25 October 2004 External T.I. 2004-0088721E5 - Gifts of Beverages

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 a gift of beverages (e.g. a bottle of wine or other alcohol) to customers and suppliers of a corporation is subject to the 50% deduction limitation in subsection 67.1(1) of the Income Tax 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 fact that a taxpayer has not personally consumed the beverage. 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.

2004-008872

XXXXXXXXXX Luisa A. Majerus, C.A.

(613) 957-2138
October 25, 2004

Dear XXXXXXXXXX:

Re: Section 67.1 of the Income Tax Act (the "Act") - Gifts of Beverages

We are writing in response to your letter dated July 30, 2004, regarding a technical interpretation request on the above-noted provision of the Act. You have requested our views on whether a taxpayer's gift to a customer or supplier of beverages is subject to the 50% rule in subsection 67.1(1) of the Act. The taxpayer does not personally consume the beverages.

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. 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 of beverages for a customer or supplier. In addition, it is our position that subsection 67.1(1) of the Act applies to an amount regardless of the fact that a taxpayer has not personally consumed the beverages. 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). For further information on the deductibility of food, beverages and entertainment expenses please refer to our Interpretation Bulletin - IT-518R - Food, Beverages and Entertainment Expenses which can be found on our website at http://www.cra-arc.gc.ca/menu/APAP-e.html.

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