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 the exceptions in paragraphs 67.1(2)(a) and (d) would be met?
Position: General comments but it appears that the exception in paragraph 67.1(2)(a) would not apply; however, the exception in paragraph 67.1(2)(d) might apply.
Reasons: The law.
XXXXXXXXXX
2014-051905
S. D'Angelo
March 4, 2014
Dear XXXXXXXXXX:
Re: Meals & Entertainment Expense
This is in reply to your letter of January 21, 2014, wherein you requested our views on the exceptions from the 50% deduction limitation for food, beverage and entertainment expenses set out in section 67.1 of the Income Tax Act (the "Act") as it relates to the following situation.
XXXXXXXXXX ("the Company") is a XXXXXXXXXX company that carries on business in Canada.
The Company is required to provide meals (i.e., hot meals, beverages, snacks, fruit etc.) to employees and XXXXXXXXXX during XXXXXXXXXX.
The Company hires chefs/cooks to prepare meals using rented or temporary kitchen facilities.
Where meals are not provided, such as where an employee is required to XXXXXXXXXX, or where an employee is required to travel during working hours and for the benefit of the employer, the Company may provide a meal allowance to such an employee.
You indicate that the Company includes the value of meals provided to employees during XXXXXXXXXX or the amount of any meal allowance provided as a taxable benefit.
It is your view, that the Company meets the exception under paragraph 67.1(2)(a) of the Act since the Company is required to provide meals to its employees in the ordinary course of its business. It is also your view, that the Company meets the exception under paragraph 67.1(2)(d) of the Act where the Company includes the amount of meals or the meal allowance in an employee's income.
Our Comments
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
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. However, subsection 67.1(1) of the Act 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. As you indicated, there are specific exceptions to the 50% deduction limitation in subsection 67.1(2) of the Act and you have specifically asked whether the Company meets the exception under paragraph 67.1(2)(a) or (d) of the Act. For the purposes of this response, we will limit our discussion, for the most part, to these two exceptions.
Paragraph 67.1(2)(a) of the Act provides that subsection 67.1(1) will not apply to an amount paid or payable for food, beverages or entertainment when it is provided "
for, or in expectation of, compensation in the ordinary course of a business carried on by that person of providing the food, beverages or entertainment for compensation". The CRA's comments on this provision can be found in paragraph 5 of Interpretation Bulletin, IT-518R, "Food, Beverages and Entertainment Expenses". For example, this exempts (from the 50% deduction limitation), food, beverage and entertainment expenses incurred by a restaurant where the expense is provided to paying customers (i.e., amounts that form part of the taxpayer's product or service).
While it remains a question of fact as to whether amounts expended by a taxpayer for food, beverages, and entertainment actually form part of the taxpayer's product or service provided to paying customers, or would otherwise meet the exception in paragraph 67.1(2)(c) of the Act, based on the information you have provided, it is our view that the Company is not in the business of providing food or beverages to paying customers.
Notwithstanding the above, paragraph 67.1(2)(d) provides that an employer is not subject to the 50% limitation on allowances or reimbursements for meals or entertainment expenses that are included in an employee's income under section 6, or would be so included but for subparagraph 6(6)(a)(ii). Our general views on paragraph 67.1(2)(d) are set out in paragraph 8 of IT-518R.
Again, while a question of fact, provided that the value of Company provided meals, or meal allowances, are included in an employee's income under section 6(1)(a), or would be so included but for subparagraph 6(6)(a)(ii), the exception in paragraph 67.1(2)(d) would be met. However, the 50% deduction limitation would apply if such amounts are paid by the Company to non-employees (self-employed individuals) unless one of the other exceptions in subsection 67.1(2) of the Act applies.
We trust our comments will be of assistance.
Yours truly
Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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