25 November 2004 External T.I. 2004-0090471E5 - Sharespeople-Food&Beverage Exp. Limitation

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: Food was supplied by a fishing boat owner to self-employed offshore sharespeople on boats. 1. Whether the 50% limitation on the deductibility of the human consumption of food or beverages by the sharespeople is applicable to the boat owner in this situation pursuant to subsection 67.1(1). 2. Whether any of the exceptions in subsection 67.1(2) apply.

Position: 1. Yes. 2. No.

Reasons: Paragraphs 67.1(2)(d) and (e) may apply to employers in respect of food or beverages consumed by employees that resulted in a taxable employment benefit under section 6, or would have been a taxable benefit but for the remote work location exclusion in subparagraph 6(6)(a)(ii) or the special work site exclusion in subparagraph 6(6)(a)(i), respectively. Since the sharespeople are self-employed, the exceptions in paragraphs 67.1(2)(d) and (e) are not applicable to the boat owners.

XXXXXXXXXX 2004-009047
Kathryn McCarthy, CA
November 25, 2004

Dear XXXXXXXXXX,

Re: Sharespeople - Food and Beverage Expense Limitation

We are writing to you in response to discussions you have had with Mr. Calvin Poon (of the Vancouver Island Tax Services Office), on the above noted issue.

You described to Mr. Poon a situation where food was supplied by a fishing boat owner to self-employed offshore sharespeople, on boats. You inquired whether the 50% limitation on the deductibility of the human consumption of food or beverages by the sharespeople is applicable to the boat owner in this situation pursuant to subsection 67.1(1) of the Income Tax Act (the Act), or whether any of the exceptions in subsection 67.1(2) apply.

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 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. We are, however, prepared to provide the following comments.

In general terms, in computing income from a business or property, a taxpayer can deduct reasonable expenses to the extent that they were made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property. Subsection 67.1(1) of the Act, however, provides that an otherwise deductible amount paid or payable in respect of the human consumption of food or beverages is restricted to 50% of the lesser of the amount actually paid or payable and an amount that is reasonable in the circumstances.

There are exceptions to the application of subsection 67.1(1) of the Act in subsection 67.1(2). For example, paragraphs 67.1(2)(d) and (e) which may apply to employers in respect of food or beverages consumed by employees that resulted in a taxable employment benefit under section 6, or would have been a taxable benefit but for the remote work location exclusion in subparagraph 6(6)(a)(ii) or the special work site exclusion in subparagraph 6(6)(a)(i), respectively. Since the sharespeople described above are self-employed, the exceptions in paragraphs 67.1(2)(d) and (e) are not applicable to the boat owners. Furthermore, it is not apparent that any of the other exceptions enumerated in subsection 67.1(2) apply. Therefore, the boat owner's deduction for the cost of food and beverages supplied to the sharespeople is limited to 50% pursuant to subsection 67.1(1).

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

c.c. Calvin Poon

Vancouver Island Tax Services Office