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: Are the cost of the meals charged to a self-employed fisherman while working on a fishing vessel for an extended period of time deductible in computing fishing income for the particular year?
Position: Question of fact but generally yes.
Reasons: The law.
XXXXXXXXXX 2008-026902
Michael Cooke
July 9, 2008
Dear XXXXXXXXXX :
Re: Computation of Income - Meals Consumed on a Trawler
We are writing in response to your letter that we received on February 22, 2008.
In your letter you indicate that you earn a living as a XXXXXXXXXX fisherman on a factory freezer trawler owned and operated by XXXXXXXXXX . (the "Company") in XXXXXXXXXX and that you are entitled to a share of net profit on a "share-of-the-catch" basis (i.e. revenues and expenses of each fishing trip are equally shared by the crew members). In the example you provided, the particular fishing trip lasted XXXXXXXXXX days and the net profit that was allocated to you after the deduction of meal expenses of $XXXXXXXXXX was $XXXXXXXXXX .
You ask whether you can deduct the cost of these meals in computing your fishing income for the particular year.
Our Comments
The specific provisions of the Income Tax Act (the "Act") that will apply will depend on whether you are considered to be an employee of the Company or self-employed. Our comments are premised on the assumption that you are self-employed.
Paragraph 18(1)(h) of the Act permits a deduction from the business income of a self-employed individual for travel expenses incurred in the course of carrying on business while away from home, including the cost of meals. However, it is important to note that any deduction for meal expenses under paragraph 18(1)(h) would be subject to the 50% general limitation for meal and entertainment expenses in subsection 67.1(1) of the Act. This limitation is discussed in more detail in Interpretation Bulletin IT-518R, "Food Beverages and Entertainment Expenses," which is available on the Canada Revenue Agency website at the following link: http://www.cra-arc.gc.ca/E/pub/tp/it518r/README.html. From the information you have provided in the above-noted example, we have assumed that only the net amount of $XXXXXXXXXX allocated to you by the Company was reported on your tax return. If so, this means that effectively, the full amount of meal expenses have been deducted from your earnings. A correct application of the rule described above means that your income should be increased by $XXXXXXXXXX (i.e. 50% of $XXXXXXXXXX ) for income tax purposes to reflect the fact that subsection 67.1(1) of the Act limits your deduction to 50% of the cost of the meals. If, however, you included in your income your share of the catch gross of the meal expenses (i.e. $XXXXXXXXXX ) then it would be acceptable to deduct 50% of the $XXXXXXXXXX meal expense from your business income.
We trust that these comments will be of assistance.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
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