18 December 1990 Ruling 902881 F - Deductibility of Expenditures of Engineering Business

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.

December 18, 1990

19(1)

This is in reply to your letter of October 17, 1990 concerning the deductibility of certain expenditures for income tax purposes. You have indicated that you are in a professional engineering business.

Our comments with respect to the four different types of expenditures you identified is as follows:

Convention Expenses

Paragraph 1 of Interpretation Bulletin IT-131R2, a copy of which has been enclosed, sets out the requirements that must be satisfied before convention expenses can be deducted. As you have indicated, one of the requirements is that the convention be held at a location that may reasonably be regarded as consistent with the territorial scope of the organization. The Department's position on conventions held in foreign countries is set out at the bottom of paragraph 2 of IT-131R2. The bulletin also discusses the costs which are deductible under subsection 20(10) of the Income Tax Act and the restrictions that apply. We also enclose IT-518 which comments on food, beverages, and entertainment expenditures.

Books and Periodicals

The cost of purchasing periodicals that relate to your business is a deductible expense. The cost of purchasing books which relate to your business is generally considered to be a capital expenditure. The cost of the books is included in Class 8 end capital cost allowance can be claimed thereon. Information on this is provided in chapter 6 of the enclosed publication entitled "Business and Professional Income Tax Guide".

Travel Expenses

As indicated on page 12 of the Business and Professional Income Tax Guide under the heading "Travelling expenses", the costs of travelling for business purposes includes public transportation. However, the costs of travelling between your residence and your place of business are personal expenses and are not deductible.

Computer Hardware and Software

The cost of purchasing general-purpose electronic data processing equipment, such as a computer, is normally included in Class 10. The related systems software is also included in Class 10. Refer to Class 10 on page 31 of the Business and Professional Income Tax Guide.

The cost of computer software other than systems software is normally deductible as a current expense when its useful life is not expected to last beyond one year. Where its useful life is expected to last beyond one year, it is included in Class 12 and capital cost allowance can be claimed (see Class 12 on page 31 of the Business and Professional Income Tax Guide). For your further information concerning the difference between systems software and other software refer to paragraphs 10 and 11 of Interpretation Bulletin IT-283R2 which we also enclose.

We trust our comments will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch