1 November 1993 Income Tax Severed Letter 9318545 - Use of Recreational Facilities—Camp—Lodge

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                           931854
XXXXXXXXXX                                 J.D. Brooks
                                           (613) 957-2103

Attention: XXXXXXXXXX

November 1, 1993

Dear Sirs:

Re: Subparagraph 18(1)(l)(i) of the Income Tax Act (the "Act")

This is in reply to your letter of June 21, 1993 in which you requested our view as to whether a corporation may deduct a rental fee for the use of a cottage for business purposes, or whether subparagraph 18(1)(l)(i) of the Act would deny this deduction.

The type of building with which you are concerned is a cottage which is designed to be used by a single family, and indeed is primarily so used. You pointed out that paragraph 3 of Interpretation Bulletin IT-148R2 states that the words "camp" and "lodge" as used in subparagraph 18(1)(l)(i) of the Act are not meant to include a small cottage which is designed primarily for the restricted use of a single family.

Our Comments

The fact situation which you set out is quite specific and it appears that it may relate to a completed transaction. Assurance as to the tax consequences of completed transactions can only be given by officials of a District Taxation Office. Where proposed transactions are involved, the Department does not provide binding opinions other than by way of advance income tax rulings. Although we are unable to provide any opinion in respect of the specific case you have described, we have set out below some comments of a general nature.

The comment, to which you referred, in paragraph 3 of IT-148R2 was made in the context of describing certain business expenses which would not be considered to be caught by subparagraph 18(1)(l)(i). Paragraph 3 of the bulletin states that expenses that pertain to the carrying on of a business, such as where a portion of a cottage is set aside for use as an office, will not be denied solely because the expenses pertain to a cottage. A similar comment was stated in response to question 15 at the Revenue Canada Round Table session of the 1984 Canadian Tax Foundation. There, it was stated that where a resort property is used for genuine business purposes, which purposes do not include the entertainment or recreation of clients, suppliers, shareholders, or employees, the Department will not consider that the related expenses are caught by subparagraph 18(1)(l)(i) of the Act.

The common criteria in the above-noted two references is whether the expenses relate to entertainment and recreation, or whether they pertain to other types of business expense of a more general nature. Whether the expenses are incurred by an individual or a corporation is not at issue.

The purpose of paragraph 18(1)(l) is to deny certain expenses which arguably could be considered to be business expenses or outlays and therefore not caught by the general limitation of paragraph 18(1)(a). Where a taxpayer uses a cottage for the purpose of entertaining people who may be clients or employees, for instance, the outlays or expenses which pertain to the use or maintenance of such property are intended to be denied by virtue of subparagraph 18(1)(l)(i).

The Ontario Store Fixtures Inc. case to which you referred was heard by the Tax Court of Canada and there were no written reasons for the decision rendered. The case is not regarded as precedent.

Although there are no immediate plans to revise IT-148R2 , it has been brought to the Department's attention that the wording of paragraph 3 of the bulletin could be clarified to reflect the above comments.

We trust that our comments are of assistance.

Yours truly,

R. Albert for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch