30 June 1993 Internal T.I. 9304347 F - Cost of Meals and Highway Transport Drivers

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.

Saint John District Office Business and General Division Mr. J.L. Snow  Audit Division

Limitation - Deductibility of Meal Costs

This is in reply to your memorandum of February 5, 1993 in which you requested our views on a situation concerning the 80% limitation in subsection 67.1(1) of the Income Tax Act (the Act) and the exception thereto in paragraph 67.1(2)(e) of the Act. We apologize for the delay in responding.

XXXXXXXXXX

Pursuant to our telephone conversation on March 24, 1993 (Eisner/Snow), it is our understanding that XXXXXXXXXX claimed expenses relating to the reimbursement of meals consumed by its drivers in the course of hauling freight. However, in accordance with subsection 67.1(1) of the Act, the meal expenses have been restricted to 80% of XXXXXXXXXX total claim by your office. As a consequence of the disallowance, XXXXXXXXXX submitted a letter (a copy of the letter was enclosed with your submission) in which XXXXXXXXXX requested the Department's views on the application of paragraph 67.1(2)(e) in circumstances where each and every one of XXXXXXXXXX highway transport drivers would be employed at a particular location. In such circumstances, XXXXXXXXXX believes that it would be excluded from the 80% limitation by virtue of paragraph 67.1(2)(e) of the Act.

Our Comments:

Before addressing the situation you have been asked by XXXXXXXXXX to consider, we wish to note that when section 67.1 was initially enacted, the relevant part of paragraph 67.1(2)(e) read as follows:

"Subsection (1) does not apply to an amount paid or payable by a person in respect of the consumption of food or beverages or the enjoyment of entertainment where the amount

(e)     is incurred by the person for food, beverages or entertainment generally available to all employees of the person at a particular location."

However, for taxation years ended after July 13, 1990, paragraph 67.1(2)(e) was amended so that the wording after the word "available" was revised to be "to all individuals employed by the person at a particular place of business of the person and consumed or enjoyed by such individuals".

On the basis of the information provided by XXXXXXXXXX, it appears that XXXXXXXXXX may have considered the wording of paragraph 67.1(2)(e) prior to the above-noted amendment. As a consequence, we have proceeded to provide comments on this paragraph as initially enacted as well as on paragraph 67.1(2)(e) as it currently reads.

In relation to the wording of paragraph 67.1(2)(e) prior to the amendment, it appears that XXXXXXXXXX considers that "a particular location" can refer to a location where a meal is consumed (e.g., a restaurant). The alternative is that it refers to a business location of the employer. With respect to this issue, it is our view that the phrase "generally available to all employees at a particular location" suggests that the food, beverages or entertainment is to be widely available and, accordingly, indicates that the term "a particular location" should be construed as referring to a business location. In addition, the general rule in subsection 67.1(1), which sets out a limit on the amount that can be deducted "in respect of the human consumption of food, beverages or entertainment", would become ineffective to a considerable extent if the term "a particular location" were to include a location such as a restaurant. It is, therefore, our view that the term, "a particular location" should be regarded as referring to a business location of an employer. It would follow that subsection 67.1(1) would be applicable to the costs in question as they would not be excepted by the application of paragraph 67.1(2)(e).

We also wish to note that the above comments are consistent with the following two excerpts from the explanatory notes released by the Department of Finance (June, 1988) with respect to the proposed legislation concerning section 67.1:

(a)     "New section 67.1 of the Act provides a general limitation on the amount that may be deducted in respect of the human consumption of food or beverages or the enjoyment of entertainment expenses to 80% of the expense";

(b)     "Subsection 67.1(2) of the Act provides several exceptions to the 80% restriction. The restriction will not apply in the following circumstances:

-     Where the amount is incurred to provide food, beverages or entertainment to all employees at a particular location. This provision will exempt costs incurred for a Christmas party or similar event to which all employees at a particular location have access."

In the case of paragraph 67.1(2)(e) as it applies to taxation years after July 13, 1990, it is our view that the amended paragraph clarifies that the food, beverages or entertainment must be generally available to all employees at a particular business location of the employer. As a consequence, it is now clear that the location where a meal is consumed by a highway transport driver in the course of hauling freight is excluded. Accordingly, it is our view that the costs in question would not be described in paragraph 67.1(2)(e) and that subsection 67.1(1) would be applicable.

We also note that the above comments are consistent with the following explanatory note released by the by the Department of Finance (May, 1991) in connection with the amendment:

This paragraph is amended to clarify that, for this exemption to apply, the food, beverages or entertainment must be generally available to all employees at a particular location of the employer and consumed or enjoyed by such employees.

If further technical assistance is required, we would be pleased to provide our views.

P.D. Fuoco Section Chief Personal and General SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch