taxpayer are considered capital in nature.

You have indicated that the workshop is in preparation of opening a consulting business and therefore will provide a lasting benefit. It is our view that these training costs are capital in nature. If the training costs are in respect of a business and are incurred for the purpose of gaining or producing income from the business the costs will qualify as "eligible capital expenditures". An eligible capital expenditure in respect of a business is, in the simplest terms, a capital expenditure that does not come within any of the capital cost allowance classes but rather goes into an eligible capital property pool. A percentage of the balance of the pool at the end of the year may be claimed as a deduction for the year. For further information on eligible capital expenditures please refer to our Interpretation Bulletin IT-143R3 - Meaning of Eligible Capital Expenditure which can also be found on our website.

We trust this information is helpful.

Yours truly,

John Oulton, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch