3 February 2009 External T.I. 2008-0298891E5 - Business deduction - work clothes - meal 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: A) Whether meals consumed by a self-employed individual when usually gone for a full day would be deductible in computing his business income.

B) Whether the cost of specialized / personalized clothing would be deductible as a business expense.

Position: A) Question of fact but generally no;
B) No

Reasons: A) The costs incurred in respect of everyday meals are likely not expenses incurred by the taxpayer for the purpose of gaining or producing income from the business.

B) The cost of specialized clothing such as steel-toed boots or shirts with the company name and/or personal name on them is a personal or living expense.

XXXXXXXXXX 							2008-029889
								Anne Dagenais
February 3, 2009

Dear XXXXXXXXXX :

Re: Business deduction for work clothes and meal expenses

This is in response to your email correspondence dated October 30, 2008. You request our assistance in determining the deductibility of meal expenses and work clothes. More specifically, you have asked whether meals consumed by a self-employed individual while working in different areas of the Atlantic provinces and when usually gone for a full day would be deductible in computing his business income. You have also asked whether the cost of specialized clothing such as steel-toed boots or shirts personalized with the company and individual's names would be deductible as a business expense.

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 a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

In general, paragraph 18(1)(a) of the Income Tax Act (the "Act") provides that no outlay or expense is deductible in computing the income of a taxpayer from a business or property, unless it was made or incurred for the purpose of gaining or producing income. This determination is a question of fact. Although this provision is very broad, the Act goes on to identify various refinements to what is or is not deductible. Specifically relevant to your inquiry is paragraph 18(1)(h) of the Act, which denies the deduction of personal or living expenses when calculating business income.

Meal expenses

Although meals are generally considered to be a personal or living expense, paragraph 18(1)(h) of the Act identifies an exception to this rule with respect to travel expenses incurred by a taxpayer while away from home in the course of carrying on the taxpayer's business. In other words, even though meals or accommodation would normally be considered a personal or living expense, paragraph 18(1)(h) of the Act permits a deduction for such expenses if they are incurred for the purpose of earning income from business and while away from home in the course of carrying on that business.

It should be noted that a travel expense incurred while away from home in the course of carrying on the taxpayer's business is not automatically made or incurred for the purpose of gaining or producing income. In general terms, the costs incurred in respect of everyday meal expenses of a self-employed individual are likely not expenses incurred by the taxpayer for the purpose of gaining or producing income from the business. In order to deduct the expense, a taxpayer would need to show evidence that the meal expenses were incurred by the taxpayer while away from home in the course of carrying on the taxpayer's business and were, in fact, incurred for the specific purpose of gaining or producing income.

If the taxpayer incurs a meal expense that meets the foregoing conditions, its deduction is subject to the general rule in section 67 of the Act that outlays or expenses must be reasonable in the circumstances. It is also important to note that any deduction for meal expenses under paragraph 18(1)(h) of the Act 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".

Clothes expenses

The CRA's long-standing position is that generally the cost of clothing that can be worn for non-business purposes is a personal or living expense, the deduction of which is prohibited by paragraph 18(1)(h) of the Act. In some circumstances, however, a self-employed individual earning business income may be permitted to claim capital cost allowance in respect of certain clothing and costumes, provided they are usable only for business purposes. For example, a costume wardrobe acquired by an artist specifically to earn self-employment income and which is used solely for that purpose would be included in Class 8.

It is our view that since the items to which you refer are generally usable for personal purposes, the self-employed individual is not entitled to any deduction in respect of their cost in computing business income under the Act.

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 and Regulatory Affairs Branch