29 January 2010 External T.I. 2009-0319301E5 - Various expenses - self-employed taxi driver

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 taxi driver when gone for a full day would be deductible in computing his business income.

B) Whether travel expense of driving to work would be deductible. C) Whether miscellaneous items would be deductible.

Position: A) and B) Question of fact but generally no. C) Question of fact but generally yes;

Reasons: A), B) Question of fact but generally not deductible. The cost incurred in respect of everyday meals or travel expenses such as driving to work are likely not expenses incurred by the taxpayer for the purpose of gaining or producing income from the business because it is a of personal or living expenses. C) Question of fact but generally deductible if the costs were incurred by the taxpayer for the purpose of gaining or producing income from the business.

XXXXXXXXXX 					2009-031930

January 29, 2010

Dear XXXXXXXXXX

Re: Various expenses incurred by a self-employed taxi driver

This is in response to your fax dated April 24, 2009, in which you request our comments regarding the deductibility of various expenses.

You describe a situation in which a self-employed taxi driver drives his personal car from home to a taxi garage. From there, he uses a vehicle belonging to an arm's length taxi company to drive his customers. At the end of his shift, he receives a sheet telling him how much money (based on fares dictated to him by the company) he has to give the taxi company out of his receipts for the day. The balance, along with any tips, comprises his earnings for the day. You have asked whether meals consumed by the taxi driver when gone for a full day would be deductible in computing his business income. You have also asked whether the travel expense of driving to work would be deductible. Finally, you have asked whether the cost of miscellaneous items would be deductible.

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.

Please note that there are specific regulations for purposes of the Canada Pension Plan ("CPP") and Employment Insurance Act ("EIA") which deem a self-employed taxi driver to be an employee for purposes of pensionability and insurability. However, these regulations do not affect the income tax treatment under the Income Tax Act (the "Act").

Our comments are premised on the assumption that the taxi driver is self-employed.

In general, paragraph 18(1)(a) of 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. 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 specific purpose of earning income from business and while away from home in the course of carrying on that business.

It should be noted that an everyday meal expense incurred while away from home is not automatically made or incurred for the purpose of gaining or producing business income. 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 self-employed taxi driver 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 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".

Travel expenses

The CRA's long-standing position is that generally travel between an individual's home and place of business is personal. As noted above, paragraph 18(1)(h) of the Act precludes a deduction for personal and living expenses. For this reason, with respect to the situation described in your fax, expenses incurred by a self-employed taxi driver for the purpose of traveling between home and the taxi company garage would not be deductible.

Miscellaneous expenses

Reasonable business expenses incurred by the self-employed taxi driver in the course of carrying on his business would be deductible, provided they are not incurred on capital account.

We trust that our comments are of assistance to you.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch